EXHIBIT 2
BREAKAWAY SOLUTIONS, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
EXHIBITS AND SCHEDULES
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Exhibit A - Certificate of Designation
Exhibit B - Form of Warrant
Exhibit C - Schedule of Purchasers
Exhibit D - Investor Rights Agreement
Exhibit E - Investor Voting Agreement
Exhibit F - Executive and Director Voting Agreement
Exhibit G - Key Holder Voting Agreement
Exhibit H - Material Contracts
Exhibit I - Schedule of Leases
Exhibit J - Form of Non-Solicitation and Proprietary Information and Inventions
Agreements
Exhibit K - Form of Non-Competition Agreement
Exhibit L - Form of Key Employee Certificate
Exhibit M - Form of Lock-Up Agreement
Exhibit N - Form of Compliance Certificate
Exhibit O - Form of Opinion of Counsel
Exhibit P - Form of Letter Agreement
Schedule 5.23 - Absence of Change
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
entered into as of February 16, 2001, among BREAKAWAY SOLUTIONS, INC., a
Delaware corporation (the "Company"), SCP PRIVATE EQUITY PARTNERS II, L.P., a
Delaware limited partnership ("SCP"), and ICG HOLDINGS, INC., a Delaware
corporation ("ICG"). (SCP and ICG are sometimes individually referred to as a
"Purchaser" and collectively as the "Purchasers.").
RECITALS
WHEREAS, the Company proposes to issue and sell to the Purchasers, and the
Purchasers propose to purchase from the Company an aggregate of 357,143 shares
(the "Initial Preferred Stock") of the Company's Series A Preferred Stock,
$0.0001 par value ("Series A Preferred Stock"), initially convertible into
35,714,300 shares of its Common Stock, $0.000125 par value ("Common Stock"), at
an aggregate purchase price of $25,000,080 ($70.00 per share of Series A
Preferred Stock);
WHEREAS, SCP proposes to commit to purchase an additional 71,429 shares of
Series A Preferred Stock (the "Option Preferred Stock") at the aggregate
purchase price of $5,000,030 ($70.00 per share of Series A Preferred Stock) on
the terms and conditions hereinafter set forth; and
WHEREAS, the Company proposes to issue and sell to the Purchasers warrants
(the "Warrants") to purchase up to 42,857,149 shares of Common Stock at an
exercise price of $0.70 per share;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. Authorization and Sale of Securities.
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1.1 Authorization. On or prior to the Closing (as defined in Section 2
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below), the Company shall have authorized (a) the sale and issuance to the
Purchasers of the Initial Preferred Stock; (b) the sale and issuance of the
Option Preferred Stock, (c) the sale and issuance of the Warrants; (d) the
issuance of up to 171,428 shares of Series A Preferred Stock as cumulative
dividends to the Purchasers (the "Dividend Stock"); (e) the issuance of the
shares of Common Stock issuable upon exercise of the Warrants (the "Warrant
Stock"); and (f) the issuance of the shares of Common Stock issuable upon
conversion of the Initial Preferred Stock, the Option Preferred Stock, and the
Dividend Stock (collectively, the "Conversion Stock"). The Series A Preferred
Stock shall have the rights, preferences, privileges and restrictions set forth
in the Certificate of Designation (the "Certificate") in the form attached to
this Agreement as Exhibit A. The Warrants shall be substantially in the form
attached hereto as Exhibit B.
1.2 Sale and Issuance of Securities. Subject to the terms and conditions
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hereof, the Company will issue and sell to each Purchaser severally, and each
Purchaser will purchase from the Company severally, the number of shares of
Initial Preferred Stock and the number of Warrants set forth opposite such
Purchaser's name on the Schedule of Purchasers attached hereto as
Exhibit C at the respective purchase price specified on the Schedule of
Purchasers. Such purchase price shall be paid to the Company by the Purchasers
in the following manner:
(a) At the Closing the outstanding principal amount, plus accrued
interest, under the Loan and Security Agreement, dated as of February 16, 2001,
between the Company and SCP (the "SCP Loan and Security Agreement"), and the
Loan and Security Agreement, dated as of January 19, 2001, as amended as of
February 16, 2001, between the Company and ICG (the "ICG Loan and Security
Agreement") shall be deemed paid by the Company and applied to the purchase
price. (The SCP Loan and Security Agreement and the ICG Loan and Security
Agreement are sometimes collectively referred to as "the Loan and Security
Agreements" and individually as a "Loan and Security Agreement.")
(b) The balance of the purchase price shall be paid in installments,
upon submission to the Purchasers, on or before the expiration of four months
after the Closing Date, of a written request therefore from the Company (each, a
"Request") which certifies the Company's then current compliance with the Budget
and Financial Management Plan previously prepared by the Company and approved by
the Purchasers (the "Plan") and the Company's need for an installment of the
purchase price in the amount projected for payment at such time under the Plan.
Each Request must be received by the Purchasers not less than two business days
prior to the desired date of payment and must be accompanied by financial
information from the Company confirming to the reasonable satisfaction of the
Purchasers the accuracy of the certifications contained in the Request. All
payments of purchase price pursuant to a Request shall be made to the Company,
by wire transfer to its primary operating account, as provided by the Company to
the Purchasers. Each installment of purchase price paid by the Purchasers shall
be comprised of payments made by the Purchasers in proportion to their
respective shares of the aggregate purchase price for the Initial Preferred
Stock (i.e., 60% by SCP and 40% by ICG, sometimes hereinafter referred to as the
"Ratio"); provided that in the event that the outstanding amounts (principal
plus accrued interest) owing with respect to the Loan and Security Agreements on
the Closing Date are not in proportion to the Ratio, payments of each
installment shall first be made by the Purchaser whose share of outstanding
principal and interest on the Closing Date was less than its share of the Ratio
until such time as the Ratio shall be restored.
2. Closing Dates: Delivery; Option Preferred Stock
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2.1 Closing Date. The closing of the purchase and sale of the Initial
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Preferred Stock and the Warrants hereunder (the "Closing") shall be held at the
offices of Xxxx Xxxxx LLP, Centre Square West, 0000 Xxxxxx Xxxxxx, 00/xx/ Xxxxx,
Xxxxxxxxxxxx, XX 00000-0000, at 10:00 a.m. on a date as soon as practical, but
in no event later than the Maturity Date, as that term is defined in the Loan
and Security Agreements, as they may be amended from time to time, or at such
other time or place as the Company and the Purchasers may mutually agree (the
"Closing Date").
2.2 Delivery. At the Closing, the Company will deliver to each Purchaser
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a certificate or certificates, registered in such Purchaser's name, representing
the total number of shares of Initial Preferred Stock and the Warrants purchased
by such Purchaser, as set forth opposite such Purchasers name in Exhibit C,
against the initial installment of the purchase price therefor, in accordance
with the provisions of Section 1.2 hereof.
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2.3 Option Preferred Stock; Second Closing Date. On the basis of the
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representations, warranties and agreements herein contained, and upon the terms
but subject to the conditions herein set forth, SCP commits to purchase the
Option Preferred Stock for an aggregate purchase price of $5,000,030. The
Company may exercise its right to sell the Option Preferred Stock upon notice by
the Company to SCP, which notice may be given during a period commencing 180
days after the Closing Date and ending 365 days after the Closing Date. The
closing of the purchase and sale of the Option Preferred Stock (the "Second
Closing") shall take place at 10:00 a.m. on the tenth business day following
receipt of notice by SCP at the offices of Xxxx Xxxxx LLP, Centre Square West,
0000 Xxxxxx Xxxxxx, 00/xx/ Xxxxx, Xxxxxxxxxxxx, XX 00000-0000, or at such other
time or place as the Company and SCP may mutually agree (the "Second Closing
Date"). At the Second Closing, the Company will deliver to SCP a certificate or
certificates, registered in SCP's name, representing the shares of Option
Preferred Stock, against payment of the purchase price therefor, by check
payable to the Company or wire transfer in accordance with the Company's
instructions. The obligation of SCP to purchase the Option Preferred Stock is
subject to satisfaction of the conditions specified in Section 5.
3. Representations and Warranties of the Company
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Except as set forth on a Schedule of Exceptions delivered by the Company to
the Purchasers simultaneously with the execution and delivery of this Agreement,
the Company hereby represents and warrants to the Purchasers as of the date of
this Agreement as follows:
3.1 Organization, Good Standing and Qualification, Certificate and By-
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Laws. The Company is a corporation duly organized and validly existing under,
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and by virtue of, the laws of the State of Delaware and is in corporate good
standing under such laws. The Company is duly qualified and is authorized to do
business and is in good standing as a foreign corporation in all jurisdictions
in which the nature of its activities and of its properties (both owned and
leased) makes such qualification necessary, except for those jurisdictions in
which failure to do so would not have a material adverse effect on the Company
or its business. The Company has furnished the Purchasers or its special
counsel with copies of its Third Amended and Restated Certificate of
Incorporation and Amended and Restated By-Laws, as amended and as in effect on
the date hereof. Said copies are true, correct and complete and contain all
amendments through the date hereof.
3.2 Reporting Status. The Common Stock is registered under Section 12(g)
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of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company has filed in a timely manner all documents that the Company was required
to file under the Exchange Act during the 12 months preceding the date of this
Agreement. The following documents ("SEC Reports") complied in all material
respects with the requirements of the Exchange Act as of their respective filing
dates, and the information contained therein as of the date thereof did not
contain 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 were made, not misleading:
3.2.1 The Company's Annual Report on Form 10-K for the
year ended December 31, 1999, filed with the Securities and Exchange Commission
(the "SEC") on March 30, 2000 (the "Annual Report on Form 10-K");
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3.2.2 The Company's Definitive Proxy Statement filed
with the SEC on April 20, 2000, in connection with the 2000 Annual Meeting of
Stockholders; and
3.2.3 All other documents, if any, filed by the Company
with the SEC since March 31, 2000 pursuant to the reporting requirements of the
Exchange Act.
3.3 Financial Statements. The audited and unaudited financial statements
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included in the SEC Reports (the "Financial Statements") are complete and
correct in all material respects and have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated, except as may otherwise be permitted under the
rules and regulations promulgated under the Exchange Act. The Financial
Statements accurately set out and describe the financial condition and operating
results of the Company as of the dates, and for the periods, indicated therein.
The Company maintains and shall continue to maintain its current system of
accounting established and administered in accordance with generally accepted
accounting principles.
3.4 Absence of Changes. Except as disclosed in the SEC Reports, since
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December 31, 1999: (a) the Company has not entered into any transaction which
was not in the ordinary course of business; (b) there has been no damage to,
destruction of or loss of physical property (whether or not covered by
insurance) materially and adversely affecting the business or operations of the
Company; (c) the Company has not declared or paid any dividend or made any
distribution on its stock, or redeemed, purchased or otherwise acquired any of
its stock; (d) there has not been any material change in any compensation
arrangement or agreement with any employee, officer, director or stockholder;
(e) there has been no resignation or termination of employment of any key
officer, consultant or employee of the Company, and the Company does not know of
the impending resignation or termination of employment of any such officer,
consultant or employee that if consummated would have a materially adverse
effect on its business; (f) there has been no labor organization activity or
labor dispute involving the Company or its employees and no labor dispute is
pending or, to the best of the Company's knowledge, threatened; (g) there has
not been any change, except in the ordinary course of business, in the
contingent obligations of the Company, by way of guaranty, endorsement,
indemnity, warranty or otherwise; (h) there have not been any loans made by the
Company to any of its employees, officers or directors other than travel
advances and office advances made in the ordinary course of business; (i) there
has not been any waiver by the Company of a valuable right or of a material debt
owed to it; and (j) there has not been any debt, obligation or liability
incurred, assumed or guaranteed by the Company, except those for immaterial
amounts and for current liabilities incurred in the ordinary course of business;
(k) there has not been any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the assets, properties, financial
condition, operating results or business of the Company (as such business is
presently conducted and as it is proposed to be conducted); (l) the Company has
not received notice that there has been a loss of, or material order
cancellation by, any major customer or supplier of the Company; (m) there has
been no mortgage, pledge, transfer of a security interest in, or lien, created
by the Company, (n) there has been no sale, assignment or transfer of any
patents, trademarks, copyrights, trade secrets or other intangible assets; (o)
there has been no change in any material agreement to which the Company is a
party or by which it is bound which materially and adversely affects the
business, assets, liabilities, financial condition, operations or prospects of
the Company; (p) with respect to any of its material properties or assets,
except liens
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for taxes not yet due or payable; there has been no other event or condition of
any character pertaining to and materially and adversely affecting the assets or
business of the Company; and (q) the Company has not entered into any
arrangement or commitment to do any of the acts described in subsection (a)
through (p) above.
3.5 Corporate Power. The Company has all requisite corporate power and
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authority to own and operate its properties and assets, to execute and deliver
this Agreement, the Investor Rights Agreement in the form attached hereto as
Exhibit D (the "Investor Rights Agreement"), the Investor Voting Agreement
attached hereto as Exhibit E (the "Investor Voting Agreement"), and to issue and
sell the Initial Preferred Stock, the Option Preferred Stock, the Warrants, the
Warrant Stock, and the Conversion Stock, to issue the Dividend Stock, to carry
out the provisions of this Agreement, the Investor Rights Agreement, the
Investor Voting Agreement and the Certificate and to carry on its business as
presently conducted and as presently proposed to be conducted.
3.6 Subsidiaries. The Company has no subsidiaries or affiliated companies
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and does not otherwise own or control, directly or indirectly, any equity
interest in any corporation, association or business entity and the Company is
not a subsidiary of any corporation or entity. The Company is not a participant
in any joint venture, partnership or similar venture.
3.7 Capitalization; Voting Rights.
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3.7.1 The authorized capital stock of the Company
consists of 80,000,000 shares of Common Stock, 50,856,132 shares of which are
issued and outstanding as of February 14, 2001, and 5,000,000 shares of
Preferred Stock, $0.0001 par value ("Preferred Stock"), none of which are issued
and outstanding.
3.7.2 As of the Closing Date, the authorized capital
stock of the Company will consist of 245,000,000 shares of Common Stock and
5,000,000 shares of Preferred Stock, of which 600,000 shares shall be designated
"Series A Preferred Stock", and none of which shall be issued and outstanding.
3.7.3 All issued and outstanding shares of the Common
Stock (a) have been duly authorized and validly issued, (b) are fully paid and
nonassessable, and (c) were issued in compliance with all applicable federal and
state laws concerning the issuance of securities. Upon the filing of the
Certificate with the Secretary of State of the State of Delaware the rights,
preferences, privileges and restrictions of the Series A Preferred Stock will be
as stated in the Certificate. Upon the Closing, each share of Series A Preferred
Stock will be convertible into one (1) share of Common Stock. The Conversion
Stock, the Warrant Stock and the Dividend Stock have been duly and validly
reserved for issuance. Other than as described on the Schedule of Exceptions,
there are no outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal), proxy or stockholder agreements,
or agreements of any kind for the purchase or acquisition from the Company of
any of its securities. When issued in compliance with this Agreement and the
Certificate, the Initial Preferred Stock, the Option Preferred Stock, the
Dividend Stock, the Warrant Stock and the Conversion Stock shall be validly
issued, fully paid and nonassessable and issued in compliance with applicable
federal and state securities laws, shall be free of any liens or encumbrances,
other than any liens or encumbrances created by or imposed upon the holders
thereof through no action of the Company; provided, however, that
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the Initial Preferred Stock, the Option Preferred Stock, the Dividend Stock, the
Warrant Stock and the Conversion Stock will be subject to restrictions on
transfer under state and/or federal securities laws as set forth herein.
3.8 Authorization. Except for the vote of the stockholders of the Company
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(which shall have been obtained and remain in full force as of the Closing
Date), all corporate action on the part of the Company, its officers, directors
and stockholders necessary for the authorization, execution and delivery of this
Agreement and the Investor' Rights Agreement, the performance of all obligations
of the Company hereunder and thereunder, the Certificate and the concurrent
amendment of the Company's Certificate of Incorporation to include the
provisions of the Certificate, the authorization, sale, issuance and delivery of
the Warrants, the authorization, sale, issuance and delivery of the Initial
Preferred Stock, the Option Preferred Stock, the Warrant Stock and the
Conversion Stock, and the authorization, issuance and delivery of the Dividend
Stock, has been taken or shall be taken prior to the Closing. This Agreement,
the Investor Rights Agreement and the Investor Voting Agreement, when executed
and delivered, shall be valid and binding obligations of the Company enforceable
in accordance with their terms. The sale of the Initial Preferred Stock and the
Option Preferred Stock, the issuance of the Dividend Stock, the issuance of the
Warrant Stock, and any subsequent conversion of the Initial Preferred Stock, the
Option Preferred Stock and the Dividend Stock into Conversion Stock are not
subject to any preemptive rights or rights of first refusal.
3.9 Material Liabilities. The Company has no material liabilities or
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obligations, absolute or contingent (individually or in the aggregate), except
(a) the liabilities and obligations set forth in the Financial Statements and/or
in the financial information provided to the Purchasers as part of Schedule 5.23
of the Schedule of Exceptions, which taken together provide a complete and
accurate statement of the Company's financial condition at the date of this
Agreement, (b) liabilities and obligations under leases for its principal
offices and for equipment, and (c) liabilities and obligations under sales,
procurement and other contracts and arrangements entered into in the normal
course of business.
3.10 Agreements; Actions.
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3.10.1 Except for agreements explicitly contemplated
hereby, there are no agreements, understandings or proposed transactions between
the Company and any of its executive officers, directors, affiliates or any
affiliate thereof.
