WORLDGATE COMMUNICATIONS, INC.,
FIRST AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
FIRST AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
THIS FIRST AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (this
"AGREEMENT") is made and entered into as of the 2nd day of September, 1998, by
and among WorldGate Communications, Inc., a Delaware corporation (the
"COMPANY"), Xxx Xxxxxxxxx ("KRISBERGH") and Xxxxx Xxxxxx ("XXXXXX" and,
collectively with Krisbergh, the "FOUNDING STOCKHOLDERS"), AMP Incorporated,
Motorola, Inc. ("MOTOROLA"), Xxxx Xxxxx, Citicorp ("CITICORP"), Adtec Limited
Partnership, Advent Crown Fund, C.V., Digital Media & Communications, L.P. and
Advent Partners Limited Partnership, Xxxxxxx Capital SBIC, L.P., Xxxxxxx Group
Investors I, L.L.C., Xxxx Xxxxx, Scientific-Atlanta, Inc., and General
Instrument Corporation (formerly NextLevel Systems, Inc.) (collectively, the
"SERIES A STOCKHOLDERS", and together with the Founding Stockholders, the
"INITIAL STOCKHOLDERS"), the holders of Series B Preferred Stock (as hereinafter
defined) set forth on Schedule I hereto (the "Series B Stockholders"), the
persons or entities who purchase Series C Preferred Stock (as hereinafter
defined) and become signatories to this Agreement on or before the First Closing
(as hereinafter defined) to be set forth on SCHEDULE II hereto and who purchase
Series C Preferred Stock and become signatories hereto on or before Subsequent
Closings (as hereinafter defined) to be set forth on SCHEDULE III hereto
(together with any other person acquiring Series C Preferred Stock hereunder,
the "SERIES C STOCKHOLDERS"), BT Alex. Xxxxx, those Management Stockholders (as
defined herein) identified on SCHEDULE IV hereto, those Strategic Partners (as
defined herein) receiving Strategic Partner Securities (as defined herein) set
forth on SCHEDULE V hereto, and those persons receiving shares under the
Employee Stock Purchase Plan (as defined herein) to be set forth on SCHEDULE VI
hereto. The Initial Stockholders, the Series B Stockholders, the Series C
Stockholders,, the Management Stockholders, and BT Alex. Xxxxx are referred to
hereinafter as a "STOCKHOLDER" and collectively as the "STOCKHOLDERS." The
Series A Stockholders, the Series B Stockholders and the Series C Stockholders
are sometimes referred to hereinafter as a "PREFERRED STOCKHOLDER" and
collectively as the "PREFERRED STOCKHOLDERS."
RECITALS
WHEREAS, the parties hereto other than the Series C
Stockholders are parties to a Stockholders' Agreement, dated as of November 24,
1997 (the "Original Stockholders Agreement");
WHEREAS, certain of the Series C Stockholders and the Company
are parties to a Stock Purchase Agreement (the "STOCK PURCHASE AGREEMENT") dated
as of the date hereof, whereby the Series C Stockholders' obligation to purchase
the Series C Preferred Stock is conditioned upon the amendment and restatement
of the Original Stockholders Agreement to include Series C Stockholders as
provided herein;
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein, and, intending to be legally bound, the parties
hereto agree as follows:
ARTICLE I CERTAIN DEFINITIONS; TERMINATION OF AGREEMENTS;
RESTRICTIONS ON TRANSFER
SECTION 1.1 CERTAIN DEFINITIONS. In addition to those terms
defined elsewhere in this Agreement, as used in this Agreement, the following
terms shall have the respective meanings set forth below:
(a) "ALEX. XXXXX" shall mean BT Alex. Xxxxx.
(b) "ALEX. XXXXX WARRANTS" shall mean the five year
noncancelable warrants to purchase up to 72,849 shares of the Series B Preferred
Stock issued to Alex. Xxxxx by the Company.
(c) "BYLAWS" shall mean the bylaws of the Company, as amended
from time to time.
(d) "CERTIFICATE OF INCORPORATION" shall mean the Company's
Restated Certificate of Incorporation as filed with the Secretary of State of
the State of Delaware on June 12, 1998, as amended on September 2, 1998 and as
further amended from time to time.
(e) "COMMISSION" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
(f) "COMMON STOCK" refers to the Company's Class A Common
Stock, par value $.01 per share, and Class B Common Stock, par value $.01 per
share.
(g) "CO-SALE SECURITIES" shall mean (i) shares of Common Stock
issued pursuant to the conversion of the Preferred Shares including the
conversion of the Series B Warrant Shares and the Strategic Partner Shares, and
(ii) any Common Stock issued as a dividend or other distribution with respect to
or in exchange for or in replacement of the shares referenced in clause (i)
above.
(h) "EMPLOYEE STOCK PURCHASE PLAN" shall have the meaning set
forth in SECTION 4.2.
(i) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
(j) "FIRST CLOSING" shall mean the first closing of the sale
of shares of the Series C Preferred Stock pursuant to the Series C Offering.
(k) "HOLDERS" shall mean, collectively, the Agent, any
Strategic Partner, and any Preferred Stockholder who holds Registrable
Securities and any holder of Registrable Securities to whom the registration
rights conferred by this Agreement have been transferred in compliance with
SECTION 7.10.
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(l) "INITIAL PUBLIC OFFERING" shall mean the initial firm
commitment underwritten public offering of the Company's Common Stock pursuant
to a registration statement under the Securities Act.
(m) "MANAGEMENT STOCKHOLDER" means any person (other than the
Company) that is a party to the Management Stockholders' Agreement.
(n) "MANAGEMENT STOCKHOLDERS' AGREEMENT" means the Management
Shareholders' Agreement, dated as of December 4, 1996, by and among the Company,
the Founding Stockholders and the other Management Stockholders, as amended and
in effect on the date hereof.
(o) "ORIGINAL CONVERSION STOCK" shall mean that number of
Preferred Shares convertible into the total number of shares of Common Stock
issuable upon conversion of the Preferred Shares issued as of the final
Subsequent Closing.
(p) "ORIGINAL SERIES A PURCHASE PRICE" means $4.395 per share
of Series A Preferred Stock.
(q) "ORIGINAL SERIES B PURCHASE PRICE" means $7.10 per share
of Series B Preferred Stock.
(r) "ORIGINAL SERIES C PURCHASE PRICE" means the lowest
average cash consideration per share of Series C Preferred Stock paid to the
Company by any of the purchasers thereof upon original issuance thereof, as
adjusted from time to reflect the issuance of any additional shares of Series C
Preferred Stock for cash consideration per share less than the prevailing
Original Series C Purchase Price.
(s) "PREFERRED SHARES" shall mean the Series A Preferred
Stock, the Series B Preferred Stock and the Series C Preferred Stock..
(t) "REGISTRATION EXPENSES" shall mean all expenses incurred
by the Company in complying with ARTICLE VII (other than the underwriting
discounts and commissions), including, without limitation: (i) all registration
and filing fees (including all expenses incident to filing with the National
Association of Securities Dealers, Inc.); (ii) the fees and expenses of
complying with securities and blue sky laws; (iii) expense allowances of the
underwriters; (iv) printing expenses; (v) fees and disbursements of Company
counsel; and (vi) the fees and expenses of the Company's independent public
accountants.
(u) "REGISTRABLE SECURITIES" shall mean, on any date: (i)
shares of Common Stock issued or issuable pursuant to the conversion of the
Preferred Shares; (ii) shares of Common Stock issued or issuable pursuant to the
conversion of the Series B Warrant Shares and Strategic Partner Shares; (iii)
shares of Common Stock owned by the Management Stockholders; and (iv) any Common
Stock or other security exchangeable or convertible into Common Stock issued as
a dividend or other distribution with respect to or in exchange for or in
replacement of the shares referenced in clauses (i) through (iv) above;
PROVIDED, HOWEVER, that Registrable Securities shall not include any shares of
Common Stock (x) which are then already registered, (y) which have been sold to
the public either pursuant to a registration under the Securities Act or
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Rule 144 or (z) so long as the Common Stock is listed on the New York Stock
Exchange, the American Stock Exchange or the NASDAQ National Market, which can
be sold pursuant to Rule 144 under the Securities Act without restrictions as a
result of volume limitations.
