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EXHIBIT 2.2
PREFERRED STOCK PURCHASE AGREEMENT
by and among
DIGITAL GENERATION SYSTEMS, INC.,
PEQUOT PRIVATE EQUITY FUND, L.P.,
PEQUOT PARTNERS FUND, L.P.
PEQUOT OFFSHORE PRIVATE EQUITY FUND, INC.
PEQUOT INTERNATIONAL FUND, INC.
and
GE CAPITAL INFORMATION TECHNOLOGY SOLUTIONS
dated as of
July 14, 1997
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TABLE OF CONTENTS
PAGE
----
SECTION 1. Issuance and Sale of Series A Preferred Stock...................1
1.1. The Purchase.....................................................1
1.2. The Closing......................................................2
1.3. Conditions to Closing............................................3
1.4. Purchase Price Adjustment........................................5
SECTION 2. Representations and Warranties of the Company...................6
2.1. Organization and Good Standing; Power and Authority;
Qualifications.................................................6
2.2. Authorization of the Documents...................................6
2.3. Capitalization...................................................6
2.4. Authorization and Issuance of Capital Stock......................7
2.5. SEC Reports......................................................7
2.6. Financial Statements.............................................8
2.7. Absence of Undisclosed Liabilities...............................8
2.8. Absence of Material Changes......................................8
2.9. No Conflict.....................................................10
2.10. Agreements.....................................................10
2.11. Intellectual Property Rights...................................11
2.12. Equity Investments; Subsidiaries...............................13
2.13. Title to Assets and Properties; Insurance......................13
2.14. Employee Benefit Plans.........................................13
2.15. Labor Relations; Employees.....................................15
2.16. Litigation; Orders.............................................15
2.17. Compliance with Laws; Permits..................................15
2.18. Offering Exemption.............................................16
2.19. Disclosure.....................................................16
2.20. Taxes..........................................................16
2.21. Environmental Matters..........................................17
2.22. Consents.......................................................18
2.23. Brokers........................................................19
2.24. Suppliers and Customers........................................19
2.25. Use of Proceeds................................................19
2.26. Holding Company Act and Investment Company Act.................19
SECTION 3. Representations and Warranties of the Purchasers...............19
SECTION 4. Certain Covenants..............................................21
4.1. Access to Records...............................................21
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4.2. Affirmative Covenants...........................................21
4.3. Insurance.......................................................22
4.4. Merger, etc.....................................................23
4.5. Transactions with Affiliates....................................23
4.6. Notice of Breach................................................23
4.7. Matters Related to Directors....................................23
4.8. Rights of First Offer...........................................25
4.9. Completion of Certain Matters...................................25
4.10. Subsidiary Stock...............................................26
SECTION 5. Transfer Taxes.................................................26
SECTION 6. Survival of Representations, Warranties, Agreements
and Covenants, etc............................................26
SECTION 7. Expenses.......................................................26
SECTION 8. Indemnification................................................27
8.1. General Indemnification.........................................27
8.2. Indemnification Principles......................................27
8.3. Claim Notice....................................................28
SECTION 9. Remedies.......................................................28
SECTION 10. Further Assurances............................................28
SECTION 11. Successors and Assigns........................................28
SECTION 12. Entire Agreement..............................................29
SECTION 13. Notices.......................................................29
SECTION 14. Amendments....................................................30
SECTION 15. Counterparts..................................................30
SECTION 16. Headings......................................................30
SECTION 17. Nouns and Pronouns............................................30
SECTION 18. Governing Law.................................................30
SECTION 19. Publicity.....................................................31
SECTION 20. Severability..................................................31
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EXHIBITS SECTION REFERENCE
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Exhibit A Schedule of Purchasers Preamble
Exhibit B Terms of Escrow Agreement 1.1(a)
Exhibit C Stock Purchase Agreement for 1.3(b)
IndeNet, Inc.
Exhibit D Form of Registration Rights 1.3(b)
Agreement
Exhibit E Certificates of Designation 1.3(b)
Exhibit F Form of Opinion of Counsel to the 1.3(b)
Company
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Schedules
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Schedule 2.1 Foreign Qualification
Schedule 2.3 Common Stock Equivalents
Schedule 2.6 Financial Statements
Schedule 2.7 Undisclosed Liabilities
Schedule 2.8 Absence of Changes
Schedule 2.10 Contracts
Schedule 2.11(b) Payments for Intellectual Property
Schedule 2.11(c) Third Party Intellectual Property Rights
Schedule 2.12 Equity Investments
Schedule 2.13(b) Insurance
Schedule 2.14 Employee Benefit Plans and Employment Agreements
Schedule 2.15 Employees
Schedule 2.16 Litigation
Schedule 2.17 Permits
Schedule 2.21 Environmental Laws
Schedule 2.22 Consents and Approvals
Schedule 2.23 Brokers
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INDEX OF DEFINED TERMS
TERM SECTION
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Accredited Investor 3(e)
Acquisition Recitals
Acquisition Consideration 1.3(b)
Additional Purchasers 1.1(c)
Additional Shares 1.3(b)
Ancillary Documents 1.3(b)
Articles of Incorporation 1.3(b)
Balance Sheet 2.6
Benefit Plan 2.14(a)
Capital Stock 2.3
Certificate of Designation 1.3(b)
Claim Notice 8.3
Closing 1.2(a)
Closing Date 1.2(a)
Code 2.14(a)
Common Stock 2.3
Company Preamble
Contract 2.10(a)
Conversion Shares 2.4
Deductible 8.1
DSCM 1.3(b)
Employee 2.14(a)
Employee Agreement 2.14(a)
Encumbrances 2.13(a)
Environmental Laws 2.21(f)
Environmental Liability 2.21(f)
ERISA 2.14(a)
Escrow Account 1.1(a)
Escrow Agent 1.1(a)
Escrow Agreement 1.1(a)
Escrow Amount 1.1(a)
Exchange Act 2.5
Hazardous Material 2.21(f)
IndeNet Purchase Agreement 1.3(b)
Initial Purchasers 7(b)
Intellectual Property 2.11(e)
Litigation 2.16
Losses 8.2
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TERM SECTION
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Maintenance Amount 4.8
Material Adverse Change 2.6
Material Adverse Effect 2.1
Non-Competition Agreements 1.3(b)
Non-voting Observer 4.7(a)
Notice 4.8
Pequot Entities 1.3(b)
Permits 2.17
Permitted Encumbrances 2.8
Proposed Securities 4.8
Public Authority 2.21(f)
Purchase 1.1(a)
Purchase Price 1.1(a)
Purchaser Entity 8.1
Purchasers Preamble
Purchasers' Designee 4.7(a)
Registration Rights Agreement 1.3(b)
SEC Reports 2.5
Section 16(b) 4.7(a)
Securities Act 2.18
Series A Preferred Stock Recitals
Software 2.11(f)
Subsidiary 2.1
Taxes 2.20
Third Party Software 2.11(g)
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PREFERRED STOCK PURCHASE AGREEMENT
AGREEMENT, dated as of July 14, 1997, by and among DIGITAL
GENERATION SYSTEMS, INC. (the "Company"), and the parties listed on the Schedule
of Purchasers attached to this Agreement as Exhibit A (each hereinafter referred
to as a "Purchaser" and collectively referred to as the "Purchasers").
W I T N E S S E T H :
WHEREAS, the Company wishes to sell to the Purchasers and the
Purchasers wish to purchase from the Company shares of Series A Convertible
Preferred Stock (the "Series A Preferred Stock"), each such share convertible
into one share of the Common Stock (as defined herein).
WHEREAS, the business currently conducted by the Company is the
operation of a nationwide multi-media network designed to provide electronic
delivery and related services to the broadcast industry by linking providers to
broadcast stations.
WHEREAS, the Company shall use the proceeds arising from the
transaction contemplated hereby solely to finance a portion of the purchase
price of the acquisition of Mediatech, Inc., a Delaware corporation and a
wholly-owned subsidiary of IndeNet, Inc. (the "Acquisition").
ACCORDINGLY, the parties hereto hereby agree as follows:
SECTION 1. Issuance and Sale of Series A Preferred Stock
1.1. The Purchase. (a) At the Closing (as defined in Section 1.2(a)), each
Purchaser shall, severally and not jointly, purchase from the Company and the
Company shall sell to each Purchaser, the number of shares of Series A Preferred
Stock set forth opposite such Purchaser's name on Exhibit A (collectively, the
"Purchase") at the purchase price set forth opposite such name on Exhibit A.
Subject to Section 1.1(b), the aggregate purchase price to be paid by the
Purchasers for the Series A Preferred Stock purchased by them hereunder is as
set forth on Exhibit A as Total Purchase Price (the "Purchase Price"), of which
(i) the Purchase Price less 14% shall be paid to an account or accounts
designated by the Company not less than three business days prior to the Closing
and (ii) 14% of the Purchase Price (the "Escrow Amount") shall be paid to an
escrow agent (the "Escrow Agent") mutually acceptable to the Company and the
Pequot Entities (as defined below) to be held in a Escrow Account (the "Escrow
Account") and disbursed by the Escrow Agent pursuant to Section 1.4 hereto and
the terms of an escrow agreement in a form mutually satisfactory to the Company,
the Pequot Entities and the Escrow Agent (the "Escrow Agreement") and including
the terms set forth in Exhibit B.