3.10.2 Attached hereto as Exhibit H is a list of all
agreements, contracts, indebtedness, liabilities and other obligations to which
the Company is a party or by which it is bound that are material to the conduct
and operations of its business and properties. Copies of such agreements and
contracts and documentation evidencing such liabilities and other obligations
have been made available for inspection by the Purchasers and their counsel. All
of such agreements and contracts are valid, binding and in full force and effect
in all material respects, assuming due execution by the other parties to such
agreements and contracts.
3.10.3 There are no agreements, understandings,
instruments, contracts, proposed transactions, judgments, orders, writs or
decrees to which the Company is a party or to its knowledge by which it is bound
which may involve (i) obligations (contingent or other-
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wise) of, or payments to, the Company in excess of $50,000, or (ii) the transfer
or license of any patent, copyright, trade secret or other proprietary right to
or from the Company (other than licenses arising from the purchase of "off the
shelf" or other standard products), or (iii) provisions restricting the
development, manufacture or distribution of the Company's products or services,
or (iv) indemnification by the Company with respect to any infringement of
proprietary rights (other than indemnification obligations arising from
purchase, sale or license agreements entered into in the ordinary course of
business).
3.10.4 The Company has not (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities individually in excess of $50,000 or, in the
case of indebtedness and/or liabilities individually less than $25,000, in
excess of $50,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than the
sale of its inventory in the ordinary course of business.
3.10.5 For the purposes of subsections 3.10.3 and 3.10.4
above, all indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual minimum
dollar amounts of such subsections.
3.11 Obligations to Related Parties.
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3.11.1 There are no obligations of the Company to
officers, directors, beneficial holders of more than 1% of the Common Stock of
the Company (collectively, the "Stockholders", each individually a
"Stockholder"), or employees of the Company other than (i) for payment of salary
for services rendered, (ii) reimbursement for reasonable expenses incurred on
behalf of the Company and (iii) for other standard employee benefits made
generally available to all employees. The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
3.11.2 No executive officer or director of the Company or
Stockholder, or any member of their immediate family is indebted to the Company,
nor is the Company indebted (or committed to make loans or extend or guarantee
credit) to any such person. To the Company's knowledge, no such person has any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship, or
any firm or corporation that competes with the Company, except that executives,
officers and directors of the Company and Stockholders, and members of their
immediate families, may own up to 1% of the outstanding stock of any publicly
traded company that may compete with the Company. No executive, officer, or
director of the Company or Stockholder, or, to the Company's knowledge, any
member of their immediate families is directly or indirectly interested in any
material contract with the Company (other than such contracts as relate to any
such person's ownership of capital stock or other securities of the Company).
3.12 Title to Property and Assets; Liens, etc. The Company has good and
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marketable title to its personal property and assets, and has good title to all
its leasehold interests in equipment,
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in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge,
other than (a) the lien of current taxes not yet due and payable, and (b)
possible minor liens and encumbrances which do not in any case materially
detract from the value of the property subject thereto or materially impair the
operations of the Company, and which have not arisen otherwise than in the
ordinary course of business. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. The Company is in compliance with all
material terms of each personal property lease to which it is a party or is
otherwise bound.
3.13 Real Property and Real Property Leases. The Company owns no real
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estate. The Schedule of Leases attached as Exhibit I contains an accurate and
complete list and description of the material terms (address, rental rate, term)
of all real property leases to which the Company is a party. Each lease set
forth in such Schedule is in full force and effect; in each case, the lessee has
been in peaceable possession since the commencement of the original term of such
lease; and there exists no event of default or event, occurrence, condition or
act (including the transactions anticipated hereby) which, with the giving of
notice, the lapse of time or the happening of any further event or condition,
would become a default under such lease. The properties leased by the Company
are in a state of good maintenance and repair and are being used. With respect
to real property leased by the Company, (a) the Company's operation of such
property has, to its knowledge, been, throughout the term of such use, in
compliance with all federal, state and local laws concerning the environment and
hazardous materials; (b) the Company has not received a notice of violation or
similar notice from any governmental authority or insurance company relating to
the use, operation or maintenance of such real properties; (c) there has been no
condemnation or eminent domain proceedings commenced or to the Company's
knowledge threatened; and (d) no environmental audit report or other evaluations
of such real properties have been commissioned or prepared by the Company.
3.14 Compliance with Other Instruments, None Burdensome, etc. The Company
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is not in violation of any term of its Certificate of Incorporation or By-Laws,
or, in any material respect, of any term or provision of any material mortgage,
indebtedness, indenture, contract, agreement, instrument, judgment or decree,
and to the best of its knowledge is not in violation of any order, statute, rule
or regulation applicable to the Company where such violation would materially
and adversely affect the Company. The execution, delivery and performance of
and compliance with this Agreement, the Investor Rights Agreement and the
Investor Voting Agreement, and the issuance of the Initial Preferred Stock, the
Option Preferred Stock, the Warrant Stock, the Conversion Stock and the Dividend
Stock will not, with or without the passage of time or giving of notice, result
in any material violation of, or conflict with, or constitute a material default
under, the Company's Certificate of Incorporation or By-Laws or any of its
agreements or result in the creation of, any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the Company or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
authorization or approval applicable to the Company, its business or operations
or any of its assets or properties.
3.15 Compliance with Law; Permits. To its knowledge, the Company is not in
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violation of any applicable statute, rule, regulation, order or restriction of
any domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties which
violation would materially and adversely affect the business, assets,
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liabilities, financial condition, operations or Plan of the Company. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement, the
Investor Rights Agreement or the Investor Voting Agreement, and the issuance of
the Initial Preferred Stock, the Option Preferred Stock, the Dividend Stock, the
Warrant Stock or the Conversion Stock, except such as has been duly and validly
obtained or filed, or with respect to any filings that must be made after the
Closing, as shall be filed in a timely manner. The Company has all franchises,
permits, licenses and any similar authority necessary for the conduct of its
business as now being conducted by it, the lack of which could materially and
adversely affect the business, properties or financial condition of the Company
and believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted.
3.16 Patents and Other Intangible Assets.
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3.16.1 The Company (i) owns or has the right to use, free
and clear of all liens, claims and restrictions, all patents, trademarks,
service marks, trade names, copyrights (and licenses with respect to the
foregoing) used in the conduct of its business as now conducted or as proposed
to be conducted without infringing upon or otherwise acting adversely to the
right or, to its knowledge, the claimed right of any person under or with
respect to any of the foregoing, and (ii) is not obligated or under any
liability whatsoever to make any payments by way of royalties, fees or otherwise
to any owner of, licensor of, or other claimant to, any patent, trademark, trade
name, copyright or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise, other than as
contemplated by any agreement listed on the Schedule of Exceptions. The Company
has not granted any licenses or manufacturing rights with respect to its
business as currently being conducted.
3.16.2 The Company owns and has the unrestricted right to
use all trade secrets, including know-how, inventions, designs, processes, and
technical data required for or incident to the development, manufacture,
operation and sale of all products and services proposed to be sold by the
Company, free and clear of any rights, liens or claims of others, including
without limitation, former employers of all current and former employees,
consultants, officers, and directors of the Company and the Stockholders.
3.16.3 Prior to the Closing, the Company will have
obtained from all current executive officers and other key employees of the
Company designated by the Purchasers (each a "Key Employee") Non-Solicitation
and Proprietary Information and Inventions Agreements in the form of Exhibit J
attached hereto, or such other form as shall be acceptable to the Purchasers.
The Company is not aware that any of its current or former executive officers or
Key Employees is in violation thereof, and the Company will use its commercially
reasonable efforts to prevent any such violation.
3.17 Litigation, etc. There are no actions, suits, proceedings or
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investigations pending against the Company or its properties before any court or
governmental agency (nor, to the best of the Company's knowledge, is there any
reasonable basis therefor or threat thereof except with respect to trade
payables not current in accordance with their terms).
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3.18 Employees. The Company has no collective bargaining agreements with
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any of its employees. There is no labor union organizing activity pending or, to
the Company's knowledge, threatened with respect to the Company. Other than as
contemplated by this Agreement, no employee has any agreement or contract,
written or verbal, regarding his employment. To the Company's knowledge, no
executive officer or Key Employee of the Company, nor any consultant with whom
the Company has contracted, is in violation of any term of any employment
contract, proprietary information agreement or any other agreement relating to
the right of any such individual to be employed by, or to contract with, the
Company because of the nature of the business to be conducted by the Company;
and to the Company's knowledge the continued employment by the Company of its
present employees, and the performance of the Company's contracts with its
independent contractors, will not result in any such violation. The Company has
not received any notice alleging that any such violation has occurred. No
employee of the Company has been granted the right to continued employment by
the Company or to any material compensation following termination of employment
with the Company. The Company is not aware that any executive officer or Key
Employee, intends to terminate his or her employment with the Company, nor does
the Company have a present intention to terminate the employment of any such
person not provided for under the Plan. To the Company's knowledge, the Company
has complied in all material respects with all applicable state and federal
equal employment opportunity laws, rules and regulations and other laws, rules
and regulations related to employment. Prior to Closing, the Company will have
obtained (and provided a copy to the Purchasers) (a) from each executive officer
of the Company and each Key Employee receiving options from the Company in
connection with the execution of this Agreement, a Non-Competition Agreement in
the form attached as Exhibit K; (b) from each present or former executive
officer of the Company and present or former Key Employee with whom the Company
has an employment or other agreement under which any payments are to be made or
stock or options in the Company issued or vested upon a change of control, a
certification to the effect that neither this Agreement nor the transactions
contemplated by this Agreement will constitute a change of control of the
Company that would result in (i) any grant, vesting or issuance of the Company's
securities; or (ii) any acceleration of any such grant, vesting or issuance; or
(iii) any payment to such executive officer or Key Employee, such certificate to
be in the form attached as Exhibit L (the "Key Employee Certificate"); (c) from
the executive officers of the Company and Key Employees, an agreement limiting
sales of their shares of Common Stock in the form attached as Exhibit M (the
"Lock-Up Agreement").
3.19 Employee Benefits.
-----------------
3.19.1 Except as set forth on the Schedule of Exceptions:
(i) each Employee Benefit Plan (as defined below) has been administered in
material compliance with its terms, and is in compliance in all material
respects with the applicable provisions of ERISA (as defined below), the
Internal Revenue Code of 1986, as amended (the "Code"), and all other applicable
laws; (ii) the Company has made or provided for all contributions required under
the terms of such plans; (iii) no Employee Benefit Plan has been the subject of
a "reportable event" (as defined in Section 4043 of ERISA) and there have been
no "prohibited transactions" (as described in Section 4975 of the Code or in
Section 406 of ERISA) with respect to any Employee Benefit Plan for which a
statutory, administrative or regulatory exemption is not available; (iv) there
are and during the past three years there have been no inquiries, proceedings,
claims (other than claims for benefits in the ordinary course) or suits pending
or to the knowledge of the Company threatened by any governmental agency or
authority or by any participant or beneficiary against any of the Em-
10
ployee Benefit Plans, the assets of any of the trusts under such Employee
Benefit Plans or the Employee Benefit Plan sponsor or the Employee Benefit Plan
administrator, or against any fiduciary of any of such Employee Benefit Plans
with respect to the design or operation of the Employee Benefit Plans; (v) each
Employee Benefit Plan which is intended to be "qualified" within the meaning of
Section 401(a) of the Code is so qualified, and any trust created pursuant to
any such Employee Benefit Plan is exempt from federal income tax under Section
501(a) of the Code and the IRS has issued each such Plan a favorable
determination letter which is currently applicable; and (vi) the Company is not
aware of any circumstance or event which would jeopardize the tax-qualified
status of any such Employee Benefit Plan or the tax-exempt status of any related
trust, or which would cause the imposition of any liability, penalty or tax
under ERISA or the Code with respect to any Employee Benefit Plan. For the
purposes of this Section 3.19, "Employee Benefit Plan" means all employee
benefit plans of the Company as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
3.19.2 The Company does not maintain and is not obligated
to contribute to a "Multiemployer Plan" (as such term is defined by Section
4001(a)(3) of ERISA).
3.19.3 Neither the Company, nor any subsidiary of the
Company, nor any ERISA Affiliate, as hereinafter defined, maintains any retired
life and/or retired health insurance plans which provide for continuing benefits
or coverage for any employee or any beneficiary of an employee after such
employee's termination of employment (other than health continuation coverage as
required by Section 4980B of the Code or Part 6 of Title I of ERISA or any other
federal or state law, rule or regulation). For the purpose of this Section 3.19,
"ERISA Affiliate" means any trade or business, whether or not incorporated,
under common control with the Company within the meaning of Section 414(b), (c),
(m) or (o) of the Code.
3.19.4 The consummation of the transactions contemplated
by this Agreement will not (i) entitle any person to severance pay, unemployment
compensation or any other payment, (ii) accelerate the time of payment or
vesting, or increase the amount of compensation due to any such employee, or
(iii) result in any liability under Title IV of ERISA or otherwise.
3.20 Registration Rights and Voting Rights. Except as set forth in the
-------------------------------------
Investor Rights Agreement (a) the Company is not under any contractual
obligation to register (as defined in Section 1.1 of the Investor Rights
Agreement) any of its presently outstanding securities or any of its securities
which may hereafter be issued; and (b) to the Company's knowledge, no
stockholder of the Company has entered into any agreement with respect to the
voting of equity securities of the Company.
3.21 Governmental Consent, etc. No consent, approval or authorization of
--------------------------
(or designation, declaration of filing with) any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of this Agreement, the Investor Rights Agreement or the Investor Voting
Agreement, or the offer, sale or issuance of the Initial Preferred Stock, the
Option Preferred Stock, the Warrants, the Warrant Stock and the Conversion
Stock, or the consummation of any other transaction contemplated hereby, except
(a) filing of the Certificate in the office of the Secretary of State of the
State of Delaware (b) qualification (or taking such action as may be necessary
to secure an exemption from qualification, if available) of the offer and sale
of the Initial Preferred Stock, the Option Preferred Stock, the Warrant Stock
and the Conversion
11
Stock under applicable state securities laws, which filings and qualifications,
if required, will be accomplished in a timely manner.
3.22 Offering. Assuming the accuracy of the representations and warranties
--------
of the Purchasers contained in Section 4.2 hereof, the offer, sale and issuance
of the Initial Preferred Stock, the Option Preferred Stock, the Warrants, the
Warrant Stock and the Conversion Stock will be exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and will have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements of
all applicable state securities laws. Neither the Company nor any agent on its
behalf (a) has solicited or will solicit any offers to sell or has offered to
sell or will offer to sell all or any part of the Initial Preferred Stock or the
Option Preferred Stock to any person or persons or (b) will take any action
hereafter, so as to bring the sale of such shares by the Company within the
registration provisions of the Securities Act or any state securities laws.
3.23 Brokers or Finders; Other Offers. The Company has not incurred, and
--------------------------------
will not incur, directly or indirectly, as a result of any action taken by the
Company, any liability for brokerage or finders' fees or agents' commissions or
any similar charges in connection with this Agreement or any transaction
contemplated hereby.
3.24 Tax Matters. The Company: (a) has timely filed all tax returns that
-----------
are required to have been filed by it with all appropriate federal, state,
county and local governmental agencies (and all such returns fairly reflect the
Company's operations for tax purposes); (b) has timely paid all taxes owed by it
for which it is obligated to withhold from amounts owing to any employee
(including without limitation social security taxes), creditor or third party
(other than taxes the validity of which are being contested in good faith by
appropriate proceedings); and (c) has not waived any statute of limitations with
respect to taxes or agreed to any extension of time with respect to a tax
assessment or deficiency. The assessment of any additional taxes for periods for
which returns have been filed is not expected to exceed the recorded liability
therefor, and, to the best of the Company's knowledge, there are no material
unresolved questions or claims concerning the Company's tax liability. The
Company's tax returns have not been reviewed or audited by any federal, state,
local or county taxing authority. There is no pending dispute with any taxing
authority relating to any of said returns which, if determined adversely to the
Company, would result in the assertion by any taxing authority of any valid
deficiency in any material amount for taxes.
3.25 Insurance. The Company has fire, casualty and liability insurance
---------
policies, in such amounts and with such coverage (i) as are required by
applicable federal, state and local law, (ii) as are required by all leases and
other contracts to which it is a party, and (iii) as are carried by similar
companies. The Company also maintains a directors and officers liability policy
as described on the Schedule of Exceptions.
3.26 Environmental and Safety Regulations. The Company knows of no
------------------------------------
violation or violations by the Company, its employees or agents of any
environmental or safety statute, law or regulation that in the aggregate would
have a material adverse effect on the business, properties, prospects or
financial condition of the Company, and, to the best of its knowledge, no
material expenditures are or will be required in order to comply with any such
existing statute, law or regulation. No action, proceeding, permit revocation,
writ, injunction or claim is pending or, to the best
12
of the Company's knowledge, threatened concerning the Company's facilities and
the Company is not aware of any fact or circumstance which could involve the
Company in any environmental litigation or impose any material environmental
liability upon the Company. To the best of the Company's knowledge, as of the
Closing, no Hazardous Material (as defined below) is present on any Company
facility and no reasonable likelihood exists that any Hazardous Material present
on other property will come to be present on a Company facility. There are no
underground storage tanks, asbestos or PCBs present on any Company facility. For
the purposes of this Section 3.26 the term "Hazardous Material" shall mean any
material or substance that is prohibited or regulated by any environmental law
or that has been designated by any governmental authority to be radioactive,
toxic, hazardous or otherwise a danger to health, reproduction or the
environment.
