EXHIBIT 10.13
SUBSCRIPTION AND PURCHASE AGREEMENT
FOR
13,079,933 SHARES OF SERIES D CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.001 PER SHARE
OF
Phase2Media, Inc.
(a Delaware corporation)
SUBSCRIPTION AND PURCHASE AGREEMENT (the "Agreement") dated as of the
19/th/ day of January, 2000, by and between Phase2Media, Inc., (f/k/a CKG
▇▇▇▇▇.▇▇▇, Inc. d/b/a Phase2Media) a Delaware corporation having offices at ▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (the "Company"), and the Investors
listed on Schedule I attached hereto, as same may be amended at any
"Supplemental Closing" (as that term is defined in Section 1 below)
(collectively, the "Investors" and each individual a "Investor").
W I T N E S S E T H:
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WHEREAS, the Investors and the Company have arranged for this Agreement
(the "Agreement") to provide for the subscription and, if such subscription as
set forth in this Agreement is accepted by the Company, the purchase by the
Investors, on the terms and subject to the conditions set forth in this
Agreement, of an aggregate of Thirteen Million Seventy Nine Thousand Nine
Hundred and Thirty Three (13,079,933) shares of the Company's newly authorized
Series D Convertible Preferred Stock, par value $.001 per share (the "Series D
Preferred Stock") of the Company;
WHEREAS, on the basis of the representations and warranties, and subject to
the terms and conditions set forth herein, the Investors desire to subscribe for
and purchase the Series D Preferred Stock and the Company desires to cause to be
sold to each Investor, the number of shares of Series D Preferred Stock set
forth opposite each such Investor's name on Schedule I annexed hereto;
WHEREAS, the Series D Preferred Stock sold in accordance with this
Agreement, upon the execution of this Agreement, shall not be registered
securities under federal or state securities laws or quoted or listed for
trading on any securities exchange, organized market or quotation system at the
time of acquisition hereunder; and
WHEREAS, in reliance upon certain representations made by the Company and
the Investors herein, the transactions contemplated by this Agreement are such
that the offer and sale of Series D Preferred Stock hereunder will be exempt
from registration under applicable federal and state securities laws pursuant to
exemptions made available under such laws.
NOW, THEREFORE, for and in consideration of the premises, and the mutual
representations, warranties, covenants and agreements set forth herein, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the parties hereto agree as follows:
1. Subscription for Purchase of Series D Preferred Stock. On the basis
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of the representations, warranties, covenants and agreements, and subject to the
terms and conditions set forth herein, upon the "Initial Closing" hereof (as
that term is defined in Section 2(a) below) the Company agrees to sell,
transfer, convey and deliver to the Investors, and each of the Investors agrees
to purchase, acquire and accept delivery of the number of shares of the Series D
Preferred Stock set forth opposite each such Investor's name on Schedule I
attached hereto. As full and total consideration for the purchase by the
Investors of an aggregate of up to Thirteen Million Seventy Nine Thousand Nine
Hundred and Thirty Three (13,079,933) shares of Series D Preferred Stock the
Investors shall pay to the Company an aggregate purchase price of up to Twenty
Million ($20,000,000) Dollars and no less than Sixteen Million ($16,000,000)
Dollars (the "Purchase Price"); provided, however, that up to Four Million
($4,000,000) Dollars worth of Series D Preferred Stock that otherwise would be
subscribed for and purchased by the Investors at the Initial Closing may be
subscribed for and purchased by the Investors at any time in one or more
closings within twenty (20) days subsequent to the Initial Closing (each a
"Supplemental Closing") in accordance with the provisions of Section 2(a) below.
2. Initial Closing and Supplemental Closings.
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(a) The initial closing of the purchase of the Series D Preferred
Stock contemplated by this Agreement shall occur on or about January 19, 2000,
at the offices ▇▇▇▇▇▇▇▇ ▇▇▇▇ & Brandeis, LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇ or at such other mutually convenient time or at such other mutually
convenient place as agreed upon by the parties (the "Initial Closing"). The
date on which the Initial Closing takes place is sometimes hereinafter referred
to as the "Initial Closing Date". Unless otherwise expressly set forth herein
to the contrary, the term "Closing" shall include the Initial Closing and any
Supplemental Closings, and the term "Closing Date" shall include the Initial
Closing Date and the date of any Supplemental Closing. At each Closing, the
Investors shall deliver the Purchase Price, or the applicable portion thereof,
to the Company, in certified funds or by wire transfer, and the Company shall
deliver to each Investor a certificate or certificates representing the
correspondingly appropriate number of shares of Series D Preferred Stock in such
amounts as set forth opposite each Investor's name on Schedule I annexed hereto
and in such denominations as requested by each Investor.
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(b) All certificates representing the Series D Preferred Stock shall
bear the restrictive legend referred to in Section 6 below.
3. Representations, Warranties and Covenants of the Investor. In
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connection with this Agreement, each of the undersigned Investors, as to itself
only, hereby represents, warrants and covenants to the Company, as of the date
on which such Investor actually participates in a Closing hereunder, as follows,
all of which representations, warranties and covenants shall be deemed to be of
the essence hereof:
(a) Investment Intent. The Investor represents and warrants that
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the Series D Preferred Stock being purchased is being purchased or acquired
solely for the Investor's own account, for investment purposes only and not with
a view towards the distribution to others. The Investor acknowledges,
understands and appreciates that the shares of Series D Preferred Stock have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act") by reason of a claimed exemption under the provisions of such Securities
Act which depends, in large part, upon the Investor's representations as to
investment intention, investor status and related and other matters set forth
herein. The Investor understands that, in the view of the United States
Securities and Exchange Commission (the "SEC"), among other things, a purchase
with a present intent to distribute would represent a purchase and acquisition
with an intent inconsistent with its representation to the Company, and the SEC
might regard such a transfer as a deferred sale for which the registration
exemption is not available. The Investor agrees and consents to the placement of
a legend on the certificate(s) representing the Series D Preferred Stock
purchased and acquired hereunder, stating that such shares of Series D Preferred
Stock have not been registered under the Securities Act or applicable state
securities laws. Such legend shall be removed promptly following such time as a
registration statement under the Securities Act covering any such shares of
Series D Preferred Stock is declared effective by the SEC.