(v) The terms "REGISTER," "REGISTERED" and "REGISTRATION"
shall refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or ordering
of the effectiveness of such registration statement.
(w) "RULE 144" shall mean Rule 144 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the Commission.
(x) "RULE 145" shall mean Rule 145 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the Commission.
(y) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
(z) "SELLING EXPENSES" shall mean all underwriting discounts
and commissions applicable to the sale of Registrable Securities and fees and
disbursements of counsel for any holder of Registrable Securities.
(aa) "SERIES A CONVERSION STOCK" shall mean the Common Stock
issuable upon conversion of the outstanding Series A Preferred Stock.
(ab) "SERIES A PREFERRED STOCK" shall mean the Series A
Convertible Preferred Stock, par value $.01 per share, of the Company.
(ac) "SERIES B CONVERSION STOCK" shall mean the Common Stock
issuable upon conversion of the outstanding Series B Preferred Stock.
(ad) "SERIES B PREFERRED STOCK" shall mean the Series B
Convertible Preferred Stock, par value $.01 per share, of the Company,
including the Series B Warrant Shares and Strategic Partner Shares.
(ae) "SERIES B WARRANT SHARES" shall mean the shares of
Series B Preferred Stock issued or issuable upon exercise of the
Alex. Xxxxx Warrants."
(af) "SERIES C OFFERING" shall mean the Company's offering of
Series C Preferred Stock pursuant to its Private Placement Memorandum
dated July 13, 1998, as amended or supplemented from time to time.
(ag) "SERIES C CONVERSION STOCK" shall mean the Common Stock
issuable upon conversion of the outstanding Series C Preferred Stock.
(ah) "SERIES C PREFERRED STOCK" shall mean the Series C
Convertible
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Preferred Stock, par value $.01 per share, of the Company.
(ai) "SPECIAL REGISTRATION STATEMENT" means a registration
statement on Forms S-8 or S-4 or any successor form or other
registration statement relating to an offering to the Company's
employees, or to its security holders in connection with a business
combination.
(aj) "STRATEGIC PARTNER" shall have the meaning set forth
in Section 4.2.
(ak) "STRATEGIC PARTNER SECURITIES" shall mean the Charter
Warrant and the options or warrants to purchase Series B Preferred
Stock issued to the Company's Strategic Partners pursuant to Section
4.2.
(al) "STRATEGIC PARTNER SHARES" shall mean the shares of
Series B Preferred Stock issued or issuable upon exercise of the
Strategic Partner Securities.
(am) "SUBSEQUENT CLOSINGS" shall mean any one or more closings
of the Series C Offering held after the First Closing.
SECTION 1.2 TERMINATION. The parties hereto who are parties to
the Original Stockholders' Agreement hereby covenant and agree that the Original
Stockholders' Agreement is hereby superseded and replaced in their entirety by
this Agreement.
SECTION 1.3 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of all or
any portion of the Preferred Shares or Registrable Securities unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by this SECTION 1.3, provided and to the extent such Section is then applicable,
and:
(i) 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
(ii) such Holder shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition
and, if reasonably requested by the Company, such Holder shall have furnished
the Company with an opinion of counsel, reasonably satisfactory to the Company,
that such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel or prior notice for transactions made pursuant to Rule 144.
(iii) notwithstanding the provisions of
paragraphs (i) and (ii) above, at any time after 6 months from the date Holder
acquired the Preferred Shares or Registrable Securities proposed to be
transferred, no such registration statement or opinion of counsel shall be
necessary for a transfer of such securities by a Holder (A) which is (X) a
partnership to its partners or retired partners in accordance with partnership
interests, (Y) a corporation to its shareholders in accordance with their
interest in the corporation, (Z) a limited liability company
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to its members or former members in accordance with their interest in the
limited liability company, or (B) by gift to a family member of such Holder or
trust for the benefit of such individual Holder or any of such Holder's family
members, provided the transferee will be subject to the terms of this SECTION
1.3 to the same extent as if such transferee were an original Holder hereunder.
Notwithstanding anything to the contrary contained in this SECTION 1.3, a
Founding Stockholder may transfer his securities provided he complies with
ARTICLE III.
(b) Each certificate representing Preferred Shares and
Registrable Securities shall (unless otherwise permitted by the provisions of
this Agreement), in addition to any other legends required pursuant this
Agreement, be stamped or otherwise imprinted with legends substantially similar
to the following (in addition to any legend required under applicable state
securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED, AND THE COMPANY IS NOT REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, TRANSFER OR ASSIGNMENT, EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SECURITIES UNDER THE ACT
AND ANY APPLICABLE STATE SECURITIES LAWS, (ii) IN A TRANSACTION
PERMITTED BY RULE 144 PROMULGATED UNDER THE ACT AND AS TO WHICH THE
COMPANY HAS RECEIVED REASONABLY SATISFACTORY EVIDENCE OF COMPLIANCE
WITH THE PROVISIONS OF RULE 144, (iii) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A PROMULGATED UNDER THE ACT PURCHASING FOR ITS OWN
ACCOUNT OF FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER THAT IS
AWARE THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A PROMULGATED UNDER THE ACT, (iv) PURSUANT TO
OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED
STATES WITHIN THE MEANING OF REGULATION S, PURSUANT TO RULE 000 XX
XXXXXXXXXX X, XX (v) UPON RECEIPT OF A LEGAL OPINION RENDERED BY
COUNSEL (WHO MAY BE AN EMPLOYEE OF THE PARTY FOR WHOM OR ON WHOSE
BEHALF THE OPINION IS BEING RENDERED) REASONABLY SATISFACTORY TO THE
COMPANY TO THE EFFECT THAT THE TRANSACTION DOES NOT REQUIRE
REGISTRATION UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THE PRESENTATION OF THIS CERTIFICATE TO THE TRANSFER AGENT MORE THAN
TWO YEARS AFTER THE DATE OF ISSUANCE SHALL BE DEEMED A REPRESENTATION
BY THE HOLDER THAT THE HOLDER HAS BEEN THE BENEFICIAL OWNER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE FOR AT LEAST TWO YEARS AND
IS FREE TO SELL THE SECURITIES UNDER RULE 144(k) AND ANY APPLICABLE
STATE SECURITIES LAWS.
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THE VOTING, SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO THE
TERMS AND CONDITIONS OF A STOCKHOLDERS' AGREEMENT AMONG THE COMPANY AND
CERTAIN HOLDERS OF OUTSTANDING CAPITAL STOCK OF THE COMPANY. COPIES OF
SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY.
(c) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any Holder thereof if the Holder shall
have obtained an opinion of counsel at such Holder's expense (which counsel may
be counsel to the Company) reasonably acceptable to the Company to the effect
that the securities proposed to be disposed of may lawfully be so disposed of
without registration, qualification or legend.
(d) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with respect
to such securities shall be removed upon receipt by the Company of an order of
the appropriate blue sky authority authorizing such removal.
ARTICLE II ELECTION OF DIRECTORS
SECTION 2.1 ELECTION OF DIRECTORS.