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(b) In the event that the Company shall sell Additional Shares (as
defined in 1.3(b)(xiv)), the Pequot Entities shall have the right to purchase
that portion of the Additional Shares that maintains the Pequot Entities'
combined percentage ownership of the Series A Preferred Stock at an ownership
level of 51% or more. Upon determination that such sales of Additional Shares
will be made (but in no event later than three business days prior to the
Closing), the Company shall provide the Pequot Entities with a written notice
describing the amount of total Additional Shares to be sold and the amount to be
offered to the Pequot Entities in order to maintain the Pequot Entities' 51%
ownership level. The Pequot Entities shall, within 24 hours of receipt of such
notice, confirm its intention to purchase such shares. The purchase of such
Additional Shares shall be on the same terms and conditions as the shares
purchased under the Purchase and shall be treated, in all respects, as shares
purchased under the Purchase, including, without limitation, the contribution of
14% of the Purchase Price to the Escrow Agent.
(c) Subject to Section 1.1(b) above, the Company and the purchasers
of the Additional Shares ("Additional Purchasers") described above may, at any
time before the Closing (as defined below), execute counterpart signature pages
to this Agreement, and such Additional Purchasers will, upon delivery to the
Company of such signature pages, become parties to, and bound by, this
Agreement, each to the same extent as if they had executed the original
agreement. Exhibit A to this Agreement will be amended by the Company to list
the Additional Purchasers purchasing shares of Series A Preferred Stock under
this Agreement. Upon execution of the above mentioned signature pages, each
Additional Purchaser shall be deemed to be a "Purchaser" for all purposes of
this Agreement and the Escrow Agreement, and a Holder for purposes of the
Registration Rights Agreement.
1.2. The Closing. (a) The closing of the Purchase (the "Closing") shall
take place at the offices of Fried, Frank, Harris, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ at 9:00 a.m. on July 21, 1997 or on such other
date as shall be mutually agreed by the Company and the Purchasers (the "Closing
Date"); provided, however, that the closing of the Purchase shall be held
simultaneously with the closing of the Acquisition.
(b) At the Closing, the Company shall deliver to each Purchaser a
certificate or certificates representing the shares of Series A Preferred Stock
purchased by such Purchaser, registered in the name of such Purchaser or its
nominee. Delivery of such certificates to a Purchaser shall be made against
receipt at the Closing by the Company from such Purchaser of the purchase price
therefor, which shall be paid by wire transfer to an account designated at least
one business day prior to the Closing by the Company.
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1.3. Conditions to Closing. (a) The obligations of the Company and the
Purchasers to consummate the transactions contemplated hereby at the Closing are
subject to the satisfaction of the following conditions: no temporary
restraining order, preliminary or permanent injunction or other order or decree
which prevents the consummation of the transactions contemplated hereby shall
have been issued and remain in effect, and no statutes, rule or regulation shall
have been enacted by any governmental authority (of the United States or
otherwise) which prevents the consummation of the transactions contemplated
hereby; provided, however, that the parties shall use their reasonable best
efforts to cause any such decree, ruling, injunction or other order to be
vacated or lifted.
(b) The obligations of the Purchasers to consummate the transactions
contemplated hereby at the Closing is subject to the satisfaction or waiver of
the following conditions:
(i) the representations and warranties of the Company set
forth in Section 2 of this Agreement shall be true and correct in all
material respects as of the date when made and (unless made as of a
specified date) as of the Closing Date; and the Company shall have
performed in all material respects its covenants set forth in this
Agreement to be performed prior to the Closing Date and shall not have
taken any action which (if any shares of Series A Preferred Stock were
outstanding) would violate any provision of the Articles of Incorporation
(including the Certificate of Designation) or this Agreement, as the case
may be (and at the Closing the Company shall deliver to the Purchasers an
officer's certificate certifying as to the Company's compliance with the
conditions set forth in this clause (i));
(ii) The Company shall contemporaneously close the transactions
contemplated by the Acquisition in a form not materially different from
the draft Stock Purchase Agreement ("IndeNet Purchase Agreement"),
attached hereto as Exhibit C (such materiality to be determined by the
Purchasers in their sole discretion), at a total purchase price of less
than $29,000,000 and shall not have waived any conditions in the IndeNet
Stock Purchase Agreement without the prior written consent of the
Purchasers.
(iii) The Company and the Purchasers shall have entered into
the Registration Rights Agreement in the form of Exhibit D hereto (the
"Registration Rights Agreement" and all other contracts, agreements,
schedules, certificates and other documents (including, but not limited
to, the Certificate of Designation (as defined below) and the Escrow
Agreement) being delivered pursuant to or in connection with this
Agreement by any party hereto at or prior to the Closing, the "Ancillary
Documents").
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(iv) The Company shall have delivered to the Purchasers
certificates of good standing from California with respect to the Company
and New York with respect to the Subsidiary (as defined below) dated as of
a date no earlier than ten days prior to the Closing.
(v) The Amended and Restated Articles of Incorporation of the
Company, as amended, shall have been amended and supplemented by a
Certificate of Designation substantially in the form of Exhibit E hereto
setting forth the rights and preferences of the Series A Preferred Stock
(the "Certificate of Designation"), and the Certificate of Designation
shall have been filed with the Secretary of the State of California (the
Amended and Restated Articles of Incorporation, as amended, including such
Certificate of Designation, the "Articles of Incorporation");
(vi) The Common Stock to be issued upon conversion of the
Series A Preferred Stock shall have been approved for quotation on The
NASDAQ Stock Market, subject to official notice of issuance;
(vii) The Company shall have delivered to the Purchasers a
certificate executed by its Secretary certifying (x) a copy of its
organizational documents including the Articles of Incorporation and the
By-Laws, (y) resolutions authorizing the transaction and (z) incumbency
matters.
(viii) The Purchasers shall receive from Wilson, Sonsini,
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.C., counsel for the Company, an opinion addressed to
the Purchasers, dated as of the Closing, satisfactory in form and
substance to the Purchasers, which shall be in the form of the opinions
set forth in Exhibit F attached hereto.
(ix) In the event that the Purchasers shall designate a person
to serve on the board of directors (who, if such person is not an employee
of Dawson Samberg Capital Management, Inc. ("DSCM"), the investment
manager for each of the Pequot entities listed on Exhibit A (DSCM and such
entities referred to as the "Pequot Entities"), shall be reasonably
acceptable to the Company) such designee shall have been elected to the
board of directors of the Company effective, without any further action,
as of the Closing Date.
(x) The Company shall have entered into non-competition
agreements (the "Non-Competition Agreements"), in a form mutually
acceptable to the Company and the Purchasers, with ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇.
(xi) The Company shall have obtained, with financially sound and
reputable insurers, directors' and officers' liability insurance in an
amount not less
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than $5,000,000 or a binder with respect to such insurance in form
satisfactory to the Purchasers.
(xii) The Company shall have performed and satisfied all
covenants and agreements required by this Agreement to be performed or
satisfied by it at or prior to the Closing.
(xiii) Without limiting the generality of Section 1.3(b)(i), no
Material Adverse Effect shall have occurred, nor shall any event or events
have occurred which would reasonably likely to have a Material Adverse
Effect.
(xiv) The Company shall not have sold additional shares
("Additional Shares") of Series A Preferred Stock to any persons other
than the Purchasers unless (x) the terms and conditions are the same as
those set forth herein and (y)(A) if the cash portion of the consideration
in the Acquisition ("Acquisition Consideration") is less than $13 million
the total purchase price of such Additional Shares shall not exceed $4
million or (B) if the Acquisition Consideration is more than $13 million,
the total purchase price of such Additional Shares shall not exceed the
sum of (1) $4 million plus (2) the amount by which the cash portion of the
Acquisition Consideration exceeds $13 million (up to a maximum of $2
million). Pursuant to the procedures set forth in Section 1.1(b), the
Pequot Entities shall, at their option, in the aggregate, after
considering the sales of the Additional Shares and the sale to GE Capital
Information Technology Solutions, own 51% or more of the outstanding
shares of Series A Preferred Stock.
(xv) The Company shall have entered into the Escrow Agreement.
1.4. Purchase Price Adjustment. In the event the Company (a) shall have
less than $17.8 million in total revenue for fiscal third and fourth quarter,
1997 combined (based on the audited financial statements for the year ended
December 31, 1997) or (b) insofar as it is possible to support a tape interface
with an MPEG disk-based system, the Sony RS 422 Standard Video Transmission
Interface shall not be completed and available for customer use by December 31,
1997 (as determined by the Purchasers in their sole reasonable discretion), then
the Purchasers shall be entitled to instruct the Escrow Agent to pay one-eighth
(1/8) of the Deposit Amount to the Purchasers, payable beginning March 31, 1998
and continuing on a quarterly basis until the earlier of such time as the (x)
Deposit Amount has been fully distributed or (y) anytime after the public
announcement by the Company of the fourth quarter, 1997, earnings results, the
Market Price (as defined in the Certificate of Designation) per share of the
Common Stock shall exceed the Conversion Price (as defined in the Certificate of
Designation) multiplied by 2 for at least 25 days out of 40 consecutive Trading
Days (as defined in the Certificate of Designation).
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SECTION 2. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchasers follows:
2.1. Organization and Good Standing; Power and Authority; Qualifications.
Each of the Company and its subsidiary, PDR Productions, Inc., a New York
corporation (the "Subsidiary") (a) are duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization and (b) has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as presently conducted and as proposed to be conducted.
The Company has all requisite power and authority to enter into and carry out
the transactions contemplated by this Agreement and the Ancillary Documents to
which it is a party. Each of the Company and its Subsidiary is qualified to
transact business as a foreign corporation in, and is in good standing under the
laws of, those jurisdictions listed on Schedule 2.1 under its name, which
jurisdictions constitute all of the jurisdictions wherein the character of the
property owned or leased or the nature of the activities conducted by it makes
such qualification necessary and where failure to so qualify would individually
or in the aggregate have a material adverse effect on properties, business,
prospects, operations, earnings, assets, liabilities or the condition (financial
or otherwise) of the Company and its Subsidiary taken as a whole, whether or not
in the ordinary course of business (a "Material Adverse Effect").