(b) Certain Risks. That (i) the Series D Preferred Stock represents
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equity securities in a private corporate entity that has an accumulated deficit,
(ii) no return on investment, whether through distributions, appreciation,
transferability or otherwise, and no performance by, through or of the Company,
has been promised, assured, represented or warranted by the Company, or by any
director, officer, employee, agent or representative thereof; (iii) neither the
shares of Series D Preferred Stock subscribed for under this Agreement, nor the
shares of the Company's common stock, par value $.001 per share (the "Common
Stock") and Class A common stock, par value $.001 per share (the "Class A Common
Stock") into which the Series D Preferred Stock is convertible (the Common Stock
and Class A Common Stock into which the Series D Preferred Stock is convertible,
collectively, the "Conversion Shares") (x) are registered under applicable
federal or state securities laws, and thus may not be sold, conveyed, assigned
or transferred unless registered under such laws or unless an exemption from
registration is available under such laws, as more fully described below, or (y)
are quoted, traded, listed for trading or quotation on any organized market or
quotation system, and there is therefore no present public or other market for
such shares of Series D Preferred Stock or Conversion
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Shares, and there have not been any representations made by the Company to the
Investor that the Series D Preferred Stock or the Conversion Shares ever will be
quoted, traded or listed for trading or quotation on any organized market or
quotation system or that there ever will be a public market for the Series D
Preferred Stock or the Common Stock or the Class A Common Stock; and (iv) that
the purchase of Series D Preferred Stock is a speculative investment, involving
a degree of risk, and is suitable only for a person or entity of adequate
financial means who has no need for liquidity in this investment in that, among
other things, (x) such person or entity may not be able to liquidate their
investment in the event of an emergency or otherwise, (y) transferability is
limited, and (z) in the event of a dissolution or otherwise, such person or
entity could sustain a complete loss of their entire investment.
(c) Sophisticated Investor. That (i) the Investor has adequate means
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of providing for the Investor's current financial needs and possible
contingencies and has no need for liquidity of the Investor's investment in the
Series D Preferred Stock; (ii) Investor is able to bear the economic risks
inherent in an investment in the Series D Preferred Stock and that an important
consideration bearing on Investor's ability to bear the economic risk of the
purchase of the Series D Preferred Stock is whether the Investor can afford a
complete loss of the Investor's investment in the Series D Preferred Stock and
the undersigned Investor represents and warrants that the Investor can afford
such a complete loss; and (iii) the Investor has such knowledge and experience
in business, financial, investment and banking matters (including, but not
limited to investments in restricted, non-listed and non-registered securities)
that the Investor is capable of evaluating the merits, risks and advisability of
an investment in the Series D Preferred Stock.
(d) Accredited Investor. That the Investor is an "accredited
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investor," as such term is defined in Rule 501 of Regulation D promulgated under
the Securities Act.
(e) Documents, Information and Access. That (i) the Investor's
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decision to purchase the Series D Preferred Stock is not based on any
promotional, marketing or sales materials, and (ii) Investor and its
representatives have been afforded, prior to purchase thereof, the opportunity
to ask questions of, and to receive answers from, the Company and its
management, and has had access to all documents and information which the
Investor deems material to an investment decision with respect to the purchase
of the Series D Preferred Stock hereunder.
(f) No Registration, Review or Approval. The Investor acknowledges
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and understands that the limited private offering and sale of the Series D
Preferred Stock pursuant to this Agreement has not been reviewed or approved by
the SEC or by any state securities commission, authority or agency, and that the
limited private offering and sale of the Series D Preferred Stock is not
registered under the Securities Act or under the securities or "blue sky" laws,
rules or regulations of any state. The Investor acknowledges, understands and
agrees that the Series D Preferred Stock is being offered and sold hereunder
pursuant to (i) a private placement exemption to the registration provisions of
the Securities Act pursuant to Section 4(2)
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of such Securities Act, and (ii) a similar exemption to the registration
provisions of applicable state securities laws.
(g) Transfer Restrictions. That the Investor will not transfer any
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Series D Preferred Stock purchased under this Agreement unless such Series D
Preferred Stock is registered under the Securities Act and under any applicable
state securities or "blue sky" laws (collectively, the "Securities Laws"), or
unless an exemption is available under such Securities Laws, and that the
Company may, if it chooses, where an exemption from registration is claimed by
such Investor, condition any transfer of Series D Preferred Stock out of the
Investor's name on an opinion of the Company's counsel or of the Investor's
counsel that is reasonably acceptable to the Company, to the effect that the
proposed transfer is being effected in accordance with, and does not violate, an
applicable exemption from registration under the Securities Laws.
(h) Reliance. The Investor understands, acknowledges and appreciates
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that the Company is relying upon all of the representations, warranties,
covenants, understandings, acknowledgments and agreements contained in this
Agreement in determining whether to accept this subscription, sell and issue the
Series D Preferred Stock to the Investor.
(i) Accuracy of Representations and Warranties. That all of the
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representations, warranties, understandings and acknowledgments that the
Investor has made herein are true and correct in all material respects as of the
date of execution hereof, and that the Investor will perform and comply fully in
all material respects with all covenants and agreements set forth herein, and
the Investor covenants and agrees that until the acceptance of this Agreement by
the Company, the Investor shall inform the Company immediately in writing of any
changes in any of the representations or warranties provided or contained
herein.
(j) Survival. Investor expressly acknowledges and agrees that all of
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its representations, warranties and covenants set forth in this Agreement shall
be of the essence hereof and shall survive the execution, delivery and Closing
of this Agreement, the sale and purchase of the Series D Preferred Stock.