(a) Each Stockholder and Holder shall use his or its best
efforts to cause the Company's Board of Directors (the "BOARD OF DIRECTORS") to
consist of seven (7) members, and shall vote all shares of capital stock
presently owned or hereafter acquired by him or it at any meeting of the
stockholders of the Company called and held for such purpose, and shall sign any
consent of stockholders presented for such purpose. In addition, each
Stockholder and Holder shall vote all shares of capital stock of the Company
presently owned or hereafter acquired by such Stockholder or Holder in the
election of directors as follows:
(i) to cause and maintain the election to the Board of
Directors of two (2) designated representatives of Krisbergh
(the "FOUNDING DIRECTORS"), one of whom shall be Krisbergh and
the other of whom shall be Xxxxxx or such other person as is
designated by Krisbergh; provided, that if at any time
Krisbergh beneficially owns less than 20% (as such number may
have been adjusted in accordance with the Certificate of
Incorporation) of the shares of Common Stock originally issued
to him, then Krisbergh shall no longer have the right to
appoint the Founding Directors he would otherwise be entitled
to appoint and both such Founding Directors shall thereafter
be elected by the holders of the Company's voting capital
stock in accordance with law and the Certificate of
Incorporation and Bylaws; and
(ii) to cause and maintain the election to the Board of
Directors of two (2) designated representatives of the Series
A Stockholders (the "SERIES A
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DIRECTORS") one (1) of whom shall be a representative of
Motorola, and the remaining one (1) of whom shall be
designated by the Series A Stockholders other than Motorola
holding a majority of the outstanding shares of Series A
Preferred Stock (excluding for purposes of such vote the
"EXCESS CITICORP STOCK" (as defined in Section 2.1(e)) and the
Series A Preferred Stock held by Motorola); PROVIDED, that if
at any time Motorola holds less than 50% (as such number may
have been adjusted in accordance with the Certificate of
Incorporation) of the shares of Series A Preferred Stock
originally issued to it, then Motorola shall no longer have
the right to designate one (1) Series A Director, and such
director shall thereafter be elected by the Series A
Stockholders holding a majority of the outstanding shares of
Series A Preferred Stock (excluding for purposes of such vote
the Excess Citicorp Stock); and FURTHER PROVIDED, that (A) if
at any time the Series A Stockholders in the aggregate hold
less than 50% (as such number may have been adjusted in
accordance with the Certificate of Incorporation) of the
shares of Series A Preferred Stock originally issued to them
and Motorola holds less than 50% (as such number may have been
adjusted in accordance with the Certificate of Incorporation)
of the shares of Series A Preferred Stock originally issued to
it, then the Series A Stockholders shall no longer have the
right to appoint one (1) of the Series A Directors, and such
director shall thereafter be elected by the holders of the
Company's voting capital stock in accordance with law and the
Certificate of Incorporation and Bylaws, and (B) if at any
time the Series A Stockholders hold in the aggregate less than
25% (as such number may have been adjusted in accordance with
the Certificate of Incorporation) of the shares of Series A
Preferred Stock originally issued to them, then the Series A
Stockholders shall no longer have the right to appoint the
second Series A Director, and such director shall thereafter
be elected by the holders of the Company's voting capital
stock in accordance with law and the Certificate of
Incorporation and Bylaws;
(iii) to cause and maintain the election to the Board of
Directors of one (1) representative (the "SERIES B DIRECTOR")
designated by the Series B Stockholders holding a majority of
the outstanding shares of Series B Preferred Stock; PROVIDED,
that if at any time the Series B Preferred Stock outstanding
represents less than 25% (as such number may have been
adjusted in accordance with the Certificate of Incorporation)
of the Series B Preferred Stock issued and outstanding as of
December 31, 1997, then the Series B Stockholders shall no
longer have the right to designate the Series B Director, and
such director shall thereafter be elected by the holders of
the Company's voting capital stock in accordance with law and
the Certificate of Incorporation and Bylaws; and
(iv) to cause and maintain the election to the Board of
Directors of two (2) persons who shall be independent business
persons of recognized standing in the
telecommunications/media/consumer technology industry
designated by Krisbergh (unless and until Krisbergh
beneficially owns less than 20%) (as such number may have been
adjusted in accordance with the Certificate of Incorporation)
of the shares of Common Stock originally issued to him, at
which time the Company's Chief Executive Officer shall
thereafter designate such
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persons) with the concurrence (which shall not be unreasonably
delayed or withheld) of the holders of a majority of the
shares of Series A Conversion Stock and Series B Conversion
Stock voting together as a class (the "INDEPENDENT DIRECTORS")
(excluding for the purposes of such vote the Excess Citicorp
Stock); PROVIDED, that if at any time the total shares of
Series A Conversion Stock and Series B Conversion Stock
represent less than 50% (as such number may have been adjusted
in accordance with the Certificate of Incorporation) of the
shares of Series A Conversion Stock and Series B Conversion
Stock outstanding as of the final Subsequent Closing, then the
concurrence of such holders shall no longer be required with
respect to the designation of the Independent Directors.
(b) The Company shall use its best efforts to cause the
nomination for election to the Board of Directors of the individuals set forth
in SECTION 2.1(a) and, each Stockholder, in addition to the above requirements,
shall take all other action necessary from time to time (including, without
limitation, the calling of special meetings, the removal of directors, the
filling of vacancies on the Board of Directors, the waiving of notice and
attendance at meetings) to maintain the membership of the Board of Directors as
provided in SECTION 2.1(a). The Series B Director and at least one (1) Series A
Director shall also each serve as a member of any nominating, compensation,
stock option or audit committee of the Board of Directors.
(c) Motorola may, at any time upon prior notice to the
Company, appoint an alternate person to attend any meeting of the Board of
Directors to act as an observer on its behalf if its designated representative
is unavailable.
(d) In addition to the above, any Series B Stockholder owning
more than 20% of the aggregate number of shares of Series B Preferred Stock, and
any Series A Stockholder holding at least 113,765 shares of Series A Preferred
Stock (as such number may have been adjusted in accordance with the Certificate
of Incorporation)(each, an "OBSERVING INVESTOR") shall be entitled to have one
(1) observer attend each meeting of the Board of Directors (subject to the
ability of the Board of Directors to meet in closed session in instances of
potential conflicts of interest), and each such observer shall be given notice
of each meeting by the Company in accordance with the Company's Bylaws and
Certificate of Incorporation and shall be provided with copies of all materials
distributed to the Board of Directors in connection with such meeting as if such
observer were a member of the Board of Directors.
(e) The term "EXCESS CITICORP STOCK" as used herein means that
number of shares of Series A Preferred Stock held by Citicorp that constitutes
"EXCESS CITICORP VOTING SECURITIES," as such term is defined in that certain
letter agreement between the Company and Citicorp dated December 11, 1996. The
Company shall, upon the written request of any Stockholder, advise such
Stockholder as to the number of Excess Citicorp Voting Securities.
SECTION 2.2 VACANCIES AND REMOVAL. Each of the directors
designated in Section 2.1(a) shall be elected at any annual or special meeting
of stockholders (or by written consent in lieu of a meeting of stockholders) and
shall serve until such director's successor is elected and qualified or until
such director's earlier death, resignation or removal. The persons entitled to
name a director pursuant to SECTION 2.1(a) above are referred to in this SECTION
2.1 as the "PRINCIPALS" with respect to that director. If a Principal gives
notice at any time to the Company and the other Stockholders and Holders that an
individual then serving as a director of
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the Company at the designation of such Principal is no longer its designee, then
the Company and the other Stockholders and Holders shall take all action
necessary to remove the director so designated. If an individual designated
under SECTION 2.1(a) and then serving as a director of the Company dies, resigns
or is removed as a director of the Company, then the Company and the
Stockholders and Holders shall take all action in accordance with SECTION 2.1
necessary to elect as a director of the Company any individual newly designated
by the applicable Principals, if any, with respect to the director who died,
resigned or was removed.
ARTICLE III FOUNDING STOCKHOLDERS; STOCK RESTRICTION PROVISIONS; CO-SALE RIGHTS
SECTION 3.1 RESTRICTIONS ON TRANSFER OF SHARES.
(a) Each of the Founding Stockholders agrees that he shall not
sell, assign, transfer, give, donate, pledge or otherwise encumber or dispose of
any shares of Common Stock (a "TRANSFER") now held or hereafter acquired by him,
except by operation of law or as permitted by this Agreement or the Management
Stockholders' Agreement. If any shares of Common Stock are transferred by
operation of law (E.G., in the event of the bankruptcy or death or incapacity of
a Founding Stockholder or of attachment or garnishment of any shares held by a
Founding Stockholder), the transferee shall receive such shares subject to the
provisions of this Agreement and shall be bound by this Agreement to the same
extent as if such transferee were a Founding Stockholder.
(b) Any purported Transfer of shares of Common Stock by a
Founding Stockholder not in accordance with the provisions of this Agreement
shall be void and ineffectual and shall not operate to Transfer any interest or
title to the purported transferee.
(c) The Company shall not cause or permit any Transfer of any
of the shares of Common Stock of a Founding Stockholder to be registered on the
Company's books if such Transfer is prohibited by the terms of this Agreement.
The Company shall be protected in relying on the record of stockholders
maintained by it or on its behalf for all purposes, notwithstanding any notice
of any purported Transfer to the contrary. The Company shall require any
transferee of a Founding Stockholder to become a party to this Agreement by an
instrument satisfactory to it in form and substance as a condition to any
Transfer to the extent required by SECTION 3.2(d).
SECTION 3.2 RIGHT TO PARTICIPATE IN SALES.