2.2. Authorization of the Documents. The execution, delivery and
performance by the Company of this Agreement and each of the Ancillary Documents
to which it is a party has been duly authorized by all requisite corporate
action on the part of the Company (and do not or will not require the approval
or consent of the shareholders of the Company), and this Agreement and each of
the Ancillary Documents constitutes a legal, valid and binding obligation of the
Company which is a party thereto, enforceable against the Company in accordance
with its terms except to the extent that enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally and except to the extent that the remedy of specific performance and
injunction and other forms of equitable relief may be subject to equitable
defenses.
2.3. Capitalization. The authorized capitalization of the Company
immediately prior to the date of the Closing consists of: (a) 5,000,000 shares
of Preferred Stock, of which (i) the shares to be sold pursuant to the Purchase
and the Additional Shares to be issued as permitted herein have been designated
Series A Preferred Stock and (ii) no shares of Series A Preferred Stock are
issued and outstanding and all such outstanding shares are validly issued, fully
paid and nonassessable and free and clear of all Encumbrances; and (b)
30,000,000 shares of Common Stock, no par value per share ("Common Stock"), of
which 11,739,617 shares are issued and outstanding and all such outstanding
shares are validly issued, fully paid and nonassessable and free and clear of
all Encumbrances (as defined below). No class of capital stock ("Capital Stock")
of the Company is entitled to preemptive rights. Except as listed on Schedule
2.3 hereto, there
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are no outstanding options, warrants, subscription rights, calls or commitments
of any character whatsoever relating to, or securities or rights convertible
into, shares of any class of Capital Stock of the Company, or Contracts, by
which the Company or its subsidiary is or may become bound to issue additional
shares of its Capital Stock or options, warrants or other rights to purchase or
acquire any shares of its Capital Stock. Between the date hereof and the Closing
Date, the Company will not have changed the amount of its authorized Capital
Stock, or have subdivided or otherwise changed any shares of any class of its
Capital Stock, whether by way of reclassification, stock split or otherwise, or
have issued any additional shares of Capital Stock other than pursuant to the
exercise of securities outstanding on the date hereof and set forth in Schedule
2.3 hereto and will not have granted any options, warrants or other rights to
purchase or acquire shares of the Company's Capital Stock. Except as set forth
in Schedule 2.3 hereto, the Company has not declared or paid any dividend or
made any other distribution of cash, stock or other property to its
shareholders.
2.4. Authorization and Issuance of Capital Stock. The authorization,
issuance, sale and delivery of the Series A Preferred Stock pursuant to this
Agreement and the authorization, reservation, issuance, sale and delivery of the
shares of Series A Preferred Stock and the Conversion Shares (as defined below)
have been duly authorized by all requisite corporate action on the part of the
Company, and when issued, sold and delivered in accordance with this Agreement,
the Series A Preferred Stock and the Conversion Shares will be validly issued
and outstanding, fully paid and nonassessable with no personal liability
attaching to the ownership thereof, free and clear of any Encumbrances, other
than Encumbrances, if any, arising as a result of actions taken by the
Purchasers, and not subject to preemptive or similar rights of the shareholders
of the Company or others. The terms, designations, powers, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions, of any series of Preferred Stock
of the Company are as stated in the Company's Articles of Incorporation. No
shareholder approval is required to consummate the transaction contemplated
hereunder. The Company has reserved a sufficient number of shares of Series A
Preferred Stock for issuance to the Purchasers on the date hereof in accordance
with this Agreement and (ii) Common Stock for issuance upon conversion or
exercise of all other common stock equivalents outstanding on the date hereof.
The shares of Common Stock issuable upon the conversion of the Series A
Preferred Stock issued or issuable to the Purchasers hereunder shall be referred
to collectively as the "Conversion Shares."
2.5. SEC Reports. The Company has filed all proxy statements, reports and
other documents required to be filed by it under the Securities Exchange Act of
1934, as amended (the "Exchange Act") from and after February 6, 1996; and the
Company has furnished the Purchasers true and complete copies of all annual
reports, quarterly reports, proxy statements and other reports under the
Exchange Act filed by the Company from
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and after such date, each as filed with the Securities and Exchange Commission
(collectively, the "SEC Reports"). Each SEC Report was in compliance in all
material respects with the requirements of its respective report form and did
not on the date of filing contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, and as of the date hereof there is no fact or facts not
disclosed in the SEC Reports which relate specifically to the Company and which
individually or in the aggregate may have a Material Adverse Effect.
2.6. Financial Statements. The financial statements (including any related
schedules and/or notes) included in the SEC Reports have been prepared in
accordance with generally accepted accounting principles consistently followed
(except as indicated in the notes thereto) throughout the periods involved and
fairly present in all material respects the consolidated financial condition,
results of operations and changes in shareholders' equity of the Company as of
the respective dates thereof and for the respective periods then ended (in each
case subject, as to interim statements, to changes resulting from year-end
adjustments, none of which were material in amount or effect). Except as set
forth in Schedule 2.6, the Company has no liabilities or obligations, contingent
or otherwise, except (i) liabilities and obligations in the respective amounts
reflected or reserved against in the Company's balance sheet (the "Balance
Sheet") as of March 31, 1997 included in the SEC Reports or (ii) liabilities and
obligations incurred in the ordinary course of business since March 31, 1997
which individually or in the aggregate do not have a Material Adverse Effect.
Since March 31, 1997, the Company has operated its business only in the ordinary
course and there has not been individually or in the aggregate any change that
would have a Material Adverse Effect (a "Material Adverse Change") other than
changes disclosed in the SEC Reports or otherwise set forth in Schedule 2.6
hereto. The financial forecasts furnished by the Company to the Purchasers have
been reasonably prepared and reflect the best currently available estimates and
judgment of the Company's management as to the expected future financial
performance of the Company and its Subsidiary.
2.7. Absence of Undisclosed Liabilities. Except as set forth on Schedule
2.7, the Company has no liabilities or obligations (whether accrued, absolute,
contingent, unliquidated or otherwise, whether or not known, whether due or to
become due and regardless of when asserted) other than (i) liabilities or
obligations reserved against or otherwise disclosed in the Balance Sheet or the
footnotes thereto, (ii) liabilities or obligations incurred after March 31, 1997
in the ordinary course of business consistent (in amount and kind) with past
practice (none of which is a liability resulting from breach of contract, breach
of warranty, tort, infringement, claim or lawsuit) and that do not exceed
$75,000 in a single transaction.
2.8. Absence of Material Changes. Except as set forth on Schedule 2.8 and
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except as otherwise expressly contemplated by this Agreement, since March 31,
1997, the business of the Company and its Subsidiary has been conducted in the
ordinary course, consistent with past practice and there has not been (a) any
Material Adverse Change, nor has any event or change occurred which could
reasonably result in a Material Adverse Change, in the condition (financial or
otherwise), results of operations, business, assets, liabilities or prospects of
the Company or its Subsidiary or any event or condition which could reasonably
be expected to have such a Material Adverse Change, (b) any waiver or
cancellation of any valuable right of the Company or its Subsidiary, or the
cancellation of any material debt or claim held by the Company or its
Subsidiary, (c) any payment, discharge or satisfaction of any claim, liability
or obligation of the Company or its Subsidiary other than in the ordinary course
of business except where such payment, discharge or satisfaction would not,
individually or in the aggregate, have a Material Adverse Effect, (d) any
Encumbrance upon the assets of the Company or its Subsidiary other than any
Permitted Encumbrance, (e) any declaration or payment of dividends on, or other
distribution with respect to, or any direct or indirect redemption or
acquisition of, any securities of the Company, (f) any issuance of any stock,
bonds or other securities of the Company or its Subsidiary, (g) any sale,
assignment or transfer of any tangible or intangible assets of the Company or
its Subsidiary except in the ordinary course of business, (h) any loan by the
Company or its Subsidiary to any officer, director, employee, consultant or
shareholder of the Company or its Subsidiary (other than advances to such
persons in the ordinary course of business in connection with travel and travel
related expenses), (i) any damage, destruction or loss (whether or not covered
by insurance) materially and adversely affecting the assets, property, condition
(financial or otherwise), results of operations or prospects of the Company or
its Subsidiary, (j) any increase, direct or indirect, in the compensation paid
or payable to any officer or director of the Company or its Subsidiary, other
than in the ordinary course of business, to any other employee, consultant or
agent of the Company or its Subsidiary, (k) any change in the accounting
methods, practices or policies of the Company or its Subsidiary, (l) any
indebtedness incurred for borrowed money by the Company or its Subsidiary other
than in the ordinary course of business, (m) any amendment to or termination of
any material agreement to which the Company or its Subsidiary is a party other
than the expiration of any such agreement in accordance with its terms, (n) any
change in the laws or regulations governing the Company or its Subsidiary, (o)
any Material Adverse Change in the manner of business or operations of the
Company or its Subsidiary (including, without limitation, any accelerations or
deferral of the payment of accounts payable or other current liabilities or
deferral of the collection of accounts or notes receivable), (p) any capital
expenditures or commitments therefor by the Company or its Subsidiary other than
in the ordinary course of business and pursuant to an annual budget as approved
by the Board of Directors that aggregate in excess of $50,000, (q) any amendment
of the articles of incorporation, Bylaws or other organizational documents of
the Company or its Subsidiary, (r) any transaction entered into by the Company
or its Subsidiary other than in
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17
the ordinary course of business or any other material transactions entered into
by the Company or its Subsidiary whether or not in the ordinary course of
business, or (s) any agreement or commitment (contingent or otherwise) by the
Company or its Subsidiary to do any of the foregoing. For purposes of this
Agreement, "Permitted Encumbrances" shall mean (i) those consisting of zoning or
planning restrictions, easements, permits and other restrictions or limitations
on the use of such property or irregularities in title thereto which,
individually and in the aggregate, do not materially impair the use of such
property, (ii) warehousemen's, mechanics', carriers', landlords', repairmen's or
other similar Encumbrances arising in the ordinary course of business and
securing obligations not yet due and payable, and (iii) other Encumbrances which
arise in the ordinary course of business and which individually and in the
aggregate do not materially impair its use of such property or its ability to
obtain financing by using such asset as collateral.