4. Representations and Warranties of the Company. In order to induce
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each Investor to enter into this Agreement and to purchase the Series D
Preferred Stock, the Company hereby represents and warrants to each Investor, as
of the date each such Investor actually participates in a Closing hereunder, as
follows:
(a) Corporate Power and Authority. The stockholders of the Company
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are, prior to the sales and issuances contemplated hereby, the lawful,
beneficial and record owners of the shares of the Company's Common Stock, Class
A Common Stock, Series A redeemable preferred stock, Series B convertible
preferred stock and Series C convertible preferred stock, as set forth on
Schedule 4(d) annexed hereto, which represents all of the issued and outstanding
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shares of capital stock of the Company and such stockholders own such shares
free and clear of all liens, encumbrances, restrictions and claims of every
kind, except as set forth on Schedule
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4(a). The Company has the full legal right, power and authority to enter into
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this Agreement, the Second Amended and Restated Securityholders' Agreement dated
as of the date hereof by and among the Company, the Investors and certain of the
stockholders of the Company (the "Amended Securityholders' Agreement") and the
Second Amended and Restated Registration Rights Agreement dated as of the date
hereof by and among the Company, and the persons listed on Schedule 1, Schedule
2 and Schedule 3 thereto (the "Amended Registration Rights Agreement". The
Company further has the full right, power and authority to issue and sell the
shares of Series D Preferred Stock pursuant to this Agreement and to issue the
Conversion Shares issuable upon conversion of the Series D Preferred Stock in
accordance with the terms of the Certificate of Designations, Preferences and
Rights of the Series D Preferred Stock (the "Series D Certificate of
Designations") and the delivery to Investors of the Series D Preferred Stock
pursuant to the provisions of this Agreement will transfer to the Investors
valid title thereto, free and clear of all liens, encumbrances, restrictions and
claims of every kind except as set forth on Schedule 4(a). The Company also has
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the full legal right, power and authority to increase the number of shares of
Common Stock reserved for issuance under its Long Term Equity Compensation Plan
(the "Plan") and to amend the Certificate of Designations, Preferences and
Rights of each of its Series B convertible preferred stock and Series C
convertible preferred stock. This Agreement and the Amended Securityholders'
Agreement, the Amended Registration Rights Agreement and the Series D
Certificate of Designations are collectively referred to herein as the
"Transaction Documents".
(b) Authorization and Noncontravention. Each Transaction Document has
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been duly and validly authorized, executed and delivered by the Company and
constitutes a valid and legally binding agreement of the Company, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors' rights and to general equity principles. Each of the
Series D Certificate of Designations and the action to increase the number of
shares of Common Stock reserved for issuance under the Plan has been duly and
validly authorized by all necessary corporate action and the Series D
Certificate of Designations has been duly filed with the Secretary of State of
the State of Delaware and is in full force and effect. The execution and
delivery by the Company of each Transaction Document and the other agreements
and instruments, to be executed and delivered by them in connection herewith do
not and the consummation of the transactions contemplated hereby and thereby
will not: (i) violate any provision of the Certificate of Incorporation or By-
Laws of the Company; (ii) except as set forth on Schedule 4(b), violate any
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provision of, or result in the termination or acceleration of, or default under,
or entitle any party to accelerate (whether after the filing of notice or lapse
of time or both) any obligation under, or result in the creation or imposition
of any lien, charge, pledge, security interest or other encumbrance upon any of
the assets of the Company pursuant to any provision of any mortgage, lien,
lease, agreement, license, or instrument, or violate any law, regulation, order,
arbitration award, judgment or decree to which the Company is a party or by
which its property is bound; (iii) violate or conflict with, or create a default
under, any other material restriction of any kind or character to which the
Company is subject; (iv) require any governmental consent, authorization,
filing, approval, or exemption, except as may be required
6
by Regulation D promulgated under the Securities Act; or (v) violate any consent
decree or requirement to which the Company is subject.
(c) Existence and Good Standing. The Company is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the power to own its property and to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in the jurisdictions listed on Schedule 4(c),
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which are the only jurisdictions in which the character or location of the
properties owned or leased by the Company or the nature of the business
conducted by the Company makes such qualification necessary, except where the
failure to qualify individually or in the aggregate will not have a material
adverse effect on the business of the Company.
(d) Capital Stock.
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(i) A description of the authorized capital stock of the
Company, together with the number of shares of each class outstanding, the names
of each of the holders of such shares and the number of shares held by each
stockholder as of the Closing Date, is set forth on Schedule 4(d) hereto. All of
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such shares of capital stock of the Company have been duly authorized, validly
issued, are fully paid and nonassessable and were issued in compliance with all
applicable federal and state securities laws. No securities directly or
indirectly convertible into or exchangeable for any of the capital stock of the
Company, and no options, warrants, rights, calls or commitments relating to such
shares or other such securities, are outstanding, except as reflected on
Schedule 4(d) hereto. Except as set forth in the Amended Registration Rights
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Agreement, or as set forth on Schedule 4(d), the Company is not under any
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contractual obligation to register under the Securities Act any of its presently
outstanding securities or any securities which it may hereafter issue.
(ii) As of the Closing, the Company shall not be subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock and the Company shall not have any
outstanding warrants, options, or other rights to acquire its capital stock,
except as set forth on Schedule 4(d).
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(iii) As of the Closing Date, the Company will have amended its
Certificate of Incorporation such that a sufficient number of shares of
authorized but unissued Common Stock, Class A Common Stock and Preferred Stock
will have been reserved by appropriate corporate action in connection with the
prospective conversion of the Series D Preferred Stock into Common Stock or
Class A Common Stock and in connection with the increased number of shares of
Common Stock reserved for issuance under the Plan. The issuance of the
Conversion Shares upon conversion of the Series D Preferred Stock will not
require any further corporate action by the stockholders or directors of the
Company, nor will it be subject to preemptive rights of any present or future
stockholders of the Company, nor will it conflict with
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any provision of any agreement to which the Company is a party or by which it or
its assets are bound.
(e) Valid Issuance of Securities; No Personal Liability. When
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delivered in accordance with the terms hereof for the consideration expressed
herein, the Series D Preferred Stock (and the Conversion Shares issuable upon
conversion of the Series D Preferred Stock) will be duly and validly issued, the
Series D Preferred Stock (and the Conversion Shares issuable upon conversion of
the Series D Preferred Stock) will be fully paid, non-assessable and free of
preemptive rights, and, when executed and delivered by the Company, each of this
Agreement, and the Series D Preferred Stock will constitute valid and legally
binding obligations of the Company, enforceable in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other law affecting creditors' rights
generally and of general principles of equity (regardless of whether considered
in a proceeding at law or in equity). Based in part upon the representations of
the Investors in this Agreement, the Series D Preferred Stock will be issued in
compliance with all applicable federal and state securities laws and the offer,
sale and issuance of the Series D Preferred Stock will constitute transactions
exempt from the registration requirements of Section 5 of the Securities Act.
