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EXHIBIT 10.8
CYBERSOURCE CORPORATION
SERIES D PREFERRED
STOCK PURCHASE AGREEMENT
THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
made as of the 18th day of March, 1998 by and among CYBERSOURCE CORPORATION, a
California corporation (the "Company"), Xxxxxxx X. XxXxxxxxx ("XxXxxxxxx")
(solely with respect to Sections 7.1 through 7.17, 8.6 and 8.7 hereof) and the
purchasers listed on the signature pages hereto under the headings "Initial
Closing Investors" and "Second Closing Investors," each of whom is herein
referred to as an "Investor").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereby agree as follows:
1. Purchase and Sale of Series D Preferred Stock.
1.1. Sale and Issuance of Series D Preferred Stock.
(a) The Board of Directors of the Company shall adopt and
file with the Secretary of State of the State of California on or
before the Initial Closing (as defined below) the Fourth Amended and
Restated Articles of Incorporation (collectively, the "Restated
Articles") in substantially the form attached hereto as Exhibit A-1.
(b) Subject to the terms and conditions of this Agreement,
each Investor agrees severally and not jointly to purchase, and the
Company agrees to sell and issue to each Investor, severally and not
jointly, at the Closings (as defined below) the number of shares of
Series D Preferred Stock (the "Preferred Shares"), set forth
opposite the Investor's name on the Schedule of Investors attached
as Exhibits B-1A and B-1B to this Agreement (the "Schedule of
Investors"), for up to an aggregate of 1,153,846 Preferred Shares at
a purchase price of $2.60 per share, for the purchase price shown
opposite such Investor's name on the Schedule of Investors (for an
aggregate total purchase price of not less than $3,000,000);
provided, that each Investor that participates in the Initial
Closing, as defined below (each as "Initial Closing Investor")
agrees to invest such amount as is necessary to ensure that all
Investors collectively invest not less than an aggregate of
$3,000,000 in the Closing.
1.2. Closings. The purchase and sale of the Preferred Shares
shall take place in up to two closings, the first of which will occur on March
18th, 1998 (the "Initial Closing") and the second of which will occur on April
3, 1998 (unless the Investors and the Company agree to complete the sale of the
Preferred Shares at the Initial Closing) (the "Second Closing"), each at the
offices of Xxxxxxx Tufts Cole & Black, LLP, 00 Xxxxx Xxxxxx Xxxxxx, Xxx Xxxx,
Xxxxxxxxxx, or at such other time and place as the parties mutually agree upon
(each such time and place designated as a "Closing" with respect to the
Investors tendering funds in exchange for Preferred Shares at that time, and
collectively as the "Closings" ). At the Closings, in the aggregate, the
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Company will deliver to the Investors stock certificates representing 1,153,846
Preferred Shares against payment of the purchase price therefor of $2.60 per
share by wire transfers of immediately available funds. The Closings of the
purchase and sale of the Preferred Shares shall only take place upon the
Investors entering into that certain Internet Commerce Services Corporation
Series D Preferred Stock Purchase Agreement (the "ICS Purchase Agreement") and
consummating the purchase and sale of Internet Commerce Services Corporation
Series D Preferred Stock pursuant to the terms of the ICS Purchase Agreement.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Investor, except as set forth on the Schedule of
Exceptions attached hereto as Exhibit C, which exceptions shall be deemed to be
representations and warranties as if made hereunder as follows:
2.1. Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to own and hold its properties, carry on its business as now conducted
and as proposed to be conducted. The Company has full corporate power and
authority to enter into and perform its obligations under this Agreement and to
carry out the transactions contemplated by this Agreement. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure so to qualify would have a material adverse effect on its
business or properties. A copy of the Company's Restated Articles and the
Company's Bylaws (as amended) have been delivered to each Investor each of which
are true and correct in full force and effect and have not been amended.
2.2. Capitalization.
(a) Immediately prior to the Initial Closing the authorized
capital of the Company consists, or will consist of:
(i) Preferred Stock. 10,000,000 shares of Preferred Stock,
1,985,520 of which have been designated Series A Preferred Stock, no
par value (the "Series A Preferred Stock"), of which 1,985,520
shares are issued and outstanding, 2,500,000 of which have been
designated Series B Preferred Stock, no par value (the "Series B
Preferred Stock") of which 2,037,038 shares are issued and
outstanding, 3,000,000 of which have been designated Series C
Preferred Stock, no par value (the "Series C Preferred Stock") of
which 3,000,000 shares are issued and outstanding and 1,523,424
shares of which have been designated Series D Preferred Stock. No
shares of Series D Preferred Stock were issued and outstanding
immediately prior to the Initial Closing. The rights, preferences
and privileges of the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, and the Series D
Preferred Stock will be as stated in the Restated Articles.
(ii) Common Stock. 30,000,000 shares of Common Stock,
9,070,000 shares of which were issued and outstanding.
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(b) The list set forth in Item 2.2(b) of the Schedule of
Exceptions hereto is a complete and correct list of all security
holders of the Company, showing their holdings of issued and
outstanding shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Common Stock and other Company
securities (including options and warrants) as of the date of this
Agreement. To the best knowledge of the Company, each such holder is
the sole beneficial owner of all of the shares as to which such
holder is the record holder. Except as set forth in Item 2.2 of the
Schedule of Exceptions hereto, holders of shares of the Company's
Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, and Common Stock have no preemptive rights. True
and complete copies of the Series A Preferred Stock Purchase
Agreements (as defined in Section 2.11 of this Agreement), the
Series B Preferred Stock Purchase Agreement (as defined in Section
2.11 of this Agreement), and the Series C Preferred Stock Purchase
Agreement (as defined in Section 2.11 of this Agreement) have been
furnished to each Investor requesting them prior to the date hereof.
All such issued and outstanding shares have been duly authorized and
validly issued, are fully paid and nonassessable and have been
issued in compliance with all applicable state and federal laws
concerning the issuance of securities.
(c) Agreements for Purchase of Shares. Except for:
(i) the conversion privileges and preemptive rights of the
Series A Preferred Stock, the Series B Preferred Stock, and the
Series C Preferred Stock; and
(ii) options issued pursuant to the Company's stock option
plan and other agreements, as of the Initial Closing options for
2,782,397 shares, including options for 1,000,000 shares issued
outside of the Company's stock option plan, are presently
outstanding and an additional 1,217,603 shares are available for
grant under the Company's stock option plan, as amended.
prior to the Initial Closing there will not be any outstanding options,
warrants, rights (including conversion, preemptive rights or rights of first
offer) or agreements for the purchase or acquisition from the Company of any
shares of its capital stock.
2.3. Subsidiaries. Except as set forth in Item 2.3 of the
Schedule of Exceptions, the Company does not presently own or control, directly
or indirectly, any interest in any other corporation, association, partnership
or other business entity.
2.4. Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and the authorization, issuance (or
reservation for issuance) and delivery of the Preferred Shares being sold
hereunder and the Common Stock issuable upon conversion of the Preferred Shares,
has been taken or will be taken on or prior to each Closing, and this Agreement
constitutes a valid and legally binding obligation of the Company enforceable in
accordance with its terms, except as affected by (i) bankruptcy or insolvency
laws, or (ii) equitable principles or public policy.
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2.5. Valid Issuance of Preferred Stock. The Preferred Shares,
when issued, sold and delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly issued, fully paid and
nonassessable and, based in part upon the representations of the Investors set
forth in Section 3 of this Agreement, will be issued in compliance with all
applicable federal and state securities laws free and clear of all restrictions
on transfer (other than those arising from application of the securities laws).
The Common Stock issuable upon conversion of the Preferred Shares purchased
under this Agreement have been duly and validly reserved for issuance and when
issued and delivered in accordance with the Restated Articles will be duly and
validly issued, fully paid and nonassessable.
2.6. Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any United States federal, state, local or provincial governmental
authority on the part of the Company is required in connection with:
(a) the Company's valid execution, delivery, or performance
of this Agreement; and
(b) the offer, sale, or issuance of the Preferred Shares by
the Company hereunder or (assuming the exemption provided by Section
3(a)(9) of the Securities Act of 1933, as amended, in its current
form is available and no commission is paid in conjunction
therewith) the issuance of Common Stock upon conversion of the
Preferred Shares;
except such filings as have been made prior to the Closings, and except for any
notices of sale required to be filed with the Securities and Exchange
Commission under Regulation D of the Securities Act of 1933, as amended (the
"Securities Act"), or such post-closing filings as may be required under
applicable state securities laws, which will be timely filed within the
applicable periods therefor. To the best knowledge of the Company, neither the
Company nor anyone acting on its behalf has offered any of the Series D
Preferred Stock being sold hereunder or substantially similar securities of the
Company for sale to, or solicited offers to buy any securities of the Company
from, or otherwise approached or negotiated with respect thereto with any
prospective purchaser other than the Investors and other persons whom the
Company believes to be Accredited Investors as (as defined in Section 3.7 of
this Agreement). The Company agrees that neither the Company nor anyone acting
on its behalf will offer such securities of the Company or any part thereof or
any similar securities for issuance or sale to, or solicit any offer to acquire
any of the same from, anyone so as to make the issuance and sale of the
Preferred Shares being sold hereunder not exempt from the registration
requirements of Section 5 of the Securities Act. None of the shares of the
Company's capital stock issued and outstanding has been offered or sold in such
a manner as to make the issuance and sale of such shares or the Preferred
Shares being sold hereunder not exempt from such registration requirements, and
all such shares of capital stock have been offered and sold in compliance with
all applicable federal and state securities laws.
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2.7. Litigation. Except as disclosed in Item 2.7 of the Schedule
of Exceptions, there is no action, suit, proceeding or investigation pending or
currently threatened against the Company which questions the validity of this
Agreement or the right of the Company to enter into this Agreement, or to
consummate the transactions contemplated hereby, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
prospects, business, operations, or condition (financial or otherwise) of the
Company or any change in the current equity ownership of the Company, nor is the
Company aware that there is any basis for the foregoing. The Company is not a
party or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality. There is no action,
suit, proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
2.8. Patents and Trademarks.
(a) The list set forth in Item 2.8 of the Schedule of
Exceptions is a true and complete list and summary description of
all patents, patent applications, registered trademarks, registered
service marks, registered trade names and registered copyrights, and
licenses and rights to the foregoing presently owned or held by the
Company, none of which is in dispute or in any conflict with the
right of any other person or entity except as indicated on Item 2.7
of the Schedule of Exceptions.