2.9. No Conflict. The execution and delivery by the Company of the
Agreement and the Ancillary Documents to which it is a party and the
consummation by the Company of the transactions contemplated hereby and thereby
and its compliance with the provisions hereof and thereof (including, without
limitation, the issuance, sale and delivery by the Company of the Series A
Preferred Stock and the Conversion Shares) will not (a) violate any provision of
any domestic (federal, state or local) or foreign law, statute, rule or
regulation, or any ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other governmental body applicable to it, or any
of its properties or assets except where such violation would not, individually
or in the aggregate, have a Material Adverse Effect, (b) conflict with, or
result in any violation or breach of, or constitute (with due notice or lapse of
time, or both) a default or loss of a benefit under, or cause or permit the
acceleration under, the terms, conditions or provisions of any Contract to which
it is a party or its properties or assets is subject, except for defaults which
would not, individually or in the aggregate, have a Material Adverse Effect (c)
result in the creation or imposition of any Encumbrance upon any of its
properties or assets, except for Encumbrances which would not individually or in
the aggregate have a Material Adverse Effect or (d) violate its organizational
documents.
2.10. Agreements. (a) Except as set forth on Schedule 2.10, the Company or
its Subsidiary are not a party to, and are not bound or subject to, any
indenture, mortgage, guaranty, lease, license or other contract, agreement or
understanding, written or oral (a "Contract"), other than any Contract which (i)
pursuant to its terms, has expired, been terminated or fully performed by the
parties, and in each case, under which the Company and its Subsidiary have no
liability, contingent or otherwise, or (ii) involves monthly payments to or from
the Company and/or its Subsidiary (as opposed to an indemnity agreement or
similar contract under which a party is not required to make fixed monthly
payments) which monthly payments do not aggregate on an annual basis to $50,000
or more, and in each case, is not material to the business, condition (financial
or otherwise), operations or prospects of the Company or its Subsidiary.
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18
(b) Each of such Contracts is, as of the date hereof, and will
continue after the Closing to be, legal, valid, binding and in full force and
effect and enforceable in accordance with its terms. There is no breach,
violation or default by the Company (or, to the best knowledge of the Company,
any other party) under any such Contract except where such breach, violation or
default would not, individually or in the aggregate, have a Material Adverse
Effect, and no event (including, without limitation, the consummation of the
transactions contemplated by this agreement) which, with notice or lapse of time
or both, would (A) constitute a breach, violation or default by the Company (or,
to the best knowledge of the Company, any other party) under any such Contract
except where such breach, violation or default would not, individually or in the
aggregate, have a Material Adverse Effect, or (B) give rise to any lien or right
of termination, modification, cancellation, prepayment, suspension, limitation,
revocation or acceleration against the Company under any such Contract. Except
as set forth on Schedule 2.10, the Company is not or, to the knowledge of the
Company, no other party to any of such Contracts (i) is in arrears in respect of
the performance or satisfaction of the terms and conditions on its part to be
performed or satisfied under any of such Contracts or (ii) has granted or has
been granted any waiver or indulgence under any of such Contracts or has
repudiated any provision thereof.
2.11. Intellectual Property Rights. (a) Except as disclosed on Schedule
2.11 hereto, (i) the Company owns or has the right to use pursuant to license,
sub-license, agreement or permission all of its Intellectual Property (as
defined below), except where the absence of any thereof would not individually
or in the aggregate have a Material Adverse Effect; (ii) the Company has not
interfered with, infringed upon or misappropriated any Intellectual Property
rights of third parties, except for interferences, infringements and
misappropriations which would not individually or in the aggregate have a
Material Adverse Effect, and the Company has not received any claim, demand or
notice alleging any such interference, infringement or misappropriation
(including any claim that it must license or refrain from using any Intellectual
Property rights of any third party). To the Company's knowledge no third party
has interfered with, infringed upon or misappropriated any Intellectual Property
rights of the Company, except for interferences, infringements and
misappropriations which would not individually or in the aggregate have a
Material Adverse Effect.
(b) Except as set forth on Schedule 2.11(b), neither the Company nor
the Subsidiary is obligated to pay any amount, whether as royalty, license fee
or other payment, to any person in order to make, use, or sell any Intellectual
Property.
(c) Except as set forth on Schedule 2.11(c), the operation of the
Company and its Subsidiary as presently operated does not need to use or rely
upon any Intellectual Property rights of third parties.
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(d) All royalties due under said licenses have been paid and there
exists no default by the Company and its Subsidiary or by any other party under
the terms of said licenses, and no event has occurred which, upon the passage of
time or the giving of notice, or both, would result in any default by the
Company and its Subsidiary, or by any other party to the license or prevent the
Company from exercising and obtaining the benefits of any options contained
therein except where such default would not, individually or in the aggregate,
have a Material Adverse Effect.
(e) As used in this Agreement, "Intellectual Property" means all
intellectual property owned, leased, licensed, and used by the Company or its
Subsidiary, including without limitation, (i) all world wide inventions and
discoveries (whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereto, and all patents, patent applications and
patent disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and reexaminations thereof, (ii)
all trademarks, service marks, trade dress, logos, trade names and corporate
names, together with all translations, adaptations, derivations and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations, renewals and derivatives in connection therewith, (ii) all
copyrightable works, all copyrights and all applications, registrations and
renewals in connection therewith, (iv) all mask works and all applications,
registrations and renewals in connection therewith, (v) all know-how, trade
secrets and confidential business information, whether patentable or
unpatentable and whether or not reduced to practice (including ideas, research
and development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, addresses, phone numbers, pricing and cost
information, and business and marketing plans and proposals), (vi) all Software,
(vii) all other proprietary rights of any type of description (regardless of
whether the same have been formally registered), (viii) all copies and tangible
embodiments thereof (in whatever form or medium) and (ix) all licenses and
agreements in connection with the foregoing.
(f) As used in this Agreement, "Software" means any and all
versions, releases, and predecessors of the software and computer programs of
the Company or its Subsidiary, including all such software and computer programs
in machine readable source code forms and in machine executable object code
forms and all related specifications (including, without limitation, all logic
architectures, algorithms and logic flows and all physical, functional,
operating and design parameters), any data used by or related to Software, work
in progress relating to corrections, modifications or enhancements, operating
systems and procedures (including development methodology), designs, design
revisions, related applications, work benches, software in any language,
concepts, ideas, processes, techniques, software designs and test tools, third
party
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software interfaces written by them and all methods of implementation and
packaging, together with all associated know-how and show-how.
(g) As used in this Agreement, "Third Party Software" means software
or computer programs used in the operation of the Company and its Subsidiary
(specifically, in connection with servicing clients) as presently conducted or
currently anticipated to be conducted and that are not owned by the Company.
2.12. Equity Investments; Subsidiaries. Except as set forth on Schedule
2.12, the Company has never had, nor does it presently have, any subsidiaries,
nor has it owned, nor does it presently own, whether directly or indirectly
owned, any capital stock or other proprietary interest, directly or indirectly,
in any corporation, association, trust, partnership, joint venture or other
entity.
2.13. Title to Assets and Properties; Insurance. (a) The Company has good
and marketable title, or a valid leasehold interest in or contractual right to
use, all of its assets (including Third Party Software) and properties, free and
clear of any mortgages, judgments, claims, liens, security interests, pledges,
escrows, charges or other encumbrances of any kind or character whatsoever
("Encumbrances") except in each case for such defects in title and such other
liens and Encumbrances which do not individually or in the aggregate materially
detract from the value to the Company of the properties and assets of the
Company and its Subsidiary taken as a whole.
(b) The Company and its Subsidiary maintain insurance in such
amounts (to the extent available in the public market), including
self-insurance, retainage and deductible arrangements, and of such a character
as is reasonable for companies engaged in the same or similar business and for
companies located in San Francisco. Schedule 2.13(b) sets forth a list of all
insurance coverage carried by the business and/or the Company, the carrier and
terms and amount of coverage.
2.14. Employee Benefit Plans. (a) Schedule 2.14 hereto contains a true and
complete list of (i) each written plan, program, policy, payroll practice,
contract, agreement or other arrangement, or commitment therefore, providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits of any kind,
funded or unfunded, which is now or previously has been sponsored, maintained,
contributed to or required to be contributed to by the Company or pursuant to
which the Company has any liability, contingent or otherwise, including, but not
limited to, any "employee benefit plan" within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (each,
a "Benefit Plan"); and (ii) each management, employment, bonus, option, equity
(or equity related), severance, consulting, non compete, confidentiality or
similar agreement or contract (each, an "Employee Agreement"), pursuant to which
the
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21
Company has any liability, contingent or otherwise, between the Company and any
current, former or retired employee, officer, consultant, independent
contractor, agent or director of the Company (an "Employee"). Except as
identified on Schedule 2.14, the Company does not currently sponsor, maintain,
contribute to, nor is it required to contribute to, nor has the Company ever
sponsored, maintained, contributed to or been required to contribute to, or
incurred any liability to, (i) any "defined benefit plan" (as defined in ERISA
Section 3(35)); (ii) any "multiemployer plan" (as defined in ERISA Section
3(37)) or (iii) any Benefit Plan which provides, or has any liability to
provide, life insurance, medical, severance or other employee welfare benefits
to any Employee upon his or her retirement or termination of employment, except
as required by Section 4980B of the Internal Revenue Code (the "Code").