The Investors, upon purchase of the Series D Preferred Stock will not be subject
to personal liability by reason of being a holder of the Series D Preferred
Stock.
(f) Subsidiaries and Investments. The Company has no (and has never
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had any) subsidiaries and does not own, directly or indirectly, any capital
stock or other equity or ownership or proprietary interest in any corporation,
partnership, association, trust, joint venture or other entity.
(g) Financial Statements and No Material Changes.
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(i) The Company has heretofore furnished the Investors with a
true, correct and complete unaudited balance sheet of the Company and the
related statements of income and retained earnings as of November 30, 1999
prepared by the Company. (The balance sheet of the Company as at November 30,
1999 is hereinafter referred to as the "Balance Sheet" and such date is
hereinafter referred to as the "Balance Sheet Date"). The Balance Sheet fairly
presents in all material respects the financial condition of the Company at the
date thereof and, except as indicated therein, reflects all known or asserted
material claims against and all material debts and liabilities of the Company,
fixed or contingent, as at the date thereof, and, except as noted therein, was
prepared in conformity with GAAP consistently applied throughout the periods
involved and the related statements of income and retained earnings fairly
present in all material respects the results of the operations of the Company
and the changes in its financial position for the period indicated, except as
specified therein, and, except as noted therein, were prepared in conformity
with GAAP consistently applied throughout the periods involved.
(ii) Except as specified in Schedule 4(g), since the Balance
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Sheet Date there has been (i) no material adverse change in the assets or
liabilities, or in the business
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(present or anticipated) or condition, financial or otherwise, or in the results
of operations of the Company; and to the best knowledge, information and belief
of the Company, no fact or condition (not of general knowledge) exists or is
contemplated or threatened which might cause such a change in the future.
(h) Title to Properties; Encumbrances. Except as set forth on
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Schedule 4(h) attached hereto and except for properties and assets reflected in
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the Balance Sheet or acquired since the Balance Sheet Date which have been sold
or otherwise disposed of in the ordinary course of business, the Company has,
and on the Closing Date, will have, good, valid and marketable title to (a) all
of its properties and assets (real and personal, tangible and intangible),
including, without limitation, all of the properties and assets reflected in the
Balance Sheet, except as indicated in the notes thereto or in a Schedule to this
Agreement, and (b) all of the properties and assets purchased by the Company
since the Balance Sheet Date; in each case subject to no encumbrance, lien,
charge or other restriction of any kind or character, except for (i) liens
reflected in the Balance Sheet or in a Schedule to this Agreement, (ii) liens
consisting of zoning or planning restrictions, easements, permits and other
restrictions or limitations on the use of real property or irregularities in
title thereto which do not materially detract from the value of, or impair the
use of, such property by the Company in the operation of its business, and (iii)
liens for current taxes, assessments or governmental charges or levies on
property not yet due and delinquent and liens of carriers, warehousemen, vendors
and materialmen incurred in the ordinary course of business securing sums not
yet due and payable (liens of the type described in clauses (i), (ii) and (iii)
above are hereinafter sometimes referred to as "Permitted Liens"). Such
properties and assets are sufficient to enable the Company to carry out its
business as presently conducted and as proposed to be conducted. The Company
has all franchises, permits, licenses, and any other similar authority necessary
for the conduct of its business as now being conducted or proposed to be
conducted, the lack of which could materially and adversely affect the business,
properties, prospects, or financial condition of the Company. The Company is
not in default in any material respect under any of such franchises, permits,
licenses, or other similar authority.
(i) Leases. Schedule 4(i) attached hereto contains an accurate and
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complete list of all leases to which the Company is a party (as lessee or
lessor). Each lease set forth on Schedule 4(i) (or required to be set forth on
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Schedule 4(i)) is in full force and effect; all rents and additional rents due
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to date on each such lease have been paid; in each case, the lessee has been in
possession since the commencement of the original term of such lease and, to its
knowledge, is not in material default thereunder; and there exists no event of
default or event, occurrence, condition or act (including the purchase of the
Series D Preferred Stock, or any of the conditions precedent hereunder) which,
with the giving of notice, the lapse of time or the happening of any further
event or condition, would become a material default under such lease. The
Company is not currently in default of any of the terms or conditions under any
such lease in any material respect, and, to the best knowledge, information and
belief of the Company, all of the covenants to be performed by any other party
under any such lease have been fully performed. The property leased by the
Company is in a state of good maintenance and repair.
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(j) Material Contracts. Except as set forth on Schedule 4(j) attached
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hereto, the Company is not bound by (a) any agreement, contract or commitment
relating to the employment of any person by the Company, or any bonus, deferred
compensation, pension, profit sharing, stock option, employee stock purchase,
retirement or other employee benefit plan, or arrangement or any collective
bargaining agreement or any other contract with any labor union or severance
agreements, programs, policies or arrangements, (b) any agreement, indenture or
other instrument which contains restrictions with respect to payment of
dividends or any other distribution in respect of its capital stock, (c) any
agreement, contract or commitment relating to capital expenditures not yet made,
which involves $50,000 or more and was not entered into the ordinary course of
business, (d) any loan or advance to, or investment in, any individual,
partnership, limited liability company, joint venture, corporation, trust,
unincorporated organization, government or other entity (each a "Person") or any
agreement, contract or commitment relating to the making of any such loan,
advance or investment which involves $50,000 or more, (e) any guarantee or other
contingent liability in respect of any indebtedness or obligation of any Person
(other than the endorsement of negotiable instruments for collection in the
ordinary course of business), (f) any employment agreement or other contract for
the employment of any officer or employee providing for annual compensation in
excess of $100,000 except for the Employment Agreement, dated as of August 16,
1999, between the Company and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, or any management service,
consulting or any other similar type of contract, unless entered into or
incurred in the ordinary course of business and not involving compensation in
excess of $100,000, (g) any agreement, contract or commitment limiting the
freedom of the Company to engage in any line of business or to compete with any
Person, (h) any bank debt, loan, credit or other financing arrangement, (i)
except as otherwise disclosed in this Agreement or a Schedule or Exhibit annexed
hereto, any agreement, contract or commitment not entered into in the ordinary
course of business which involves $50,000 or more and is not cancelable without
penalty within 30 days, (j) any contract or group of related contracts with the
same party or group of affiliated parties the performance of which involves (or
is reasonably expected to involve) consideration in excess of $50,000 during any
twelve month period, (k) any assignment, license, indemnification or other
agreement with respect to the Proprietary Rights (as defined in Section 4(v)
below) or other intangible property, (l) any agreement under which the Company
has granted any Person any rights related to the registration of securities
under the Securities Act (including, without limitation, demand or piggyback
registration rights), (m) any sales, distribution or franchise agreement, or (n)
any other agreement which is material to its operation and business prospects.