(b) The Company's business as now conducted and as presently
proposed to be conducted does not conflict with or infringe upon
anyone's patents, copyrights, trademarks, trade secrets, trade
dress, know how, processes, or other proprietary rights. The Company
owns, or has the unrestricted right to use free and clear of all
material liens, claims and restrictions, all patents, copyrights,
trademarks, trade secrets, trade dress or other proprietary rights
necessary for the conduct of its business as it is presently
conducted or currently contemplated to be conducted, without
infringing on the right or claim of any person, any patents,
copyrights, trademarks, trade secrets, trade dress, know how,
processes, or other proprietary rights of others. Notwithstanding
any other provision of this Agreement, the exceptions described in
the Schedule of Exceptions do not apply to this subparagraph (b) of
Section 2.8.
2.9. Compliance with Laws and Other Instruments. The Company is
not in violation or default of any provisions of its Articles of Incorporation
or Bylaws or of any instrument, judgment, order, writ, decree or contract to
which it is a party or by which it is bound or, to its knowledge, of any
provision of federal or state statute, rule or regulation applicable to the
Company or any of its property, which violation or default would be materially
adverse to the assets, properties, prospects, business, operations, or condition
(financial or otherwise) of the Company. To the best knowledge of the Company,
there is no contamination of any real property leased or operated by the Company
that could subject the Company to liability in the aggregate in excess of
$10,000 under any environmental laws or regulations. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in any such violation or be in conflict with
or constitute, with or without the passage of time and giving of notice, either
a default under any such provision, instrument, judgment, order, writ, decree or
contract or an event which
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results in the creation of any lien, charge or encumbrance upon any assets of
the Company, which violation, default, conflict or event would be materially
adverse to the assets, properties, prospects, business, operations, or condition
(financial or otherwise) of the Company.
2.10. Agreements; Action.
(a) Except as set forth in Item 2.10 of the Schedule of
Exceptions, there are no agreements, understandings, instruments,
contracts or proposed transactions to which the Company is a party
or by which it is bound which involve (i) obligations of, or
payments to the Company in excess of, $25,000; (ii) the license of
any patent, copyright, trade secret or other proprietary right of
the Company; (iii) material restrictions on the Company's business;
or (iv) material proprietary rights of the Company.
(b) 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 incurred any other liabilities or obligations
(absolute or contingent), individually in excess of $10,000 or in
excess of $25,000 in the aggregate not reflected in the balance
sheet dated December 31, 1997 other than obligations or liabilities
of the Company for compensation under employment, advisor or
consulting agreements, or other than obligations or liabilities
incurred in the ordinary course of business, (iii) made any loans or
advances to any person, other than in the ordinary course of its
business. Without limiting the generality of the foregoing, the
Company does not know of any basis for the assertion against the
Company of any material liabilities of the Company (not provided for
in the documents listed in Item 2.10 of the Schedule of Exceptions
or the Financial Statements).
2.11. Registration Rights. Except as set forth in (i) that
certain Series A Preferred Stock Purchase Agreement dated as of the 6th day of
January 1995, as amended as of (A) the 27th day of February, 1996, (B) the 3rd
day of July, 1996, (C) the 12th day of July, 1996; (ii) that certain Series A
Preferred Stock Purchase Agreement dated as of the 27th day of February, 1996
(collectively, the "Series A Stock Purchase Agreements"), (iii) that certain
Series B Preferred Stock Purchase Agreement dated as of the 12th day of July,
1996, and (iv) that certain Series C Preferred Stock Purchase Agreement dated as
of the 26th day of September, 1997, and except as provided in Section 7 of this
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggy-back rights, to any person or entity.
2.12. Title to Property and Assets. The Company has good and
marketable title to the property and assets it purports to own free and clear of
all mortgages, liens, loans and encumbrances, except such encumbrances and liens
which arise in the ordinary course of business and do not materially impair the
Company's ownership or use of such property or assets. With respect to the
property and assets it leases, the Company is in compliance with such leases and
holds a valid leasehold interest free of any liens, claims or encumbrances,
which liens, claims or encumbrances would be materially adverse to the Company.
Except as set forth in Item 2.12 of the Schedule of Exceptions, the Company owns
or has the right to use all assets (tangible and intangible), necessary
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for the conduct of its business as presently conducted and believes it can
acquire the right to use or the ownership of all assets, necessary for the
conduct of its business as it is proposed to be conducted, except for such
assets that are individually or in the aggregate immaterial to the business of
the Company. The Company knows of no assets required for the conduct of its
business as it is presently conducted, or as it is proposed to be conducted, the
right to use or ownership of which it is unlikely to obtain, except for such
assets that are individually or in the aggregate immaterial to the business of
the Company.
2.13. Financial Statements. The Company has delivered to each
Investor its audited financial statements (income statement, balance sheet and
cash flow statement) at and for the periods ended December 31, 1995, December
31, 1996, and unaudited financial statements (balance sheet and profit and loss
statement) at and for the period ended December 31, 1997 (the "Financial
Statements"). The Financial Statements are complete and correct in all material
respects and have been prepared in accordance with generally accepted accounting
principles on a consistent basis throughout the periods indicated. The Financial
Statements fairly present the financial condition and operating results of the
Company as of the dates, and for the periods, indicated therein, subject to
normal year-end adjustments. All accounts receivable shown on the balance sheet
constitute accounts receivable resulting from the sale of goods and services in
the ordinary course of business, and, to the best knowledge of the Company, such
accounts receivable are subject to no conditions as to payment, offsets,
counterclaims, defenses of any kind, returns, allowances, or credits other than
to the extent of the allowance for doubtful accounts shown thereon, and other
than warranty claims that in the aggregate do not exceed $5,000. The Company has
not received any material customer complaints concerning its products or
services.
2.14. Changes. Since December 31, 1997, there has not been (i)
any change in the assets, liabilities, condition (financial or otherwise),
business, or operating results, or to the best of the Company's knowledge,
prospects of the Company from that reflected in the Financial Statements, except
changes in the ordinary course of business which have not been, in the
aggregate, materially adverse; (ii) any damage, destruction or loss, whether or
not covered by insurance, affecting in any material way the assets, properties,
condition (financial or otherwise), operating results, prospects or business of
the Company (as such business is presently conducted and as it is proposed to be
conducted); (iii) any waiver by the Company of a material right or of a material
debt owed to it or any satisfaction or discharge of any material lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business; (iv) any change or amendment in any material respect to a
material contract or agreement by which the Company or any of its assets or
properties is bound or subject; or (v) any change in any compensation
arrangement or agreement with any officer, director or key employee. For the
purposes of this Section 2.14 only, prospects shall not include general economic
or industry trends. Notwithstanding any other provision of this Agreement, the
exceptions described in the Schedule of Exceptions do not apply to this Section
2.14.
2.15. Proprietary Information. To the best of the Company's
knowledge, it has done nothing to compromise the secrecy, confidentiality or
value of any of its trade secrets, know-how, inventions, prototypes, designs,
processes or technical data required to conduct its business as now conducted or
as proposed to be conducted and has taken security measures to protect the
secrecy, confidentiality and value of all the intellectual property which it
believes are reasonable and
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customary in the industry in which it operates. All of the Company's employees
and consultants have executed a non-disclosure/invention assignments agreement
in the form attached as Annex III to the Schedule of Exceptions. To the
Company's knowledge, no employee of the Company in connection with such
employee's employment with the Company, has violated the terms of any agreement
with a previous employer.
2.16. Permits. 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, prospects, 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. The Company is not
in default in any material respect under any of such franchises, permits,
licenses, or other similar authority.
2.17. Shareholder Agreements. Except as set forth in the Series A
Preferred Stock Purchase Agreements, the Series B Preferred Stock Purchase
Agreement, and the Series C Preferred Stock Purchase Agreement, and in that
certain Shareholders' Agreement of even date herewith between and among the
Company, various holders of Series C Preferred Stock and various Investors (the
"Shareholders' Agreement"), there are presently no outstanding shareholder
agreements, voting trusts, proxies or other arrangements or understandings
between the Company and its shareholders, or among any of the shareholders of
the Company, relating to either the voting or the disposition of their
respective shares.
2.18. Brokers or Finders. The Company has not engaged any broker,
investment banker or finder in connection with the sale of the Preferred Shares.
2.19. Disclosure. The Company has provided each Investor with all
information that such Investor has requested in connection with such Investor's
decision to invest in the Preferred Shares. To the best of the Company's
knowledge after due inquiry, neither this Agreement nor any other written
statement made or delivered in connection herewith contains any untrue statement
of a material fact or, taking this Agreement and all such written statements as
a whole, omits to state a material fact necessary to make statements herein or
therein misleading; provided, however, with respect to any projections or
expressions of opinion or predictions, the Company represents only that such
projections or expressions of opinions and predictions were made in good faith
and that the Company believes that there is a reasonable basis therefor.
2.20. Insurance. Set forth in Item 2.20 of the Schedule of
Exceptions is a true and complete list of all current insurance policies of the
Company, all of which are in full force and effect.
2.21. Taxes. The Company has accurately prepared and timely filed
all federal, state and local reports, returns, estimates, declarations,
information returns and statements with respect to taxes (together, "Tax
Returns") that are required to be filed by it and has paid or made provision for
the payment of all taxes due with respect to the periods covered by such Tax
Returns. The provision for taxes in the financial statements is sufficient for
the payment of all accrued and unpaid taxes. No such Tax Returns of the Company
have been audited by any
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taxing authority, and there are no waivers in effect of the applicable statute
of limitations for any period. No deficiency assessment or proposed adjustment
of federal income taxes or state or municipal taxes of the Company is pending
and the Company has no knowledge of any proposed liability for any tax to be
imposed. There are no tax sharing agreements or similar contracts or
arrangements to which the Company is a party. The Company has not been a member
of an affiliated group (within the meaning of Section 1504 of the Internal
Revenue Code), filing a consolidated federal income Tax Return. No closing
agreement pursuant to Section 7121 of the Internal Revenue Code, or similar
provision of any state or local law, has been entered into by or with respect to
the Company. For the purpose of this Section 2.21, "tax" or "taxes" shall mean
all federal, state, local or foreign taxes, including but not limited to income,
gross receipts, windfall profits, alternative minimum, value added, severance,
property, production, sales, use, license, excise, franchise, employment,
withholding or similar taxes, together with any interest, additions or penalties
with respect thereto and any interest in respect of such additions or penalties.