(b) Except with respect to its wholly-owned Subsidiary as disclosed
herein, the Company is not nor has ever been (i) a member of a "controlled group
of corporations," under "common control" or an "affiliated service group" within
the meaning of Sections 414(b), (c) or (m) of the Code, (ii) required to be
aggregated under Section 414(o) of the Code, or (iii) under "common control,"
within the meaning of Section 4001(a)(14) of ERISA, or any regulations
promulgated or proposed under any of the foregoing Sections, in each case with
any other entity.
(c) The Company has previously provided to the Purchasers current,
accurate and complete copies of all documents embodying or relating to each
Benefit Plan and each Employee Agreement, including all amendments thereto,
trust or funding agreements relating thereto (if any), the two most recent
annual reports (Series 5500 and related schedules) required under ERISA (if
any), the most recent determination letter (if any) received from the Internal
Revenue Service, the most recent summary plan description (with all material
modifications) (if any), and all material communications to any Employee or
Employees relating to any Benefit Plan or Employee Agreement.
(d) Each Benefit Plan has been established and maintained in
accordance with its terms and in compliance with all applicable, laws, statutes,
orders, rules and regulations, including but not limited to ERISA and the Code;
and each Benefit Plan intended to qualify under Section 401 of the Code is, and
since its inception has been, so qualified.
(e) The execution of, and performance of the transactions
contemplated in, this Agreement will not (either alone or upon the occurrence of
any additional or subsequent events) constitute an event under any Benefit Plan
or Employee Agreement that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligations to fund benefits with respect
to any Employee.
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2.15. Labor Relations; Employees. Schedule 2.15 hereto lists all employees
of the Company with an annual salary in excess of $100,000. Except as set forth
on Schedule 2.15 hereto, (i) the Company is not delinquent in payments to any of
its employees, for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed by the date hereof or amounts required
to be reimbursed by them to the date hereof, (ii) the Company is in compliance
with all applicable federal, state and local laws, rules and regulations
respecting employment, employment practices, labor, terms and conditions of
employment and wages and hours except where failure to comply would not,
individually or in the aggregate, have a Material Adverse Effect, (iii) 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, commitment or
arrangement with any labor union, and no labor union has requested or, to the
best knowledge of the Company, has sought to represent any of the employees,
representatives or agents of the Company, (iv) there is no labor strike,
dispute, slowdown or stoppage actually pending, or, to the best knowledge of the
Company, threatened against or involving the Company, (v) to the best knowledge
of the Company, no salaried key employee has any plans to terminate his or her
employment with the Company. Each of the officers of the Company, each key
employee and each other employee of the Company who has or had access to
confidential information of the Company and its Subsidiary has executed a
confidentiality agreement, and such agreements are in full force and effect.
2.16. Litigation; Orders. Except as set forth on Schedule 2.16, there is
no civil, criminal or administrative action, suit, claim, notice, hearing,
inquiry, proceeding or investigation at law or in equity by or before any court,
arbitrator or similar panel, governmental instrumentality or other agency now
pending or, to the best knowledge of the Company, threatened against the Company
or its Subsidiary or the assets (including the Intellectual Property) or the
Company or its Subsidiary (a "Litigation"). Except as set forth in Schedule
2.16, neither the Company nor its Subsidiary is subject to any order, writ,
injunction or decree of any court of any federal, state, municipal or other
domestic or foreign governmental department, commission, board, bureau, agency
or instrumentality.
2.17. Compliance with Laws; Permits. Except as provided in Schedule 2.17,
the Company and its Subsidiary are in compliance, and have been conducted in
compliance with, all federal, state, local and foreign laws, rules, ordinances,
codes, consents, authorizations, registrations, regulations, decrees,
directives, judgments and orders applicable to it except where the failure to
comply would not individually or in the aggregate have a Material Adverse
Effect. The Company has all federal, state, local and foreign governmental
licenses, permits, qualifications and authorizations ("Permits") necessary in
the conduct of its business as currently conducted. All such Permits are in full
force and effect, and no violations have been recorded in respect of any such
Permits;
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no proceeding is pending or, to the best knowledge of the Company, threatened to
revoke or limit any such Permit; and no such Permit will be suspended, cancelled
or adversely modified as a result of the execution and delivery of this
Agreement or the Ancillary Documents and the consummation of the transactions
contemplated hereby or thereby, except where failure to have such Permit would
not individually or in the aggregate have a Material Adverse Effect.
2.18. Offering Exemption. Assuming the accuracy of the representations and
warranties contained in Section 3 hereof, the offer and sale of the Series A
Preferred Stock as contemplated hereby and the issuance and delivery of the
Conversion Shares to the Purchasers upon the conversion of the Series A
Preferred Stock are each exempt from registration under the Securities Act of
1933, as amended (the "Securities Act") and under applicable state securities
and "blue sky" laws, as currently in effect.
2.19. Disclosure. Neither this Agreement nor any certificate, instrument
or written statement furnished or made to the Purchasers by or on behalf of the
Company in connection with this Agreement or the Ancillary Documents contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein and therein not
misleading. There is no fact which the Company has not disclosed to the
Purchasers or their counsel in writing and of which the Company is aware which
materially and adversely affects or which could reasonably be expected to
materially and adversely affect the Company or its Subsidiary or the business,
financial condition, operations, property, affairs or prospects of the Company
or its Subsidiary or the ability of the Company or its Subsidiary to perform its
obligations under the Agreement or any of the Ancillary Documents.
2.20. Taxes. The Company and its Subsidiary have filed or caused to be
filed all income tax returns which are required to be filed and have paid or
caused to be paid all Taxes that have become due, except Taxes the validity or
amount of which is being contested in good faith by appropriate proceedings and
with respect to which adequate reserves have been set aside. "Taxes," for
purposes of this Agreement, means any taxes, assessments, duties, fees, levies,
imposts, deductions, withholdings, including, without limitation, income, gross
receipts, ad valorem, value added, excise, real or personal property, asset,
sales, use, license, payroll, transaction, capital, net worth and franchise
taxes, estimated taxes, withholding, employment, social security, workers
compensation, utility, severance, production, unemployment compensation,
occupation, premium, windfall profits, transfer and gains taxes, or other
governmental charges of any nature whatsoever imposed by any government or
taxing authority of any country or political subdivision of any country and any
liabilities with respect thereto, including any penalties, additions to tax,
fines or interest thereon, and includes any liability of the Company and its
Subsidiary arising under any tax sharing agreement to which it is or has been a
party.
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2.21. Environmental Matters. Except as listed in Schedule 2.21:
(a) There are, with respect to the Company and its Subsidiary, or
any predecessor of the foregoing, no past or present violations of Environmental
Law (as defined below), nor any actions, activities, circumstances, conditions,
events, incidents, or contractual obligations which may give rise to any
liability pursuant to any Environmental Law and neither the Company nor its
Subsidiary has received any notice with respect to any of the foregoing nor is
any Litigation pending or threatened in connection with any of the foregoing.
(b) To the knowledge of the Company, no Hazardous Materials are
present on or about any real property currently owned, leased or used by the
Company or its Subsidiary and no Hazardous Materials were present on or about
any real property previously owned, leased or used by the Company or its
subsidiary during the period the property was owned, leased or used by the
Company or its Subsidiary, except in the normal course of the Company's or such
Subsidiary's business.
(c) To the knowledge of the Company, no Hazardous Materials have
been released on or about, or where they may pose a threat of migration to, any
real property currently owned, leased or used by the Company or its Subsidiary
and no Hazardous Materials were released on or about any real property
previously owned, leased or used by the Company or its Subsidiary during the
period the property was owned, leased or used by the Company or its Subsidiary,
except as may be required in the normal course of business and in material
compliance with applicable Environmental Law.
(d) To the knowledge of the Company, no asbestos-containing
materials or PCBs are present on or about any property currently owned, leased
or used by the Company or its Subsidiary.
(e) To the knowledge of the Company, there are not now, nor have
there ever been, any underground storage tanks or similar facilities of any kind
on or under any real property currently or previously owned, leased or used by
the Company or its Subsidiary.
(f) For purposes of this Section 2.21, capitalized terms used herein
shall have the following meanings:
"Environmental Laws" shall mean, at any date, all provisions of
federal, state, local or foreign law (including applicable principles of common
and civil law), statutes, ordinances, rules, regulations, published standards
and directives that have the force and effect of Laws, permits, licenses,
judgments, writs, injunctions, decrees and orders enacted, promulgated or issued
by any Public Authority, and all indemnity
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agreements and other contractual obligations, as in effect at such date,
relating to (i) the protection of the environment, including the air, surface
and subsurface soils, surface waters, groundwaters and natural resources, and
(ii) occupational health and safety and exposure of persons to Hazardous
Materials. Environmental Laws shall include the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. SectionSection9601 et seq.,
and any other laws imposing or creating liability with respect to Hazardous
Materials.