(a) CO-SALE RIGHT. If, at any time prior to the consummation
of the Initial Public Offering, either of the Founding Stockholders (as
applicable, the "TRANSFERRING STOCKHOLDER") desires to sell for cash or any
other form of consideration (including a promissory note or other deferred
consideration) to any person or entity other than those persons or entities
described in SECTION 3.2(d) (a "PROPOSED TRANSFEREE") in excess of an aggregate
of 5% (as such number may have been adjusted in accordance with the Certificate
of Incorporation) of the shares of Common Stock originally issued to him, the
Transferring Stockholder shall so notify the Holders, specifying the proposed
purchaser, proposed closing date, price and other terms of such sale, and shall
make effective arrangements (which shall be a condition to any sale by such
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Transferring Stockholder) so that the Holders shall have the right to sell to
the Proposed Transferee, at the same price per share and other terms and
conditions as involved in such sale by the Transferring Stockholder, such number
of shares of Co-Sale Securities then owned by each Holder equal to the number of
shares being sold by the Transferring Stockholder multiplied by the percentage
of the then total outstanding shares of the Common Stock then held by each
Holder, calculated on a fully diluted basis to give effect to the conversion of
all outstanding convertible securities (including the Preferred Shares) and the
exercise of all outstanding options and warrants (a "FULLY DILUTED BASIS").
(b) NOTICE OF INTENT TO PARTICIPATE. If any Holder wishes to
participate in any sale under this SECTION 3.2, it shall notify the Transferring
Stockholder thereof as soon as practicable after such Holder's receipt of the
notice of the Transferring Stockholder's proposed sale of his shares of Common
Stock, and in any event not later than thirty (30) days after the date of
receipt by such Holder of the notice described in SECTION 3.2(a).
(c) SALE TO PROPOSED TRANSFEREE. The Transferring Stockholder
and each Holder exercising its co-sale rights pursuant to SECTION 3.2(a) shall
sell to the Transferee all of the shares proposed to be sold by him or them at
the price and upon the other terms and conditions specified in the notice
described in SECTION 3.2(a). The closing of such sales shall occur at the
offices of the Company on such date as may be agreed by the Transferring
Stockholder, the Proposed Transferee and the transferring Holders, but in no
event later than the 60th day following the date of receipt by the Holders of
the notice described in SECTION 3.2(a) (or if such 60th day is not a business
day, then on the next succeeding business day). Notwithstanding anything in this
SECTION 3.2 to the contrary, there shall be no liability on the part of any
Transferring Stockholder to any Holder if any sale of Co-Sale Securities
pursuant to this SECTION 3.2 is not consummated for whatever reason. It is
understood that each Transferring Stockholder, in his sole discretion, shall
determine whether to effect a sale of shares of Common Stock pursuant to this
SECTION 3.2.
(d) TRANSFERS NOT SUBJECT TO CO-SALE RIGHT. This SECTION 3.2
shall not be applicable to any Transfers made by a Transferring Stockholder: (i)
to a Holder; (ii) of up to an aggregate of 10% of the shares of Common Stock
originally issued to him to any Management Stockholder; (iii) of up to an
aggregate of 5% of the shares of Common Stock originally issued to him in one or
more transactions; or (iv) to such Transferring Stockholder's spouse, parents,
brothers, sisters, children (natural or adopted), stepchildren, grandchildren,
nephews or nieces (collectively, "FAMILY MEMBERS"), to a trust for the benefit
of any Family Member, to a family limited partnership (the partners of which
shall consist entirely of the Transferring Stockholder, any Family Members or
trusts for the benefit of Family Members), or to a corporation wholly owned by
any Family Members; PROVIDED, in the case of clauses (ii) and (iv), that any
such transferee agrees to be bound by the provisions of ARTICLE II, ARTICLE III
and SECTION 5.2 to the same extent as the Founding Stockholders, and in the case
of clause (iii) that any transferee of such shares agrees to be bound by the
provisions of ARTICLE II and SECTION 5.2 to the same extent as the Founding
Stockholders. Upon the sale of any shares of Common Stock to a Proposed
Transferee pursuant to SECTION 3.2(c), such shares shall no longer be subject to
this SECTION 3.2.
SECTION 3.3 LEGEND. Each certificate representing shares of
Common Stock beneficially owned by a Founding Stockholder shall bear a legend in
substantially the following
11
form, until such time as the shares of Common Stock represented thereby are no
longer subject to the provisions hereof:
"The sale, transfer or assignment of the securities
represented by this certificate are subject to the terms and
conditions of a certain Amended and Restated Stockholders'
Agreement dated as of September 2, 1998 as amended from time
to time, among the Company and certain holders of its
outstanding capital stock. Copies of such Agreement may be
obtained at no cost by written request made by the holder of
record of this certificate to the Secretary of the Company."
ARTICLE IV RIGHT OF FIRST REFUSAL
SECTION 4.1 RIGHT OF FIRST REFUSAL.
(a) COMPANY SALES. If at any time after the date hereof and
prior to the consummation of the Initial Public Offering, the Company proposes
to issue any equity security, other than in a transaction described in SECTION
4.2, the Company shall first offer in writing to sell to each Holder, his or its
PRO RATA share of the proposed issue of such equity security, at the same price
and on the same terms at which the Company proposes to sell such issue to
others. For purposes hereof, each Holder's PRO RATA share of an issue of equity
securities shall be that percentage of such issue that is equal to that
percentage of such Holder's ownership of Common Stock computed on a fully
diluted basis. The term "EQUITY SECURITY," when used in this ARTICLE IV, shall
mean any stock of the Company, or any security convertible, with or without
consideration, into stock, or any security carrying any warrant, option, or
right to subscribe to, or to purchase any stock, or any such warrant, option, or
right.
(b) NOTICE OF OFFERING. The Company's offer described in
SECTION 4.1(a) shall describe the equity security proposed to be issued by the
Company, specifying the quantity, the price and payment terms. Each Holder shall
have thirty (30) days from receipt of such offer to accept the offer in writing,
which acceptance may be as to all or any part of such Holder's PRO RATA share of
such issue. The sale of the portion of the equity securities subscribed for by
any Holder pursuant to this SECTION 4.1(b) shall be held on a date acceptable to
the Company and each subscribing Holder, but in no case more than ninety (90)
days after the date of the Company's offer to the Holders.
(c) SALE TO THIRD PARTIES. In the event the Holders do not
subscribe for all of the issue of the equity securities offered to them pursuant
to this ARTICLE IV, the Company may sell the portion of the securities not
subscribed for, together with the portion of such issue of securities not
subject to rights of first refusal under this ARTICLE IV, at a price no less
favorable to the Company than that specified in such offer and on payment terms
no less favorable to the Company than those specified in such offer. However, if
such sale is not consummated within one hundred and twenty (120) days after the
date the offer pursuant to SECTION 4.1(a) was made, the Company shall not sell
such securities without again complying with SECTION 4.1(a).
SECTION 4.2 ISSUANCES NOT SUBJECT TO PREEMPTIVE RIGHT. The
rights of first refusal granted in SECTION 4.1 shall not apply to the issuance
of the Series C Preferred Stock
12
pursuant to the Stock Purchase Agreement, or any shares of Common Stock upon the
conversion of any Preferred Stock, or to any of the following issuances of
equity securities by the Company:
(a) upon the exercise of any right which was not itself issued
in violation of the terms of this ARTICLE IV, including the warrants issued to
Alex. Xxxxx or to Charter Communications, Inc.;
(b) upon the issuance of shares of Common Stock as dividends;
(c) upon the grant or issuance to directors, officers or
employees of, or consultants or advisors to, the Company, of up to 1,400,000
shares of Common Stock (as such number may be adjusted by the Board of Directors
and approved by the holders of a majority of the Series A Conversion Stock and
Series B Conversion Stock, voting together as a class (such aggregate number of
option shares, as the same may be adjusted, is hereinafter referred to as the
"Maximum Option Shares") pursuant to the grant of options under any stock option
plan, stock grant plan or stock purchase plan approved by the Board of
Directors;
(d) upon the issuance of shares of Common Stock in connection
with the establishment of an entity with which the Company has a partnership,
joint venture or other business relationship;
(e) upon the issuance of shares of Common Stock pursuant to
the acquisition of another entity whereby the Company will own or control more
than 50% of the voting power of such entity; or
(f) in connection with, or after consummation of, the Initial
Public Offering.