2.22. ERISA. Except as listed in Item 2.22 of the Schedule of
Exceptions, the Company does not maintain, sponsor, or contribute to any program
or arrangement that is an "employee pension benefit plan" (a "Pension Plan"), an
"employee welfare benefit plan" or a "multiemployer plan", as those terms are
defined in Section 3(2), 3(1), and 3(37) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). Except as listed in Item 2.22 of the
Schedule of Exceptions, the Company has no other incentive or benefit
arrangements. Each plan listed on Item 2.22 of the Schedule of Exceptions which
is subject to ERISA is in substantial compliance with ERISA. Each plan listed on
Item 2.22 of the Schedule of Exceptions which is a Pension Plan intended to be
qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended,
has been amended to comply with the qualification provisions of the Tax Reform
Act of 1986 and subsequent legislation before the expiration of the applicable
remedial amendment period and has received a favorable determination letter from
the Internal Revenue Service, and the Company is not aware of circumstances
likely to result in the revocation of any such favorable determination letter.
Other than as set forth in Item 2.22, there are no other deferred compensation,
bonus, incentive, profit sharing, retirement or other employee compensation
arrangements or plans.
2.23. Labor Agreements and Actions. The Company is not bound by
or subject to (and none of its assets or properties is bound by or subject to)
any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or has sought to
represent any of the employees, representatives or agents of the Company. There
is no strike or other labor dispute involving the Company pending, or to the
best knowledge of the Company threatened, which could have a material adverse
effect on the assets, properties, condition (financial or otherwise), operating
results, prospects or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The Company is not
aware that any officer, key employee, key consultant or key contractor, or that
any group of key employees, intends to terminate such person's employment or
relationship with the Company, as the case may be, nor does the Company have a
present intention to terminate the employment of or relationship with any of the
foregoing persons.
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2.24. Qualified Small Business Stock. To the best of the
Company's knowledge, the Preferred Shares will meet each of the requirements for
qualification as "qualified small business stock" set forth in Section 1202(c)
of the Internal Revenue Code of 1986, as amended (the "Code"). The Company (and
any predecessor):
(a) is and will be a domestic C corporation;
(b) will not have made any purchases of its own stock
described in Code Section 1202(c)(3)(B) during the one year period
preceding the Closings;
(c) will not have made any purchases of its own stock
described in Code Section 1202(c)(3)(A) during the two year period
preceding the Closings; and
(d) has maintained and will maintain aggregate gross assets,
as defined by Code Section 1202(d)(2), at all times between August
10, 1993 and through the Closings of less than $50 million, taking
into account the assets of any corporation required to be aggregated
with the Company in accordance with Code Section 1202(d)(3).
3. Representations and Warranties of Each Investor. Each Investor hereby
severally and not jointly represents and warrants that:
3.1. Authorization. This Agreement constitutes such Investor's
valid and legally binding obligation, enforceable in accordance with its terms
except as affected by (i) bankruptcy or insolvency laws, and (ii) equitable
principles or public policy. Each Investor who is not a natural person, hereby
represents that the person executing this Agreement on its behalf is duly
authorized to do so.
3.2. Purchase Entirely for Own Account. This Agreement is made
with each Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Preferred Shares to be received by such Investor
hereunder will be acquired for investment for such Investor's own account, not
as a nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that such Investor has no present intention of otherwise
distributing the same. By executing this Agreement, each Investor purchasing
Preferred Shares hereunder further represents that such Investor does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Preferred Shares, or any portion thereof. Each Investor
that is an entity represents that it has full power and authority to enter into
this Agreement. Notwithstanding the foregoing, in certain limited circumstances,
Global Retail Partners, L.P., DLJ Diversified Partners, L.P., DLJ Diversified
Partners-A, L.P., GRP Partners, L.P., Global Retail Partners Funding, Inc., and
DLJ ESC II, L.P. (collectively, the "DLJ Affiliates") may be contractually
obligated to transfer certain of the Preferred Shares owned by them to a limited
number of affiliates, each of whom is an Accredited Investor as defined in
Section 3.7 hereof.
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3.3. Disclosure of Information. Each Investor believes he or it
has received all the information he or it considers necessary or appropriate for
deciding whether to purchase the Preferred Shares. Each such Investor further
represents that he or it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the offering of
the Preferred Shares. The foregoing does not modify the Company's
representations and warranties set forth herein or the Investor's right to rely
thereon.
3.4. Investment Experience. Each Investor is an investor in
securities of companies in the development stage and acknowledges that he or it
is able to fend for himself or itself, can bear the economic risk of his or its
investment and has such knowledge and experience in financial or business
matters that he or it is capable of evaluating the merits and risks of the
investment in the Preferred Shares. If other than an individual, Investor also
represents it has not been organized solely for the purpose of acquiring the
Preferred Shares.
3.5. Restricted Securities. Each Investor purchasing Preferred
Shares hereunder understands that the Preferred Shares are characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a public offering
and that under such laws and applicable regulations such Preferred Shares may be
resold without registration under the Securities Act only in certain limited
circumstances. In this connection each Investor represents that he or it is
familiar with Securities and Exchange Commission ("SEC") Rule 144, as presently
in effect, and understands the resale limitations imposed thereby and by the
Securities Act
3.6. Further Limitations on Disposition. Without in any way
limiting the representations set forth above, each Investor purchasing Preferred
Shares hereunder further agrees not to make any disposition of all or any
portion of the Preferred Shares (or the Common Stock issuable upon the
conversion of the Preferred Shares) unless and until:
(a) There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement;
or
(b) (i) Such Investor shall have notified the Company of the
proposed disposition, (ii) if reasonably requested by the Company,
such Investor shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such Preferred Shares
under the Securities Act and (iii) if reasonably requested by the
Company, the transferee shall have furnished to the Company its
agreement to abide by the restrictions on transfer set forth herein
as if it were a purchaser hereunder.
3.7. Accredited Investor. The term "Accredited Investor" as used
in this Agreement means a person or entity who:
(a) is a director or executive officer of the Company; or
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(b) is a natural person whose individual net worth, or joint
net worth with his or her spouse, at the time of purchase exceeds
$1,000,000, and the total purchase price does not exceed ten percent
(10%) of his or her individual net worth, or joint net worth with
his or her spouse, at the time of sale; or
(c) is a natural person who had an individual income in
excess of $200,000 in each of the two most recent years or joint
income with that person's spouse in excess of $300,000 in each of
those years and reasonably expects to reach the same income level in
the current year, and the total purchase price does not exceed ten
percent (10%) of his or her individual net worth, or joint net worth
with his or her spouse, at the time of sale; or
(d) is a private business development company as defined in
section 202(a)(22) of the Investment Advisors Act of 1940; or
(e) is either (i) a bank as defined in section 3(a)(2) of the
Securities Act, or a savings and loan association or other
institution as defined in section 3(a)(5)(A) of the Securities Act
whether acting in its individual or fiduciary capacity; (ii) a
broker or dealer registered pursuant to section 15 of the Securities
Exchange Act of 1934; as amended (the "Exchange Act"), (iii) an
insurance company as defined in section 2(13) of the Securities Act;
(iv) an investment company registered under the Investment Company
Act of 1940 or a business development company as defined in section
2(a)(48) of that Act; (v) a Small Business Investment Company
licensed by the U.S. Small Business Administration under section
301(c) or (d) of the Small Business Investment Act of 1958; or (vi)
an employee benefit plan within the meaning of Title I of ERISA, if
the investment decision is made by a plan fiduciary, as defined in
section 3(21) of ERISA, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or
if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment decisions
made solely by persons that are Accredited Investors; or
(f) is any organization described in section 501(c)(3) of the
Internal Revenue Code of 1986, as amended ("Internal Revenue Code"),
corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the
Shares offered (and, in the case of an Investor located in
Washington, operating for not less than twelve months), with total
assets in excess of $5,000,000 (or, in the case of an Investor
located in the State of Washington, $10,000,000); or
(g) is any trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the Shares offered,
whose purchase is directed by a sophisticated person as described in
Regulation 230.506(b)(2)(ii) promulgated under the Securities Act;
or
(h) is an entity in which all of its equity owners meet one
or more of the standards set forth in (a) through (g) above.
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As used in this Section 3.7, the term "net worth" means the excess of
total assets over total liabilities, and "income" means actual economic income,
which may differ from adjusted gross income for federal income tax purposes.
3.8. Representations and Warranties as to Accredited Investors
and Excluded Purchasers Status. Each Investor as to himself or itself, severally
and not jointly, further represents to the Company that such Investor is (i) an
Accredited Investor and (ii) an excluded purchaser (as such term is described in
Section 260.102.13 of Title 10 of the California Code of Regulations or section
25102(f) of the California Corporate Securities Law of 1968, as amended).
3.9. Legends. To the extent applicable, each certificate or other
document evidencing any of the Preferred Shares issued hereunder or any Common
Stock issued upon conversion of the Preferred Shares shall be endorsed with the
legends set forth below, and each Investor covenants that, except to the extent
such restrictions are waived by the Company, such Investor shall not transfer
the securities without complying with the restrictions on transfer described in
the legends endorsed thereon;
(a) The following legend under the Securities Act:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH
ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
(b) If required by the authorities of any state in connection
with the issuance or sale of the Preferred Shares, the legend
required by such state authority.
The Company shall not be required (i) to transfer on its
books any Preferred Shares which shall have been transferred in
violation of any of the provisions set forth in this Agreement, or
(ii) to treat as owner of such Preferred Shares or to accord the
right to vote as such owner or to pay dividends to any transferee to
whom such Preferred Shares shall have been so transferred.
3.10. Removal of Legends.
(a) Any legend endorsed on a certificate pursuant to Section
3.9(a) or (b) hereof shall be removed (i) if Preferred Shares
represented by such certificate shall have been effectively
registered under the Securities Act or otherwise lawfully sold in a
public transaction, (ii) if such Preferred
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Shares may be transferred in compliance with Rule 144(k) promulgated
under the Securities Act, or (iii) if the holder of such Preferred
Shares shall have provided the Company with an opinion from counsel,
in form and substance reasonably acceptable to the Company and from
attorneys reasonably acceptable to the Company, stating that a
public sale, transfer or assignment of such Preferred Shares may be
made without registration.