"Environmental Liability" shall mean any liabilities, obligations,
costs, losses, payments or damages, including compensatory and punitive damages,
incurred (i) to contain, remove, clean up, assess, ▇▇▇▇▇ or otherwise remedy any
actual or alleged release or threatened release of Hazardous Materials, any
actual or alleged contamination (by Hazardous Materials) of air, surface or
subsurface soil, groundwater or surface water, or any personal injury or damage
to natural resources or property resulting from any such release or
contamination, pursuant to the requirements of any Environmental Law or in
response to any claim by any Public Authority or other third party under any
Environmental Law; (ii) to modify facilities or processes or take any other
remedial action in response to any claim by any Public Authority of
non-compliance with any Environmental Law; (iii) as a result of the imposition
of any civil or criminal fine or penalty by any Public Authority for the
violation or alleged violation of any Environmental Law; or (iv) as a result of
any action, suit, proceeding or claim by any third party under any Environmental
Law. The term "Environmental Liability" shall include: (i) reasonable fees of
counsel and consultants (but not any corporate allocation for management time or
for the use of similar in-house services or facilities) and (ii) the costs and
expenses of any investigation undertaken to ascertain the existence or extent of
any potential or actual Environmental Liability.
"Hazardous Material" shall mean any substance regulated by any
Environmental Law or which may now or in the future form the basis for any
Environmental Liability.
"Public Authority" shall mean any supranational, national, regional,
state or local government court, governmental agency, authority, board, bureau,
instrumentality or regulatory body.
2.22. Consents. Except as set forth on Schedule 2.22, no permit,
authorization, consent or approval of or by, or any notification of or filing
with, any person (governmental or private) is required by the Company in
connection with the execution, delivery and performance of the Agreement and the
Ancillary Documents to which it is a party, the consummation by the Company of
the transactions contemplated hereby or thereby, or the issuance, sale or
delivery of the Series A Preferred Stock or the
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Conversion Shares (other than such notifications or filings required under
applicable federal or state securities laws, if any, which shall be made on a
timely basis).
2.23. Brokers. Except as listed on Schedule 2.23, neither the Company nor
any of its officers, directors, employees or shareholders has employed any
broker or finder in connection with the transactions contemplated by this
Agreement or the Ancillary Documents.
2.24. Suppliers and Customers. The Company does not have any knowledge of
any termination, cancellation or threatened termination or cancellation or
limitation of, or any material modification or change in, or expressed material
dissatisfaction with the business relationship between the Company or its
Subsidiary and any supplier or vendor or customer or client of the Company or
its Subsidiary, in each case, of materials or services in an amount in excess of
$50,000 per year.
2.25. Use of Proceeds. The Company shall use the proceeds arising from the
transactions contemplated hereby to finance a portion of the Acquisition.
2.26. Holding Company Act and Investment Company Act. Neither the Company
nor its Subsidiary is: (i) a "public utility company" or a "holding company," or
an "affiliate" or a "subsidiary company" of a "holding company," or an
"affiliate" of such a "subsidiary company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended, or (ii) a "public
utility," as defined in the Federal Power Act, as amended, or (iii) an
"investment company" or an "affiliated person" thereof or an "affiliated person"
of any such "affiliated person," as such terms are defined in the Investment
Company Act of 1940, as amended.
SECTION 3. Representations and Warranties of the Purchasers. Each of the
Purchasers represents and warrants to the Company as of the date hereof as
follows:
(a) Such Purchaser is acquiring the Series A Preferred Stock for its
own account, for investment and not with a view to the distribution thereof
within the meaning of the Securities Act.
(b) Such Purchaser understands that (i) the Series A Preferred Stock
has not been, and that the Conversion Shares will not be, registered under the
Securities Act or any state securities laws, by reason of their issuance by the
Company in a transaction exempt from the registration requirements thereof and
(ii) the Series A Preferred Stock and the Conversion Shares may not be sold
unless such disposition is registered under the Securities Act and applicable
state securities laws or is exempt from registration thereunder.
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(c) Such Purchaser further understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to such
Purchaser) promulgated under the Securities Act depends on the satisfaction of
various conditions, and that, if applicable, Rule 144 may afford the basis for
sales only in limited amounts.
(d) Such Purchaser has not employed any broker or finder in
connection with the transactions contemplated by this Agreement.
(e) Such Purchaser is an "Accredited Investor" (as defined in
Rule 501(a) under the Securities Act).
(f) Such Purchaser is duly organized and validly existing under the
laws of the state of its organization and has all power and authority to enter
into and consummate the transactions contemplated by the Agreement and the
Ancillary Documents. Each of this Agreement and the Ancillary Documents to which
it is a party has been duly authorized by all necessary action on the part of
such Purchaser. Each of this Agreement and the Ancillary Documents to which it
is a party constitutes a valid and binding agreement of such Purchaser
enforceable against such Purchaser in accordance with its terms except to the
extent that enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights generally.
(g) The execution, delivery and performance by such Purchaser of
this Agreement and each of the Ancillary Documents to which it is a party and
the consummation by such Purchaser of the transactions contemplated hereby and
thereby will not (a) violate any provision of law, statute, rule or regulation,
or any ruling, writ, injunction, order, judgment or decree of any court,
administrative agency or other governmental body applicable to it, or any of its
properties or assets or (b) violate its organizational documents (if any).
(h) No permit, authorization, consent or approval of or by, or any
notification of or filing (including any filing under the ▇▇▇▇-▇▇▇▇▇ ▇▇▇▇▇▇
Antitrust Improvements Act of 1976, as amended) with, any person (governmental
or private) is required in connection with the execution, delivery and
performance by such Purchaser of the Agreement and the Ancillary Documents to
which it is a party, or the consummation by such Purchaser of the transactions
contemplated thereby.
(i) Such Purchasers, in making this investment, have not relied upon
any information or representations and warranties of ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLC,
including, without limitation, representations and warranties regarding the
Company, its officers, financial condition, business and prospects, or the terms
of the purchase of the Series A Preferred Stock.
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SECTION 4. Certain Covenants.
4.1. Access to Records. Subject to appropriate agreements of
confidentiality and limitations of interference, the Company shall afford the
Purchasers and their employees, counsel and other authorized representatives
full access, during normal business hours, upon reasonable advance notice, with
due regard to its ongoing operations, to the assets, properties, offices and
other facilities, Contracts and books and records of the Company and of its
Subsidiary, and to the outside auditors of the Company and their work papers
relating thereto, in each case, as the Purchasers may from time to time
reasonably request. The parties hereto agree that no investigation by the
Purchasers or their representatives shall affect or limit the scope of the
representations and warranties of the Company contained herein or in any
Ancillary Document delivered pursuant hereto or limit liability for breach of
any such representation or warranty.
4.2. Affirmative Covenants.
(a) System of Accounting. The books of account and other financial
and corporate records of the Company and its subsidiary shall be maintained in
accordance with good business and accounting practices and the financial
condition of the Company and its Subsidiary shall be accurately reflected in the
SEC Reports.
(b) Maintenance of Corporate Existence, etc. The Company shall, and
shall cause its Subsidiary to, maintain in full force and effect its corporate
existence, rights, governmental approvals and franchises and all licenses and
other rights to use patents, processes, trademarks, trade names or copyrights
owned or possessed by it and deemed by it to be material to the conduct of its
business. The Company shall, and shall cause its Subsidiary to, use its
commercially reasonable efforts to preserve its favorable business relationships
with the clients, lenders, suppliers, customers, licensors and licensees and
others having business dealings with the Company and its Subsidiary and to
preserve the goodwill and ongoing operations of the Company and its Subsidiary.
(c) Compliance with Laws. The Company shall, and shall cause its
Subsidiary to, comply with all applicable laws, rules regulations and orders
except where failure to comply would not, individually or in the aggregate, have
a Material Adverse Effect.
(d) Maintenance of Properties and Leases. The Company shall, and
shall cause its subsidiary to, keep their properties in good repair, working
order and condition, reasonable wear and tear excepted, and from time to time
make all reasonably needful and proper, or legally required, repairs, renewals,
replacements, additions and improvements thereto. So long as it is in the best
interest of the Company, the Company shall, and shall cause its Subsidiary to,
comply at all times with each provision of all
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leases to which any of them is a party or under which any of them occupies, or
has possession, of, property.
(e) Insurance. The Company shall, and shall cause its subsidiary to,
keep its assets which are of an insurable character, if any, insured by
financially sound and reputable insurers against loss or damage by fire,
extended coverage and other hazards and risks and liability to persons and
property to the extent and in the manner customary for companies in similar
businesses similarly situated and located in San Francisco, California.
(f) Licenses and Permits. The Company shall, and shall cause its
subsidiary to, use its best efforts to obtain all federal, state, local and
foreign governmental licenses, permits and qualifications material to and
necessary in the conduct of its business as proposed to be conducted.
(g) Intellectual Property. The Company shall, and shall cause its
subsidiary to, use its reasonable best efforts to cause all Intellectual
Property, including, but not limited to, technological developments, inventions,
discoveries or improvements made by its employees to be fully documented in
accordance with the prevailing industrial professional standards, and, where
possible and appropriate, file and prosecute United States and foreign patent
applications relating to and protecting such developments. In addition, the
Company shall, and shall cause its subsidiary to, use its commercially
reasonable efforts to cause all Intellectual Property, including, but not
limited to, all technological developments, inventions, discoveries or
improvements made by any of its employees or any employees of its subsidiaries
to be owned by it and, where possible and appropriate, obtain reasonable legal
protections for the its benefit with respect to such property.
(h) Compliance with Contracts. So long as it is in the best interest
of the Company, the Company shall, and shall cause its subsidiary to, comply
with all material obligations which it incurs pursuant to any contract or
agreement, whether oral or written, express or implied, as such obligations
become due, unless and to the extent that the same are being contested in good
faith and by appropriate proceedings and adequate reserves (as determined in
accordance with generally accepted accounting principles, consistently applied)
have been established on its books with respect thereto.
4.3. Insurance. The Company shall maintain after the Closing the
directors' and officers' liability insurance. The Company and the Board of
Directors will evaluate the appropriateness of obtaining "key man" life
insurance to be owned by the Company and with the Company named as the payee of
all benefits thereunder.