ARTICLE V DEFAULT
SECTION 5.1 PREFERRED STOCK DEFAULT. A "PREFERRED STOCK
DEFAULT" shall be deemed to have occurred hereunder upon notice to the Company
by Holders of a majority of the aggregate shares of Series A Conversion Stock,
Series B Conversion Stock, and Series C Conversion Stock voting together as a
class, of any of the following events, which event shall have continued
unremedied for a period of sixty (60) days following the Company's receipt of
such notice:
(a) the failure of the Company to redeem the Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock in
accordance with the provisions set forth in the Company's Certificate of
Designation for each such series (including a failure to redeem attributable to
the Company having insufficient funds legally available therefor);
(b) the adjudication of the Company as bankrupt or insolvent
under federal bankruptcy or state insolvency laws; or
(c) the reasonable judgment of an independent third party,
upon the concurrence of Holders holding a majority of the aggregate shares of
Series A Conversion Stock, Series B Conversion Stock and Series C conversion
Stock, that the Company shall be adjudged
13
to be bankrupt or insolvent under federal bankruptcy or state insolvency laws
within sixty (60) days.
Notwithstanding the above, the Holders of a majority of the
aggregate shares of Series A Conversion Stock and Series B Conversion Stock
shall have the right at any time to waive any Preferred Stock Default upon
notice to the Company.
SECTION 5.2 RIGHTS UPON DEFAULT. Upon the occurrence of a
Preferred Stock Default, and after thirty (30) days' prior notice delivered to
the Company by the Holders of a majority of the aggregate shares of Series A
Conversion Stock, Series B Conversion Stock and Series C Conversion Stock, the
Stockholders and Holders shall vote their respective shares at the direction of
the Holders of a majority of the aggregate shares of Series A Conversion Stock,
Series B Conversion Stock and Series C Conversion Stock at any meeting of the
Company's stockholders called for the purpose of: (i) determining whether and on
what terms a sale of the Company may occur, and (ii) determining whether and on
what terms to replace the existing directors of the Company (including the
election as directors of any nominees designated by such Holders), and shall
sign any consent of stockholders presented by them thereafter for such purposes.
For purposes of this Agreement, a "SALE" shall include a merger, sale of assets
and sale of stock. Upon the occurrence of a Preferred Stock Default, SECTIONS
2.1(a)(i) and (iv) shall be void and of no further force or effect.
ARTICLE VI COVENANTS OF THE COMPANY
SECTION 6.1 RULE 144. The Company covenants that: (a) at all
times after the Company first becomes subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall use its best efforts
to comply with the then current public information requirements of Rule
144(c)(1); (b) if prior to becoming subject to such reporting requirements an
over-the-counter market develops for the capital stock of the Company, the
Company shall use its best efforts to make publicly available the information
required by Rule 144(c)(2); and (c) at all such times as Rule 144 is available
for use by the holders of any of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series A Conversion Stock and Series
B Conversion Stock and Series C Conversion Stock, the Company shall furnish each
such holder upon request with all information within the possession of the
Company required for the preparation and filing of Form 144.
SECTION 6.2 FINANCIAL STATEMENTS. The Company shall furnish to
the Holders, (a) within ninety (90) days of the end of each fiscal year of the
Company an audited balance sheet, and related audited statements of income and
cash flow of the Company as at the end of and for such fiscal year prepared in
accordance with GAAP, together with a management's discussion and analysis, and
(b) within forty-five (45) days after the end of each of the first three fiscal
quarters of each fiscal year of the Company, a balance sheet and statement of
income and cash flow of the Company as at the end of and for such quarter,
together with a management's discussion and analysis. All statements described
in this SECTION 6.2 (other than in CLAUSE (a) above) shall be unaudited, but
prepared in accordance with GAAP, subject only to normal year-end audit
adjustments.
14
SECTION 6.3 RESTRICTIVE AGREEMENTS PROHIBITED. Neither the
Company nor any Founding Stockholder shall become a party to any agreement which
by its terms restricts its or their performance of this Agreement.
SECTION 6.4 KEY-MAN LIFE INSURANCE. The Company shall maintain
in effect, for as long as 50% of the aggregate shares of Original Conversion
Stock remain outstanding, key-man life insurance on the life of Krisbergh in the
amount of $3 million and on the life of Xxxxxx in the amount of $1 million. Such
policies shall name the Company as the beneficiary. The Company shall at all
times retain all the incidents of ownership of such insurance and shall not
borrow upon or otherwise impair its right to receive the proceeds of such
insurance. Any proceeds received by the Company under such key-man life
insurance policies shall be applied first to the redemption of the Preferred
Shares in accordance with their respective Certificates of Designation. Any
proceeds which remain after the Company has complied with its redemption
obligation under the applicable Certificate of Designation shall be retained by
the Company and used for whatever purpose the Company determines.
SECTION 6.5 RESERVATION OF SHARES. From and after the Closing,
the Company shall at all times reserve and keep available, free from preemptive
rights, out of its authorized but unissued capital stock, a sufficient number of
shares of Common Stock for issuance upon the conversion of the Preferred Shares.
SECTION 6.6 NEGATIVE COVENANTS.
(a) The Company covenants that, for so long as 50% or more of
the shares of Original Conversion Stock remain outstanding, the Company shall
not, without the consent of Holders of at least a majority of the aggregate
shares of Series A Conversion Stock, Series B Conversion Stock and Series C
Conversion Stock voting together as a class:
(i) sell, convey or otherwise dispose of or encumber
its property or business, except for (A) sales or
dispositions in the ordinary course of business
and (B) encumbrances securing borrowings of less
than $2,000,000, PROVIDED, HOWEVER, that this
restriction shall not apply to any capital lease
transaction or purchase money security interest
incurred in connection with the acquisition of a
capital asset;
(ii) borrow in excess of $2,000,000, PROVIDED,
HOWEVER, that this restriction shall not apply
to any capital lease transaction or purchase
money security interest incurred in connection
with the acquisition of a capital asset;
(iii) materially change the Company's existing business
model or focus;
(iv) create any subsidiary;
(v) approve the Company's annual operating budget
prior to December 11, 1998;
15
(vi) transact business with any affiliate of the
Company on terms less favorable than those the
Company could obtain from an unrelated third
party; or
(vii) amend or modify the Bylaws.
(b) The Company covenants that, for so long as 50% or more of
the shares of Original Conversion Stock remain outstanding, the Company shall
not, without the consent of the Holders of at least a majority of the
outstanding shares of each of the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock voting as a separate series:
(i) merge into or consolidate with another
corporation, or effect any transaction or series
of related transactions pursuant to which 50% or
more of the voting power of the Company is
transferred to one or more unaffiliated third
parties;
(ii) enter into any agreement that would restrict the
Company's ability to perform its obligations under
this Agreement); or
(iii) issue additional shares of Common Stock other than
(A) up to the Maximum Option Shares, (B) pursuant
to a transaction or series of related transactions
involving the issuance of up to 20% of the shares
of Common Stock outstanding as of the First
Closing (including, for purposes of such
calculation, the Maximum Option Shares) or (C)
pursuant to the conversion of the Preferred Shares
(including, without limitation, those Preferred
Shares issued pursuant to the Employee Stock
Purchase Plan or upon exercise of the Alex. Xxxxx
Warrants and the Strategic Partner Securities);
PROVIDED, HOWEVER, that this restriction shall not
apply to any issuance in connection with an
Initial Public Offering.
ARTICLE VII REGISTRATION RIGHTS
SECTION 7.1 PIGGYBACK REGISTRATION.
(a) If the Company at any time proposes to register any of its
securities under the Securities Act, other than pursuant to a Special
Registration Statement or, with respect to holders of Series C Preferred Stock
or Series C Conversion Stock only, in connection with an Initial Public
Offering, it shall each such time promptly give notice to the holders of the
Registrable Securities of its intention to do so, and, upon the written request,
given within thirty (30) days after receipt of any such notice, of any such
holder to register any of its Registrable Securities, the Company shall (subject
to SECTION 7.1(b)) use its best efforts to cause all Registrable Securities with
respect to which holders shall have so requested registration to be registered
under the Securities Act, promptly upon receipt of the written request of such
holders for such registration, all to the extent required to permit the sale or
other disposition by the holders of the Registrable Securities so registered in
the manner contemplated by such registration statement.