3.11. Any legend endorsed on a certificate pursuant to Section
3.9(b) hereof shall be removed if the Company receives an order of the
appropriate state authority authorizing such removal or if the holder of the
Preferred Shares provides the Company with an opinion of counsel, in form and
substance reasonably acceptable to the Company and from attorneys reasonably
acceptable to the Company, stating that such state legend may be removed.
4. California Commissioner of Corporations.
4.1. Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
5. Conditions of Each Investor's Obligations at Closing. The obligations
of each Investor under Section 1.1(b) of this Agreement are subject to the
fulfillment on or before the Closing of its investment of each of the following
conditions, the waiver of which shall not be effective against any Investor who
does not consent in writing thereto:
5.1. Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
5.2. Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
The entering into, delivery and performance of this Agreement by the Company
shall have been duly authorized by all necessary corporate action.
5.3. Consents, etc. The Company shall have secured all permits,
consents and authorizations that shall be necessary or required lawfully to
consummate this Agreement, to issue the Preferred Shares to be purchased by the
Investors hereunder and to issue the Common Stock into which it may be
converted, including without limitation to (i) the waiver of rights of first
refusal granted to holders of Series A Preferred Stock by such holders of Series
A Preferred Stock, the consent of the required majority of the holders of the
Series A Preferred Stock, (ii) the waiver of rights of first refusal granted to
holders of Series B Preferred Stock by such holders of Series B Preferred Stock,
the consent of the required majority of the holders of the Series B
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Preferred Stock, and (iii) the waiver of rights of first refusal granted to
holders of Series C Preferred Stock by such holders of Series C Preferred Stock,
and the consent of the required majority of the holders of the Series C
Preferred Stock.
5.4. Compliance Certificate. At the Closing, the Chief Executive
Officer of the Company shall deliver to the Investors a certificate certifying
that the conditions set forth in Sections 5.1, 5.2 and 5.3 have been fulfilled.
5.5. Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be in
substance and form reasonably satisfactory to Vulcan Ventures, Inc., and its
counsel, and such Investor and its counsel shall have received all such
counterpart originals or certified or other copies of such documents as such
Investor or its counsel may reasonably request.
5.6. Qualifications. The Commissioner of Corporations of the
State of California and any applicable United States state securities regulatory
authority shall have issued permits qualifying the offer and sale of the
Preferred Shares to the Investors pursuant to this Agreement, or such offer and
sale shall be exempt from such qualification under the California Corporate
Securities Law of 1968, as amended, and any other applicable state blue-sky law.
5.7. Restated Articles. The Company shall have adopted and filed
with the Secretary of State of the State of California on or before the date of
the Closing, the Restated Articles.
5.8. Legal Investment. At the time of such Closing, the purchase
of the Preferred Shares by the Investors shall be legally permitted by all laws
and regulations to which such Investors and the Company are subject.
5.9. Opinion of Counsel. At the Closing, the Investors shall have
received an opinion of Xxxxxxx Xxxxx Xxxx & Black, LLP., counsel for the Company
dated as of the date of the Initial Closing and substantially in the form of
Exhibit D hereto.
5.10. Minimum Investment. Upon the consummation of the Initial
Closing, the Initial Closing Investors shall have subscribed for a minimum of
____________ Series D Preferred Shares at an aggregate purchase price of
approximately $_____________. Upon the consummation of the Second Closing, if
applicable, the Initial Closing Investors, and all additional Investors
participating in the Second Closing (if any), shall have collectively subscribed
for a minimum of 1,153,846 Series D Preferred Shares at an aggregate purchase
price of approximately $3,000,000.
5.11. Shareholders Agreement. Prior to the obligation of the DLJ
Affiliates to close, an amended and restated Shareholders Agreement (the
"Shareholders Agreement") shall have been executed by the Company and the
shareholders named therein in the form of Exhibit E hereto.
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6. Conditions of the Company's Obligations at Closing. The obligations
of the Company to the Investors purchasing Preferred Shares hereunder are
subject to the fulfillment on or before the Closing of each Investor's
investment of each of the following conditions by such Investor:
6.1. Representations and Warranties. The representations and
warranties of the Investors contained in Section 3 hereof shall be true on and
as of the date of the Closing with the same effect as though such
representations and warranties had been made on and as of the Closing.
6.2. Payment of Purchase Price. Each Investor shall have
delivered the purchase price specified in Sections 1.2 and 1.1(b).
6.3. Legal Investment. At the time of such Closing, the purchase
of the Preferred Shares by the Investors shall be legally permitted by all laws
and regulations to which the Investors and the Company are subject.
7. Registration Rights. The Company covenants and agrees as follows:
7.1. Definitions. For purposes of this Section 7:
(a) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the
Securities Act, and the declaration or ordering of effectiveness of
such registration statement or document;
(b) The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Preferred Shares
being purchased hereunder (ii) 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, such Preferred Shares, excluding in all cases,
however, any Registrable Securities sold by a person in a
transaction in which his registration rights are not assigned and
(iii) all shares of Common Stock which the Investors and their
permitted assignees may hereafter purchase (or shares of Common
Stock issuable upon exercise or conversion of securities hereafter
purchased) pursuant to their rights of first refusal or otherwise;
(c) 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 the exercisable or convertible securities
which are exercisable or convertible into, Registrable Securities;
(d) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in
accordance with Section 7.13 hereof. It is acknowledged and agreed
by the parties that the registration rights contained in this
Section 7 are pari-passu with and are not superior to the
registration rights granted
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pursuant to the Series A Purchase Agreements, the Series B Purchase
Agreement or the Series C Purchase Agreement;
(e) The term "Series A Holder" shall mean a Holder under the
Series A Purchase Agreements;
(f) The term "Series B Holder" shall mean a Holder under the
Series B Purchase Agreement;
(g) The term "Series C Holder" shall mean a Holder under the
Series C Purchase Agreement;
(h) The term "Series D Holder" shall mean a Holder under this
Series D Purchase Agreement.
7.2. Request for Registration.
(a) If the Company shall receive (i) at any time following
the first to occur of December 31, 2001 or the date that is six (6)
months after the date of consummation of the Company's sale of its
Common Stock in a bona fide, firm commitment underwriting pursuant
to a registration statement on Form S-1 under the Securities Act (a
"Qualifying IPO") a written request from Holders holding at least
fifty percent (50%) of the Registrable Securities then outstanding
(the "First Initiating Holders") that the Company file a
registration statement under the Securities Act covering the
registration in an underwritten public offering of the sale of
Registrable Securities then outstanding having an anticipated
aggregate offering price, net of underwriting discounts and
commissions, equal to or more than $5,000,000 (the "Initial Demand
Registration"); or (ii) at any time after the consummation of the
Initial Demand Registration, a written request from Holders holding
at least twenty five percent (25%) of the Registrable Securities
then outstanding (the "Second Initiating Holders") that the Company
file a registration statement under the Securities Act covering the
registration in an underwritten public offering of the sale of at
least 25% of the Registrable Securities then outstanding having an
anticipated aggregate offering price, net of underwriting discounts
and commissions, equal to or more than $1,000,000 (the "Second
Demand Registration"); or (iii) at any time after the consummation
of the Second Demand Registration a written request from Holders
holding at least fifty percent (50%) of the Registrable Securities
then outstanding (the "Third Initiating Holders" collectively with
the First Initiating Holders and the Second Initiating Holders, the
"Initiating Holders") that the Company file a registration statement
under the Securities Act covering the registration in an
underwritten public offering of the sale of at least 50% of the
Registrable Securities then outstanding having an anticipated
aggregate offering price, net of underwriting discounts and
commissions, equal to or more than $1,000,000; or (iv) the requisite
notice from the Series A Holders, the Series B Holders, or the
Series C Holders of a demand registration, then the Company shall,
within twenty-one (21) days of the receipt thereof, give written
notice of such request to all Holders, and shall, subject to the
limitations of subsection 7.2(b), file as soon as practicable a
registration statement under
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the Securities Act covering all Registrable Securities which the
Holders, or the Series A Holders, Series B Holders and Series C
Holders request to be registered within twenty (20) days of the
mailing of such notice by the Company in accordance with Section
9.6.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action to effect any such registration
pursuant to this Section 7.2:
(i) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process
in effecting such registration, unless the Company is already
subject to service in such jurisdiction and except as may be
required by the Securities Act; or
(ii) if the Company shall have initiated three (3)
registrations pursuant to this Section 7.2 and the applicable
registration statement has been declared effective by the SEC and
remained effective until the earlier of (A) such time as all of the
Registrable Securities included by the Holders in such registration
have been sold or disposed of by them or (B) the expiration of the
period described in Section 7.4(a). In addition, a request for
registration shall not be deemed to constitute a registration for
purposes of this subparagraph if: (I) the conditions to closing
specified in the purchase agreement or underwriting agreement
entered into in connection with such registration are not satisfied
other than by reason of some act or omission by the Holders
requesting such registration; (II) the Company voluntarily takes any
action that would result in the Holder not being able to sell such
Registrable Securities covered thereby during the period during
which the registration statement must be kept effective; or (III)
if, after it has become effective, such registration becomes subject
to any stop order, injunction or other order or requirement of the
SEC or other governmental agency or court and such order, injunction
or requirement is not promptly withdrawn or lifted, and such
registration has not otherwise remained effective for the relevant
period (including effective periods both before and after the order,
injunction or requirement is made or imposed).
(c) Subject to the foregoing paragraph 7.2(b), the Company
shall file a registration statement as soon as possible after
receipt of the request or requests of the Initiating Holders under
this Section 7.2; provided, however, that if the Company shall
furnish to such Initiating Holders within sixty (60) days of receipt
of such request a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of
the Company (as evidenced by a board resolution) it would be
significantly detrimental to the Company and its shareholders for
such registration statement to be filed on or before the date filing
would be required and it is therefore essential to defer the filing
of such registration statement, the Company shall have the right to
defer such filing to a date not later than one hundred twenty (120)
days after receipt of such request, provided that the Company will
not exercise this right more than once in any twelve-month period.