Each contract or agreement set forth on Schedule 4(j) (or required to be set
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forth on Schedule 4(j)) has been, or simultaneously upon the execution and
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delivery hereof will be, executed and delivered and is (or will be) valid,
binding, and enforceable in accordance with its terms and is in full force and
effect; and there exists no material default or event of default or event,
occurrence, condition or act (including the purchase of the Series D Preferred
Stock or any of the conditions precedent hereunder) which, with the giving of
notice, the lapse of time or the happening of any further event or condition,
would become a material default or event of default thereunder. The Company is
not currently in default of any of the terms or conditions of any contract or
agreement set forth on Schedule 4(j)
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(or required to be set forth on Schedule 4(j)) in any respect, which would, in
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the aggregate, have a material adverse effect on such party.
(k) Restrictive Documents. Except as set forth on Schedule 4(k)
--------------------- -------------
attached hereto, the Company is not subject to, or a party to, any charter, by-
law, mortgage, lien, lease, license, permit, agreement, contract, instrument,
law, rule, ordinance, regulation, order, judgment or decree, or any other
restriction of any kind or character, which materially and adversely affects the
business (present or anticipated) or condition of the Company, financial or
otherwise, or any of its assets taken as a whole, or which would prevent
consummation of the transactions contemplated by this Agreement, compliance by
the Company with the terms, conditions and provisions hereof or the continued
operation of the Company's business after the date hereof or the Closing Date on
substantially the same basis as heretofore operated or which would restrict the
ability of the Company to acquire any property or conduct business in any area.
(l) Litigation. Except as set forth on Schedule 4(l) attached hereto,
---------- -------------
there is no action, suit, proceeding at law or in equity, arbitration or
administrative or other proceeding by or before or any investigation by any
governmental or other instrumentality or agency, pending, or, to the best
knowledge, information and belief of the Company, threatened, against or
affecting the Company, or any of its properties or rights; and the Company does
not know of any valid basis for any such action, proceeding or investigation.
The foregoing includes, without limitation, actions pending or threatened
involving the prior employment of any of the Company's officers, employees or
consultants, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers.
There are no actions, suits, proceedings or investigations by the Company
currently pending against any third party, at law or in equity, or before or by
any governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, any actions, suits, proceedings
or investigations with respect to the transactions contemplated by this
Agreement). The Company is not subject to any arbitration proceedings under
collective bargaining agreements or otherwise or any governmental investigations
or inquiries. Except as set forth on Schedule 4(l), the Company is not party or
-------------
subject to any judgment, order, writ, injunction, or decree entered in any
lawsuit or proceeding which may affect its operations, business practices,
present or anticipated, or ability to acquire any property or conduct business.
(m) Taxes. Except as set forth on Schedule 4(m):
----- -------------
(i) All taxes and assessments, including, without limitation,
income, property, sales, use, franchise, value added, employees' income
withholding and social security taxes and import duties, including interest and
penalties thereon, imposed by the United States or by any foreign country or by
any state, municipality, subdivision or instrumentality of the United States or
of any foreign country, or by any other taxing authority, for which the Company
may be liable in respect of all periods prior to the Closing Date (including
taxes in respect of tax periods ending on the Closing Date and taxes in respect
of tax periods ending after the Closing Date to
11
the extent attributable to the portion of that period which ends on the Closing
Date), either have been paid when due or will be paid when due. All tax returns
required to be filed through the date hereof (and the Closing Date), including,
without limitation, information returns, have been (or will be), accurately
prepared in all material respects, and have also been duly and timely filed and
all deposits and payments required by law to be made by the Company, including
with respect to employees' withholding taxes, have been duly made in accordance
with all applicable laws.
(ii) There are no tax sharing agreements or arrangements or tax
indemnity agreements between the Company and any other person.
(iii) The Company has never been an includable corporation in any
affiliated group of corporations within the meaning of Section 1504 of the
Internal Revenue Code of 1986, as amended (the "Code") (or any similar provision
of state or other tax law).
(iv) The Company has not filed a consent pursuant to the
collapsible corporation provisions of section 341(f) of the Code (or any similar
provision of state or other tax law) or agreed to have section 341(f)(2) of the
Code or any similar provision of state or other tax law) apply to any
disposition of any asset owned by the Company.
(v) All taxes arising from the transactions described in this
Agreement and payable by the Company, if any, will be paid by the Company.
(n) Liabilities. The Company does not have any outstanding material
-----------
obligations, claims, liabilities or indebtedness, contingent or otherwise,
except as set forth in the Balance Sheet or referred to in the footnotes
thereto, other than liabilities incurred subsequent to the Balance Sheet Date in
the ordinary course of business, and, except as set forth on Schedule 4(n), not
-------------
involving borrowings by the Company. The Company maintains a standard system of
accounting in accordance with GAAP. The Company's financial reserves reflected
in the Balance Sheet are adequate to cover claims already incurred and
reasonably expected to be incurred and the Company's provisions for taxes as set
forth in the Balance Sheet are adequate and accurate for taxes due and accrued.
Except as set forth on Schedule 4(n), the Company is not in default in respect
-------------
of the terms or conditions of any indebtedness.
(o) Compliance with Laws. Except as set forth on Schedule 4(o), the
-------------------- -------------
Company is in compliance in all material respects with all applicable laws,
regulations, orders, judgments and decrees. Neither the Company nor, to the
best of the Company's knowledge, has any employee of the Company has at any time
made any payments for improper or unlawful political contributions or made any
bribes, kickback payments or other illegal payments.