16
(b) If any registration pursuant to this SECTION 7.1 is an
underwritten registration, and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities requested to
be included in such registration by the Holders and the Management Stockholders
exceeds the number which can be sold in such offering without adversely
affecting the offering of securities by the Company for its own account, the
Company shall include in such registration Registrable Securities in the
following order of priority (assuming any such securities are included), unless
the Holders holding a majority of the Series A Conversion Stock, Series B
Conversion Stock and Series C Conversion Stock voting together as a class
otherwise agree: (i) first, the Registrable Securities requested to be included
therein by each Holder, PRO RATA among such Holders on the basis of the number
of Registrable Securities held by each such Holder, up to the number of
Registrable Securities that will result in aggregate net proceeds to such Holder
equal to (A) the Original Series A Purchase Price for any Holder who is a Series
A Stockholder, (B) the Original Series B Purchase Price for any Holder who is a
Series B Stockholder and (C) the Original Series C Purchase Price for any Holder
who is a Series C Stockholder; (ii) second, the Registrable Securities requested
to be included therein by each Management Stockholder, PRO RATA among such
Management Stockholders on the basis of the number of Registrable Securities
held by each such Management Stockholder, up to such number of Registrable
Securities that will result in aggregate net proceeds to such Management
Stockholder from all offerings equal to his proportionate share of the
$2,000,000 valuation for all Management Stockholders' securities; PROVIDED, that
in no event shall the number of Registrable Securities included in the offering
by the Holders and Management Stockholders exceed the number of securities, if
any, that the underwriters determine would not adversely affect the orderly sale
and distribution of the securities being sold by the Company for its own
account. Any Registrable Securities that are available for registration after
the allocations under clauses (i) and (ii) of this SECTION 7.1(b) shall be
allocated among the Holders and Management Stockholders requesting registration
on a PRO RATA basis. If the Holders elect not to register the maximum number of
Registrable Securities allocated to them under clause (i) of this SECTION
7.1(b), then excess Registrable Securities not registered by them shall be
allocated to the Management Stockholders on a PRO RATA basis. Similarly, if the
Management Stockholders elect not to register the maximum number of Registrable
Securities allocated to them under clause (ii) of this SECTION 7.1(b), then the
excess Registrable Securities not registered by them shall be allocated to the
Holders on a PRO RATA basis.
(c) Notwithstanding the foregoing provisions, the Company may
withdraw any registration statement referred to in this SECTION 7.1 without
thereby incurring any liability to the holders of the Registrable Securities.
SECTION 7.2 DEMAND REGISTRATION.
(a) At any time after the earlier of (i) one year after the
consummation of the Initial Public Offering, or (ii) December 11, 1999, Holders
of at least 30% of the Registrable Securities then held by Holders may at any
time request in writing that the Company cause a registration statement to be
filed under the Securities Act (other than on Form S-3 as provided under SECTION
7.3) with respect to at least 20% of the Registrable Securities held by Holders.
The Company shall promptly give notice of such request to the other Holders of
Registrable Securities and afford them the opportunity to include in the
requested registration statement such of their Registrable Securities as they
shall specify in a notice given to the Company within thirty
17
(30) days after their receipt of the Company's notice of the request for the
filing of a registration statement. Following receipt of such notices, the
Company shall promptly use its best efforts to cause all Registrable Securities
with respect to which Holders shall have so requested registration to be
registered under the Securities Act, all to the extent required to permit the
sale or other disposition by the Holders of the Registrable Securities so
registered in the manner specified by such holders in their notices and pursuant
to this SECTION 7.2.
(b) The Company shall not be required to file and cause to
become effective more than two (2) registration statements at the demand of the
Holders made under this SECTION 7.2.
(c) If within fifteen (15) days of the exercise of a demand
registration right granted under this SECTION 7.2, the Company or any Management
Stockholder notifies the Holders making such demand that the Company or such
Management Stockholder wishes to register Registrable Securities of the same
class for their respective accounts on the registration statement being filed
pursuant to the demand, then the Company and such Management Stockholder may
include its Registrable Securities in such registration; PROVIDED, HOWEVER, that
if the managing underwriter determines and advises in writing that the inclusion
of any or all of such Registrable Securities for the Company's or such
Management Stockholder's account in the registration statement covered by the
requests for registration made under this SECTION 7.2 would adversely affect the
offering of the Registrable Securities to be sold in such registration by the
Holders, then the requisite number of Registrable Securities for the Company's
and/or such Management Stockholder's account shall be excluded from registration
hereunder.
(d) If the Holders making such demand propose to sell their
Registrable Securities in a firm commitment underwriting and the managing
underwriter advises such Holders that not all of their Registrable Securities
can be included in such offering, then the requisite number of Registrable
Securities shall be excluded from registration on a basis PRO RATA (as provided
in Section 7.1(b)) among the Holders of the Registrable Securities requesting
such registration.
(e) Provided the Company has honored its obligations under
SECTION 7.1, no demand registration right granted in this SECTION 7.2 may be
exercised during any period of time beginning on the date the Company files a
registration statement with the Commission registering any of its securities for
sale to the public and ending on the earlier to occur of (i) 120 days after the
date on which the registration statement is declared effective by the Commission
or otherwise becomes effective, and (ii) the 180th day after the date of such
filing.
SECTION 7.3 FORM S-3 REGISTRATIONS. In addition to the rights
provided the Holders in SECTIONS 7.1 and 7.2, if the registration of Registrable
Securities under the Securities Act can be effected on Form S-3 (or any similar
form promulgated by the Commission), then upon the written request of one or
more Holders owning Registrable Securities constituting at least 1% of the
Company's outstanding capital stock, the Company will so notify each Holder, and
then will, as expeditiously as possible, use its best efforts to effect
qualification and registration under the Securities Act on Form S-3 of all or
such portion of the Registrable Securities as the Holder or Holders shall
specify pursuant to this SECTION 7.2, PROVIDED, that the Company shall have no
obligation to file a registration statement under this SECTION 7.2 if: (i) the
gross proceeds from the offering will be or are reasonably expected to be less
than $1,000,000;
18
(ii) the Company has already effected a registration for the Holders pursuant to
this SECTION 7.3 during the prior twelve (12) months; (iii) the Registrable
Securities with respect to which registration is requested may be sold by the
Holders thereof within one three month period without compliance with the
registration requirements of the Securities Act pursuant to Rule 144 and such
Registrable Securities are listed on the New York Stock Exchange, the American
Stock Exchange or the NASDAQ National Market; or (iv) the Company has already
effected a total of two (2) registrations for the Holders pursuant to this
SECTION 7.3.
SECTION 7.4 REGISTRATION PROCEDURES. If and whenever the
Company is under an obligation pursuant to the provisions of ARTICLE VII of this
Agreement to use its best efforts to effect the registration of any Registrable
Securities the Company shall, as expeditiously as practicable:
(a) prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
at least 120 days and to comply with the provisions of the Securities Act with
respect to the sale or other disposition of all Registrable Securities covered
by such registration statement for such period;
(c) furnish to each selling holder such numbers of copies of
each prospectus (including each preliminary prospectus) in conformity with the
requirements of the Securities Act, and such other documents as such seller may
reasonably request in order to facilitate the public sale or other disposition
of such Registrable Securities;
(d) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under the
securities or blue sky laws of such jurisdictions as the managing underwriter,
if any, or if there is no managing underwriter, the holders of a majority of the
Registrable Securities, shall request (PROVIDED, that the Company shall not be
required to consent to general service of process for all purposes in any
jurisdiction where it is not then qualified), and do any and all other acts or
things which may be reasonably necessary or advisable to enable such seller to
consummate the public sale or other disposition in such jurisdictions of such
Registrable Securities;
(e) notify each seller of the Registrable Securities covered
by such registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act within the appropriate
period mentioned in CLAUSE (b) of this SECTION 7.4, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing, and at the request of any such seller prepare and furnish to such
seller a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement
19
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing; and
(f) furnish on the date that such Registrable Securities are
delivered to the underwriters for sale pursuant to such registration or, if such
Registrable Securities are not being sold through underwriters, on the date that
the registration statement with respect to such Registrable Securities becomes
effective: (i) an opinion, dated such date, of the independent counsel
representing the Company for the purposes of such registration, addressed to the
underwriters, if any, and at the request of any holder or holders of Registrable
Securities requesting registration pursuant to this ARTICLE VII, to the holder
or holders making such request, stating that such registration statement has
become effective under the Securities Act and that (1) to the best knowledge of
such counsel, no stop order suspending the effectiveness thereof has been issued
and no proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act; (2) the registration statement, the
related prospectus, and each amendment or supplement thereto, comply as to form
in all material respects with the requirements of the Securities Act and the
applicable rules and regulations of the Commission thereunder (except that such
counsel need express no opinion as to financial statements contained therein);
(3) such counsel has no reason to believe that either the registration statement
or the prospectus, or any amendment or supplement thereto, contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading
(except that such counsel need express no opinion as to financial statements
contained therein); (4) the description in the registration statement or the
prospectus, or any amendment or supplement thereto, of all legal and
governmental matters and all contracts and other legal documents or instruments
are accurate and fairly present the information required to be shown; (5) such
counsel does not know of any legal or governmental proceedings, pending or
contemplated, required to be described in the registration statement or
prospectus, or any amendment or supplement thereto, which are not described as
required, nor of any contracts or documents or instruments of a character
required to be described in the registration statement or prospectus, or any
amendment or supplement thereto, or to be filed as exhibits to the registration
statement which are not described and filed as required; and (6) such other
legal matters with respect to such registration as the underwriters, if any, and
any such holder or holders requesting such opinion may reasonably request; and
(ii) in the case of an underwritten offering a comfort letter, dated such date,
from the independent certified public accountants of the Company, addressed to
the underwriters and the Board of Directors in the customary form.