(d) The underwriting shall be managed by an underwriter or
underwriters of national reputation selected by the Initiating
Holders, which selection
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shall be subject to the consent of the Company, which consent shall
not be unreasonably withheld. The right of any Holder to
registration pursuant to Section 7.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of
such Holder's Registrable Securities in the underwriting. The
Company shall (together with all Holders, Series A Holders, Series B
Holders and Series C Holders proposing to distribute their
securities through such underwriting) enter into an underwriting
agreement in customary form with the underwriter or underwriters
selected as above provided. Notwithstanding any other provision of
this Section 7.2, if the underwriters advise the Initiating Holders
and the Company in writing that marketing factors require a
limitation of the number of shares to be underwritten and that the
total amount of securities that all Holders, Series A Holders,
Series B Holders and Series C Holders (initiating and
non-initiating) request pursuant to this Section 7.2(d) to be
included in such offering exceeds the amount of securities that the
underwriters reasonably believe compatible with the success of the
offering, the Company shall so advise all Holders and all of the
shares to be included in the registration shall be allocated among
all Holders, Series A Holders, Series B Holders and Series C Holders
requesting inclusion (initiating and non-initiating) pro rata
according to the total amount of securities entitled to be included
in such registration owned by each Holder, each Series A Holder,
each Series B Holder and each Series C Holder requesting inclusion
(initiating or non-initiating) or in such other proportions as shall
be mutually agreed by such selling shareholders; provided, however,
that in the event of such an allocation XxXxxxxxx may not include
more than twenty percent (20%) of the shares to be included in such
registration statement by all selling shareholders without the
consent of the holders of the majority of the shares requesting
inclusion in the registration. For the purposes of this Section
7.2(d) and Section 7.8 of this Agreement, the language in such
sections referring to XxXxxxxxx'x right to participate as a selling
shareholder at the twenty percent (20%) level means that all
XxXxxxxxx Shares (as defined in the Series A Stock Purchase
Agreements and the Series B Stock Purchase Agreement) included in
such a registration, whether held by XxXxxxxxx or a transferee of
XxXxxxxxx, shall be counted against such twenty percent (20%) limit.
In addition, the language in Section 7.2(d) and Section 7.8
referring to the ability of the holders of a majority of the shares
requesting inclusion in a registration to waive such twenty percent
(20%) limit means that only the holders of a majority of such
shares, calculated without regard to any XxXxxxxxx Shares, may
effect such a waiver.
If any person does not agree to the terms of any such underwriting, such
person shall be excluded therefrom by written notice from the Company or the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration. If
shares are so withdrawn from the registration, the Company shall then offer to
all persons who have retained the right to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares
to be allocated among the persons requesting additional inclusion pro rata
according to the total amount of securities entitled to be included in such
registration owned by each such person or in such other proportions as shall be
mutually agreed by such selling shareholders.
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7.3. Company Registration. If (but without any obligation to do
so) at any time after the date of the Second Closing hereunder the Company
proposes to register (including for this purpose a registration effected by the
Company for shareholders other than the Holders of Registrable Securities except
a registration in which the Holders have the right to include Registrable
Securities under Section 7.2) any of its stock or other securities under the
Securities Act in connection with the public offering of such securities solely
for cash (other than a registration relating solely to the sale of securities to
participants in a Company stock plan, or a registration relating to shares to be
issued in connection with the acquisition of another company, or a registration
on any form which does not include substantially the same information as would
be required to be included in a registration statement covering the sale of the
Registrable Securities), the Company shall, at such time, promptly give each
Holder of Registrable Securities written notice of such registration. Upon the
written request of each Holder of Registrable Securities given within twenty
(20) days after the effectiveness of such notice by the Company in accordance
with Section 9.6, the Company shall, subject to the provisions of Section 7.8,
cause to be registered under the Securities Act all of the Registrable
Securities that each such Holder of Registrable Securities has requested to be
registered.
7.4. Obligations of the Company. Whenever required under this
Section 7 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective (but in no
event later than one hundred twenty (120) days after the initial
request for registration), and, upon the request of the Holders of a
majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to one hundred twenty
(120) days, plus a period equal to any period during which the
Holders are prohibited from making sales because of any stop order,
injunction or other order or requirement of the SEC or any other
governmental agency or court or a period during which the happening
of any event which makes any statement made in the registration
statement, the prospectus or any document incorporated therein by
reference untrue or misleading in any material respect until a
curative amendment or supplement is filed and furnished to the
Holders; provided, however, that before filing a registration
statement or prospectus or any amendments or supplements thereto
(including documents that would be incorporated or deemed to be
incorporated therein by reference) the Company will furnish to the
Holders of the Registrable Securities covered by such registration
and, the underwriters, and any attorney, accountant or other agent
retained by the Holders of Registrable Securities covered by such
registration statement or underwriters copies of all such documents
proposed to be filed, which documents will be subject to the
reasonable and timely review and comment of such Holders, such
counsel and underwriters, if any, and the Company will not file any
registration statement or any amendment thereto or any prospectus or
any supplement thereto filed in connection with a registration
pursuant to Section 7.2 (including such documents incorporated by
reference and proposed to be filed after the initial filing of the
registration statement) to
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which the Holders of a majority of the Registrable Securities
covered by such registration statement or the underwriters, if any,
shall reasonably and timely object;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used
in connection with such registration statement as may be necessary
to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration
statement;
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus and all amendments
and supplements thereto, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable
Securities owned by them;
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Holders of Registrable Securities,
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; and
(e) Enter into and perform its obligations under an
underwriting agreement, in usual and customary form, with the
managing underwriter of such offering. Each Holder of Registrable
Securities participating in such underwriting shall also enter into
and perform its obligations under such an agreement.
7.5. Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Section 7
that the selling Holders of Registrable Securities shall furnish to the Company
such information regarding themselves, the Registrable Securities held by them,
and the intended method of disposition of such securities as shall be required
to effect the registration of the Registrable Securities.
7.6. Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 7.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements (not to exceed $35,000) of one counsel for the
selling Holders, selling Series A Holders, selling Series B Holders and selling
Series C Holders shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 7.2 if the registration request is
subsequently withdrawn at the request of the Holders (initiating and non-
initiating) holding a majority of the Registrable Securities to be registered
(in which case all participating Holders shall bear such expenses), unless the
Holders of at least 66-2/3% of the Registrable Securities agree to forfeit their
right to initiate one demand registration pursuant to Section 7.2. (provided
that if immediately prior to the time of such withdrawal, the Holders have
learned of a materially adverse change in the condition, business or prospects
of the Company from that known to the
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Holders at the time of their request, then the Holders shall not be required to
pay any such expenses and shall retain their rights pursuant to Section 7.2).
7.7. Expenses of Company Registration. The Company shall bear and
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 7.3 for each Holder (which right may be assigned as provided
in Section 7.13), including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel (not to exceed $35,000)
for the selling Holders, selling Series A Holders, selling Series B Holders and
selling Series C Holders selected by them, but excluding underwriting discounts
and commissions relating to Registrable Securities.
7.8. Underwriting Requirements. In connection with any offering
involving an underwriting of shares being issued by the Company, the Company
shall not be required under Section 7.3 to include any of the Holders'
Registrable Securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it, and then only in such quantity as will not, in the opinion of the
underwriters, jeopardize the success of the offering by the Company. If the
total amount of securities, including Registrable Securities, requested by
shareholders to be included in an offering (other than a registration effected
pursuant to Section 7.2) exceeds the amount of securities sold other than by the
Company that the underwriters reasonably believe compatible with the success of
the offering, then the Company shall be required to include in the offering only
that number of such securities, including Registrable Securities, which the
underwriters believe will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling
shareholders, including Series A Holders, Series B Holders and Series C Holders,
according to the total amount of securities entitled to be included therein
owned by each selling shareholder or in such other proportions as shall mutually
be agreed to by such selling shareholders). The underwriters, pursuant to the
preceding sentence, may completely exclude the Holder's Registrable Securities
from such underwriting if no other selling shareholders' securities are so
included.
If any person does not agree to the terms of any such underwriting, he
shall be excluded therefrom by written notice from the Company or the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration. If
shares are so withdrawn from the registration, the Company shall then offer to
all persons who have retained the right to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares
to be allocated among the persons requesting additional inclusion pro rata
according to the total amount of securities entitled to be included in such
registration owned by each such person or in such other proportions as shall be
mutually agreed by such selling shareholders.
For purposes of the immediately preceding parenthetical concerning
apportionment, for any selling shareholder which is a holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and shareholders of such holder, or the estates and
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family members of any such partners and retired partners, and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "selling
shareholder," and any pro rata reduction with respect to such "selling
shareholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling shareholder," as defined in this sentence.
7.9. Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 7.
7.10. Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 7:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless: (i) each Holder, the officers,
directors, agents, partners and legal counsel of each Holder of
Registrable Securities, and (ii) each person, if any, who controls
such Holder within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the officers, directors, agents, partners and legal counsel of
such control person, against any losses, claims, damages or
liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act or other federal or state
law, rule or regulation 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"): (A) any untrue statement or alleged
untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (B) 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 (C) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law; and
the Company will reimburse each such Holder, officer, agent,
director, partner, legal counsel, underwriter or controlling person
each officer, director, agent, partner and legal counsel of such
controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that the indemnity agreement contained
in this subsection 7.10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if
such settlement is effected without the consent of the Company
(which 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 primarily arises out of or is based
upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection
with such registration by any such Holder, officer, partner,
director, agent, legal counsel or controlling person.