3.27 Minute Books. The minute books of the Company provided to special
------------
counsel for the Purchasers contain a complete summary of all meetings of
directors and stockholders and all actions by written consent without a meeting
since the time of incorporation and reflect all transactions referred to in such
minutes accurately in all material respects. Neither the stockholders nor the
Board of Directors of the Company have taken any action relating to the merger,
consolidation, sale of assets or business, liquidation, dissolution or any other
reorganization of the Company.
3.28 Disclosure. This Agreement, including the Exhibits hereto, does not
----------
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made.
4. Representations and Warranties of the Purchasers
------------------------------------------------
Each Purchaser hereby severally represents and warrants to the Company as
of the date of this Agreement as follows:
4.1 Requisite Power and Authority. The Purchaser has all necessary power
-----------------------------
and authority under all applicable provisions of law to execute and deliver this
Agreement, the Investor Rights Agreement and the Investor Voting Agreement, and
to carry out their provisions. All action on the Purchaser's part required for
the lawful execution and delivery of this Agreement, the Investor Rights
Agreement and the Investor Voting Agreement have been or will be effectively
taken prior to the Closing. Upon their execution and delivery, this Agreement,
the Investor Rights Agreement and the Investor Voting Agreement will be valid
and binding obligations of the Purchaser, enforceable in accordance with their
terms.
4.2 Investment Representations. The Purchaser understands that the
--------------------------
Initial Preferred Stock, the Option Preferred Stock, the Dividend Stock, the
Warrants, the Warrant Stock and the Conversion Stock have not been registered
under the Securities Act. The Purchaser also understands that the Initial
Preferred Stock and the Option Preferred Stock is being offered and sold
pursuant to an exemption from registration contained in the Securities Act based
in part upon the Purchaser's representations contained in the Agreement. The
Purchaser hereby represents and warrants to the Company as follows:
4.2.1 Purchaser Bears Economic Risk. The Purchaser has
-----------------------------
substantial experience in evaluating and investing in private placement
transactions of securities in
13
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests. The Purchaser must bear the economic risk of this investment
indefinitely unless the Initial Preferred Stock, the Option Preferred Stock, the
Dividend Stock, the Warrants, the Warrant Stock or the Conversion Stock are
registered pursuant to the Securities Act, or an exemption from registration is
available.
4.2.2 Acquisition for Own Account. The Purchaser is
---------------------------
acquiring the Initial Preferred Stock, the Option Preferred Stock, the Warrants,
the Warrant Stock, the Dividend Stock and the Conversion Stock for the
Purchaser's own account for investment only, and not with a view towards their
distribution.
4.2.3 Purchaser Can Protect Its Interest. The Purchaser
----------------------------------
represents that by reason of its business or financial experience, the Purchaser
has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement and the Investor Rights Agreement.
Further, the Purchaser is aware of no publication of any advertisement in
connection with the transactions contemplated in the Agreement.
(d) Accredited Investor. The Purchaser represents that it is an
-------------------
accredited investor within the meaning of Regulation D under the Securities Act.
4.2.4 Company Information. The Purchaser has received
-------------------
and read the SEC Reports, including the Financial Statements, and has had an
opportunity to discuss the Company's business, management and financial affairs
with directors, officers and management of the Company and has had the
opportunity to review the Company's operations and facilities. The Purchaser has
also had the opportunity to ask questions of and receive answers from, the
Company and its management regarding the terms and conditions of this
investment. Notwithstanding the foregoing, nothing in this Section 4 would limit
the representations and warranties made in Section 3 or the right of the
Purchaser to rely on those representation and warranties.
4.2.5 Rule 144. The Purchaser acknowledges that the
--------
Initial Preferred Stock, the Option Preferred Stock, the Warrants, the Warrant
Stock, the Dividend Stock and the Conversion Stock must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from such registration 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.
4.3 Residence. The office of the Purchaser in which its investment
---------
decision was made is located at the address set forth on Exhibit C.
5. Purchasers' Conditions to Closing
---------------------------------
The Purchasers' obligations to purchase the Initial Preferred Stock are
conditioned upon the satisfaction in full of the conditions hereinafter set
forth, any of which may be waived by SCP on behalf of the Purchasers. SCP's
obligation to purchase the Option Preferred Stock is conditioned upon the
satisfaction in full of the conditions hereafter set forth with references in
this Section 5 and in Section 3 to the "Closing" and the "Closing Date" modified
to refer to the "Second Closing" and the "Second Closing Date."
14
5.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects as of the Closing Date with the same force and effect as
if they had been made as of the Closing Date, and the Company shall have
performed all obligations and conditions herein required to be performed or
observed by it on or prior to the Closing.
5.2 Consents, Permits, and Waivers. The Company shall have obtained any
------------------------------
and all consents, permits and waivers necessary or appropriate for consummation
of the transactions contemplated by the Agreement, the Investor Rights Agreement
and the Investor Voting Agreement.
5.3 Corporate Certificate. The Company shall have delivered to the
---------------------
Purchasers (a) copies of the Company's Third Amended and Restated Certificate of
Incorporation as in effect immediately prior to the Closing Date, certified by
the Secretary of State of the State of Delaware as of a date not more than five
days prior to the Closing Date; (b) copies of the Company's Amended and Restated
By-Laws as in effect immediately prior the Closing Date; (c) copies of
resolutions adopted by the Board of Directors of the Company authorizing the
transactions contemplated by this Agreement; (d) certificates of good standing
issued by the Secretary of State of the State of Delaware and each other state
in which the Company is qualified to do business as of a date not more than 5
days prior to the Closing Date; and (e) copies of all third party and
governmental consents, approvals and filings required in connection with the
consummation of the transactions hereunder (including, without limitation, all
blue sky filings and waivers of all preemptive rights and rights of first
refusal) and all such consents, approvals and filings shall have been duly
obtained and effective as of the Closing. The documents set forth in
subsections (a) - (e) above shall have been certified in each case as of the
Closing Date by the Secretary of the Company as being true, correct and
complete.
5.4 Proceedings and Documents. All corporate approvals, stockholder
-------------------------
approvals and other proceedings in connection with the transactions contemplated
at the Closing shall have occurred, and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Purchasers and their
special counsel, and they shall have received all such counterpart original and
certified or other copies of such documents as they may reasonably request.
5.5 Covenants. All covenants, agreements and conditions contained in this
---------
Agreement to be performed by the Company on or prior to the Closing Date shall
have been performed or complied with in all material respects.
5.6 Reservation of Dividend Stock and Conversion Stock. The Warrant
--------------------------------------------------
Stock, the Dividend Stock and the Conversion Stock shall have been duly
authorized and reserved for issuance pursuant to this Agreement.
5.7 Certificate. The Certificate shall have been filed with the Secretary
-----------
of State of the State of Delaware.
5.8 Directors. Effective as of the Closing Date, the Company's Board of
---------
Directors shall consist of seven members, two of which shall have been
designated by SCP and one of which shall have been designated by the Purchasers.
15
5.9 Stockholder Approval. The Company shall have called and convened a
--------------------
meeting of its stockholders on or prior to April 9, 2001 pursuant to Section
7.6, and at such meeting, the stockholders of the Company shall have duly
approved (a) an increase in the number of authorized shares of Common Stock of
the Company in the amount proposed by the Company, but in no event less than
220,000,000 shares, (b) the adoption of the Certificate, (c) the sale and
issuance to the Purchasers of the Initial Preferred Stock and the Option
Preferred Stock, (d) the sale and issuance of the Warrants to the Purchasers,
(e) the issuance of the Dividend Stock and (f) the issuance of the Conversion
Stock.
5.10 NASD. The Company shall have given or made all required notices to or
----
filings with the National Association of Securities Dealers, Inc. (the "NASD")
and shall have complied with all rules and regulations of the NASD, required in
connection with the transactions contemplated hereby.
5.11 Compliance Certificate. The Company shall have delivered to the
----------------------
Purchasers a certificate of the Company in the form of Exhibit N attached
hereto, executed by the President of the Company, dated the Closing Date, and
certifying, among other things, to the fulfillment of the conditions specified
in Sections 5.1 to 5.10 of this Agreement.
5.12 Due Diligence. The Company shall have delivered to the Purchasers or
-------------
its counsel, copies of all corporate documents of the Company as the Purchasers
shall reasonably request, and the Purchasers and their counsel shall have
completed their due diligence review of the Company and its business and the
results of such review shall have been satisfactory to the Purchasers.
5.13 Investor Rights Agreement. An Investor Rights Agreement substantially
-------------------------
in the form attached hereto as Exhibit D shall have been executed and delivered
by the parties thereto (other than SCP).
5.14 Voting Agreements. An Investor Voting Agreement, an Executive and
-----------------
Director Voting Agreement and a Key Holder Voting Agreement, each substantially
in the form attached as Exhibits E, F and G, respectively, shall have been
executed and delivered by each of the parties thereto (other than SCP).
5.15 Compliance with Securities Laws. The Company shall have complied
-------------------------------
with, and the offer and sale of the Initial Preferred Stock and the Warrants
pursuant hereto shall be effective under, all federal and state securities laws.
The Company shall have obtained all permits and qualifications required by any
state for the offer and sale of the Initial Preferred Stock, the Warrants, the
Warrant Stock, the Dividend Stock and the Conversion Stock, or shall have the
availability of exemptions therefrom.
5.16 Non-Solicitation and Proprietary Information and Inventions Agreement.
---------------------------------------------------------------------
Each executive officer of the Company and Key Employee shall have executed a
Non-Solicitation and Proprietary Information and Inventions Agreement in the
form of or substantially similar to Exhibit J attached hereto or such other
form as shall be acceptable to the Purchasers.
5.17 Non-Competition Agreement. Each executive officer of the Company and
-------------------------
each Key Employee receiving options from the Company in connection with the
execution of this
16
Agreement shall have executed a Non-Competition Agreement in the form of or
substantially similar to Exhibit K attached hereto.
5.18 Key Employee Certificate. Each present or former executive officer of
------------------------
the Company and present or former Key Employee with whom the Company has an
employment or other agreement under which any payments are to be made or stock
or options in the Company issued or vested upon a change of control, shall have
executed a Key Employee Certificate in the form of Exhibit L hereto.
5.19 Lock-Up Agreement. Each executive officer of the Company and Key
-----------------
Employee shall have executed a Lock-Up Agreement in the form attached as Exhibit
M attached hereto.
5.20 Waivers of Default. The Company shall have obtained a waiver of
------------------
default or settlement and release, in form and substance reasonably acceptable
to the Purchasers, from: (i) Silicon Valley Bank with respect to the Company's
equipment leasing facility, (ii) the counter party on any other equipment
leasing facility, and (iii) each landlord under its real estate leases in
Maynard, MA, Redwood Shores, CA and Conshohocken, PA.
5.21 The Plan. The Company shall be in compliance with the Plan.
--------
5.22 Opinion of Company's Counsel. The Purchasers shall have received from
----------------------------
legal counsel to the Company an opinion addressed to them, dated as of the
Closing Date, in substantially the form attached hereto as Exhibit O.
5.23 Absence of Change. Schedule 5.23 of the Schedule of Exceptions sets
-----------------
forth a description of the financial condition of the Company as of the date of
this Agreement. Between that date and the Closing Date, (a) no material adverse
change in the financial condition of the Company shall have occurred which was
not anticipated and provided for in the Plan and (b) no adverse change in any
matter which is not primarily financial shall have occurred which was not
anticipated and provided for in the Plan. Without limiting any other provision
of this Agreement, as a condition to the performance by SCP of its obligations
at the Second Closing, subsequent to the Closing Date, but prior to the Second
Closing, there shall not have occurred any adverse change in the condition
(financial or otherwise), business, property, assets or liabilities of the
Company which was not anticipated and provided for in the Plan.
5.24 Pledge Agreement. The Company shall have executed and delivered to
----------------
ICG a letter agreement, the form of which is attached hereto as Exhibit P (the
"Letter Agreement") consenting to ICG's pledge of its Initial Preferred Stock,
the Dividend Stock, the Conversion Stock and the Warrant Stock under the Credit
Agreement (as defined in the Letter Agreement) and certain other related matters
as described in the Letter Agreement, the terms of which Letter Agreement shall
have controlling authority with respect to any conflicting term of this
Agreement or any other Transaction Document.
6. Company's Conditions to Closing.
-------------------------------
The Company's obligation to sell and issue the Initial Preferred Stock and
the Warrants at the Closing Date is, at the option of the Company, subject to
the fulfillment as of the Closing Date of the following conditions:
17
6.1 Representations. The representations made by the Purchasers in
---------------
Section 4 hereof shall be true and correct in all material respects as of the
Closing Date with the same force and effect as if they had been made as of the
Closing Date.
7. Affirmative Covenants of the Company.
------------------------------------
For so long as the Purchasers own in the aggregate at least 10% of the
Common Stock or Preferred Stock, the Company hereby covenants and agrees as
follows:
7.1 Information Rights. The Company shall provide to the Purchasers the
------------------
information required by Section 2.1 of the Investor Rights Agreement and provide
the Purchasers with the inspection and access right set forth in Section 2.2 of
the Investor Rights Agreement.
7.2 Non-Solicitation and Proprietary Information and Inventions
-----------------------------------------------------------
Agreements. Unless otherwise determined by the Board of Directors, all future
----------
employees of the Company who have access to confidential information shall be
required to execute and deliver a Non-Solicitation and Proprietary Information
Agreement in substantially the form of Exhibit G attached hereto.
7.3 Taxes and Other Liabilities. The Company will pay and discharge,
---------------------------
before the same become delinquent and before penalties accrue thereon, all
taxes, assessments and governmental charges upon or against it or any of its
properties, and all its other material liabilities at any time existing, except
to the extent and so long as (a) the same are being contested in good faith and
by appropriate proceedings in such manner as not to cause any materially adverse
effect upon the financial condition of the Company or the loss of any right of
redemption from any sale thereunder and (b) the Company shall have set aside on
its books reserves (segregated to the extent required by generally accepted
accounting principles) deemed by it adequate with respect thereto.
7.4 Employee Option Pool. Following the Closing, the Company shall not
--------------------
grant options to its employees in an amount which would result in total options
outstanding at any time exceeding 15% of the total number of shares, warrants
and options issued and outstanding immediately after the Closing, without the
approval of the holders of a majority of the outstanding shares of Series A
Preferred Stock. All such option grants shall be approved by the Board of
Directors of the Company, or a committee thereof, and shall be exercisable at
prices that are no less than the fair market value, as determined by the Board
of Directors as of the date of each grant.
7.5 Use of Proceeds. The Company shall use the proceeds from the sale of
---------------
the Initial Preferred Stock and the Option Preferred Stock for working capital
and other general corporate purposes. Prior to the Closing, the Company shall
provide to the Purchasers a detailed breakdown of the intended use of proceeds,
including a list of the creditors which the Company proposes to pay and the
amounts which are proposed to be paid.
7.6 Stockholders' Meeting and NASD Matters.
--------------------------------------
(a) As soon as practicable after the execution of this Agreement, the
Company shall prepare and shall file with the SEC a proxy statement relating to
a special meeting of the Company's stockholders (the "Stockholders' Meeting") to
be held to consider the approval of the matters required by Section 5.9
(together with any amendments or supplements thereto, the "Proxy
18
Statement"). The Proxy Statement shall be in form and substance reasonably
satisfactory to the Purchasers. Copies of the Proxy Statement shall be provided
to the Nasdaq National Market (the "NNM") in accordance with its rules. The
Company shall notify the Purchasers of the receipt of any comments from the SEC
on the Proxy Statement and of any requests by the SEC for any amendments or
supplements thereto or for additional information and shall provide to the
Purchasers promptly copies of all correspondence between the Company or any of
its representatives and advisors and the SEC. The Company shall cause the Proxy
Statement to comply as to form and substance in all material respects with the
applicable requirements of (a) the Exchange Act, and (b) the rules and
regulations of the NNM. The Company shall mail the Proxy Statement to its
stockholders as promptly as practicable after the SEC either informs the Company
that it will not review the Proxy Statement or all comments or requests for
information by the SEC with respect thereto have been resolved.
(b) The Proxy Statement shall include the recommendation of the board of
directors of the Company to the Company's stockholders that they vote in favor
of approval of the matters required by Section 5.9.
(c) The Proxy Statement shall, at the time filed with the SEC or other
regulatory agency and, in addition, at the date it or any amendments or
supplements thereto are mailed to stockholders of the Company, at the time of
the Stockholders' Meeting and at the Closing, not contain any untrue statement
or a material fact or omit or state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior
to the Closing any event or circumstance is discovered by the Company that
should be set forth in an amendment or a supplement to the Proxy Statement, the
Company shall promptly inform the Purchasers. All documents that the Company is
responsible for filing with the SEC in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
applicable requirements of the rules and regulations of the Exchange Act.
(d) The Company shall call and hold the Stockholders' Meeting as promptly
as practicable after the date hereof for the purpose of voting upon the approval
of the matters required by Section 5.9 pursuant to the Proxy Statement. The
Company shall use all reasonable efforts to solicit from its stockholders
proxies in favor of the approval of the matters required by Section 5.9 pursuant
to the Proxy Statement and shall take all other action necessary or advisable to
secure the vote or consent of stockholders required by the Delaware General
Corporation Law.
(e) The Company shall take all actions necessary to comply with the rules
and regulations of the NNM in connection with the consummation of the
transactions contemplated by this Agreement.
7.7 Securities Laws Compliance. The Company shall make in a timely manner
--------------------------
any filings required by applicable federal or state securities or Blue Sky laws,
or those of any other applicable jurisdiction.