SECTION 7.5 DELAY IN REGISTRATION. Notwithstanding anything
contained in this Agreement to the contrary, the Company reserves the right to
delay any such registration pursuant to this ARTICLE VII, or to withhold efforts
to cause such registration statement to become effective in each case for a
period of not more than 120 days, if the Company determines in good faith that
such registration might (a) interfere with or affect the negotiation or
completion of any material transaction that is being contemplated by the
Company, or (b) involve initial or continuing disclosure obligations materially
adverse to the best interests of the Company's stockholders. If, after a
registration statement becomes effective, the Company advises the holders of the
Registrable Securities covered by such registration statement pursuant to
SECTION 7.4(e) that the Company considers it appropriate for the registration
statement to be amended, the
20
holders shall suspend any further sales of their registered securities until the
Company advises them that the registration statement has been amended.
SECTION 7.6 INFORMATION TO BE FURNISHED BY HOLDERS OF
REGISTRABLE SECURITIES Each prospective seller of Registrable Securities
registered or to be registered under any registration statement shall furnish to
the Company such information and execute such documents regarding the
Registrable Securities held by such seller and the intended method of
disposition thereof as the Company shall reasonably request in connection with
the action to be taken by the Company.
SECTION 7.7 EXPENSES OF REGISTRATION. The Company shall pay
all Registration Expenses in connection with each registration pursuant to this
ARTICLE VII. All Selling Expenses in connection with each registration pursuant
to ARTICLE VII shall be borne by the seller or sellers therein in proportion to
the number of Registrable Securities included by each in such registration, or
in such other proportions as they may agree upon.
SECTION 7.8 INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless each holder
of Registrable Securities, its executive officers, directors and controlling
persons (within the meaning of the Securities Act) and each person who
participates as an underwriter or controlling person of an underwriter (within
the meaning of the Securities Act) with respect to a registration statement
pursuant to this ARTICLE VII against any loss, claims, damages or liabilities to
which any of them may become subject under the Securities Act or otherwise
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement of any material
fact contained in a registration statement including Registrable Securities
owned by such holder, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or arise out of or are based
upon the omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
any of them for any legal or other expenses reasonably incurred by any of them
in connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the Company shall not be liable
hereunder in any such case if any such loss, claim, damage, or liability arises
out of or is based upon any untrue statement or omission made in such
registration statement, prospectus or amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company for such purpose by such holder or by its representative or by any
underwriter on behalf of such holder or if the untrue statement or omission is
corrected in a supplement or amendment to the prospectus provided by or on
behalf of the Company to such holder in a timely fashion which is not used by
such holder.
(b) Each holder of Registrable Securities joining in any
registration statement of the Company pursuant to this ARTICLE VII of this
Agreement shall, severally, but not jointly, indemnify and hold harmless the
Company, its executive officers, directors, and controlling persons (within the
meaning of the Securities Act) and each person who participates as an
underwriter or controlling person of an underwriter (within the meaning of the
Securities Act) with respect to a registration statement pursuant to this
ARTICLE VII against any losses, claims, damages, or liabilities to which any of
them may become subject under the Securities Act or otherwise, but only to the
extent that as such losses, claims, damages, or liabilities (or actions in
21
respect thereof) arise out of or are based upon any untrue statement of any
material fact contained in such registration statement, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or arise out of or are based upon the omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, made in reliance upon and in conformity with written
information furnished to the Company by such holder or by its representative or
by any underwriter on behalf of such holder for such purpose, and shall
reimburse any of them for any legal or other expenses reasonably incurred by
them in connection with investigating or defending, any such loss, claim,
damage, liability or action; PROVIDED, that such holder's liability hereunder
shall not exceed the net proceeds realized by such holder from the Registrable
Securities sold by it in the offering made pursuant to the registration
statement.
(c) Promptly after receipt by an indemnified party under this
SECTION 7.8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying
party, notify the indemnifying party of the commencement thereof and the
indemnifying party shall have the right to assume the defense thereof with
counsel mutually satisfactory to the parties. The failure to notify an
indemnifying party promptly of the commencement of any such action, if
prejudicial to the ability to defend such action, shall, to the extent
prejudicial, relieve such indemnifying party of any liability to the indemnified
party under this SECTION 7.8, but the omission so to notify the indemnifying
party will not relieve such party of any liability that such party may have to
any indemnified party other than under this SECTION 7.8.
(d) If the indemnification provided for in this SECTION 7.8 is
unavailable to or insufficient to hold harmless an indemnified party under
SECTION 7.8(a) or (b) in respect of any losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) in such proportion as is appropriate
to reflect not only the relative benefits received by the Company on the one
hand and the holders of Registrable Securities on the other, but also the
relative fault of the Company on the one hand and the holders of Registrable
Securities on the other, in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by or on behalf of the Company on the one hand or the
holders of Registrable Securities on the other, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
(e) The Company and the holders of Registrable Securities
agree that it would not be just and equitable if contributions pursuant to
SECTION 7.8(d) were determined by PRO RATA allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above in SECTION 7.8(d). The amount paid or payable by an indemnified party
as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in SECTION 7.8(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with
22
investigating or defending any such action or claim. Notwithstanding the
provisions of SECTION 7.8(d): (i) no person or entity guilty of fraudulent
misrepresentation (within the meaning of SECTION 11(f) of the Securities Act)
shall be entitled to contribution from any person or entity who was not guilty
of such fraudulent misrepresentation, and (ii) no holder of Registrable
Securities shall be required to contribute any amount in excess of the proceeds
received by such holder in the offering.
SECTION 7.9 UNDERWRITING AGREEMENT. If Registrable Securities
are sold pursuant to a registration statement in an underwritten offering
pursuant to this ARTICLE VII, the Company and the holders of Registrable
Securities if participating therein agree to enter into an underwriting
agreement containing customary representations and warranties with respect to
the business and operations of an issuer of, or, as the case may be, the seller
of the securities being registered and customary covenants and agreements to be
performed by such issuer or seller including, without limiting the generality of
the foregoing, customary provisions with respect to indemnification by the
Company of the underwriters of such offering.
SECTION 7.10 TRANSFER OF REGISTRATION RIGHTS. The registration
rights conferred hereunder shall inure to the benefit of the holders of
Registrable Securities to whom Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock was issued to and any person or entity who
acquires at least 20% of any such holder's Registrable Securities; PROVIDED,
such holder gives the Company at least fifteen (15) days' prior notice of such
transfer.
SECTION 7.11 MARKET-STAND-OFF AGREEMENT.