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(b) To the extent permitted by law, each selling Holder will,
severally but not jointly, indemnify and hold harmless (i) the
Company; each of its officers, directors, agents, partners and legal
counsel; and (ii) each person, if any, who controls the Company
within the meaning of the Securities Act and the officers,
directors, agents, partners and legal counsel of such control
person, and any other Holder selling securities in such registration
statement or any of such other Holder's officers, directors, agents,
partners, legal counsel or any person who controls such Holder,
against any losses, claims, damages or liabilities (joint or
several) to which the Company or any officer, director, agent,
partner, legal counsel, or controlling person, or other such Holder
or director, officer, legal counsel or controlling person of such
other Holder may become subject, under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereto)
primarily arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished
by such Holder expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any officer,
director, agent, partner, legal counsel, controlling person, other
Holder, or officer, director, agent, partner, legal counsel or
controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability,
or action; provided, however, that the indemnity agreement contained
in this subsection 7.10(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if
such settlement is effected without the consent of the Holder (which
consent shall not be unreasonably withheld) and provided further
that in no event shall the liability of any selling Holder hereunder
be greater in amount than the dollar amount of the proceeds (net of
the payment of underwriting discounts and commissions payable by
such selling Holder) received by any such selling Holder upon the
sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) Promptly after receipt by an indemnified party under this
Section 7.10 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under
this Section 7.10, deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel at
its own expense if it so desires. Notwithstanding the foregoing, if
the indemnified party and the indemnifying party have conflicting
interests with respect to the action so that joint counsel for them
would be inappropriate, (as determined by counsel to the indemnified
party and counsel to the indemnifying party), then the indemnifying
party shall pay reasonable fees and expenses of one counsel to the
indemnified party. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of
any such action, if it materially adversely effects the ability to
defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 7.10, but
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the omission to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 7.10. No
indemnifying party, in the defense of any such action, shall, except
with the consent of each indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from liability in respect of
such action.
(d) If the indemnification provided for in this Section 7.10
is held by a court of competent jurisdiction to be unavailable to an
indemnified party, then, except to the extent that contribution is
not permitted under Section 11(f) of the Securities Act, each
indemnifying party, in lieu of indemnifying such indemnified party
thereunder, hereby agrees to contribute to the amount paid or
payable by such indemnified party 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. The
parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7.10(d) were determined by pro
rata allocation or by any other method of allocation that does not
take into account the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of
this Section 7.10(d), no indemnifying party that is a selling Holder
shall be required to contribute any amount in excess of the amount
by which the net proceeds received by such selling Holder from the
sale of Registrable Securities exceeds the amount of any damages
that such selling Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The indemnity and contribution agreements
contained in this Section 7.10 are in addition to any liability that
the indemnifying parties may have to the indemnified parties.
(e) The obligations of the Company and Holders under this
Section 7.10 shall survive the completion of any offering of
Registrable Securities in a registration statement under this
Section 7, and otherwise.
7.11. Reports Under Exchange Act. With a view to making available
to the Investors purchasing Shares hereunder the benefits of Rule 144
promulgated under the Securities Act and any other rule or regulation of the SEC
that may at any time permit a Holder to sell securities of the Company to the
public without registration, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after
ninety (90) days after the effective date of the first registration
statement filed by the Company for the offering of its securities to
the general public;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and
the Exchange Act; and
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(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written
statement by the Company that it has complied with the reporting
requirements of SEC Rule 144 (at any time after ninety (90) days
after the effective date of the first registration statement filed
by the Company), the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements),
and (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the
Company.
7.12. Form S-3 Registration. In case the Company shall receive
written request or requests from Holders owning a majority of the Registrable
Securities then outstanding, that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all
other Holders of Registrable Securities; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as
would permit or facilitate the sale and distribution of all such
portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the
Registrable Securities of any other Holder or Holders joining in
such request as are specified in a written request given within 20
days after effectiveness of such written notice from the Company
pursuant to Section 9.6 hereof; provided, however, that the Company
shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 7.12: (i) if
Form S-3 is not available for such offering by the Holders; (ii) if
the Holders, together with the holders of any other securities of
the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than $1,000,000; (iii) if the
Company shall furnish to the Holders a certificate signed by the
Chief Executive Officer of the Company stating that in the good
faith judgment of the Board of Directors of the Company it would be
seriously detrimental to the Company and its shareholders for such
Form S-3 Registration to be effected at such time, in which event
the Company shall have the right to defer the filing of the Form S-3
Registration Statement for a period of not more than one hundred
twenty (120) days after receipt of the request of the Holder or
Holders under this Section 7.12; provided, however, that the Company
shall not utilize this right more than once in any 12 month period;
(iv) if the Company within the twelve month period preceding the
date of such request, already has effected two registrations on Form
S-3 for the Holders pursuant to this Section 7.12, or (v) if the
Company has completed a Qualifying IPO within the preceding one
hundred eighty (180) days, or (vi) in any particular jurisdiction in
which the Company would be required to qualify to do business or to
execute a general consent to service of process in effecting such
registration, qualification or compliance.
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(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable
after receipt of the request or requests of the Holders. All
expenses, other than underwriting discounts and commissions,
incurred in connection with requested pursuant to Section 7.12,
including (without limitation) all other registration, filing,
qualification, printer's and accounting fees shall be borne by the
Company, including up to $35,000 of reasonable fees and disbursement
for one counsel for the selling Holders, Series A Holders, Series B
Holders and Series C Holders.
7.13. Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 7 may be
assigned by a Holder to a transferee or assignee who (i) is not a competitor of
the Company and acquires at least fifty thousand (50,000) shares (as adjusted
for stock splits, combinations, etc.) of Registrable Securities, (ii) is an
Investor as defined hereunder, or (iii) is a partner or equity holder or an
affiliate of an Investor (or a third party duly authorized to act on behalf of
an Investor or its partners or equity holders), provided that such partner or
equity holder or affiliate has appointed such Investor (or such duly authorized
third party) as its lawful attorney-in-fact to receive notices, vote and
otherwise make binding decisions under the terms of this Section 7; provided, in
each case, the Company is, within thirty days of such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned;
and provided, further, that 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 Securities Act.
7.14. "Market Stand-Off" Agreement. Each Holder of Registrable
Securities hereby agrees that it shall not, to the extent requested by the
Company and an underwriter of Common Stock (or other securities) of the Company,
sell or otherwise transfer or dispose of any securities of the Company (other
than securities registered in the offering) whether or not acquired by such
Holder under this Agreement during a reasonable and customary period of time
(not to exceed one hundred twenty (120) days), as agreed to by the Company and
the underwriters, following the effective date of a registration statement of
the Company filed under the Securities Act; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers shares (or
securities) to be sold on its behalf to the public in an
underwritten offering; and
(b) all officers and directors of the Company, holders of 5%
or more of the Company's issued and outstanding capital stock and
all other persons with registration rights (whether or not pursuant
to this Agreement) similarly agree not to sell or transfer.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such reasonable and customary period.
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7.15. Amendment of Registration Rights. Any provision of this
Section 7 may be amended and the observance thereof 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 of
at least 66-2/3% of the Registrable Securities. Any amendment or waiver effected
in accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
7.16. Rights That May Be Granted to Subsequent Investors.
(a) Within the limitations prescribed by this paragraph (a),
but not otherwise, the Company may grant to subsequent investors in
the Company rights of incidental registration (such as those
provided in Section 7.3). Such rights may only pertain to shares of
Common Stock, including shares of Common Stock into which any other
securities may be converted. Such rights may be granted with respect
to (i) registrations actually requested by Initiating Holders
pursuant to Section 7.2 or by Series A Holders pursuant to Section
7.2 of the Series A Purchase Agreements or by Series B Holders
pursuant to Section 7.2 of the Series B Purchase Agreement, but only
in respect of that portion of any such registration as remains after
inclusion of all Registrable Securities requested by Holders, Series
A Holders, Series B Holders and Series C Holders and (ii)
registrations initiated by the Company, but only in respect of that
portion of such registration as is available under the limitations
set forth in Section 7.8 (which limitations shall apply pro-rata to
all Holders, Series A Holders, Series B Holders and Series C
Holders) and such rights shall be limited in all cases to sharing
pro-rata in the available portion of the registration in question
with Holders, Series A Holders, Series B Holders and Series C
Holders, such sharing to be based on the number of shares of Common
Stock held by the respective Holders, Series A Holders, Series B
Holders and Series C Holders and held by such other investors, plus
the number of shares of Common Stock into which other securities
held by the Holders, Series A Holders, Series B Holders and Series C
Holders and such other investors are convertible, which are entitled
to registration rights. With respect to registrations which are for
underwritten public offerings, "available portion" shall mean the
portion of the underwritten shares which is available as specified
in clauses (i) and (ii) of the third sentence of this paragraph (a).
Shares not included in such underwriting shall not be registered.
(b) The Company may not grant to subsequent investors in the
Company rights of registration upon request (such as those provided
in Section 7.2) unless (i) such rights are limited to shares of
Common Stock, (ii) all Holders, Series A Holders, Series B Holders
and Series C Holders are given enforceable contractual rights to
participate in registrations requested by such subsequent investors
on a pro-rata basis with such subsequent investors such
participation to be on a pro-rata basis, and subject to the
limitations, described in the final three sentences of paragraph (a)
of this Section 7.16, (iii) such rights shall not become effective
prior to one hundred eighty (180) days after the effective date of
the first registration pursuant to Section 7.2 and (iv) such rights
shall not be more favorable than those granted to the Holders.
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7.17. Termination of Registration Rights. The Company's
obligations pursuant to this Section 7 shall terminate with respect to each
Holder of Registrable Securities on the earlier to occur of (i) five years from
the date of consummation a Qualifying IPO or (ii) such time as such Holder is
eligible to sell all of its Registrable Securities pursuant to Rule 144 (other
than pursuant to Rule 144(k)) under the Securities Act in a single three (3)
month period provided that the Company has been continually subject to the
reporting requirements of the Exchange Act for at least two years immediately
prior to the time of such sale.
8. Covenants.
8.1. Delivery of Financial Statements. The Company shall deliver
to each Investor for as long as such Investor (together with its affiliates)
holds not less than 100,000 Preferred Shares (or Common Stock into which such
Preferred Shares have been converted), as adjusted for stock splits, stock
dividends, reclassifications and similar events:
(a) as soon as practicable, but in any event within one
hundred twenty (120) days after the end of each fiscal year of the
Company, an income statement for such fiscal year, a balance sheet
of the Company as of the end of such year, and a cash flow
statement, such year-end financial reports to be in reasonable
detail, prepared in accordance with generally accepted accounting
principles ("GAAP") audited by independent public accountants of
recognized national standing; and
(b) within forty-five (45) days of the end of each quarter, a
statement of operations, cash flow analysis and balance sheet for
and as of the end of such quarter, in reasonable detail; such
quarterly statements shall also compare actual performance to budget
and to the prior year's comparable period.