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4.4. Merger, etc. The Company will not merge with or into or consolidate
with, or sell all or substantially all of its assets to, any other person unless
(a) either (i) in the case of merger or consolidation, the Company will be the
surviving entity or (ii) in the case of a merger or consolidation where the
Company is not the surviving entity and in the case of a sale of all or
substantially all of its assets, the entity formed by such consolidation or into
which the Company is merged or the entity which acquires all of substantially
all of the assets of the Company shall have assumed in writing all of the
obligations of the Company under each of this Agreement and the Ancillary
Documents, and (b) immediately after the consummation of such merger or
consolidation the surviving entity would not be in violation of any of the
provisions applicable to the Company contained in this Agreement and the
Ancillary Documents.
4.5. Transactions with Affiliates. The Company will not, and will not
permit its subsidiary to, engage in any transaction or group of related
transactions (including, without limitation, the purchase, lease, sale or
exchange of properties of any kind or the rendering of any service) with any
affiliate (other than the Company), except in the ordinary course and pursuant
to the reasonable requirements of the Company's or such subsidiary's business
and upon fair and reasonable terms no less favorable to the Company or such
subsidiary than would be obtainable in a comparable arm's-length transaction
with a person not an Affiliate (as defined in the Securities Act).
4.6. Notice of Breach. As promptly as practicable, and in any event not
later than five Business Days after senior management of the Company becomes
aware thereof, the Company shall provide the Purchasers with written notice of
any breach by the Company of any provision of this Agreement, including, without
limitation, this Article 4, specifying the nature of such breach and any actions
proposed to be taken by the Company to cure such breach.
4.7. Matters Related to Directors. (a) Subject to Article 3(b) of the
Certificate of Designation, in the event that the Purchasers shall designate a
person to serve on the Board of Directors prior to the Closing, the Company will
have taken all necessary action for such designee (the "Purchasers' Designee")
to be elected to the Board of Directors of the Company. Thereafter, so long as
the Purchasers own 10% of the total outstanding stock of the Company (as such
calculation is made pursuant to Section 16(b) of the Securities Exchange Act of
1934, as amended ("Section 16(b)") in connection with any annual meeting of
shareholders at which the term of a Purchasers' Designee is to expire, the
Company will take all necessary action to cause a Purchasers' Designee, which
Purchasers' Designee, if not an employee of a Entity affiliate, shall be
reasonably acceptable to the Company, to be nominated and use its best efforts
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to cause such Purchasers' Designee to be elected to the Board of Directors of
the Company. In the event of any vacancy arising by reason of the resignation,
death, removal or inability to serve of any of the Purchasers' Designees, the
Company shall use reasonable best efforts to cause a replacement designee of the
Purchasers to be elected successor to fill such vacancy. Notwithstanding
anything to the contrary, in the event the Purchasers choose to propose a
director who is not an employee of a Pequot Entity, then the Purchasers shall
also be entitled to designate a non-voting observer (which observer, if not an
employee of a Pequot Entity, shall be reasonably acceptable to the Company)
other than a voting member of the Board to attend and participate in (but not to
vote at) all meetings of the Board of Directors of the Company and any committee
of the Board (the "Non-voting Observer"); provided, however, that the Purchasers
shall only have the right to designate a Non-voting Observer so long as the
Purchasers hold in the aggregate more than 10% of the total Common Stock
outstanding on an as converted basis (as such calculation is made pursuant to
Section 16(b)). Subject to the execution of appropriate confidentiality
agreements, the Non-voting Observer shall have the same access and limitations
to information concerning the business and operations of the Company as
directors of the Company, and shall be entitled to participate in discussions
and consult with the Board of Directors of the Company without voting; provided,
further, that, in the event the Board of Directors, upon a written determination
of counsel to the Company, concludes that the presence of the Non-voting
Observer would violate the Company's attorney-client privilege in a manner that
would be materially detrimental to the Company's legal position, such Non-voting
Observer shall be excluded from the portion of the meeting to which such
privilege relates. Such Non-voting Observer (and his or her affiliates) shall be
subject to the same securities trading restrictions as the outside directors of
the Company and have liability of an insider for any violations of federal and
state securities laws.
(b) In addition to any requirements specified in the By-Laws of the
Company, the Company shall notify the Purchasers, the Purchasers' Designee or
the Non-voting Observer, as the case may be, by telecopy, of (a) every meeting
(or action by written consent) of the Board of Directors of the Company and (b)
every meeting (or action by written consent) of the board of directors of its
subsidiary and of any committee of the Board of Directors of the Company or its
subsidiary, to the extent, in the case of clause (b), that a Purchasers'
Designee is on the board of directors of such subsidiary or is on such committee
of the Board of Directors of the Company or its subsidiary, at least three days
in advance of such meeting (or distribution of written consents), or, if such
notice under the circumstances is not practicable, as soon before the meeting
(or distribution) as is practicable.
(c) The Company shall, upon request therefor, promptly reimburse the
Purchasers' Designee and the Non-voting Observer, as the case may be, for all
reasonable expenses incurred by them in connection with their attendance at
meetings of the Board of Directors or of committees of the Board of Directors
and any other activities undertaken by them in their capacity as directors of
the Company or its subsidiary or observer, as applicable. The foregoing shall be
in addition to, and not in lieu of (or in
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duplication of), any indemnification or reimbursement obligations of the Company
under the Articles of Incorporation or Bylaws of the Company or by law. The
Non-voting Observer shall be entitled to indemnification from the Company to the
maximum extent permitted by law as though he or she were a director of the
Company.
(d) Without the approval of the Board of Directors of the Company
that includes the affirmative vote of the Purchasers' Designee, the Company
shall not amend, supplement, modify or repeal any provision of the Articles of
Incorporation or Bylaws of the Company or take any other action, including,
without limitation, the adoption of a shareholders' rights plan or similar plan,
which would materially and adversely affect the rights or benefits of the
Purchasers under any of this Agreement or the Ancillary Documents, including,
without limitation, the conversion rights of the holders of the Series A
Preferred Stock hereunder.
4.8. Rights of First Offer. Prior to seeking financing from any third
party consisting of a privately offered issuance of equity securities (the
"Proposed Securities") by the Company on or after the date of the Closing (other
than with respect to the securities being sold contemporaneously herewith), the
Company shall notify the Purchasers of a description in reasonable detail of the
Proposed Securities, the amount proposed to be issued and the consideration the
Company desires to receive therefor (the "Notice"), which Notice shall
constitute an offer to the Purchasers to purchase a portion (a "Maintenance
Amount") of such Proposed Securities on a pari passu basis in order to maintain
the Purchasers' percentage level of ownership (i) of the total Common Stock
outstanding (on a fully diluted basis) and (ii) of the total outstanding Series
A Preferred Stock. The Purchasers shall have not less than 20 days after receipt
of the Notice (unless the Purchasers earlier indicate that they have no interest
in purchasing the Proposed Securities) to purchase the above-mentioned
Maintenance Amount on the terms set forth in the Notice or such other terms as
are mutually acceptable to the Company and the Purchasers). In the event that
the Purchasers do not purchase their Maintenance Amount, the Company shall be
permitted to sell the entire amount of the Proposed Securities; provided, that
the closing of such sale occurs within 90 days from the date of the Notice and
provided that the sale of the Proposed Securities is on terms no more favorable
than those terms set forth in the Notice. No privately offered equity securities
shall be issued by the Company to any Person unless the Company has first
offered such portion of the equity securities to the Purchasers in accordance
with this Section 4.8.
4.9. Completion of Certain Matters. (a) The Company shall, prior to
September 1, 1997, demonstrate to the Purchasers in a manner satisfactory to the
Purchasers the viability of its current radio transmission technology to support
bi-directional transmission capabilities.
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4.10. Subsidiary Stock. (a) The Company shall not, without the prior
written consent of the holders of a majority of the shares of Series A Preferred
Stock, (a) create, designate, or authorize the issuance of, any series of stock
of its Subsidiary or Mediatech, Inc. or (b) spin off the assets or the shares of
the Common Stock of its Subsidiary or Mediatech, Inc.
SECTION 5. Transfer Taxes. The Company agrees that it will pay, and will
hold each Purchaser harmless from any and all liability with respect to any
stamp or similar Taxes which may be determined to be payable in connection with
the execution and delivery and performance of this Agreement, and that it will
similarly pay and hold each Purchaser harmless from all Taxes in respect of the
issuance of the Series A Preferred Stock and the Conversion Shares to such
Purchaser.
SECTION 6. Survival of Representations, Warranties, Agreements and
Covenants, etc. All representations and warranties in this Agreement and in the
Ancillary Documents shall survive the Closing until the second anniversary of
the date hereof (except to the extent a Claim Notice (as defined in Section 8.3)
shall have been given prior to such date with respect to a breach of a
representation and warranty, in which case such representation and warranty
shall survive until such claim is resolved) and shall in no way be affected by
any investigation or knowledge of the subject matter thereof made by or on
behalf of any Purchaser provided, however, the representations and warranties
set forth in Sections 2.2, 2.3, 2.4 and 2.6 (to the extent related to Taxes)
shall survive the Closing indefinitely; provided, further, however, that the
representations and warranties set forth in Section 2.20 shall survive until the
end of the applicable statute of limitations. All agreements contained herein
shall survive the Closing until, by their respective terms, they are no longer
operative.
SECTION 7. Expenses. (a) Except as set forth in Section 7(b), the Company
and each Purchaser shall pay all the costs and expenses incurred by it or on its
behalf in connection with this Agreement and the consummation of the
transactions contemplated hereby.