7.8 Reservation of Shares. For so long as the Purchasers shall have any
---------------------
right to receive the Conversion Stock, the Company shall reserve and keep
available out of its authorized but unissued Common Stock the full number of
shares of Common Stock deliverable upon conversion of
19
all the then outstanding Initial Preferred Stock and Option Preferred Stock, if
any, and shall, at its own expense, take all such actions and obtain such
permits and orders as may be necessary to enable the Company lawfully to issue
such Conversion Stock upon conversion of the Initial Preferred Stock and Option
Preferred Stock, if any.
7.9 Books and Records. The Company shall maintain complete and accurate
-----------------
records and books of account in which entries shall be made in accordance with
generally accepted accounting principles consistently applied, reflecting all
transactions of the Company and its subsidiaries, if any.
7.10 Covenant to Use Best Efforts to Satisfy Conditions. The Company shall
--------------------------------------------------
use its best efforts to satisfy all conditions set forth in Section 5 prior to
Closing. To the extent that any such conditions shall not have been complied
with, but the Closing nevertheless proceeds as a result of a waiver by the
Purchasers, the Company shall continue to use its best efforts to satisfy such
conditions as soon as practicable following the Closing.
7.11 Issuance of Common Stock. The Company shall not issue any shares of
------------------------
Common Stock except pursuant to options, warrants, convertible securities or
other commitments or agreements outstanding on the date of this Agreement and
disclosed in the Schedule of Exceptions, and shall not enter into any agreement
or commitment with respect to any such issuance without the prior written
consent of the Purchasers.
8. Indemnification
---------------
8.1 Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive any investigation made by any or all of the Purchasers
and the Closing contemplated hereby for a period of two years following the
Closing. Notwithstanding the foregoing, the representations, warranties,
covenants and agreements contained in Sections 3.1, 3.2, 3.5, 3.7, 3.8, 3.9 and
3.24 of this Agreement shall survive any investigation made by the Purchasers
without any time limitation. All statements as to factual matters contained in
any certificate or other instrument delivered by or on behalf of the Company
pursuant hereto in connection with the transactions contemplated hereby shall be
deemed to be representations and warranties by the Company hereunder solely as
of the date of such certificate or instrument.
8.2 Damages. The Company shall reimburse and indemnify and hold the
-------
Purchasers harmless against and in respect of any and all damage, loss,
liability, settlement payments, costs, levies, expenses or obligations
(collectively, "Damages") actually suffered by the Purchasers in connection,
resulting from or relating to:
(a) any misrepresentation, breach of warranty or nonfulfillment of any
covenant or agreement on the part of the Company under this Agreement; or
(b) any and all actions, suits, claims, allegations, proceedings,
investigations, audits, demands, assessments, fines, judgments, settlements,
levies, costs and other expenses (including without limitation reasonable audit
and legal fees) incident to any of the foregoing.
20
8.3 Investigation. Any claim for indemnification shall not be invalid as
-------------
a result of any investigation by or opportunity to investigate afforded to the
Purchasers.
9. Miscellaneous
-------------
9.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the internal laws of the Commonwealth of Pennsylvania.
9.2 Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive any investigation made by the Purchasers and the
closing of the transactions contemplated hereby.
9.3 Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto,
provided, however, that the rights of the Purchasers to purchase the Initial
Preferred Stock or the Option Preferred Stock shall not be assignable without
the consent of the Company.
9.4 Entire Agreement: Amendment. This Agreement and the other documents
---------------------------
delivered pursuant hereto, including without limitation the Plan, constitute the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and thereof, and no party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants except
as specifically set forth herein or therein. Except as expressly provided
herein, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge or termination
is sought; provided, however, that holders of a majority of the outstanding
shares of Series A Preferred Stock purchased pursuant to this Agreement may,
with the Company's prior written consent, waive, modify or amend on behalf of
all holders, any provisions hereof.
9.5 Termination. If the Closing has not occurred on or prior to April 9,
-----------
2001, the Purchasers may terminate this Agreement effective immediately by
sending written notice thereof to the Company, whereupon no party hereto shall
have any liability to any other party hereto, except that the Company shall pay
to SCP a Break-Up Fee, as hereinafter defined and shall reimburse each Purchaser
for expenses incurred in connection with the transaction. The term "Break-Up
Fee" shall mean: (a) $20,000,000 if the Closing has not occurred because the
Company, in one transaction or series of related transactions, (i) has obtained
equity or debt financing from a source other than both of the Purchasers, (ii)
has sold substantially all of its assets, (iii) has merged or consolidated with
a third party, or (iv) has entered into an agreement with respect to any of the
foregoing; and (b) $5,000,000 if the Closing has not occurred for any other
reason.
9.6 Acknowledgement of Purchasers. Each Purchaser acknowledges that in
-----------------------------
making its investment decision to purchase shares of Initial Preferred Stock
pursuant to this Agreement it has not relied on any information provided to it
by, or any investigation performed by, the other Purchaser. Rather it has
relied on the representations and warranties of the Company contained herein.
21
9.7 Notices, etc. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, sent by telefacsimile, or otherwise delivered
by hand or by a nationally-recognized overnight courier, addressed (a) if to a
Purchaser, at such Purchaser's address or telefacsimile number as set forth in
Exhibit C, or at such other address or telefacsimile number as such Purchaser
shall have furnished to the Company in writing, or (b) if to any other holder of
any Series A Preferred Stock or Conversion Stock, at such address or
telefacsimile number as such holder shall have furnished the Company in writing,
or, until any such holder so furnishes an address or telefacsimile number to the
Company, then to and at the address or telefacsimile number of the last holder
of such Series A Preferred Stock or Conversion Stock who has so furnished an
address or telefacsimile number to the Company, or (c) if to the Company, one
copy should be sent to its address or telefacsimile number set forth on the
cover page of this Agreement and addressed to the attention of the Corporate
Secretary, or at such other address or telefacsimile number as the Company shall
have furnished to the Purchaser.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given (i) in the case of
personal delivery or delivery by telecopier, on the date of such delivery, (ii)
in the case of a nationally-recognized overnight courier, on the next business
day after the date when sent and (iii) in the case of mailing, on the third
business day following that on which the piece of mail containing such
communication has been deposited in a regularly maintained receptacle for the
deposit of the United States mail, addressed and mailed as aforesaid.
9.8 Delays or Omissions. Except as expressly provided herein, no delay or
-------------------
omission to exercise any right, power or remedy accruing to any Purchaser, upon
any breach or default of the Company under this Agreement, shall impair any such
right, power or remedy of such holder nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any holder of any breach or default under
this Agreement, or any waiver on the part of any holder of any provisions or
conditions of this agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
9.9 Expenses. The Company shall reimburse the Purchasers for all
--------
reasonable transaction expenses, including consulting, accounting, legal
expenses and a finder fee/consulting fee to Xxxxxx Xxxxxxxxx (the "Expenses").
In addition, at SCP's option, a portion of Mr. Yablunsky's fee may be paid to
him through the issuance of Series A Preferred Stock.
9.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which may be executed by less than all of the Purchasers,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
22
9.11 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
9.12 Titles and Subtitles. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not considered in construing or
interpreting this Agreement.
[Balance of page intentionally left blank]
23
IN WITNESS WHEREOF, the parties have executed this Series A Preferred Stock
Purchase Agreement as of the date first above written.
COMPANY
-------
BREAKAWAY SOLUTIONS, INC.
By: /s/ Xxxxxx Xxxxxx
--------------------------------------
Name: Xxxxxx Xxxxxx
Title: President and Chief Executive Officer
Address: Breakaway Solutions, Inc.
0 Xxxxx Xxxxx Xxxxx, 0xx Xxxxx
Xxxxxxx, XX 00000
Attn: Corporate Secretary
Telephone: 000-000-0000
Telefacsimile: 000-000-0000
PURCHASERS:
----------
SCP PRIVATE EQUITY PARTNERS II, L.P.
By: SCP Private Equity II General Partner, L.P.,
its General Partner
By: SCP Private Equity II, LLC, its Manager
By: /s/ Xxxxx X. Xxxxxxx
------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Manager
ICG HOLDINGS, INC.
By: /s/ Xxxxx X. Nassau
-------------------------------------
Name: Xxxxx X. Nassau
Title: VP and Secretary
24
EXHIBIT A
---------
CERTIFICATE OF DESIGNATION OF
SERIES A PREFERRED STOCK
OF
BREAKAWAY SOLUTIONS, INC.
Breakaway Solutions, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "GCL"),
DOES HEREBY CERTIFY THAT:
Pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation of said corporation, and pursuant to the provisions
of Section 151 of the GCL, said Board of Directors by the written consent taken
pursuant to Section 141 of the GCL, adopted a resolution creating Six Hundred
Thousand (600,000) shares of Series A Preferred Stock, which resolution is
attached hereto as Exhibit "A".
IN WITNESS WHEREOF, said Breakaway Solutions, Inc. has caused this
certificate to be signed by its _______________, this ___ day of _____, 2001.
By:_______________________________
Name:
Title:
EXHIBIT A
RESOLUTION OF THE BOARD OF DIRECTORS
APPROVING
THE DESIGNATION STATEMENT
RELATING TO SERIES A PREFERRED STOCK
WHEREAS, the Third Amended and Restated Certificate of Incorporation
of the Corporation authorizes the Corporation to issue a total of 5,000,000
shares of Preferred Stock, par value $.0001 per share ("Preferred Stock"), which
may be divided into one or more series as the Board of Directors may determine;
WHEREAS, the Certificate of Incorporation of the Corporation expressly
vests in the Board of Directors the authority to fix and determine the
designations, powers, preferences, and rights, and the qualifications,
limitations and restrictions thereof, of the Preferred Stock; and
WHEREAS, the Board of Directors deems it advisable to designate a
series of the Preferred Stock consisting of Six Hundred Thousand (600,000)
shares designated as Series A Preferred Stock;
NOW, THEREFORE, IT IS HEREBY RESOLVED, that pursuant to Paragraph
FOURTH of the Certificate of Incorporation of the Corporation, there be and
hereby is authorized and created a series of Preferred Stock hereby designated
as Series A Preferred Stock, to consist of 600,000 shares, having a par value of
$0.0001 per share, which series shall have the voting rights, designations,
powers, preferences, relative and other special rights, and the qualifications,
limitations and restrictions set forth below:
SERIES A PREFERRED STOCK. Six Hundred Thousand (600,000) of the
authorized shares of Preferred Stock are hereby designated "Series A Preferred
Stock" (the "Series A Preferred Stock"). The rights, preferences, privileges,
restrictions and other matters relating to the Series A Preferred Stock are as
follows:
(a) Dividend Rights.
(i) Subject to the right of any other series of Preferred
Stock that may from time to time come into existence and which is
expressly senior to the rights of the Series A Preferred Stock, the
holders of Series A Preferred Stock, in preference to the holders of
Common Stock and any other stock of the Company hereafter created
which shall be junior to the Series A Preferred Stock (together,
"Series A Junior Stock"), shall be entitled to receive dividends, but
only out of funds that are legally available therefor, at the rate of
8% of the Series A Original Issue Price (as defined below) per annum
(the "Series A Dividend Rate") on each outstanding share of Series A
Preferred Stock (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to such shares).
Such dividends shall accrue, whether
or not declared by the Board of Directors, but shall be payable only when,
as and if declared by the Board of Directors. Such dividends shall be
payable, when and if declared, at the option of the Company either (A) in
cash or (B) in additional shares of Series A Preferred Stock (valued at the
Series A Original Issue Price (as defined below), as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with
respect to such shares). Such additional shares of Series A Preferred Stock
issued in lieu of the cash dividend are sometimes referred to as "PIK
Shares." The original issue price of the Series A Preferred Stock (the
"Series A Original Issue Price") shall be $70.00. Such dividends shall be
cumulative and shall accrue quarterly. Notwithstanding the foregoing, (A)
in the event of a Qualified Public Offering or a Qualified Sale on or
before the third anniversary of the Series A Original Issue Date, all
issued and outstanding PIK Shares shall be canceled, and (B) in the event
that any shares of Series A Preferred Stock shall be converted pursuant to
Section (d) of this Certificate of Designation on or prior to the
expiration of three years from the Series A Original Issue Date, any
accrued and unpaid dividends with respect to such shares shall be
cancelled.
(ii) So long as any shares of Series A Preferred Stock shall be
outstanding, without the prior written consent of the holders of a majority
of the then issued and outstanding shares of Series A Preferred Stock, no
dividend (other than a stock dividend paid pro rata to the Company's
stockholders), whether in cash or property, shall be paid or declared, nor
shall any other distribution (other than a stock dividend paid pro rata to
the Company's stockholders) be made, on any Series A Junior Stock, nor
shall any shares of any Series A Junior Stock of the Company be purchased,
redeemed, or otherwise acquired for value by the Company (except for
acquisitions of Common Stock by the Company pursuant to agreements that
permit the Company to repurchase such shares upon termination of services
to the Company or in exercise of the Company's right of first refusal upon
a proposed transfer) until all dividends (set forth in Section (a)(i)
above) on the Series A Preferred Stock shall have been paid or declared and
set apart. In the event that the Company shall declare a dividend or
distribution payable in securities of other persons, evidences of
indebtedness issued by the Company or other persons, or options or rights
to purchase any such securities or evidences of indebtedness or other
assets (including cash) to the holders of the Common Stock, then the
holders of the Series A Preferred Stock shall be entitled to a
proportionate share of any such dividend or distribution as though the
holders of the Series A Preferred Stock were the holders of the number of
shares of Common Stock into which their respective shares of Series A
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of the Common Stock entitled to receive such
dividend or distribution.
(b) Voting Rights.
(i) General Rights. Except as otherwise provided herein or as
required by law, the Series A Preferred Stock shall be voted equally with
the shares of the Common Stock of the Company and not as a separate class,
at any annual or special
2
meeting of stockholders of the Company, upon the following basis: each
holder of shares of Series A Preferred Stock shall be entitled to such
number of votes as shall be equal to the whole number of shares of Common
Stock into which such holder's aggregate number of shares of Series A
Preferred Stock, are convertible pursuant to Section (d) hereof immediately
after the close of business on the record date fixed for such meeting or
the effective date of such written consent.
(ii) Separate Vote of Series A Preferred Stock. Subject to the
rights of any series of Preferred Stock which may hereafter from time to
time come into existence, for so long as at least 10% of the Series A
Preferred Stock theretofore issued remain outstanding (subject to
adjustment for any stock split, reverse stock split or other similar event
affecting the Series A Preferred Stock), in addition to any other vote or
consent required herein or by law, the vote of the holders of at least a
majority of the outstanding Series A Preferred Stock shall be necessary for
effecting or validating the following actions:
(A) any amendment, alteration, or repeal of any provision of
the Certificate of Incorporation (including this Certificate of
Designation) or the Bylaws of the Company (including any filing of a
Certificate of Designation), that alters or changes or adversely
affects the voting or other powers, preferences, or other special
rights or privileges, or restrictions of the Series A Preferred Stock;
(B) reclassification or recapitalization of any outstanding
shares of securities of the Company into shares having rights,
preferences or privileges senior to or on a parity with the Series A
Preferred Stock;
(C) authorization or issuance of any other stock having rights,
preferences or privileges senior to or on a parity with the Series A
Preferred Stock;
(D) reorganization, merger or consolidation with or into any
corporation if such reorganization, merger or consolidation would
result in the stockholders of the Company immediately prior to such
reorganization, merger or consolidation holding less than a majority
of the voting power of the stock of the surviving corporation
immediately after such reorganization, merger or consolidation;
(E) sale, lease, conveyance or other disposition of, or
encumbrance of, all or substantially all the Company's assets in a
single transaction or series of related transactions;
(F) liquidation, dissolution or winding-up of the Company;
3
(G) amendment of the Certificate of Incorporation, as amended,
to increase the number of shares of authorized Common Stock or
Preferred Stock;
(H) redemption, purchase or other acquisition by the Company,
either direct or indirect, of any of the Company's capital stock or
other equity securities (including any securities directly or
indirectly convertible into or exchangeable or exercisable for such
securities) excluding redemptions, repurchases or other reacquisitions
at cost with respect to shares issued in accordance with plans or
agreements approved by the Board of Directors from current or former
employees, consultants, advisors or directors upon or in connection
with their death, disability or termination of employment with the
Company and excluding the Series A Preferred Stock pursuant to Section
(e) below;
(I) authorization, declaration or payment of any dividend
(other than a stock dividend paid pro rata to the Company's
stockholders) on any shares of Common Stock or Preferred Stock, other
than the Series A Preferred Stock; or
(J) increase or decrease the number of authorized shares of
Series A Preferred Stock; or
(K) issuance, reservation or authorization of shares of Common
Stock or any right or option to purchase Common Stock or other
security convertible into Common Stock to employees, consultants or
directors in an amount which would result in total options outstanding
at any time exceeding 15% of the total number of shares, warrants and
options issued and outstanding immediately after the Series A Original
Issue Date (as adjusted for any stock dividends, combinations or
splits with respect to such shares).
(C) Liquidation Rights.
(i) Upon any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, before any distribution or
payment shall be made to the holders of any Series A Junior Stock, subject
to the rights of any series of Preferred Stock that may from time to time
come into existence and which is expressly senior to the rights of the
Series A Preferred Stock, the holders of Series A Preferred Stock shall be
entitled to be paid out of the assets of the Company an amount per share of
Series A Preferred Stock equal to 100% of the Series A Original Issue Price
(as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares) for each share
of Series A Preferred Stock held by each such holder. If, upon any such
liquidation, dissolution, or winding up, the assets of the Company shall be
insufficient to make payment in full to all holders of Series A Preferred
Stock, then such assets shall be distributed among the holders of Series A
Preferred Stock at the time outstanding, ratably in proportion to the full
amounts to which they would otherwise be respectively entitled. After the
payment of the foregoing full
4
liquidation preference of the Series A Preferred Stock and any other
distribution that may be required with respect to any series of Preferred
Stock that may from time to time come into existence and which is expressly
senior to the rights of the Series A Preferred Stock, the assets of the
Company legally available for distribution, if any, shall be distributed
ratably to the holders of Series A Preferred Stock, on an as converted
basis, and the holders of Series A Junior Stock.