8.2. Inspections. On a quarterly basis, the Company shall permit
each Investor or its authorized representatives, 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
senior management at reasonable times as may be requested by the Investor;
provided, however, that the Company shall not be obligated pursuant to this
Section 8.2 to provide access to any information which it reasonably considers
to be a trade secret or similar confidential information.
8.3. Director Elected by Holders of Series C and Series D
Preferred Stock. The Investors will consult with the Company with respect to any
director elected from time to time by the holders of Series C Preferred Stock
and the Series D Preferred Stock and will make reasonable efforts to elect a
director reasonably acceptable to the Company; provided that any Senior Officer
of Global Retail Partners shall be acceptable to the Company.
8.4. Termination of Covenants. The covenants set forth in Section
8.1 and 8.2 shall terminate and be of no further force or effect upon the
consummation of a Qualifying IPO or the Company first becomes subject to the
periodic reporting requirements of section 13(a) or 15(d) of the Exchange Act,
whichever event shall first occur.
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8.5. Insurance. The Company shall keep and maintain in full force
and effect (i) fire and casualty insurance policies, with extended coverage,
reasonably sufficient in amount to allow it to replace any of its properties
that might be damaged or destroyed and (ii) general liability insurance in
amounts customary for entities in similar business and at a similar stage of
development.
8.6. Co-Sale Rights. XxXxxxxxx agrees that during the period
ending on the consummation of a Qualifying IPO or immediately after the closing
of the sale or merger of the Company (where the Company is not the surviving
entity or where there otherwise is a change of control), he will not sell any
shares of Common Stock of the Company owned by him (the "XxXxxxxxx Common
Stock") without notifying the Investors twenty (20) or more days prior to the
closing of such sale and permitting the Investors to participate (through the
sale of shares of Common Stock) in such sale on a pro-rata basis. An Investor's
pro-rata share shall be that number of shares of stock equal to the product
obtained by multiplying the aggregate number of shares proposed to be sold in
such transaction by a fraction, the numerator of which is the number of shares
of Common Stock then owned by such Investor (on as as-converted basis), and the
denominator of which is the total number of share of common Stock then owned by
XxXxxxxxx and the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock (on an as-converted
basis). It is understood that XxXxxxxxx has granted similar co-sale rights to
holders of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock pursuant to prior agreements, that the calculation of the
Investors' pro-rata participation rights in accordance with the preceding
sentence shall be made without reference to such other co-sale rights, and that
XxXxxxxxx shall be responsible for honoring all co-sale rights in accordance
with the respective agreements. Each Investor must notify XxXxxxxxx in writing
that such Investor will participate in such sale (and sell such Investor's
shares of Common Stock in strict accordance with the terms and conditions of
such sale as described in the notice) on or before ten (10) business days before
the anticipated closing of such sale, or such Investor will have no right to
participate in such sale. This Section 8.6 shall not pertain to any transfers by
XxXxxxxxx to his ancestors, descendants or spouse or to trusts for the benefit
of such persons, or any bona fide gift by XxXxxxxxx; provided, however, any
shares of XxXxxxxxx'x Common Stock transferred in a transaction described in
this sentence shall continue to be subject to the same co-sale obligations set
forth in this Section 8.6 as if XxXxxxxxx continued to own such shares.
8.7. Rights of First Offer on Transfers by XxXxxxxxx. XxXxxxxxx
agrees that during the period ending on the consummation of a Qualifying IPO or
immediately after the closing of the sale or merger of the Company (where the
Company is not the surviving entity or where there otherwise is a change of
control), he will not sell any shares of XxXxxxxxx Common Stock without
notifying the Investors twenty (20) or more days prior to the closing of such
sale and permitting such Investors the right to purchase all (but not less than
all) such XxXxxxxxx Common Stock. Each Investor shall be entitled to purchase
its pro rata share of such XxXxxxxxx Common Stock on the same terms and
conditions as XxXxxxxxx is offering such XxXxxxxxx Common Stock to other
persons. An Investor's pro-rata share shall be that number of shares of stock
equal to the product obtained by multiplying the aggregate number of shares
proposed to be sold in such transaction by a fraction, the numerator of which is
the number of shares of
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common Stock then owned by such Investor (on an as-converted basis), and the
denominator of which is the total number of shares of common Stock then owned by
the holders of Series C Preferred Stock and Series D Preferred Stock (on an as-
converted basis). It is understood that XxXxxxxxx has granted rights of refusal
to holders of Series C Preferred Stock pursuant to a prior agreement, that the
calculation of the Investors' pro-rata rights in accordance with the preceding
sentence shall be made without reference to such other rights, and that
XxXxxxxxx shall make sufficient shares of Common Stock available to honor the
rights of refusal of all holders of Preferred Stock in accordance with their
terms. Prior to any sale by XxXxxxxxx of any XxXxxxxxx Common Stock subject to
this right of first offer, XxXxxxxxx shall notify the Investors, in writing, of
his intention to sell such XxXxxxxxx Common Stock, setting forth the terms under
which he proposes to make such sale. Within ten (10) days after receipt of such
notice, each Investor shall notify XxXxxxxxx as to whether he or it desires to
purchase any or all of his or its pro rata share of such XxXxxxxxx Common Stock
for the price and on the general terms specified in the notice. In the event any
Investor elects not to purchase such holder's pro rata share of such XxXxxxxxx
Common Stock, the remaining Investors shall have the right to purchase their pro
rata share of such available shares on the terms described above. XxXxxxxxx
shall promptly notify the remaining Investors of the shares available for
purchase ("Remaining XxXxxxxxx Shares"). If, within ten (10) days after
XxXxxxxxx gives his aforesaid notice, an Investor has not notified XxXxxxxxx of
the number of Remaining XxXxxxxxx Shares he or it desires to purchase upon the
terms and conditions set forth in such notice (in the event such shares are over
subscribed each Investor will be entitled to purchase on a pro-rata basis),
XxXxxxxxx may, during a period of one hundred twenty (120) days following the
end of such ten (10) day period, sell such Remaining XxXxxxxxx Shares at a price
and upon terms and conditions no more favorable to such purchasers than those
set forth in such notice, subject to compliance with the Co-Sale rights of the
Investors set forth in Section 8.6 hereof. If the Investors elect to purchase
all of the XxXxxxxxx Common Stock offered, the Investors so purchasing shall pay
for the XxXxxxxxx Common Stock by a wire transfer of immediately available funds
or in accordance with the notice against delivery of the securities at the
executive offices of the Corporation at the time of the scheduled closing
therefore; provided that if the notice provides for payment of non-cash
consideration, then each Investor, at its option, may pay the consideration in
cash equal to the present fair market value of the non-cash consideration
offered, which shall be determined by mutual agreement between the parties.
XxXxxxxxx shall take all such action as may be reasonably required by any
regulatory authority in connection with the exercise by the Investors of the
right to purchase XxXxxxxxx Common Stock as set forth herein. The right of first
refusal contained in this Section 8.7 shall not apply to (i) securities sold by
XxXxxxxxx in connection with an underwritten offering pursuant to a registration
statement filed under the Securities Act or in connection with the sale or
merger of the Company, or (ii) any transfers by XxXxxxxxx to his ancestors,
descendants or spouse or to trusts for the benefit of such persons, or any bona
fide gift by XxXxxxxxx; provided, however, any shares of XxXxxxxxx Common Stock
transferred in a transaction described in this sentence shall continue to be
subject to the same right of first offer obligations set forth in this Section
8.7 as if XxXxxxxxx continued to own such shares.
8.8. Qualified Small Business Status. The Company shall use its
commercially reasonable efforts not to and shall not knowingly, without the
prior written consent or affirmative
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32
vote or written consent of the holders of at least a majority of the total
outstanding shares of Series D Preferred Stock who purchased such shares of
Series D Preferred Stock from the Company pursuant to this Agreement, voting
separately as a class, take any action affecting, or permit any action, other
than a Permitted Action (as defined below), to affect, the capital structure
(including purchases of its own stock) or operation of its business which would
cause the Preferred Shares not to qualify as "qualified small business stock"
under Code Section 1202. As used in this Agreement, "Permitted Action" shall
mean a merger of the Company with or into any other corporation or corporations
(other than a mere reincorporation transaction), a sale of all or substantially
all of the assets of the Company or a transaction or series of related
transactions in which the Company issues shares representing more than 50% of
the voting power of the Company immediately after giving effect to such
transaction.
9. Miscellaneous.
9.1. Survival of Warranties; Indemnification. The warranties,
representations and covenants of the Company and the Investors contained in or
made pursuant to this Agreement shall survive the execution and delivery of this
Agreement and the Second Closing and shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of the
Investors or the Company. The Company agrees to indemnify and hold harmless each
Investor from any losses or damages (including without limitation reasonable
attorneys fees) suffered arising out of a breach of any representation, warranty
or covenant of the Company under this Agreement.
9.2. Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties, including permitted transferees of the
Preferred Shares and the Common Stock into which it has been converted. 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.
9.3. Governing Law. This Agreement shall be governed by and
construed under the internal substantive laws (but not the choice of law rules)
of the State of California.
9.4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.5. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.6. Notices. Except as otherwise expressly provided herein, any
notice required or permitted hereunder shall be given in writing and it or any
certificates or other documents delivered hereunder shall be deemed effectively
given or delivered (as the case may be) upon personal delivery (professional
courier permissible) or when mailed by receipted United
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33
States certified mail delivery, five (5) business days after deposit in the
United States mail. Such certificates, documents or notice may be personally
delivered or sent to the following address: (a) if to a Investor, to the address
set forth with respect to such investor on Exhibit B-2 attached hereto, or to
such other address of which such investor shall have given notice pursuant
hereto the Company, or (b) if to the Company, to CyberSource Corporation, 0000
Xxxxx Xxx, Xxxxx 000, Xxx Xxxx, Xxxxxxxxxx 00000, or to such other address of
which the Company shall have given notice pursuant hereto.
9.7. Finder's Fee. Each Investor severally agrees to indemnify
and hold harmless the Company from any liability for any commission or
compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability or asserted liability) for which such investor
or any of its officers, partners, employees or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
9.8. Expenses. Each party to this Agreement shall bear its own
expenses incurred in connection with the negotiation, preparation, execution and
consummation of this Agreement, including the fees, expenses and disbursements
of its respective legal counsel incurred in connection herewith, provided the
Company will pay the reasonable legal fees of one counsel to the Investors.