(p) Accounts Receivable. The amount of all accounts receivable,
-------------------
unbilled invoices and other debts due or recorded in the records and books of
account of the Company as being due to it at the Closing Date (less the amount
of any provision or reserve therefor made in
12
the records and books of account of the Company) constitute valid and
enforceable claims that have arisen only from bona fide transactions in the
ordinary course of business and none of such accounts receivable or other debts
is or will, to the best knowledge of the Company, at the Closing Date be subject
to any counterclaim or set-off except to the extent of any such provision or
reserve, and there are no known, contingent or asserted claims, or refusals to
pay against any such receivables or debts. There has been no material adverse
change since the Balance Sheet Date in the amount of accounts receivable or
other debts due the Company or the allowances with respect thereto, or accounts
payable of the Company from that reflected in the Balance Sheet.
(q) Employees; Employee Benefit Plans. No employee or consultant of
---------------------------------
the Company has any agreement or contract, written or oral, except as described
on Schedule 4(q) regarding such person's employment or consultancy with the
-------------
Company. To the best of the Company's knowledge, no employee of the Company nor
any consultant with whom the Company has contracted is in violation of any term
of any employment contract, non-disclosure agreement or any other similar
contract or agreement relating to the relationship of such employee or
consultant with the Company, any former employer or any other party. No
employee of the Company has been granted the right to continued employment by
the Company or to any material compensation following termination of employment
with the Company except as set out on Schedule 4(q) hereto. The Company is not
-------------
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any officer, key
employee or group of key employees. Set forth on Schedule 4(q) attached hereto
-------------
is an accurate and complete list of all employee benefit plans ("Employee
Benefit Plans") within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended, and the rules and regulations
thereunder ("ERISA"), whether or not any such Employee Benefit Plans are
otherwise exempt from the provisions of ERISA, established, maintained or
contributed to by the Company. All such Employee Benefit Plans are fully funded
and are and at all times have been in compliance in all material respects with
applicable law, including the provisions of ERISA.
(r) No Changes Since Balance Sheet Date. Since the Balance Sheet
-----------------------------------
Date, except as expressly contemplated hereby or as disclosed in a Schedule or
Exhibit hereto, the Company has not (a) incurred any liability or obligation of
any nature (whether accrued, absolute, contingent or otherwise), except in the
ordinary course of business, or paid any material obligation or liability, other
than current liabilities paid in the ordinary course of business, (b) permitted
any of its assets to be subjected to any mortgage, pledge, lien, security
interest, encumbrance, restriction or charge of any kind (other than Permitted
Liens), (c) sold, transferred or otherwise disposed of any assets, including
without limitation, any Proprietary Rights, except in the ordinary course of
business, (d) made any capital expenditure or commitment therefor, except in the
ordinary course of business, (e) declared or paid any dividend or made any
distribution, in cash or other property, on any shares of its capital stock, or
redeemed, purchased or otherwise acquired any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such shares, (f) made
any bonus or profit sharing distribution or payment
13
of any kind, (g) increased its indebtedness for borrowed money or made any loan
to any Person, (h) written off as uncollectible any notes or accounts
receivable, except write-offs in the ordinary course of business charged to
applicable reserves, none of which individually or in the aggregate would have a
material adverse effect to the Company or suffered any damage, destruction or
casualty loss exceeding $50,000 in the aggregate, (i) granted any increase in
the rate of wages, salaries, bonuses or other remuneration of any executive
employee or other employees, (j) cancelled or waived any claims or rights of
substantial value, (k) made any change in any method of accounting or audit
practice, (l) otherwise conducted its business or entered into any transaction,
except in the ordinary course of business, or (m) agreed, whether or not in
writing, to do any of the foregoing. Since the Balance Sheet Date there has been
no material adverse change in the financial condition, operating results,
assets, operations, business, prospects, employee relations or customer or
supplier relations of the Company.
(s) Disclosure. None of this Agreement, the financial statements
----------
referred to in Section 4(g) hereof (including the footnotes thereto), any
Schedule, Exhibit or certificate attached hereto or delivered in accordance with
the terms hereof or any document or statement in writing which has been supplied
by the Company or by any of its directors or officers in connection with the
transactions contemplated by this Agreement contains any untrue statement of a
material fact, or omits any statement of a material fact necessary in order to
make the statements contained herein or therein not misleading in light of the
circumstances under which made. There is no fact (presently understood as such
and not of general knowledge) known to the Company which materially and
adversely affects the business, present or anticipated, or financial condition
of the Company or its properties or assets which has not been set forth in this
Agreement, the financial statements referred to in Section 4(g) hereof
(including the footnotes thereto), any Schedule, Exhibit or certificate attached
hereto or delivered in accordance with the terms hereof or any document or
statement in writing which has been supplied by or on behalf of the Company or
by any of its directors or officers in connection with the transactions
contemplated by this Agreement.
(t) Broker's or Finder's Fees. No agent, broker, person or firm
-------------------------
acting on behalf of the Company is, or will be, entitled to any commission or
broker's or finder's fees from any of the parties hereto, or from any Person
controlling, controlled by or under common control with any of the parties
hereto, in connection with any of the transactions contemplated by this
Agreement. Company agrees to indemnify and hold the Investors harmless with
respect to the foregoing.
(u) Environmental Matters. The Company has been and is in material
---------------------
compliance with all provisions of all pollution control laws; hazardous waste
generation, storage, disposal, transportation, handling and cleanup laws; other
environmental protection laws; occupational safety and health standards laws;
and all rules, standards, regulations, permits, license requirements and
authorizations required by or related to such laws (collectively "Environmental
and Safety Laws"), and has obtained all permits, licenses and other
authorizations required thereunder. No proceeding or investigation is pending
or, to its
14
knowledge, threatened, alleging or to the effect that the Company has violated
or is in violation of or bears any liability pursuant to any such law, rule,
standard, regulation, permit, license or authorization or any related common law
theory. The Company is not, and has not been, subject to or bound by any order,
decree or otherwise relating to any of the foregoing. To its knowledge, no
underground storage tanks, asbestos containing material, or PCB-containing
materials or equipment is present at any property owned or occupied by the
Company. Without limiting the generality of the foregoing, no facts, events or
conditions relating to the past or present properties or operations of the
Company will, to the Company's knowledge, prevent, hinder or limit continued
compliance with Environmental and Safety Laws or give rise to any liabilities
(contingent or otherwise) or corrective, investigatory or remedial obligations
pursuant to Environmental and Safety Laws, including, without limitation,
obligations or liabilities relating to onsite or offsite hazardous substance
releases, personal injury, property damage or natural resources damage.