(ii) The following events shall be considered a liquidation under
this Section, unless by vote or written consent of the holders of at least
a majority of the Series A Preferred Stock then outstanding, such holders
waive the right to treat any of the following events as a deemed
liquidation:
(A) any consolidation or merger of the Company with or into
any other corporation or other entity or person, or any other
corporate reorganization, in which the stockholders of the Company
immediately prior to such consolidation, merger or reorganization, own
less than 50% of the Company's voting power immediately after such
consolidation, merger or reorganization, or any transaction or series
of related transactions to which the Company is a party in which in
excess of 50% of the Company's voting power is transferred, excluding
any consolidation or merger effected exclusively to change the
domicile of the Company (an "Acquisition");
(B) a transaction or a series of related transactions, other
than transactions involving a holder of Series A Preferred Stock, in
which a majority of the voting power is transferred to a third party
(or group of affiliated third parties) who were not previously
stockholders of the Company; or
(C) a sale, lease or other disposition of all or
substantially all of the assets of the Company (an "Asset Transfer").
(iii) In any of the events set forth in subparagraph (ii), if the
consideration received by the Company is other than cash, its value will be
deemed its fair market value as determined in good faith by the Board of
Directors. Any securities shall be valued as follows:
(A) Securities not subject to restrictions on free
marketability covered by subparagraph (B) below:
(1) If traded on a securities exchange or through the
Nasdaq National Market (or a similar national quotation system),
the value shall be deemed to be the average of the closing prices
of the securities on such quotation system over the 30 day period
ending three days prior to the closing;
5
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale
prices (whichever is applicable) over the 30 day period ending
three days prior to the closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as determined in good
faith by the Board of Directors.
(B) The method of valuation of securities subject to
restrictions on free marketability (other than restrictions arising
solely by virtue of a stockholder's status as an affiliate or former
affiliate) shall be to make an appropriate discount from the market
value determined as above in subparagraphs (iii)(A)(1), (2) or (3) to
reflect the approximate fair market value thereof, as determined in
good faith by the Board of Directors.
(iv) Written notice of any such liquidation, dissolution or
winding up (or deemed liquidation, dissolution or winding up) of the
Company within the meaning of this Section, which states the payment date,
the place where said payments shall be made and the date on which
conversion rights as set forth herein terminate as to such shares (which
shall be not less than 10 days after the date of such notice), shall be
given by first class mail, postage prepaid, or by telecopy or facsimile,
not less than 20 days prior to the payment date stated therein, to the then
holders of record of Series A Preferred Stock, such notice to be addressed
to each such holder at its address as shown on the records of the Company.
(d) Conversion Rights. The holders of the Series A Preferred Stock
shall have the following rights with respect to the conversion of the Series A
Preferred Stock into shares of Common Stock:
(i) Optional Conversion. Subject to and in compliance with the
provisions of this Section (d), any shares of Series A Preferred Stock may,
at the option of the holder, be converted at any time into fully-paid and
nonassessable shares of Common Stock The number of shares of Common Stock
to which a holder of Series A Preferred Stock shall be entitled upon
conversion shall be the product obtained by multiplying the "Series A
Preferred Conversion Rate" then in effect (determined as provided in
subsection (ii)) by the number of shares of Series A Preferred Stock being
converted.
(ii) Series A Preferred Conversion Rate. The conversion rate in
effect at any time for conversion of the Series A Preferred Stock (the
"Series A Preferred Conversion Rate") shall be the quotient obtained by
dividing the Series A Original Issue Price by the "Series A Preferred
Conversion Price," calculated as provided in subsection (iii) below.
6
(iii) Series A Preferred Conversion Price. The conversion price for
the Series A Preferred Stock shall initially be $0.70 (the "Series A
Preferred Conversion Price"). Such initial Series A Preferred Conversion
Price shall be adjusted from time to time in accordance with this Section
(d). All references to the Series A Preferred Conversion Price herein shall
mean the Series A Preferred Conversion Price as so adjusted.
(iv) Mechanics of Conversion. Each holder of Series A Preferred
Stock who desires to convert the same into shares of Common Stock pursuant
to this Section (d) shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Company or any transfer agent
for the Series A Preferred, and shall give written notice to the Company at
such office that such holder elects to convert the same. Such notice shall
state the number of shares of Series A Preferred being converted.
Thereupon, the Company shall promptly issue and deliver at such office to
such holder a certificate or certificates for the number of shares of
Common Stock to which such holder is entitled and shall promptly pay in
cash (at the Common Stock's fair market value determined by the Board of
Directors as of the date of conversion) the value of any fractional share
of Common Stock otherwise issuable to any holder of Series A Preferred.
Such conversion shall be deemed to have been made at the close of business
on the date of such surrender of the certificates representing the shares
of Series A Preferred to be converted, and the person entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated
for all purposes as the record holder of such shares of Common Stock on
such date.
(v) Adjustment Upon Common Stock Event. Upon the happening of a
Common Stock Event (as hereinafter defined) at any time or from time to
time after the date that the first share of Series A Preferred is issued
(the "Series A Original Issue Date"), the Series A Preferred Conversion
Price shall, simultaneously with the happening of such Common Stock Event,
be adjusted by multiplying the Series A Preferred Conversion Price in
effect immediately prior to such Common Stock Event by a fraction, (i) the
numerator of which shall be the number of shares of Common Stock issued and
outstanding immediately prior to such Common Stock Event, and (ii) the
denominator of which shall be the number of shares of Common Stock issued
and outstanding immediately after such Common Stock Event, and the product
so obtained shall thereafter be the Series A Preferred Conversion Price.
The Series A Preferred Conversion Price shall be readjusted in the same
manner upon the happening of each subsequent Common Stock Event. As used in
this Section (d), the term "Common Stock Event" shall mean (i) the issue by
the Company of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, (ii) a subdivision of the
outstanding shares of Common Stock into a greater number of shares of
Common Stock (by stock split, reclassification or otherwise), or (iii) a
combination or consolidation, by reclassification or otherwise, of the
outstanding shares of Common Stock into a smaller number of shares of
Common Stock.
7
(vi) Adjustment for Other Dividends and Distributions. If at any
time or from time to time after the Series A Original Issue Date the
Company pays a dividend or makes another distribution to the holders of the
Common Stock (or fixes a record date for the determination of holders of
Common Stock entitled to receive such dividend or other distribution)
payable in securities of the Company or any of its subsidiaries other than
shares of Common Stock, then in each such event provision shall be made so
that the holders of Series A Preferred Stock shall receive upon conversion
thereof, in addition to the number of shares of Common Stock receivable
upon conversion thereof, the amount of securities of the Company which they
would have received had their Series A Preferred Stock been converted into
Common Stock on the date of such event (or such record date, as applicable)
and had they thereafter, during the period from the date of such event (or
such record date, as applicable) to and including the conversion date,
retained such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period
under this Section (d) with respect to the rights of the holders of the
Series A Preferred Stock or with respect to such other securities by their
terms.
(vii) Adjustment for Reclassification, Exchange and Substitution. If
at any time or from time to time after the Series A Original Issue Date,
the Common Stock issuable upon the conversion of the Series A Preferred
Stock is changed into the same or a different number of shares of any class
or classes of stock, whether by recapitalization, reclassification or
otherwise (other than an Acquisition or Asset Transfer as defined in
Section (c) or a subdivision or combination of shares or stock dividend or
a reorganization, merger, consolidation or sale of assets provided for
elsewhere in this Section (d)), in any such event each holder of Series A
Preferred Stock shall have the right thereafter to convert such stock into
the kind and amount of stock and other securities and property receivable
upon such recapitalization, reclassification or other change by holders of
the maximum number of shares of Common Stock into which such shares of
Series A Preferred Stock could have been converted immediately prior to
such recapitalization, reclassification or change, all subject to further
adjustment as provided herein or with respect to such other securities or
property by the terms thereof.
(viii) Adjustment for Reorganizations, Mergers or Consolidations. If
at any time or from time to time after the Series A Original Issue Date,
there is a capital reorganization of the Common Stock or the merger or
consolidation of the Company with or into another corporation or another
entity or person (other than an Acquisition or Asset Transfer as defined in
Section (c) or a recapitalization, subdivision, combination,
reclassification, exchange or substitution of shares provided for elsewhere
in this Section (d)), as a part of such capital reorganization, provision
shall be made so that the holders of the Series A Preferred Stock shall
thereafter be entitled to receive upon conversion of the Series A Preferred
Stock the number of shares of stock or other securities or property of the
Company to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization, subject to adjustment in respect of such stock or
securities by the terms thereof.
8
In any such case, appropriate adjustment shall be made in the application
of the provisions of this Section (d) with respect to the rights of the
holders of Series A Preferred Stock after the capital reorganization to the
end that the provisions of this Section (d) (including adjustment of the
Series A Preferred Conversion Price then in effect and the number of shares
issuable upon conversion of the Series A Preferred Stock) shall be
applicable after that event and be as nearly equivalent as practicable.
(ix) Sale of Shares Below Series A Preferred Conversion Price.
(A) If at any time or from time to time after the Series A
Original Issue Date, the Company issues or sells, or is deemed by the
express provisions of this subsection (ix) to have issued or sold
Additional Shares of Common Stock (as defined in subsection (ix)(B)(1)
below), other than (w) as a dividend or distribution on the Series A
Preferred Stock, (x) in connection with a Common Stock Event as
provided in subsection (v) above, (y) as a dividend or other
distribution on any class of stock as provided in subsection (vi)
above, and (z) a subdivision or combination of shares of Common Stock
as provided in subsection (vii) above, for an Effective Price (as
defined in subsection (ix)(B)(4) below) less than the then effective
Series A Preferred Conversion Price, then and in each such case the
then existing Series A Preferred Conversion Price shall be reduced, as
of the opening of business on the date of such issue or sale, to a
price equal to the price per share paid for such Additional Shares of
Common Stock (but not less than the par value of the Common Stock).
(B) Certain Definitions. For the purpose of making any
adjustment required under this subsection (ix):
(1) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to this Section,
deemed to be issued) by the Company, whether or not subsequently
reacquired or retired by the Company, other than: (A) shares of
Common Stock issued or issuable upon exercise of options,
warrants (other than outstanding warrants granted in favor of
Invest Inc.), convertible securities or other rights outstanding
as of the Series A Original Issue Date; and (B) shares of Common
Stock issued or issuable by the Company or any subsidiary to
employees, officers, directors or consultants pursuant to stock
option plans that are permitted by Section 7.4 of the Series A
Preferred Stock Purchase Agreement, dated as of February 16,
2001, among the Company, SCP Private Equity Partners II, L.P.,
and ICG Holdings, Inc., unless otherwise approved by the holders
of not less than a majority of the outstanding shares of Series A
Preferred Stock;
(2) The "Aggregate Consideration Received" by the
Company for any issue or sale (or deemed issue or sale) of
securities shall (i) (A) to the extent it consists of cash, be
computed at the gross
9
amount of cash received by the Company before deduction of any
underwriting or similar commissions, compensation or concessions paid
or allowed by the Company in connection with such issue or sale and
without deduction of any expenses payable by the Company; (B) to the
extent it consists of property other than cash, be computed at the
fair value of that property at the time of such issue as determined in
good faith by the Board; and (C) if Additional Shares of Common Stock,
Convertible Securities or Rights or Options are issued or sold
together with other stock or securities or other assets of the Company
for a consideration which covers both, be computed as the portion of
the consideration so received that may be reasonably determined in
good faith by the Board to be allocable to such Additional Shares of
Common Stock, Convertible Securities or Rights or Options or (ii) if
no consideration is received by the Company, be considered zero;
(3) "Convertible Securities" shall mean any evidence of
indebtedness, stock or other securities directly or indirectly
convertible into or exchangeable for shares of Common Stock;
(4) The "Effective Price" of Additional Shares of Common
Stock shall mean the quotient determined by dividing the total number
of Additional Shares of Common Stock issued or sold, or deemed to have
been issued or sold by the Company by the provisions of clause (1),
into the Aggregate Consideration Received, or deemed to have been
received by the Company by the provisions of this clause (4), for such
issue or sale of such Additional Shares of Common Stock; and
(5) "Rights or Options" shall mean warrants, options or
other rights to purchase or otherwise acquire shares of Common Stock
or Convertible Securities.
(C) Deemed Issuances. For the purpose of making any adjustment to
the Series A Preferred Conversion Price required under this subsection
(ix), if the Company issues or sells any Rights or Options or Convertible
Securities (or shall fix a record date for the determination of holders of
any class of securities then entitled to receive any such Rights or Options
or Convertible Securities), then the Company shall be deemed (x) to have
issued, at the time of the issuance of such Rights or Options or
Convertible Securities, that number of Additional Shares of Common Stock
that is equal to the maximum number of shares of Common Stock issuable upon
exercise of such Rights or Options or conversion or exchange of such
Convertible Securities upon their issuance (or, in the case such a record
date shall have been fixed, as of the close of business on such record
date) and (y) to have received, as the Aggregate Consideration Received for
the deemed issuance of such additional shares of Common Stock, an amount
equal to the total amount of the consideration, if any, received by the
10
Company for the issuance of such Rights or Options or Convertible
Securities, plus, in the case of such Rights or Options, the minimum
total amount of consideration, if any, payable to the Company upon the
exercise in full of such Rights or Options (including, with respect to
Rights or Options for Convertible Securities, the minimum aggregate
amount of consideration payable to the Company (other than by
cancellation of liabilities or obligations evidenced by such Rights or
Options) upon the conversion or exchange of such underlying
Convertible Securities), plus, in the case of Convertible Securities,
the minimum total amount of consideration, if any, payable to the
Company (other than by cancellation of liabilities or obligations
evidenced by such Convertible Securities) upon the conversion or
exchange thereof; provided that:
(1) if the minimum amounts of such consideration cannot be
ascertained, but are a function of antidilution or similar
protective clauses, then the Company shall be deemed to have
received the minimum amounts of consideration without reference
to such clauses;
(2) if the minimum amount of consideration payable to the
Company upon the exercise of such Rights or Options or the
conversion or exchange of such Convertible Securities is reduced
or the maximum number of shares of Common Stock issuable upon the
exercise of such Rights or Options or the conversion or exchange
of such Convertible Securities is increased over time or upon the
occurrence or non-occurrence of specified events, other than by
reason of antidilution or similar protective adjustments, then
the Series A Preferred Conversion Price computed upon the
original issue or deemed issue thereof (or upon the occurrence of
a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such decrease or
increase becoming effective, be recomputed to reflect such
decrease or increase, as the case may be (provided, however, that
no such adjustment of the Series A Preferred Conversion Price
shall affect Common Stock previously issued upon conversion of
the Series A Preferred Stock); and
(3) if the minimum amount of consideration payable to the
Company upon the exercise of such Rights or Options or the
conversion or exchange of such Convertible Securities is
subsequently increased or the maximum number of shares of Common
Stock issuable upon the exercise of such Rights or Options or the
conversion or exchange of such Convertible Securities is
subsequently decreased, then the Series A Preferred Conversion
Price computed upon the original issue or deemed issue thereof
(or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any
such increase or decrease becoming effective, be recomputed to
reflect such increase or decrease, as the case may be, (provided,
however, that no such adjustment of the Series A Preferred
Conversion Price shall af-
11
fect Common Stock previously issued upon conversion of the Series
A Preferred Stock, and further provided that no readjustment
pursuant to this clause (3) shall have the effect of increasing
the Series A Preferred Conversion Price to an amount which
exceeds the lower of (A) the Series A Preferred Conversion Price
on the original adjustment date, or (B) the Series A Preferred
Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment
date and such readjustment date).
No further adjustment of the Series A Preferred Conversion Price,
adjusted upon the issuance of such Rights or Options or Convertible
Securities, shall be made as a result of the actual issuance of shares
of Common Stock on the exercise of any such Rights or Options or the
conversion or exchange of any such Convertible Securities. If any
such Rights or Options or the conversion rights represented by any
such Convertible Securities shall expire without having been fully
exercised, then the Series A Preferred Conversion Price as adjusted
upon the issuance of such Rights or Options or Convertible Securities
(or upon the occurrence of the record date with respect thereto), and
any subsequent adjustments based thereon, shall be readjusted to the
Series A Preferred Conversion Price which would have been in effect
had an adjustment been made on the basis that (x) the only Additional
Shares of Common Stock so issued were the shares of Common Stock, if
any, that were actually issued or sold on the exercise of such Rights
or Options or rights of conversion or exchange of such Convertible
Securities and (y) the consideration received with respect to
Additional Shares of Common Stock was the consideration actually
received by the Company upon such exercise of such Rights or Options,
plus the consideration, if any, actually received by the Company for
the granting of all such Rights or Options, whether or not exercised,
plus the consideration received for issuing or selling all such
Convertible Securities actually converted or exchanged, plus the
consideration, if any, actually received by the Company (other than by
cancellation of liabilities or obligations evidenced by such
Convertible Securities) on the conversion or exchange of such
Convertible Securities provided, however, that no such adjustment of
the Series A Preferred Conversion Price shall affect Common Stock
previously issued upon conversion of the Series A Preferred Stock. In
the case of any Rights or Options which expire by their terms not more
than 30 days after the date of issue thereof, no adjustment of the
Series A Preferred Conversion Price shall be made (except as to shares
of Series A Preferred Stock converted in such period) until the
expiration or exercise of all such Rights or Options, whereupon such
adjustment shall be made in the same manner provided above. If any
such record date shall have been fixed and such Rights or Options or
Convertible Securities are not issued on the date fixed thereof, the
adjustment previously made in the Series A Preferred Conversion Price
which became effective on such record date shall be canceled as of the
close of business on such record date, and shall instead be made on
the actual date of issuance, if any.