9.9. Amendments and Waivers. Except as specified in Section 7.15,
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 of at least 66-2/3% of shares of the Common Stock issued or
issuable upon conversion of the Preferred Shares; provided, however, the
conditions to Closing set forth in Section 5 hereof may only be amended by
unanimous agreement of the Investors.
9.10. 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 this Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
9.11. Aggregation of Stock. All Preferred Shares (or Common Stock
issued on conversion thereof) 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.
9.12. Confidentiality Agreement. Each Investor and any successor
or assign of such Investor who receives from the Company or its agents, directly
or indirectly, any information which the Company has not made generally
available to the public, pursuant to the preparation and execution of this
Agreement or disclosure in connection therewith or pursuant to the provisions of
Section 8 hereof, acknowledges and agrees that such information is confidential
and for its use only in connection with evaluating its investment in the
Company, and further
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34
agrees that it will not disseminate such information to any person other than
its accountant, investment advisor or attorney and that such dissemination shall
be only for purposes of evaluating its investment.
9.13. Enforcement.
(a) Remedies at Law or in Equity. If the Company or any
Investor shall default in any of its obligations under this
Agreement or if any representation or warranty made by or on behalf
of the Company or any Investor, as the case may be, in this
Agreement or in any certificate, report or other instrument
delivered under or pursuant to any term hereof shall be untrue or
misleading in any material respect as of the date of this Agreement
or as of the Closing of such investment or as of the date it was
made, furnished or delivered, the Company or such Investor may
proceed to protect and enforce its rights, including by way of suit
in equity or action at law, whether for the specific performance of
any term contained in this Agreement or the Restated Articles of the
Company or for an injunction against the breach of any such term or
in furtherance of the exercise of any power granted in this
Agreement or such Restated Articles, or for damages or to enforce
any other legal or equitable right of such Investor (including
Investor's right to indemnification under Section 9.1) or to take
any one or more of such actions. In the event such an action is
brought, 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 with respect
to this Agreement or the Restated Articles of the Company, including
without limitation such reasonable fees and expenses of attorneys
and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
(b) Remedies Cumulative; Waiver. No remedy referred to herein
is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to above or otherwise
available to the Company or any Investor at law or in equity. No
express or implied waiver by the Company or any Investor of any
default shall be a waiver of any future or subsequent default as to
such party. The failure or delay of the Company or any party in
exercising any rights granted it hereunder shall not constitute a
waiver of any such right and any single or partial exercise of any
particular right by such party shall not exhaust the same or
constitute a waiver of any other right provided herein.
9.13.2. Entire Agreement. This Agreement and the other
documents and agreements delivered pursuant hereto constitute the
full and entire understanding and agreement among the parties with
regard to the subjects hereof and thereof and supersedes any prior
agreements (including any memorandum of understanding or letters of
intent) between the parties regarding the subject matter hereof.
[Remainder of page intentionally left blank.]
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35
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Solely with respect to the agreements "COMPANY"
made in Sections 7.1 - 7.17, 8.6
and 8.7 hereof:
CYBERSOURCE CORPORATION,
a California corporation
By:___________________________
XXXXXXX X. XXXXXXXXX Name:XXXXXXX X. XXXXXXXXX
Title: President and Chief
Executive Officer
"INITIAL CLOSING INVESTORS"
VULCAN VENTURES INCORPORATED
000 000xx Xxxxxx XX, Xxxxx 000
Xxxxxxxx, XX 00000
By:___________________________
Name:______________________
Title:_____________________
GLOBAL RETAIL PARTNERS, L.P.
By: GLOBAL RETAIL PARTNERS, INC.
General Partner
By:___________________________
Name:______________________
Title:_____________________
GLOBAL RETAIL PARTNERS FUNDING, INC.
By:___________________________
Name:______________________
Title:_____________________
GRP PARTNERS, L.P.
By: GLOBAL RETAIL PARTNERS, INC.
General Partner
By:___________________________
Name:______________________
Title:_____________________
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DLJ DIVERSIFIED PARTNERS, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.,
General Partner
By:___________________________
Name:______________________
Title:_____________________
DLJ DIVERSIFIED PARTNERS-A, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.,
General Partner
By:___________________________
Name:______________________
Title:_____________________
DLJ ESC II, L.P.
By: DLJ LBO PLANS MANAGEMENT
CORPORATION, General Partner
By:___________________________
Name:______________________
Title:_____________________
UH TECHNOLOGY PARTNERS, LDC
By:___________________________
General Partner of its Investment
Manager, Unterberg Harris Capital
Management, LP
UH CAPITAL PARTNERS INTERNATIONAL,
LDC
By:___________________________
General Partner of its Investment
Manager, Unterberg Harris Capital
Management, XX
XXXXXXXXX XXXXXX PRIVATE EQUITY
PARTNERS, LP
By:___________________________
Name:______________________
Title:_____________________
Member of its Investment General
Partner, Unterberg Harris LLC
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37
UNTERBERG HARRIS PRIVATE EQUITY
PARTNERS, CV
By:___________________________
Member of its Investment General
Partner, Unterberg Harris LLC
"SECOND CLOSING INVESTORS"
VULCAN VENTURES INCORPORATED
000 000xx Xxxxxx XX, Xxxxx 000
Xxxxxxxx, XX 00000
By:___________________________
Name:______________________
Title:_____________________
GLOBAL RETAIL PARTNERS, L.P.
By: GLOBAL RETAIL PARTNERS, INC.
General Partner
By:___________________________
Name:______________________
Title:_____________________
GLOBAL RETAIL PARTNERS FUNDING, INC.
By:___________________________
Name:______________________
Title:_____________________
GRP PARTNERS, L.P.
By: GLOBAL RETAIL PARTNERS, INC.
General Partner
By:___________________________
Name:______________________
Title:_____________________
DLJ DIVERSIFIED PARTNERS, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.,
General Partner
By:___________________________
Name:______________________
Title:_____________________
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38
DLJ DIVERSIFIED PARTNERS-A, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.,
General Partner
By:___________________________
Name:______________________
Title:_____________________
DLJ ESC II, L.P.
By: DLJ LBO PLANS MANAGEMENT
CORPORATION, General Partner
By:___________________________
Name:______________________
Title:_____________________
UH TECHNOLOGY PARTNERS, LDC
By:___________________________
General Partner of its Investment
Manager, Unterberg Harris Capital
Management, LP
UH CAPITAL PARTNERS INTERNATIONAL,
LDC
By:___________________________
General Partner of its Investment
Manager, Unterberg Harris Capital
Management, XX
XXXXXXXXX XXXXXX PRIVATE EQUITY
PARTNERS, LP
By:___________________________
Member of its Investment General
Partner, Unterberg Harris LLC
UNTERBERG HARRIS PRIVATE EQUITY
PARTNERS, CV
By:___________________________
Member of its Investment General
Partner, Unterberg Harris LLC
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39
PACIFIC ASSET PARTNERS
By:___________________________
Name:______________________
Title:_____________________
-39-
40
EXHIBIT A-1
FOURTH AMENDED AND RESTATED ARTICLES OF INCORPORATION
41
EXHIBIT B-1A
SCHEDULE OF INITIAL CLOSING INVESTORS
NO. OF SHARES
"INVESTOR" PURCHASE PRICE PURCHASED
---------- -------------- ---------
Vulcan Ventures Incorporated $ 912,475.12 350,952
UH Technology Partners, LDC $ 364,990.60 140,381
Unterberg Harris Private Equity Partners, LP $ 75,186.80 28,918
Unterberg Harris Private Equity Partners, CV $ 16,060.20 6,177
DLJ Diversified Partners, L.P. $ 174,327.51 67,049
DLJ Diversified Partners-A, L.P. $ 64,740.04 24,900
DLJ ESC II, L.P. $ 10,067.21 3,872
GRP Partners, L.P. $ 38,030.22 14,627
Global Retail Partners Funding, Inc. $ 40,279.22 15,492
Global Retail Partners, L.P. $ 585,031.53 225,012
TOTAL $2,281,188.45 877,380
42
EXHIBIT B-1B
SCHEDULE OF SECOND CLOSING INVESTORS
NO. OF SHARES
"INVESTOR" PURCHASE PRICE PURCHASED
---------- -------------- ---------
Vulcan Ventures Incorporated $ 278,599.12 107,154
UH Technology Partners, LDC $ 111,439.66 42,861
Unterberg Harris Private Equity Partners, LP $ 22,956.57 8,829
Unterberg Harris Private Equity Partners, CV $ 4,903.35 1,886
DLJ Diversified Partners, L.P. $ 53,226.95 20,472
DLJ Diversified Partners-A, L.P. $ 19,765.11 7,602
DLJ ESC II, L.P. $ 3,073.19 1,182
GRP Partners, L.P. $ 11,611.55 4,466
Global Retail Partners Funding, Inc. $ 12,297.94 4,730
Global Retail Partners, L.P. $ 178,624.37 68,702
Pacific Asset Partners $ 22,312.80 8,582
TOTAL $ 718,810.61 276,466
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EXHIBIT B-2
NOTICES
WITH A COPY TO:
Xxxxxxxxxxx X. Xxxxxx, Esq.
Xxxxxx Pepper & Shefelman PLLC
0000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
WITH A COPY TO:
Xxxxxx X. Xxxxx
Unterberg Harris Capital Partners
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
WITH A COPY TO:
Xxxxx Xxxxxxxx
Global Retail Partners, L.P.
2121 Avenue of the Stars, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
WITH A COPY TO:
Xxx Xxxxx
DLI Diversified Partners, L.P.
000 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
WITH A COPY TO:
Xxxxx Xxxxxxxx
GRP Partners, L.P.
2121 Avenue of the Stars, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
WITH A COPY TO:
Xxxxx Xxxxxxxx
Global Retail Partners Funding, Inc.
0000 Xxxxxx xx xxx Xxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
WITH A COPY TO:
Xxx Xxxxx
DLJ ESC II, L.P.
000 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
WITH A COPY TO:
Xxxxxx X. Xxxxxxxx
Pacific Asset Partners
000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxxxx, XX 00000
44
EXHIBIT C
SCHEDULE OF EXCEPTIONS
45
EXHIBIT D
OPINION OF COUNSEL
46
EXHIBIT E
SHAREHOLDERS AGREEMENT