(v) Proprietary Rights. Schedule 4(v) contains a complete and
------------------ -------------
accurate list of all (a) pending patent applications and applications for
registrations of other intellectual property rights filed by or on behalf of the
Company, (b) material unregistered trade names and corporate names owned or used
by the Company and (c) material unregistered trademarks, service marks,
copyrights, mask works and computer software owned or used by the Company
(together the "Proprietary Rights"). Schedule 4(v) also contains a complete and
-------------
accurate list of all licenses and other rights granted by the Company to any
third party or by any third party to the Company with respect to any Proprietary
Rights. The Company exclusively owns, free and clear of liens or encumbrances,
all rights, title and interests to, or has sufficient rights to use pursuant to
a valid license, all Proprietary Rights listed on Schedule 4(v) without conflict
-------------
with or infringement of the rights of others. The Company believes that the
Proprietary Rights are all the rights necessary for the operation of the
businesses of the Company as presently conducted and as presently proposed to be
conducted. To the best of the Company's knowledge, there is no loss or
expiration of any Proprietary Right threatened, pending or reasonably
foreseeable. The Company has taken all reasonably necessary actions to maintain
and protect the Proprietary Rights which it owns and uses. Except as set forth
on Schedule 4(v), as of the date hereof,(i) there have been no claims made
-------------
against the Company asserting the invalidity, misuse or unenforceability of any
Proprietary Rights, and, to the best of the Company's knowledge, there are no
grounds for the same, (ii) the Company has not received a notice of conflict
with the asserted rights of others within the last five years, (iii) the conduct
of the Company's business has not misappropriated or infringed, to the Company's
knowledge, and does not misappropriate or infringe any Proprietary Rights of
other Persons, nor would any future conduct as presently contemplated infringe
any Proprietary Rights of other Persons and (iv) to the best of the Company's
knowledge, the Proprietary Rights owned by or licensed to the Company have not
been infringed or misappropriated by other Persons.
(w) Related-Party Transactions. No consultant, employee, officer,
--------------------------
director or stockholder of the Company or member of such person's immediate
family is indebted to the Company, nor is the Company indebted (or committed to
make loans or extend or guarantee
15
credit) to any of them. None of such persons has any direct or indirect
ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation that competes with the Company, except that consultants, employees,
officers, directors or stockholders of the Company and members of their
immediate families may own less than 5% of the outstanding stock in a publicly
traded company that may compete with the Company. No member of the immediate
family of any employee, officer, or director of the Company is directly or
indirectly interested in any material contract, commitment, undertaking or
transaction with the Company.
(x) Insurance. The Company has insurance policies in effect covering
---------
the risks associated with its businesses and properties which are of such
character and in such amounts as are customarily maintained by similarly
situated entities engaged in the same or similar businesses.
(y) Filing of 83(b) Elections. Each officer of the Company that has
-------------------------
received securities of the Company subject to the right of repurchase by the
Company in Section 5.1 of the Amended Securityholders' Agreement has duly and
timely filed an election pursuant to Section 83(b) of the Internal Revenue Code
with respect to such securities.
(z) Exemption from Registration. The Company represents and warrants
---------------------------
that, based in part upon the Investor's representations and warranties set forth
herein, the offer and sale of the Series D Preferred Stock to the Investors in
accordance with the terms and provisions of this Agreement is being effected in
accordance with the Securities Act and applicable state securities laws pursuant
to (i) a private placement exemption to the registration provisions of the
Securities Act pursuant to Section 4(2) of such Securities Act, and (ii) a
similar exemption to the registration provisions of applicable state securities
laws.
(aa) Year 2000 Compliance. (i) Each system comprised of software,
--------------------
hardware, databases or embedded control systems (microprocessor controlled or
controlled by any robotic or other device) (collectively, a "System") that
constitutes any material part of, or is used in connection with the use,
operation or enjoyment of, any material tangible or intangible asset or real
property of the Company (a "Material Company Operation") will not, to the best
of the Company's knowledge and belief, be materially adversely affected by the
advent of the year 2000, the advent of the twenty-first century or the
transition from the twentieth century through the year 2000 and into the twenty-
first century ("Year 2000 Compliant"). The Company has no reason to believe
that it may incur material expenses arising from or relating to the failure of
any of its Systems with respect to a Material Company Operation as a result of
the advent of the year 2000, the advent of the twenty-first century or the
transition from the twentieth century through the year 2000 and into the twenty-
first century. To the best of the Company's knowledge and belief, each System
of the Company relating to a Material Company Operation is able to accurately
process date data, including, but not limited to, calculating, comparing and
sequencing from, into and between the twentieth century (through year 1999), the
year 2000 and the twenty-first century, including leap year calculations.
16
(i) The Company has no reason to believe that any vendor of the
Company whose products or services are material to the Company's operations will
not continue to furnish its products or services to the Company without
interruption or material delay, on and after January 1, 2000.
5. Conditions to Closing.
---------------------
(a) The obligations of the Company to consummate the transactions
contemplated by this Agreement on one or more Closing Dates is conditioned upon
satisfaction, on or prior to each Closing Date, of each of the following
conditions:
(i) The Investors and all other necessary parties to the
Amended Securityholders' Agreement shall have properly and validly executed the
Amended Securityholders' Agreement.
(ii) The Investors and all of the other parties to the Amended
Registration Rights Agreement shall have properly and validly executed the
Amended Registration Rights Agreement.
(iii) Receipt by the Company, by certified official bank check or
wire transfer, of the Purchase Price, or the appropriate portion thereof.
(iv) The Company shall have filed an amendment to the
Certificate of Designations, Preferences and Rights of each of its Series B
convertible preferred stock and Series C convertible preferred stock, in each
instance amending the voting provisions of each such Series of convertible
preferred stock to provide for the voting of such preferred securities on an as-
converted to Common Stock basis with respect to all matters that are subject to
the approval of the Company's common stockholders.