12
(x) Waiver. The Series A Preferred Conversion Price adjustment
provisions of this Section 4 may be waived by the written consent of the
holders of at least a majority of the outstanding Series A Preferred Stock,
voting together as a single class.
(xi) Certificate of Adjustment. In each case of an adjustment
or readjustment of the Series A Preferred Conversion Price for the number
of shares of Common Stock or other securities issuable upon conversion of
the Series A Preferred Stock, if the Series A Preferred Stock is then
convertible pursuant to this Section (d), the Company, at its expense,
shall compute such adjustment or readjustment in accordance with the
provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first class mail, postage
prepaid, to each registered holder of Series A Preferred Stock at the
holder's address as shown in the Company's books. The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon
which such adjustment or readjustment is based, including a statement of
(i) the consideration received or deemed to be received by the Company for
any Additional Shares of Common Stock issued or sold or deemed to have been
issued or sold, (ii) the Series A Preferred Conversion Price at the time in
effect, (iii) the number of Additional Shares of Common Stock and (iv) the
type and amount, if any, of other property which at the time would be
received upon conversion of the Series A Preferred Stock.
(xii) Notices of Record Date. Upon (i) any taking by the Company
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any Acquisition (as defined in Section (c)) or
other capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company with or into any other corporation, or any
Asset Transfer (as defined in Section (c)), or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Company shall
mail to each holder of Series A Preferred Stock at least 10 days prior to
the record date specified therein (or such shorter period approved by a
majority of the outstanding Series A Preferred Stock) a notice specifying
(A) the date on which any such record is to be taken for the purpose of
such dividend or distribution and a description of such dividend or
distribution, (B) the date on which any such Acquisition, reorganization,
reclassification, transfer, consolidation, merger, Asset Transfer,
dissolution, liquidation or winding up is expected to become effective, and
(C) the date, if any, that is to be fixed as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for securities or other
property deliverable upon such Acquisition, reorganization,
reclassification, transfer, consolidation, merger, Asset Transfer,
dissolution, liquidation or winding up.
(xiii) Automatic Conversion.
13
(A) Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock, based on the
then-effective Series A Preferred Conversion Price, (A) at any time
upon the written consent of the holders of at least a majority of the
outstanding shares of the Series A Preferred Stock, (B) upon the
closing of a Qualified Public Offering, or (C) upon a Qualified Sale.
The term "Qualified Public Offering" shall mean a firmly underwritten
public offering pursuant to an effective registration statement under
the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the Company in which (i) the per share
price is at least four times the then effective Series A Preferred
Conversion Price, and (ii) the gross cash proceeds to the Company
(before underwriting discounts, commissions and fees) are at least
$60,000,000. The term "Qualified Sale" shall mean an Acquisition or
Asset Transfer (as defined in Section (c)) which provides for minimum
consideration payable with respect to each share of Common Stock (on a
fully diluted basis) of at least three times the then effective Series
A Preferred Conversion Price in cash or Liquid Stock. The term "Liquid
Stock" shall mean capital stock which is registered under Section
12(b) or Section 12(g) of the Securities Exchange Act of 1934, as
amended, the disposition of which would not be significantly
restricted by low trading volume or otherwise; provided, that capital
stock which is either (i) listed for trading on the NASDAQ National
Market System with average daily trading volume over the past six
months of at least 100,000 shares, or (ii) listed for trading on the
New York Stock Exchange, Inc. shall be deemed to be Liquid Stock. Upon
such automatic conversion, any accrued and unpaid dividends shall be
paid in accordance with the provisions of Section (a).
(B) Upon the occurrence of any of the events specified in
subparagraph (A), the outstanding shares of Series A Preferred Stock
shall be converted automatically without any further action by the
holders of such shares and whether or not the certificates
representing such shares are surrendered to the Company or its
transfer agent; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless the certificates evidencing such
shares of Series A Preferred Stock are either delivered to the Company
or its transfer agent as provided below, or the holder notifies the
Company or its transfer agent that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the
Company to indemnify the Company from any loss incurred by it in
connection with such certificates. Upon the occurrence of such
automatic conversion of the Series A Preferred Stock, the holders of
Series A Preferred Stock shall surrender the certificates representing
such shares at the office of the Company or any transfer agent for the
Series A Preferred Stock. Thereupon, there shall be issued and
delivered to such holder promptly at such office and in its name as
shown on such surrendered certificate or certificates, a certificate
or certificates for the number of shares of Common Stock into which
the shares of Series A Preferred Stock surrendered were convertible on
the date on
14
which such automatic conversion occurred. If the conversion is in
connection with an underwritten offering of securities pursuant to the
Securities Act, the conversion may, at the option of any holder
tendering shares of Series A Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of
securities pursuant to such offering, in which event the holder
entitled to receive the Common Stock upon conversion of the Series A
Preferred Stock shall not be deemed to have converted such Series A
Preferred Stock until immediately prior to the closing of such sale of
securities.
(xiv) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of Series A Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more
than one share of Series A Preferred Stock by a holder thereof shall be
aggregated for purposes of determining whether the conversion would result
in the issuance of any fractional share. If, after the aforementioned
aggregation, the conversion would result in the issuance of any fractional
share, the Company shall, in lieu of issuing any fractional share, pay cash
equal to the product of such fraction multiplied by the Common Stock's fair
market value (as determined by the Board of Directors) on the date of
conversion.
(xv) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, such number of
its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series A Preferred
Stock. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred Stock, the Company will take
such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
(xvi) Notices. Any notice required by the provisions of this
Section (d) shall be in writing and shall be deemed effectively given: (i)
upon personal delivery to the party to be notified, (ii) when sent by
confirmed electronic mail or facsimile if sent during normal business hours
of the recipient; if not, then on the next business day, (iii) 5 days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid, or (iv) 1 day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with verification of
receipt. All notices shall be addressed to each holder of record at the
address of such holder appearing on the books of the Company.
(xvii) Payment of Taxes. The Company will pay all taxes (other
than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock
upon conversion of shares of Series A Preferred Stock, excluding any tax or
other charge imposed in connection with any transfer involved in the issue
and delivery of shares of Common Stock in a
15
name other than that in which the shares of Series A Preferred Stock so
converted were registered.
(xviii) No Impairment. The Company shall not avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but shall at all times in good faith
assist in carrying out all such actions as may be reasonably necessary or
appropriate in order to protect the conversion rights of the holders of the
Series A Preferred Stock against impairment.
(xix) Satisfaction of Accrued Dividends. Except as otherwise
expressly provided, upon the conversion of any shares of Series A Preferred
Stock into Common Stock as provided herein, the holders thereof shall be
entitled to receive a payment in satisfaction of all accrued but unpaid
dividends, subject to limitations regarding the cancellation of PIK Shares
contained in this Section.
(e) Optional Redemption.
(i) Redemption at Option of Holders of Series A Preferred
Stock. At any time on and after January 20, 2006, at the request of any
holder of Series A Preferred Stock, such holder may require the Company to
redeem all, but not less than all, of the shares of Series A Preferred
Stock held by such holder in accordance with the provisions contained in
this Section (e). In no event shall the Company be required to redeem
shares in excess of the amount permitted by law; provided, however, that
such inability to redeem shall not have any impact or effect upon the per-
share Series A Redemption Price (as hereinafter defined). All redemptions
shall be made in the order in which notices of redemption are received
(with any notice of redemption received within 25 days of delivery of
notice by an Initial Redeeming Holder (as hereinafter defined) under
subsection (iii) being treated as having been received simultaneously with
that of the Initial Redeeming Holder), and, if less than all of the shares
submitted for redemption in a particular 25-day period are capable of being
redeemed, then such shares shall be redeemed on a pro rata basis, based on
the number of shares that each stockholder submitted for redemption.
(ii) Redemption Price of Series A Preferred Stock. The
price at which the Series A Preferred Stock shall be redeemed (the "Series
A Redemption Price") shall be equal to the Series A Original Issue Price
(as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares) for each share
of Series A Preferred Stock plus accrued but unpaid dividends.
(iii) Exercise of Option to Redeem Series A Preferred Stock.
If a holder of Series A Preferred Stock desires to exercise such holder's
option to redeem all, but not less than all, of such holder's shares of
Series A Preferred Stock pursuant to this Section (e), such holder (the
"Initial Redeeming Holder") must give written notice to the Company
specifying the number of shares to be redeemed, and the Company shall
promptly provide a copy of such notice to each other holder of Series A
Preferred
16
Stock. No later than 25 days after receipt by the Company of notice of the
Initial Redeeming Holder, if any other holder of Series A Preferred Stock
also wishes to redeem all of such holder's shares of Series A Preferred
Stock at the same time as the redemption of the shares of the Initial
Redeeming Holder, such additional holder shall provide a notice comparable
to that of the Initial Redeeming Holder to the Company and the Company
shall promptly provide a copy of such notice to each other holder of Series
A Preferred Stock. Redemptions shall be made on a date 30 calendar days
after the date on which the Company receives the notice of the Initial
Redeeming Holder (or the first business day thereafter). Each such date of
redemption shall be a "Series A Redemption Date." To receive the Series A
Redemption Price, the holder of shares of Series A Preferred Stock must
present and surrender the certificate or certificates representing such
shares (duly endorsed for transfer) to the Company at the principal
executive offices of the Company no later than three business days prior to
the Series A Redemption Date. The Company shall pay the Series A Redemption
Price to, or to the order of, the person whose name appears on such
certificate or certificates as the owner thereof. The Company shall pay the
entire Series A Redemption Price on the Series A Redemption Date.
(iv) Effect of Redemption. From and after the Series A Redemption
Date, unless the Company shall default in providing for the payment of the
Series A Redemption Price, all dividends on such shares requested to be
redeemed pursuant to this Section (e) shall cease to accrue, and all rights
of the holders of any such shares subject to redemption as stockholders of
the Company with respect to such shares, except the right to receive the
Series A Redemption Price, shall cease and terminate. Any shares of Series
A Preferred Stock that are redeemed by the Company shall be retired and
shall not be reissued.
(v) Failure to Redeem. If the Company shall for any reason fail
to redeem any shares of Series A Preferred Stock as required by this
Section (e), and such failure shall continue for a period of 30 days, then
notwithstanding anything to the contrary contained in this Certificate of
Designation, with respect to all shares of Series A Preferred Stock then
outstanding: (i) the conversion rights set forth in Section (d) hereof
shall continue beyond any date for redemption specified in said Section,
and said rights may be exercised at any time; and (ii) the Company may not,
other than in the ordinary course of business, incur any indebtedness for
money borrowed or borrow or reborrow any amounts under any lines of credit
or any other borrowing facility which it may then have outstanding without
the prior written consent of the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock, unless the proceeds of such
incurrence of such indebtedness or borrowing or reborrowing are to be used
to make all redemptions then required to be made; and (iii) dividends shall
continue to accrue and be paid in accordance with and as defined in Section
(a), and, to the extent not paid, shall be added to the Series A Redemption
Price. Nothing herein shall limit the Company's obligations to redeem as
set forth above, or limit the remedies available to the holders of Series A
Preferred Stock in the event of a failure of the Company to honor such
obligations.
17
(f) Waiver. Any rights of the holders of Series A Preferred Stock set forth
herein may be waived by the affirmative vote or consent of the holders of a
majority of the shares of Series A Preferred Stock then outstanding.
(g) Limitation on Reissuance of Shares. No share of shares of Series A
Preferred Stock acquired by the Company by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
cancelled, retired and eliminated from the shares that the Company is authorized
to issue.
18
EXHIBIT C
---------
SCHEDULE OF PURCHASERS
------------------------------------------------------------------------------------------------------------------
Purchaser Number of Shares Purchase Price Number of Warrants Purchase Price for
for Shares Warrants
------------------------------------------------------------------------------------------------------------------
SCP Private Equity Partners 214,286 $15,000,020 28,571,429 $285.71
II, L.P.
Building 300
000 Xxxxx Xxxx Xxxxx
Xxxxx, XX 00000-0000
Attn: Xxxxx Xxxxxxx
Telephone: 000 000-0000
Facsimile: 000 000-0000
------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. 142,858 $10,000,060 14,285,720 $142.86
Xxxxxxxx Xxxxxxxxx Xxxxxx
000 Xxxx Xxxxx, Xxxxx 0
Xxxxxx, XX 00000
Attn: Xxxxx Nassau
Telephone: 000 000-0000
Facsimile: 302 292-3972
------------------------------------------------------------------------------------------------------------------
EXHIBIT D
---------
BREAKAWAY SOLUTIONS, INC.
INVESTOR RIGHTS AGREEMENT
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (the "Agreement") is made as of the _____
day of March, 2001, by and between BREAKAWAY SOLUTIONS, INC., a Delaware
corporation (the "Company"), SCP PRIVATE EQUITY PARTNERS II, L.P., a Delaware
limited partnership ("SCP"), and ICG HOLDINGS, INC., a Delaware corporation
("ICG"). (the "Investor"). (SCP and ICG are sometimes individually referred to
as an "Investor" and collectively as the "Investors.")
RECITALS
WHEREAS, the Company and the Investors are parties to that certain Series A
Preferred Stock Purchase Agreement, dated as of February 16, 2001 (the "Series A
Agreement"), pursuant to which the Company has agreed to sell to the Investors,
and the Investors have agreed to purchase from the Company, (a) an aggregate of
357,143 shares (the "Initial Preferred Stock") of the Company's Series A
Preferred Stock, $0.0001 par value ("Series A Preferred Stock"), initially
convertible into 35,714,300 shares of its Common Stock, $0.000125 par value
("Common Stock"), at an aggregate purchase price of $25,000,010 ($70.00 per
share of Series A Preferred Stock), and (b) warrants (the "Warrants") to
purchase up to 42,857,149 shares of Common Stock at an exercise price of $0.70
per share;
WHEREAS, pursuant to the Series A Agreement, SCP proposes to commit to
purchase an additional 71,429 shares of Series A Preferred Stock (the "Option
Preferred Stock") at the aggregate purchase price of $5,000,030 ($70.00 per
share of Series A Preferred Stock) on the terms and conditions hereinafter set
forth; and
WHEREAS, in order to induce the Investors to enter into the Series A
Agreement, the Company has agreed to grant to the Investors certain rights to
register, under the Securities Act of 1933, as amended, the offer and sale of
the Common Stock which the Investors might acquire upon conversion of the Series
A Preferred Stock (the "Conversion Stock") or exercise of the Warrants ("Warrant
Stock"); and
WHEREAS, Investors' and the Company's respective obligations under the
Series A Agreement are conditioned upon the execution and delivery of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto, intending to be legally
bound hereby, agree as follows:
ARTICLE I
REGISTRATION RIGHTS
The Company covenants and agrees as follows:
1
1.1. Definitions.
For purposes of the Agreement:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Holder" means any person owning Registrable
Securities or securities convertible into or exercisable for Registrable
Securities or any assignee thereof pursuant to Section 1.6 herein.
(c) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(d) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(e) The term "Registrable Securities" means (i) the Conversion
Stock, (ii) the Warrant Stock, and (iii) any Common Stock of the Company issued
as (or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of the shares referenced in (i) above,
excluding in all cases, however, any Registrable Securities sold by a person in
a transaction in which his rights under this Article 1 are not assigned.
(f) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(g) The term "SEC" shall mean the Securities and Exchange
Commission.
(h) The term "Shelf Registration Period" shall have the meaning
set forth in Section 1.2 hereof.
(i) The term "Shelf Registration Statement" shall mean a "shelf"
registration statement of the Company pursuant to the provisions of Section 1.2
hereof which covers any of the Registrable Securities on Form S-3 or on another
appropriate form for an offering to be made on a delayed or continuous basis
pursuant to Rule 415 under the Act, or any similar rule that may be adopted by
the SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case, including the prospectus
contained therein, all exhibits thereto and all documents incorporated or deemed
to be incorporated by reference therein.