(b) Within 10 days from the receipt of a billing statement from the
Pequot Entities (the Pequot Entities, together with GE Capital Information
Technology Solutions, the "Initial Purchasers"), the Company shall pay and shall
reimburse the Initial Purchasers for all of their reasonable documented
out-of-pocket costs and expenses incurred in connection with this transaction
(but excluding travel expenses of the Initial Purchasers) (including, without
limitation, the reasonably documented reasonable fees and expenses of counsel
retained by Pequot Private Equity Fund, L.P. in connection with the negotiation
and preparation of this Agreement and the Ancillary Documents and the
consummation of the transactions contemplated hereby and thereby; provided,
however, in no event shall the liability of the Company under this Section 7(b)
in the aggregate
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exceed $50,000. In addition, the Company shall pay, and hold the Initial
Purchasers harmless against liability for the payment of stamp and other Taxes
which may be payable in respect of the execution and delivery of this Agreement
or the issuance, delivery or acquisition of any shares of Series A Preferred
Stock or Conversion Shares.
SECTION 8. Indemnification.
8.1. General Indemnification. The Company shall indemnify, defend and hold
each Purchaser, its affiliates, their respective officers, directors, partners,
employees, agents, representatives, successors and assigns (each a "Purchaser
Entity") harmless from and against all Losses (as defined below) incurred or
suffered by a Purchaser Entity (whether incurred or suffered directly or
indirectly through ownership of capital stock of the Company) arising from the
breach of any of the representations, warranties, covenants or agreements made
by the Company in this Agreement or in any Ancillary Document. Each Purchaser,
severally and not jointly, shall indemnify, defend and hold the Company, its
affiliates, their respective officers, directors, employees, agents,
representatives, successors and assigns harmless against all Losses arising from
the breach of any of its representations, warranties, covenants or agreements in
this Agreement or in any Ancillary Documents. Notwithstanding anything to the
contrary in this Agreement, no indemnification payment by the Company pursuant
to this Section 8 with respect to any Losses otherwise payable hereunder as a
result of a breach of the representations and warranties of the Company (other
than any Losses resulting from breaches of the representation and warranty in
Section 2.3 which shall not be subject to the Deductible (as defined below))
shall be payable until the time as such Losses shall aggregate for all Purchaser
Entities to more than $50,000 (the "Deductible"), and then only to the extent
that such Losses, in the aggregate for all Purchaser Entities, exceed the
Deductible.
8.2. Indemnification Principles. For purposes of this Section 8, (i)
"Losses" shall mean each and all of the following items: claims, losses,
(including, without limitation, losses of earnings) liabilities, obligations,
payments, damages (actual, punitive or consequential), charges, judgments,
fines, penalties, amounts paid in settlement, costs and expenses (including,
without limitation, interest which may be imposed in connection therewith, costs
and expenses of investigation, actions, suits, proceedings, demands, assessments
and fees, expenses and disbursements of counsel, consultants and other experts);
and (ii) solely with respect to Claims by third parties against a Purchaser
Entity, each of the representations and warranties made by any party in this
Agreement and in the Ancillary Documents (other than the representation and
warranty made in subclause (a) of Section 2.8 and in Section 2.19 and 2.24 of
this Agreement) shall be deemed to have been made without the inclusion of
limitations or qualifications as to materiality, such as the words "Material
Adverse Effect," "immaterial," "material" and "in all material respects" or
words of similar import. Any payment (or deemed payment) by the Company to a
Purchaser pursuant to this Section 8, shall be treated for federal income tax
purposes as an
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adjustment to the price paid by such Purchaser for the Series A Preferred Stock
pursuant to this Agreement.
8.3. Claim Notice. A party seeking indemnification under this Section 8
shall, promptly upon becoming aware of the facts indicating that a claim for
indemnification may be warranted, give to the party from whom indemnification is
being sought a claim notice relating to such Loss (a "Claim Notice"). Each Claim
Notice shall specify the nature of the claim, the applicable provision(s) of
this Agreement or other instrument under which the claim for indemnity arises,
and, if possible, the amount or the estimated amount thereof. No failure or
delay in giving a Claim Notice (so long as the same is given prior to expiration
of the representation or warranty upon which the claim is based) and no failure
to include any specific information relating to the claim (such as the amount or
estimated amount thereof) or any reference to any provision of this Agreement or
other instrument under which the claim arises shall affect the obligation of the
party from whom indemnity is sought.
SECTION 9. Remedies. In case any one or more of the covenants and/or
agreements set forth in this Agreement shall have been breached by any party
hereto, each Purchaser, with respect to a breach by the Company, with respect to
a breach by a Purchaser, may proceed to protect and enforce its rights either by
suit in equity and/or by action at law, including, but not limited to, an action
for damages as a result of any such breach and/or an action for specific
performance of any such covenant or agreement contained in this Agreement.
SECTION 10. Further Assurances. At any time or from time to time after the
Closing, the Company, on the one hand, and the Purchasers, on the other hand,
agree to cooperate with each other, and at the request of the other party, to
execute and deliver any further instruments or documents and to take all such
further action as the other party may reasonably request in order to evidence or
effectuate the consummation of the transactions contemplated hereby relating to
the Purchase and to otherwise carry out the intent of the parties hereunder.
SECTION 11. Successors and Assigns. This Agreement shall bind and inure to
the benefit of the Company and the Purchasers and the respective successors,
permitted assigns, heirs and personal representatives of the Company and the
Purchasers except that the Company may not assign its rights and obligations
under this Agreement to any person without the prior written consent of the
Purchasers. In addition, and whether or not any express assignment has been
made, the provisions of this Agreement which are for each of the Purchaser's
benefit as a purchaser or holder of Series A Preferred Stock are also for the
benefit of, and enforceable by, any subsequent holder of such Series A Preferred
Stock and/or Conversion Shares.
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SECTION 12. Entire Agreement. This Agreement and the other writings
referred to herein or delivered pursuant hereto which form a part hereof contain
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
SECTION 13. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy,
nationally recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by such party to the other parties:
(i) if to the Company, to:
Digital Generation Systems, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
with a copy to:
Wilson, Sonsini, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional
Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
(ii) if to the Purchasers, to the address listed on Exhibit
A.
with a copy to:
Fried, Frank, Harris, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
All such notices, requests, consents and other communications shall
be deemed to have been given when received.
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37
SECTION 14. Amendments. The terms and provisions of this Agreement may be
modified or amended, or any of the provisions hereof waived, temporarily or
permanently, pursuant to the written consent of the Company and the Purchasers
holding a majority of the shares purchased pursuant to the Purchase. No waiver
of any of the provisions of this Agreement shall be deemed to or shall
constitute a waiver of any other provision hereof (whether or not similar). No
delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof.
SECTION 15. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 16. Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
SECTION 17. Nouns and Pronouns. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice versa.
SECTION 18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the principles of conflicts of law. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of New York and of the United States of America, in
each case located in the County of New York, for any Litigation arising out of
or relating to this Agreement and the Ancillary Documents and the transactions
contemplated hereby and thereby (and agrees not to commence any Litigation
relating thereto except in such courts), and further agrees that service of any
process, summons, notice or document by U.S. registered mail to its respective
address set forth in this Agreement shall be effective service of process for
any Litigation brought against it in any such court. Each of the parties hereto
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any Litigation arising out of this Agreement or the transactions
contemplated hereby in the courts of the State of New York or the United States
of America, in each case located in the County of New York, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such Litigation brought in any such court has been brought
in an inconvenient forum.
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SECTION 19. Publicity. Each of the parties hereto agrees that it will make
no public statement regarding the transactions contemplated hereby unless the
language and timing of such statement has been approved by the Company and the
Pequot Entities. Notwithstanding the foregoing, each of the parties hereto may,
in documents required to be filed by it with the Commission or other regulatory
bodies, make such statements with respect to the transactions contemplated
hereby as each may be advised is legally necessary upon advice of its counsel;
provided, however, that the party making such determination shall immediately
notify the other party that it intends to make a public announcement and the
parties hereto shall, in good faith, attempt to agree on any public
announcements or publicity statements with respect thereto.
SECTION 20. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid, but
if any provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Series A Preferred Stock Purchase Agreement as of the date first above written.
THE COMPANY:
DIGITAL GENERATION SYSTEMS, INC.
By:__________________________________
Name:
Title:
PURCHASERS:
PEQUOT PRIVATE EQUITY FUND, L.P.
By:__________________________________
Name:
Title:
PEQUOT PARTNERS FUND, L.P.
By:__________________________________
Name:
Title:
PEQUOT OFFSHORE PRIVATE EQUITY FUND, INC.
By:__________________________________
Name:
Title:
PEQUOT INTERNATIONAL FUND, INC.
By:__________________________________
Name:
Title:
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40
GE CAPITAL INFORMATION TECHNOLOGY
SOLUTIONS
By:__________________________________
Name:
Title:
TECHNOLOGY CROSSOVER VENTURES, L.P.
By:______________________________________
Name:
Title:
TECHNOLOGY CROSSOVER VENTURES, C.V.
By:______________________________________
Name:
Title:
TCV II, V.O.F.
By:______________________________________
Name:
Title:
TECHNOLOGY CROSSOVER VENTURES II, L.P.
By:______________________________________
Name:
Title:
TCV II (Q), L.P.
By:______________________________________
Name:
Title:
TCV II STRATEGIC PARTNERS, L.P.
By:______________________________________
Name:
Title:
TECHNOLOGY CROSSOVER VENTURES II, C.V.
By:______________________________________
Name:
Title:
INTEGRAL CAPITAL PARTNERS III, L.P.
By:______________________________________
Name:
Title:
INTEGRAL CAPITAL PARTNERS INTERNATIONAL
III, L.P.
By:______________________________________
Name:
Title:
-33-