(a) If requested by the Company and an underwriter of Common
Stock (or other securities of the Company), a holder of Registrable Securities
shall not sell or otherwise transfer or dispose of any Common Stock (or other
securities of the Company) held by such holder (other than those included in the
registration) during the one hundred eighty (180) day period following the
effective date of a registration statement of the Company filed under the
Securities Act, PROVIDED, that:
(i) such agreement shall only apply to the first such
registration statement of the Company, including securities to be sold on its
behalf to the public in an underwritten offering; and
(ii) those officers, directors and employees of the
Company that the underwriter has reasonably requested be bound by a similar
agreement have done so.
(b) The obligations described in this SECTION 7.11 shall not
apply to any Special Registration Statement. The Company may impose
stop-transfer instructions with respect to the shares of Common Stock (or other
securities of the Company) subject to the foregoing restriction until the end of
said one hundred eighty (180) day period.
ARTICLE VIII MISCELLANEOUS
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SECTION 8.1 DURATION OF AGREEMENT. Except for the provisions
of ARTICLE VII, the rights and obligations of the parties under this Agreement
shall terminate, on the earlier to occur of the following: (a) immediately prior
to the consummation of the Initial Public Offering; (b) immediately prior to the
consummation of the sale of all, or substantially all, of the Company's assets
or all of the Common Stock either through a direct sale, merger, reorganization,
consolidation or other form of business combination in which control of the
Company is transferred in a transaction approved by the requisite percentage of
Series A Stockholders, Series B Stockholders and Series C Stockholders pursuant
to ARTICLE VI.
SECTION 8.2 SEVERABILITY; GOVERNING LAW. If any provisions of
this Agreement shall be determined to be illegal or unenforceable by any court
of law, the remaining provisions shall be severable and enforceable to the
maximum extent possible in accordance with their terms. This Agreement is made
pursuant to, and shall be construed and enforced in accordance with, the laws of
the State of Delaware (and United States federal law, to the extent applicable),
irrespective of the principal place of business, residence or domicile of the
parties hereto, and without giving effect to otherwise applicable principles of
conflicts of law. Any legal action, suit or proceeding arising out of or
relating to this Agreement may be instituted in any federal court in the Eastern
District of Pennsylvania or in any state court in Delaware County, Pennsylvania,
and each party waives any objection which such party may now or hereafter have
to the laying of the venue of any such action, suit or proceeding, and
irrevocably submits to the jurisdiction of any such court. Any and all service
of process and any other notice in any such action, suit or proceeding shall be
effective against any party if given as provided herein. Nothing herein
contained shall be deemed to affect the right of any party to serve process in
any other manner permitted by law or to commence legal proceedings or otherwise
proceed against any other party in any jurisdiction other than Pennsylvania.
SECTION 8.3 INJUNCTIVE RELIEF . It is acknowledged that it
will be impossible to measure the damages that would be suffered by the parties
if any party fails to comply with the provisions of this Agreement, and that in
the event of any such failure there will not be an adequate remedy at law. The
parties shall, therefore, be entitled to obtain specific performance of the
non-complying party's obligations hereunder and to obtain immediate injunctive
relief. The non-complying party shall not argue, as a defense to any proceeding
for such specific performance or injunctive relief, that there is an adequate
remedy at law.
SECTION 8.4 BINDING EFFECT. This Agreement shall be binding
upon and, except as provided herein, shall inure to the benefit of the parties
hereto and their respective successors, personal representatives, heirs and
permitted assigns.
SECTION 8.5 MODIFICATION OR AMENDMENT. Neither this Agreement
nor any provision hereof can be modified, amended, waived, changed, discharged
or terminated except by an instrument in writing, signed by the Founding
Stockholders, Series A Stockholders holding more than 50% of the outstanding
shares of Series A Preferred Stock, Holders holding more than 50% of the Series
B Conversion Stock, and Holders holding more than 50% of the Series C Common
Stock and any such amendment, waiver, discharge or termination shall be binding
on all Stockholders and Holders, but in no event shall the obligation of any
Stockholder or Holder hereunder be materially increased, except upon written
consent of such Stockholder or Holder.
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SECTION 8.6 COUNTERPARTS. This Agreement may be executed in
one or more counterparts each of which shall be deemed to be an original, but
all of which taken together shall constitute one and the same instrument.
SECTION 8.7 NOTICES. Notices and other communications required
or permitted hereunder shall be in writing and shall be mailed by United States
first-class mail, postage prepaid, sent by facsimile or delivered personally by
hand or nationally recognized courier addressed (a) if to a Stockholder or
Holder or their transferees, as indicated on the list of Stockholders and
Holders attached hereto as SCHEDULES I, II, III, IV AND V, or at such other
address as such holder or permitted assignee shall have furnished to the Company
in writing, or (b) if to the Company, at its principal place of business, or at
such other address or facsimile number as the Company shall have furnished to
each Stockholder or Holder in writing. All such notices and other written
communications shall be effective on the date of mailing, facsimile transfer or
delivery. Notwithstanding anything to the contrary contained herein, to the
extent the Holders of Series B Preferred Stock or Series C Preferred Stock have
designated a representative to act on their behalf, then notice by the Company
to such designated representatives shall be deemed sufficient notice to each
holder of Series B Preferred Stock or Series C Preferred Stock, respectively,
and such representatives shall undertake to provide such notice to all Holders
of Series B Preferred Stock.
SECTION 8.8 MERGER PROVISION. This Agreement along with all
exhibits and schedules hereto, constitute the entire agreement among the parties
hereto pertaining to the subject matter hereof and supersede all prior
agreements and understandings, whether oral or written, of any of the parties
hereto concerning the subject matter hereof (other than the Management
Stockholders' Agreement).
SECTION 8.9 FURTHER ASSURANCES. From and after the date of
this Agreement, the parties hereto upon the request of any other party shall
execute and deliver such instruments, documents and other writings as may be
reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
SECTION 8.10 AUTHORIZATION. Each Founding Stockholder
represents and warrants that (i) this Agreement has been duly executed and
delivered by him, (ii) he is not a party to any similar agreement which could
interfere with his rights and obligations hereunder, and (iii) his entering into
or compliance with this Agreement will not breach the provisions of any contract
or agreement to which he is a party.
SECTION 8.11 DELAYS OR OMISSIONS. No delay or omission to
exercise any right, power or remedy accruing to any Stockholder, upon any breach
or default of the Company under this Agreement shall impair any such right,
power or remedy of such Stockholder nor shall it be construed to be a waiver of
any such breach or default, or an acquiescence therein, or of or in any similar
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default therefore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any Stockholder of any breach or default under this
Agreement or any waiver on the part of any Stockholder of any provisions or
conditions of this Agreement must be made in writing and shall be effective only
to
25
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any Stockholder, shall be
cumulative and not alternative.
SECTION 8.12 RIGHTS; SEPARABILITY. Unless otherwise expressly
provided herein, a Stockholder's rights hereunder are several rights, not rights
jointly held with any of the other Stockholders.
SECTION 8.13 INFORMATION CONFIDENTIAL. Each Stockholder and
Holder acknowledges that the information received by it pursuant hereto may be
confidential and for its use only, and it shall not use such confidential
information in violation of the Exchange Act or reproduce, disclose or
disseminate such information to any other person or entity (other than its
employees or agents having a need to know the contents of such information, and
its attorneys), except in connection with the exercise of rights under this
Agreement, unless the Company has made such information available to the public
generally or such Stockholder and Holder is required to disclose such
information by a governmental body.
SECTION 8.14 TITLES AND SUBTITLES. The titles of the Articles
and Sections of this Agreement are for convenience by reference only and are not
to be considered in construing or interpreting this Agreement.
SECTION 8.15 ADDITIONAL PARTIES. The Board of Directors of the
Company may, without the consent of the Preferred Stockholders or any other
party hereto, join any person who holds or becomes a holder of the Company's
capital stock as an additional party hereto. Any such joinder shall be reflected
on an appropriate Schedule hereto.
[SIGNATURE PAGES TO FOLLOW]
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IN WITNESS WHEREOF, the undersigned has executed this First
Amended and Restated Stockholders' Agreement effective as of the day and year
first above written.
WORLDGATE COMMUNICATIONS, INC.
By /s/ Xxxxxxx Xxxx
-----------------------------------
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SIGNATURE PAGE TO WORLDGATE COMMUNICATIONS, INC.
FIRST AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
/s/ Stockholders Named in Schedules hereto
------------------------------------------
Subscriber's Name
By:
---------------------------------------
Name:
Title:
28