2
1.2. Obligations of the Company. The Company shall:
--------------------------
(a) prepare and file with the SEC, within 30 days after the
Closing Date (as defined in the Series A Agreement), a Shelf Registration
Statement to enable the resale of the Registrable Securities by each Holder from
time to time in accordance with the methods of distribution elected by such
Holder of the Registrable Securities and set forth in such Shelf Registration
Statement and shall use its best efforts to cause such Shelf Registration
Statement to be declared effective under the Act prior to 60 days following the
filing of such Shelf Registration Statement with the SEC;
(b) prepare and file with the SEC, within 30 days after receipt
of a written request from a Holder of Registrable Securities, a Shelf
Registration Statement to enable the resale by the Holder of any Registrable
Securities which were not included in the Shelf Registration Statement filed
pursuant to paragraph (a), from time to time in accordance with the methods of
distribution elected by any Holder of the Registrable Securities and set forth
in such Shelf Registration Statement and shall use its best efforts to cause
such Shelf Registration Statement to be declared effective under the Act prior
to 30 days following the filing of such Shelf Registration Statement with the
SEC;
(c) prepare and file with the SEC such amendments and
supplements to any Shelf Registration Statement as may be necessary to comply
with the provisions of the Act, the 1934 Act or the SEC;
(d) keep each Shelf Registration Statement continuously
effective under the Act in order to permit the prospectus related thereof to be
usable by the Holders until, as to a particular Shelf Registration Statement,
the earlier of (i) the date as of which all Registrable Securities covered by
such Shelf Registration Statement may be transferred pursuant to Rule 144(k) of
the Act (or any similar provision then in force), or (ii) such date as of which
all Registrable Securities have been sold pursuant to the Shelf Registration
Statement (in any such case, such period being called a "Shelf Registration
Period");
(e) prepare and file with the SEC such amendments and post-
effective amendments to any Shelf Registration Statement as may be necessary to
keep any such Shelf Registration Statement continuously effective for the
applicable Shelf Registration Period;
(f) cause the prospectus related to any Shelf Registration
Statement to be supplemented by any required supplement, and as so supplemented
to be filed pursuant to Rule 424 (or any similar provisions then in force) under
the Act;
(g) comply in all material respects with the provisions of the
Act with respect to the disposition of securities covered by each Shelf
Registration Statement during the applicable period in accordance with the
intended methods of disposition by each Holder set forth in the relevant Shelf
Registration Statement as so amended or as such prospectus is so supplemented;
3
(h) furnish to each Holder such numbers of copies of the
prospectuses, including preliminary prospectuses, in conformity with the
requirements of the Act, and such other documents as such Holder may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Holder;
(i) use its best efforts to register and qualify the securities
covered by each Shelf Registration Statement under such other securities or Blue
Sky laws of such jurisdictions as shall be reasonably requested by a Holder;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act;
(j) in the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering;
(k) advise each Holder, promptly after it shall receive notice
or obtain knowledge of the issuance of any stop order by the SEC delaying or
suspending the effectiveness of any Shelf Registration Statement or of the
initiation or threat of any proceeding for that purpose; and it will promptly
use its reasonable efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order should
be issued;
(l) notify each Holder of the happening of any event as a result
of which a prospectus included in any Shelf Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statement
therein not misleading in the light of the circumstances then existing and,
following such notification, promptly deliver to each Holder copies of all
amendments or supplements referred to in paragraphs (c), (e) and (f) of this
Section 1.2;
(m) cause all Registrable Securities registered pursuant to
Article 1 hereunder to be listed on the Automated Quotation System of the
National Association of Securities Dealers and on any securities exchange on
which similar securities issued by the Company are then listed;
(n) provide a transfer agent and registrar for all Registrable
Securities registered pursuant to Article 1 hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration; and
(o) furnish, at the request of any Holder, on the date that any
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Article 1, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the Shelf Registration Statement with respect to
such securities becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the under-
4
writers, if any, and to the Holders and (ii) a letter dated such date, from the
independent certified public accountants of the Company, in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders.
1.3. Expenses of Registration. All expenses, including (without limitation)
------------------------
all registration, filing and qualification fees, printers' and accounting fees,
fees and disbursements of counsel for the Company, and fees and disbursements
for counsel for the Investors shall be borne by the Company, but excluding
underwriting discounts and selling commissions.
1.4. Indemnification.
---------------
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, each of its partners, officers and directors, and any
underwriter (as defined in the Act) for a Holder and each person, if any, who
controls a Holder or underwriter within the meaning of the Act or the 1934 Act,
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Act, or the 1934 Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in any Shelf
Registration Statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Act, the 1934 Act or any
state securities law or any rule or regulation promulgated under the Act, or the
1934 Act or any state securities law; and the Company will pay to such Holder,
partner, officer, director, underwriter or controlling person, as incurred, any
legal or other expenses reasonably incurred by them in connection with
investigating or defendant any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.4(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by such Holder, partner,
officer, director, underwriter or controlling person.
(b) To the extent permitted by law, each Holder will indemnify and
hold harmless the Company, each of its directors, each of its officers who has
signed a Shelf Registration Statement, each person, if any, who controls the
Company within the meaning of the Act, any underwriter, and any controlling
person of any such underwriter, each other Holder, each of its partners,
officers and directors and any controlling person of any such Holder, against
any losses, claims, damages, or liabilities (joint or several) to which any of
the foregoing persons may become subject, under the Act, or the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise
5
out of or are based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such Shelf Registration Statement; and the Holder will pay, as incurred,
any legal or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this subsection 1.4(b), in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this subsection 1.4(b) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Holder, which consent shall not be unreasonably withheld; provided, that, in no
event shall any indemnity under this subsection 1.4(b) exceed the gross proceeds
from the offering related to such Shelf Registration Statement received by the
Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.4 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 1.4, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.4 but the omission so to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.4.
(d) If the indemnification provided for in this Section 1.4 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
6
(e) The obligations of the Company and Holders under this Section 1.4
shall survive the completion of any offering of Registrable Securities relating
to the Shelf Registration Statement covering such securities, and otherwise.
1.5. Reports under the Securities Exchange Act of 1934. The Company shall
-------------------------------------------------
cause its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the 1934 Act, shall comply in all respects with its reporting and
filing obligations under the 1934 Act, and shall not take any action or file any
document (whether or not permitted by the 1934 Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under the 1934 Act. The Company shall use its best
efforts to continue the listing of its Common Stock on the Automated Quotation
System of the National Association of Securities Dealers, and shall comply in
all material respects with its reporting, filing and other obligations under the
bylaws or rules of such exchange or association.
1.6. Assignment of Registration Rights. The rights to cause the Company to
---------------------------------
register Registrable Securities pursuant to this Article 1 may be assigned (but
only with all related obligations) by a Holder to one or more transferees of the
Registrable Securities; provided: (i) the Company is, within a reasonable time
after such transfer, furnished with written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned; (ii) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement; and (iii) such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by the
transferee or assignee is restricted under the Act.
1.7. Limitations on Subsequent Registration Rights. From and after the date
---------------------------------------------
of this Agreement, the Company shall not, without the prior written consent of
the Holders representing in the aggregate at least 50% of the then outstanding
Registrable Securities, enter into any agreement with any holder or prospective
holder of any securities of the Company which would allow such holder or
prospective holder to interfere with or otherwise limit a Holder's registration
rights under this Agreement.
1.8. Investor Information. Each Holder who includes Registrable Securities
--------------------
in any registration pursuant to this Article I shall promptly furnish to the
Company such information regarding such Holder and the distribution proposed by
such Holder as the Company may reasonably request and as shall be required in
connection with any registration, qualification or compliance referred to in
this Agreement.
ARTICLE II
COVENANTS OF THE COMPANY.
2.1. Information Available. So long as any Shelf Registration Statement is
---------------------
in effect, the Company shall deliver to the Investors:
(a) (i) as soon as practicable, but in any event within 45 days after
the end of each fiscal year of the Company, one copy of (A) its Annual Report to
Stockholders (which Annual Report shall contain financial statements audited in
accordance with generally
7
accepted accounting principles by a national firm of certified public
accountants) and (B) its Annual Report on Form 10-K; and (ii) as soon as
practicable, but in any event within 45 days after the end of each fiscal
quarter of the Company, one copy of its Quarterly Reports on Form 10-Q (the
foregoing, in each case, excluding exhibits);
(b) upon the request of any Investor, all exhibits excluded by the
parenthetical to paragraph (a) of this Section 2.1 as filed with the SEC and all
other information that is made available to stockholders;
(c) upon the request of any Investor, an adequate number of copies of
the prospectus related to any Shelf Registration Statement to supply to any
other party requiring such prospectus; and the Company, upon the reasonable
request of an Investor, will meet with the Investor or a representative thereof
at the Company's headquarters to discuss all information relevant for disclosure
in any Shelf Registration Statement and will otherwise cooperate with the
Investor in conducting an investigation for the purpose of reducing or
eliminating such Investor's exposure to liability under the Act, including the
reasonable production of information at the Company's headquarters; provided,
that the Company shall not be required to disclose any confidential information
to or meet at its headquarters with any Investor until and unless the Investor
shall have entered into a confidentiality agreement in form and substance
reasonably satisfactory to the Company with the Company with respect thereto;
and
(d) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as an Investor may from
time to time request, provided, however, that the Company shall not be obligated
under this subsection (d) to provide information which it deems in good faith to
be a trade secret or similar confidential information until and unless the
Investor shall have entered into a confidentiality agreement in form and
substance reasonably satisfactory to the Company with the Company with respect
thereto.
2.2. Inspection. So long as any Shelf Registration Statement is effective,
----------
the Company shall permit each Investor, at such Investor's expense, to visit and
inspect the Company's properties, to examine its books of account and records
and to discuss the Company's affairs, finances and accounts with its officers,
all at such reasonable times as may be requested by the Investor; provided,
however, that the Company shall not be obligated pursuant to this Section 2.2 to
provide access to any information which it reasonably considers to be a trade
secret or similar confidential information until and unless the Investor shall
have entered into a confidentiality agreement in form and substance reasonably
satisfactory to the Company with the Company with respect thereto.
ARTICLE III
BOARD OF DIRECTORS.
3.1. Election of Directors. For so long as SCP shall hold at least fifty
---------------------
percent of the shares of the Series A Preferred Stock originally issued to SCP
pursuant to the Se-
8
xxxx A Agreement, the board of directors shall consist of 7 members and the
Company shall use its best efforts to (a) maintain a seven member Board of
Directors, (b) reserve two seats on the Board of Directors for members selected
by SCP (in separate classes), (c) reserve one seat on each committee of the
Board of Directors for one of the directors selected by SCP and identified to
the Company in writing, to the extent consistent with applicable director
independence requirements, and (d) reserve one seat on the Board of Directors
for a member selected by ICG and SCP (in a class different from the classes
containing the two directors selected by SCP pursuant to clause (b)) and
identified to the Company in writing.
ARTICLE IV
COVENANTS BY ICG.
4.1. Lockup Agreement. So long as SCP holds at least 10% of its aggregate
----------------
ownership of the Series A Preferred Stock, any Warrants, any shares of
Conversion Stock, or any Warrant Stock (based, in the case of the Series A
Preferred Stock, on the number of shares of Common Stock into which the Series A
Preferred Stock shall be convertible), ICG shall not sell or otherwise dispose
of any shares of Common Stock either owned by it on the date of this Agreement
or which it is entitled to purchase pursuant to outstanding securities it owns
on the date of this Agreement, which ICG represents to be a total of ___________
shares ("ICG Common Stock"). In addition, ICG agrees that it shall not sell any
securities purchased pursuant to this Agreement (or obtained by the exercise or
conversion of any securities purchased pursuant to this Agreement) (the "ICG
Agreement Holdings"); provided that if SCP sells Common Stock after the date of
this Agreement, ICG shall be permitted to sell, at the time of such sale, up to
a number of shares that represents the same percentage of the ICG Agreement
Holdings as the percentage SCP's sale represents of the securities it purchased
pursuant to this Agreement (or obtained by the exercise or conversion of any
securities purchased pursuant to this Agreement). For purposes of this Section
4.1, if SCP shall sell shares of Series A Preferred Stock or Warrants, it shall
be deemed to have sold that number of shares of Common Stock into which the
shares of Series A Preferred Stock were convertible or the number of shares of
Common Stock issuable upon exercise of the Warrants, calculated on the date the
shares of Series A Preferred Stock or the Warrants, as the case may be, were
sold.
ARTICLE V
MISCELLANEOUS.
5.1. Successors and Assigns. Except as otherwise provided herein, the terms
----------------------
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties (including transferees
of any shares of Registrable Securities). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
9
5.2. Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the Commonwealth of Pennsylvania as applied to agreements
among Pennsylvania residents entered into and to be performed entirely within
Pennsylvania.
5.3. Rule 144. The Company covenants that it will (a) file in a timely
--------
manner all reports and other documents required to be filed by it under the Act
and the 1934 Act and the rules and regulations adopted by the SEC thereunder,
(b) make and keep public information available, as those terms are understood
and defined in Rule 144 under the Act, at all times, and (c) take such further
action as the Investors may reasonably request, all to the extent required from
time to time to enable the Investors to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (ii) any similar rule or regulation hereafter adopted by
the SEC. Upon the request of an Investor, the Company will deliver to such
holder a written statement as to whether it has complied with such information
and requirements.
5.4. Legend. Each stock certificate representing (a) the Registrable
------
Securities, or (b) any other securities issued in respect of the Registrable
Securities upon any stock split, stock dividend, recapitalization, merger,
consolidation, or similar event, shall (unless otherwise permitted by the
provisions of this Agreement) be stamped or otherwise imprinted with legends in
substantially the following form (in addition to any legend required under
applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") AND MAY NOT BE OFFERED, SOLD, OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO SUCH SHARES OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER THE
ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
5.5. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.6. Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
5.7. Notices. All notices and other communications required or
-------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage pre-
10
paid, sent by telefacsimile, or otherwise delivered by hand or by a nationally-
recognized overnight courier, addressed (a) if to an Investor, at such
Investor's address or telefacsimile number set forth on the signature page
hereto, or at such other address or telefacsimile number as such Investor shall
have furnished to the Company in writing, or (b) if to the Company, one copy
should be sent to its address or telefacsimile number set forth on the signature
page hereto and addressed to the attention of the Corporate Secretary, or at
such other address or telefacsimile number as the Company shall have furnished
to the Investors.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given (i) in the case of
personal delivery or delivery by telefacsimile, on the date of such delivery,
(ii) in the case of a nationally-recognized overnight courier, on the next
business day after the date when sent and (iii) in the case of mailing, on the
third business day following that on which the piece of mail containing such
communication has been deposited in a regularly maintained receptacle for the
deposit of the United States mail, addressed and mailed as aforesaid.
5.8. Expenses. If any action at law or in equity is necessary to
--------
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
5.9. Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders
representing in the aggregate at least 50% of the then-outstanding Registrable
Securities. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company.
5.10. Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
5.11. Aggregation of Stock. All shares of Registrable Securities held
--------------------
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
5.12. Entire Agreement; Amendment; Waiver. This Agreement (including
-----------------------------------
the Exhibits hereto, if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
11
IN WITNESS WHEREOF, the parties have executed this Investor Rights
Agreement as of the date first above written.
COMPANY
-------
BREAKAWAY SOLUTIONS, INC.
By: ____________________________________
Xxxxxx Xxxxxx
President and Chief Executive Officer
Address: Breakaway Solutions, Inc.
0 Xxxxx Xxxxx Xxxxx, 0xx Xxxxx
Xxxxxxx, XX 00000
Attn: Corporate Secretary
Telephone: 000-000-0000
Telefacsimile: 000-000-0000
INVESTORS:
----------
SCP PRIVATE EQUITY PARTNERS II, L.P.
By: SCP Private Equity II General Partner, L.P.,
its General Partner
By: SCP Private Equity II, LLC, its Manager
By: ____________________________________
Name:
Title:
Address: Building 300
000 Xxxxx Xxxx Xxxxx
Xxxxx, XX 00000-0000
Attn: Xxxxx Xxxxxxx
Telephone: 000 000-0000
Facsimile: 610 975-9546610
ICG HOLDINGS, INC.
By: ____________________________________
Name:
Title:
Address: Pencador Corporate Center
000 Xxxx Xxxxx, Xxxxx 0
Xxxxxx, XX 00000
Attn: Xxxxx Nassau
Telephone: 000 000-0000
Facsimile: 000 000-0000
12
EXHIBIT E
---------
BREAKAWAY SOLUTIONS, INC.
INVESTOR VOTING AGREEMENT
-------------------------
THIS INVESTOR VOTING AGREEMENT (the "Agreement") is made and entered into
as of February 16, 2001, by and among SCP PRIVATE EQUITY PARTNERS II, L.P., a
Delaware limited partnership ("SCP") and ICG HOLDINGS, INC., a Delaware
corporation ("ICG") (SCP and ICG are collectively referred to as the "Investors"
and each individually is referred to as an "Investor").
WHEREAS, SCP proposes to enter into a Series A Preferred Stock Purchase
Agreement (the "Series A Agreement") with ICG and Breakaway Solutions, Inc., a
Delaware corporation (the "Company"), pursuant to which the Investors would
agree to purchase certain securities of the Company from the Company (the
"Financing");
WHEREAS, the Company is required to obtain prior stockholder approval of
the Financing and certain related matters (all as set forth in Section 5.9 of
the Series A Agreement and hereinafter referred to as the "Series A Proposals")
as a condition to the Financing;
WHEREAS, in order to induce SCP to enter into the Series A Agreement and to
provide certain bridge financing to the Company, ICG is willing to agree to vote
all shares of Common Stock of the Company held by it in favor of the Series A
Proposals; and
WHEREAS, in connection with the consummation of the Financing, the
Investors have agreed to provide for the future voting of their shares of the
Company's capital stock as set forth below:
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. Voting.
------
1.1 Investor Shares. The Investors agree to hold all shares of voting
---------------
capital stock of the Company registered in their respective names or
beneficially owned by them as of the date hereof and any and all other
securities of the Company legally or beneficially acquired by each of the
Investors after the date hereof (collectively, the "Investor Shares") subject
to, and to vote the Investor Shares in accordance with, the provisions of this
Agreement.
1.2 Series A Proposals. ICG shall vote all Investor Shares held by it in
------------------
favor of the Series A Proposals.
1.3 Election of Directors. On all matters relating to the election of
---------------------
directors of the Company, the Investors shall vote all Investor Shares held by
them so as to elect members of the Board of Directors of the Company as follows:
At each election of directors of the Company, the Investors shall vote all
of their respective Investor Shares so as to elect:
(a) two (2) representatives designated by SCP (in separate classes),
so long as SCP holds at least fifty percent (50%) of the Series A Preferred
Stock originally issued to it pursuant to the Series A Agreement (as adjusted
for stock splits, dividends and the like); and
(b) one (1) representative designated by SCP and ICG who shall be
mutually acceptable to SCP and ICG (in a class different from the classes
containing the two (2) directors selected by SCP pursuant to clause (a)), so
long as SCP and ICG collectively own at least fifty percent (50%) of the Series
A Preferred Stock originally issued to them pursuant to the Series A Agreement
(as adjusted for stock splits, dividends and the like).
Any vote taken to remove any director elected pursuant to this Section 1.2,
or to fill any vacancy created by the removal, resignation or death of a
director elected pursuant to this Section 1.2, shall also be subject to the
provisions of this Section 1.2.
2. Miscellaneous.
-------------
2.1 Representations and Warranties.
------------------------------
(a) ICG represents and warrants that it now owns its Investor Shares,
free and clear of liens and encumbrances and has not executed or delivered any
proxy or entered into any other voting agreement or similar arrangement with
respect to the Company's capital stock other than one which has expired or
terminated prior to the date hereof; and
(b) each of the parties represents and warrants that such party has
full power and capacity to execute, deliver and perform this Agreement, which
has been duly executed and delivered by, and evidences the valid and binding
obligation of, such party, enforceable in accordance with its terms, subject to
laws of general application relating to bankruptcy, insolvency and the relief of
debtors.
2.2 No Revocation. The voting agreements contained herein are coupled with
-------------
an interest and may not be revoked during the term of this Agreement.
2.3 Further Action. If and when the Investor Shares are sold, the parties
--------------
or the personal representative of such party shall do all things and execute and
deliver all documents and make all transfers, and cause any transferee to do all
things and execute and deliver all documents, as may be necessary to consummate
such sale consistent with this Agreement.
2
2.4 Specific Performance. The parties hereto acknowledge that it is
--------------------
extremely difficult and may be impossible to measure in money the damages which
will accrue to a party hereto by reason of a failure of any other party to
perform any of the obligations under this Agreement, and agree that the terms of
this Agreement shall be specifically enforceable. If any party hereto or his
heirs, personal representatives, or assigns institutes any action or proceeding
to specifically enforce the provisions hereof, any person against whom such
action or proceeding is brought hereby waives the claim of defense therein that
such party or such personal representative has an adequate remedy at law, and
such person shall not offer in any such action or proceeding the claim or
defense that such remedy at law exist.
2.5 Additional Shares. In the event that subsequent to the date of this
-----------------
Agreement any shares or securities are issued on, or in exchange for, any of the
Investor Shares by reason of any stock dividend, stock split, combination of
shares, reclassification or the like, such shares or securities shall be deemed
to be Investor Shares for purposes of this Agreement.
2.6 Entire Agreement. This Agreement constitutes the entire agreement of
----------------
the parties with respect to the subject matter described herein, and supersedes
all other prior or contemporaneous agreements, whether oral or written, between
the parties with respect to this subject matter.
2.7 Governing Law. This Agreement shall be governed in all respects by the
-------------
laws of the Commonwealth of Pennsylvania as such laws are applied to agreements
between Pennsylvania residents entered into and performed entirely in
Pennsylvania.
2.8 Amendments and Waivers. This Agreement may be amended only by an
----------------------
instrument in writing signed by the Investors. Notwithstanding the foregoing,
with respect to the rights of a party to designate a director, as provided in
Section 1.2 of this Agreement, such party's written consent to any amendment of
such rights shall be required. No waivers of any breach of this Agreement
extended by any party hereto to any other party shall be construed as a waiver
of any rights or remedies of any other party hereto or with respect to any
subsequent breach.
2.9 Subsequent Sale of Series A Preferred Stock. In the event that
-------------------------------------------
subsequent to the date of this Agreement, the Company sells additional shares of
Series A Preferred Stock to a purchaser that is not a party to this Agreement,
such purchaser shall become a party to this Agreement and shall have all of the
rights and obligations of an "Investor" hereunder.
2.10 Successors in Interest. The provisions of this Agreement shall be
----------------------
binding upon and inure to the benefit of the successors in interest of the
Investors. All such successors in interest shall be obligated to enter into this
Agreement as a condition of transfer of shares of stock to such persons being
effected by the Company. Notwithstanding the foregoing, with the prior written
consent of SCP, the provisions of this Agreement shall not be binding on
successors in interest of ICG.
3
2.11 Legend.
------
Concurrently with the execution of this Agreement, there shall be
imprinted or otherwise placed on the certificates representing the Investor
Shares the following restrictive legend (the "Legend"):
"THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO CERTAIN RESTRICTIONS CONTAINED IN THE INVESTOR VOTING AGREEMENT
DATED FEBRUARY __, 2001. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
ICG agrees that it will not request removal of the Legend (upon
registration of transfer, reissuance or otherwise) from any such certificate,
and will facilitate placement of the Legend on any new certificate issued to
represent shares theretofore represented by a certificate carrying the Legend.
2.12 Attorney's Fees. In the event that any suit or action is instituted to
---------------
enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or in respect of this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
2.13 Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, sent by telefacsimile, or otherwise delivered by hand or
by a nationally-recognized overnight courier, addressed to the Investors, at the
address or telefacsimile as set forth on the signature page hereof, or at such
other address or telefacsimile number as the Investors shall have furnished to
the Company in writing.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given (a) in the case of
personal delivery or delivery by telefacsimile, on the date of such delivery,
(b) in the case of a nationally-recognized overnight courier, on the next
business day after the date when sent and (c) in the case of mailing, on the
third business day following that on which the piece of mail containing such
communication has been deposited in a regularly maintained receptacle for the
deposit of the United States mail, addressed and mailed as aforesaid.
2.14 Severability. If any provision of this Agreement is held to be invalid
------------
or unenforceable, the validity and enforceability of the remaining provisions of
this Agreement shall not be affected thereby.
4
2.15 Counterparts. This Agreement may be executed in one (1) or more
------------
counterparts, each of which will be deemed an original but all of which together
shall constitute one and the same agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
5
IN WITNESS WHEREOF, the parties hereto have executed this Investor Voting
Agreement as of the date first above written.
INVESTORS:
---------
SCP PRIVATE EQUITY PARTNERS II, L.P.
By: SCP Private Equity II General Partner, L.P.,
its General Partner
By: SCP Private Equity II, LLC, its Manager
By: ____________________________________
Name:
Title:
Address: Building 300
000 Xxxxx Xxxx Xxxxx
Xxxxx, XX 00000-0000
Attn: Xxxxx Xxxxxxx
Telephone: 000 000-0000
Telefacsimile: 000 000-0000
ICG HOLDINGS, INC.
By: ____________________________________
Name:
Title:
Address: Pencador Corporate Center
000 Xxxx Xxxxx, Xxxxx 0
Xxxxxx, XX 00000
Attn: Xxxxx Nassau
Telephone:
Telefacsimile:
6
EXHIBIT F
---------
BREAKAWAY SOLUTIONS, INC.
EXECUTIVE AND DIRECTOR VOTING AGREEMENT
---------------------------------------
THIS EXECUTIVE AND DIRECTOR VOTING AGREEMENT (the "Agreement") is made and
entered into as of February __, 2001, by and among those certain executives and
directors of Breakaway Solutions, Inc., a Delaware corporation (the "Company"),
who hold shares of the Company's common stock listed on Exhibit A hereto (the
"Holders") in favor of and for the benefit of SCP Private Equity Partners II,
L.P., a Delaware limited partnership ("SCP").
WHEREAS, SCP and ICG Holdings, Inc., a Delaware corporation ("ICG") propose
to enter into a Series A Preferred Stock Purchase Agreement (the "Series A
Agreement") with the Company, pursuant to which SCP and ICG (the "Investors")
would agree to purchase certain securities of the Company from the Company (the
"Financing");
WHEREAS, the Company is required to obtain prior stockholder approval of
the Financing and certain related matters (all as set forth in Section 5.9 of
the Series A Agreement and hereinafter referred to as the "Series A Proposals")
as a condition to the Financing;
WHEREAS, in order to induce SCP to enter into the Series A Agreement and to
provide certain bridge financing to the Company, the Holders are willing to
agree to vote all shares of Common Stock of the Company held by them in favor of
the Series A Proposals; and
WHEREAS, in connection with the consummation of the Financing, the Holders
have agreed to provide for the future voting of their shares of the Company's
capital stock as set forth below;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. Voting.
------
1.1 Holder Shares. The Holders agree to hold all shares of voting capital
-------------
stock of the Company registered in their respective names or beneficially owned
by them as of the date hereof and any and all other securities of the Company
legally or beneficially acquired by each of the Holders after the date hereof
(collectively, the "Holder Shares") subject to, and to vote the Holder Shares in
accordance with, the provisions of this Agreement.
1.2 Series A Proposals. The Holders shall vote all Holder Shares held by
------------------
them in favor of the Series A Proposals.
1.3 Election of Directors. On all matters relating to the election of
---------------------
directors of the Company, the Holders shall vote all Holder Shares held by them
so as to elect members of the Board of Directors of the Company as follows:
At each election of directors of the Company, the Holders shall vote all of
their respective Holder Shares so as to elect:
(a) two (2) representatives designated by SCP (in separate classes),
so long as SCP holds at least fifty percent (50%) of the Series A Preferred
Stock originally issued to it pursuant to the Series A Agreement (as adjusted
for stock splits, dividends and the like); and
(b) one (1) representative designated by SCP and ICG, who shall be
mutually acceptable to SCP and ICG (in a class different from the classes
containing the two (2) directors selected by SCP pursuant to clause (a)), so
long as SCP and ICG collectively own at least fifty percent (50%) of the Series
A Preferred Stock originally issued to them pursuant to the Series A Agreement
(as adjusted for stock splits, dividends and the like).
Any vote taken to remove any director elected pursuant to this Section 1.2,
or to fill any vacancy created by the removal, resignation or death of a
director elected pursuant to this Section 1.2, shall also be subject to the
provisions of this Section 1.2.
2. Miscellaneous.
-------------
2.1 Representations and Warranties. Each of the Holders represent and
-------------------------------
warrant that:
(a) such Holder now owns his or her Holder Shares, free and clear of
liens and encumbrances and has not executed or delivered any proxy or entered
into any other voting agreement or similar arrangement with respect to the
Company's capital stock other than one which has expired or terminated prior to
the date hereof; and
(b) such Holder has full power and capacity to execute, deliver and
perform this Agreement, which has been duly executed and delivered by, and
evidences the valid and binding obligation of, such party, enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors.
2.2 No Revocation. The voting agreements contained herein are coupled with
-------------
an interest and may not be revoked during the term of this Agreement.
2.3 Additional Shares. In the event that subsequent to the date of this
-----------------
Agreement any shares or securities are issued on, or in exchange for, any of the
Holder Shares by reason
-2-
of any stock dividend, stock split, combination of shares, reclassification or
the like, such shares or securities shall be deemed to be Holder Shares for
purposes of this Agreement.
2.4 Successors in Interest. The provisions of this Agreement shall not be
----------------------
binding upon the successors in interest of the Holders, so long as the transfer
to any such successor in interest is not in violation of the restrictions on
share transfers contained in any other agreement to which the transferring
Holder is a party.
2.5 Entire Agreement. This Agreement constitutes the entire agreement of
----------------
the parties with respect to the subject matter described herein, and supersedes
all other prior or contemporaneous agreements, whether oral or written, between
the parties with respect to this subject matter.
2.6 Governing Law. This Agreement shall be governed in all respects by the
-------------
laws of the Commonwealth of Pennsylvania as such laws are applied to agreements
between Pennsylvania residents entered into and performed entirely in
Pennsylvania.
2.7 Amendments and Waivers. This Agreement may be amended only by an
----------------------
instrument in writing signed by (i) SCP and (ii) the holders of at least a
majority of the Holder Shares. No waivers of any breach of this Agreement
extended by any party hereto to any other party shall be construed as a waiver
of any rights or remedies of any other party hereto or with respect to any
subsequent breach.
2.8 Attorney's Fees. In the event that any suit or action is instituted to
---------------
enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or in respect of this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
2.9 Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, sent by telefacsimile, or otherwise delivered by hand or
by a nationally-recognized overnight courier, addressed to the Holders, at the
address or telefacsimile as set forth on the signature page hereof, or at such
other address or telefacsimile number as the Holders shall have furnished to the
Company in writing.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given (i) in the case of
personal delivery or delivery by telefacsimile, on the date of such delivery,
(ii) in the case of a nationally-recognized overnight courier, on the next
business day after the date when sent and (iii) in the case of mailing, on the
third business day following that on which the piece of mail containing such
communication has been deposited in a regularly maintained receptacle for the
deposit of the United States mail, addressed and mailed as aforesaid.
-3-
2.10 Severability. If any provision of this Agreement is held to be
------------
invalid or unenforceable, the validity and enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
2.11 Counterparts. This Agreement may be executed in one (1) or more
------------
counterparts, each of which will be deemed an original but all of which together
shall constitute one and the same agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-4-
IN WITNESS WHEREOF, the parties hereto have executed this Executive and
Director Voting Agreement as of the date first above written.
HOLDERS:
-------
____________________________________ _______________________________
Xxxxxx Xxxxxx Xxxxxxx Xxxxxx
Title: President and Chief Executive Title: Vice President
Officer
____________________________________ _______________________________
Xxxx Xxxxxx Xxxxxxx Xxxxxxxxxxx
Title: Vice President Title: Vice President
____________________________________ _______________________________
Xxxxx Xxxxxxx Xxxxxxx Xxxxxx
Title: Vice President Title: Vice President
____________________________________
Xxxx Xxxxxxx
Title: Vice President
-5-
EXHIBIT A
HOLDERS
Name: Xxxxxx Xxxxxx
Address:
Telephone:
Telefacsimile:
Name: Xxxxxxx Xxxxxx
Address:
Telephone:
Telefacsimile:
Name: Xxxx Xxxxxx
Address:
Telephone:
Telefacsimile:
Name: Xxxxxxx Xxxxxxxxxxx
Address:
Telephone:
Telefacsimile:
Name: Xxxxx Xxxxxxx
Address:
Telephone:
Telefacsimile:
Name: Xxxxxxx Xxxxxx
Address:
Telephone:
Telefacsimile:
Name: Xxxx Xxxxxxx
Address:
Telephone:
Telefacsimile:
A-1
EXHIBIT G
---------
BREAKAWAY SOLUTIONS, INC.
KEY HOLDER VOTING AGREEMENT
---------------------------
THIS KEY HOLDER VOTING AGREEMENT (the "Agreement") is made and entered into
as of February __, 2001, by Xxxxx Xxxxxxxxx, Xx. (the "Key Holder"), a holder of
the Common Stock of Breakaway Solutions, Inc., a Delaware corporation (the
"Company") in favor of and for the benefit of SCP Private Equity Partners II,
L.P., a Delaware limited partnership ("SCP") and ICG Holdings, Inc., a Delaware
corporation ("ICG").
WHEREAS, SCP and ICG, propose to enter into a Series A Preferred Stock
Purchase Agreement (the "Series A Agreement") with the Company, pursuant to
which SCP and ICG (the "Investors") would agree to purchase certain securities
of the Company from the Company (the "Financing");
WHEREAS, the Company is required to obtain prior stockholder approval of
the Financing and certain related matters (all as set forth in Section 5.9 of
the Series A Agreement and hereinafter referred to as the "Series A Proposals")
as a condition to the Financing; and
WHEREAS, in order to induce SCP and ICG to enter into the Series A
Agreement and to provide certain bridge financing to the Company, the Key Holder
is willing to agree to vote all shares of Common Stock of the Company held by
them in favor of the Series A Proposals;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. Series A Proposals.
------------------
1.1 Key Holder. The Key Holder shall vote all shares of voting
----------
capital stock of the Company registered in his respective name or beneficially
owned by him as of the date hereof and any and all other securities of the
Company legally or beneficially acquired by him after the date hereof
(collectively, the "Key Holder Shares") in favor of the Series A Proposals.
2. Miscellaneous.
-------------
2.1 Representations and Warranties. The Key Holder represents and
------------------------------
warrants that:
(a) the Key Holder now owns the Key Holder Shares, as applicable, free
and clear of liens and encumbrances and has not executed or delivered any proxy
or entered into any other voting agreement or similar arrangement with respect
to the Company's capital stock
that relates to the Series A Proposals, other than one which has expired or
terminated prior to the date hereof; and
(b) the Key Holder has full power and capacity to execute,
deliver and perform this Agreement, which has been duly executed and delivered
by, and evidences the valid and binding obligation of the Key Holder,
enforceable in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors.
2.2 No Revocation. The voting agreements contained herein are coupled
-------------
with an interest and may not be revoked during the term of this Agreement.
2.3 Additional Shares. In the event that subsequent to the date of
-----------------
this Agreement any shares or securities are issued on, or in exchange for, any
of the Key Holder Shares by reason of any stock dividend, stock split,
combination of shares, reclassification or the like, such shares or securities
shall be deemed to be Key Holder Shares, as the case may be, for purposes of
this Agreement.
2.4 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the Key Holder with respect to the subject matter described herein,
and supersedes all other prior or contemporaneous agreements, whether oral or
written, with respect to this subject matter.
2.5 Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the Commonwealth of Pennsylvania as such laws are applied to
agreements between Pennsylvania residents entered into and performed entirely in
Pennsylvania.
2.6 Amendments and Waivers. This Agreement may be amended only by an
----------------------
instrument in writing signed by (i) the Company; and (ii) the Key Holder.
2.7 Severability. If any provision of this Agreement is held to be
------------
invalid or unenforceable, the validity and enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
2
IN WITNESS WHEREOF, the undersigned has executed this Key Holder
Voting Agreement as of the date first above written.
KEY HOLDER
----------
______________________________
Xxxxx Xxxxxxxxx, Xx.
3