(b) The obligations of the Investors to consummate the transactions
contemplated by this Agreement on one or more Closing Dates is conditioned upon
satisfaction, on or prior to each Closing Date, of each of the following
conditions:
(i) The Company and all of the other necessary parties to the
Amended Securityholders' Agreement shall have entered into the Amended
Securityholders' Agreement and all actions required to be taken thereunder have
been taken, including but not limited to authorizing an increase in the number
of directors from seven (7) to eight (8) and appointing the Series D Designee
(as such term is defined in the Amended Securityholders' Agreement) to the
Board.
(ii) The Company and all of the other parties to the Amended
Registration Rights Agreement shall have entered into the Amended Registration
Rights Agreement.
17
(iii) The Company shall have taken all necessary actions to
increase the size of its Plan to provide for the issuance of an additional One
Million Seven Hundred Fifty Nine Thousand Seven Hundred and Thirty Three
(1,759,733) shares of Common Stock thereunder.
(iv) The Company shall have amended its Certificate of
Incorporation to increase its authorized capital such that it shall have a
sufficient number of shares of authorized but unissued Common Stock, Class A
Common Stock and preferred stock, and the Company shall have delivered evidence
of same to the Investors.
(v) The Company shall have delivered to each of the Investors a
certificate or certificates representing the Series D Preferred Stock actually
purchased by each such Investor in such denominations as requested by the
Investor.
(vi) The Company shall have filed with the Secretary of State of
the State of Delaware the Series D Certificate of Designations and shall have
delivered evidence of same to the Investors.
(vii) The Company shall have reimbursed GE Capital Equity
Investments, Inc. for its actual documented costs, including attorneys' fees and
disbursements actually incurred, in connection with the negotiation, preparation
and delivery of the Transaction Documents in an amount not to exceed Forty
Thousand ($40,000) Dollars.
(viii) The Investor shall have received an opinion of Company's
counsel, ▇▇▇▇▇▇▇▇ ▇▇▇▇ & Brandeis, LLP, in the form annexed hereto as Exhibit
-------
5(viii).
-------
(ix) The Company shall use the proceeds from the sale of the
Series D Preferred Stock in accordance with the provisions of Section 8(1)
below.
(x) The representations and warranties of the Company contained
in this Agreement or in any Exhibit or Schedule attached hereto shall be true,
complete and correct on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such date,
and the Company shall have delivered to the Investors a certificate, dated the
Closing Date, executed by the Company's Chief Executive Officer, to such effect.
(xi) No action or proceeding shall have been instituted or, to
the best knowledge, information and belief of the Company, threatened before a
court or other government body or by any public authority to restrain or
prohibit any of the transactions contemplated hereby, and the Company shall have
delivered to the Investors a certificate, dated the Closing Date, executed by
the Company's Chief Executive Officer, to such effect.
18
(xii) All governmental and other consents, filings and approvals,
if any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
(xiii) The Series D Preferred Stock to be issued and sold by the
Company and to be acquired by the Investors shall be (and the Conversion Shares
issuable upon conversion of the Series D Preferred will be upon issuance by the
Company and acquisition by the Investors) duly authorized and validly issued to
the Investors, free and clear of all liens, encumbrances, restrictions and
claims of every kind. The Investors shall have each received properly completed
stock certificate(s) representing the shares of the Series D Preferred Stock
being purchased by the Investors on the Closing Date.
(xiv) The Company shall have delivered to the Investors (a)
copies of the Company's Certificate of Incorporation, including all amendments
thereto, certified by the Secretary of State of the State of Delaware, (b)
certified copies of the Series D Certificate of Designations, certified by the
Secretary of State of the State of Delaware, as having been filed on or before
the Closing Date, (c) a certificate from the Secretary of State of the State of
Delaware to the effect that the Company is in good standing or subsisting in
such State and listing all charter documents of the Company on file, (d) a
certificate from the Secretary of State or other appropriate official in each
State in which the Company is qualified to do business to the effect that the
Company is in good standing in such State, (e) a certificate as to the tax
status of the Company from the appropriate official in its jurisdiction of
incorporation and each State in which the Company is qualified to do business
and (f) a copy of the By-laws and the Certificate of Incorporation of the
Company certified by the Secretary of the Company as being true, complete and
correct and in effect on the Closing Date, after giving effect to the filing
described in Section 5(b) (iv) and 5(b)(vi) hereof, and accompanied by a copy of
the adopting resolutions authorizing the Series D Certificate of Designations
and approving the stock issuance contemplated thereby.
(xv) Prior to each of the Closing Dates, there shall be no
material adverse change in the assets or liabilities, the business (present or
anticipated), or condition, financial or otherwise, or in the results of
operations, of the Company since the Balance Sheet Date and the Company shall
have delivered to the Investors a certificate, dated the Closing Date, to such
effect.
(xvi) All of the agreements of the Company to be performed on or
before the Closing Date pursuant to the terms hereof or the terms of any Exhibit
hereto, shall have been duly performed, and the Company shall have delivered to
the Investors a certificate, dated as of the Closing Date, to such effect.
(xvii) All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Investors and
their counsel, and the Investors shall have received copies of all such
documents and other evidences as they or their counsel may
19
reasonably request in order to establish the consummation of such transactions.
6. Series D Preferred Stock Legends. The Investor represents and
--------------------------------
warrants that it has read, considered and understood the legend, referred to in
Section 7.1 of the Amended Securityholders' Agreement, shall be placed on all of
the certificates representing the Series D Preferred Stock and on all Conversion
Shares issuable upon conversion of the Series D Preferred Stock.
7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold each Investor and each of
their respective partners, officers, directors, members, employees, counsel,
accountants, agents, successors and assigns (collectively, an "Indemnified
Party") harmless from damages, liabilities, losses, costs or expenses
(including, without limitation, reasonable counsel fees and expenses) suffered
or paid, directly or indirectly, as a result of or arising out of (i) the
failure of any respective representation or warranty made by the Company in this
Agreement or in any Schedule or Exhibit attached hereto to be true, complete and
correct in all material respects as of the date of this Agreement and as of the
Closing Date or (ii) a breach of the covenant set forth in Section 8(l) below.
Notwithstanding anything contained in this Agreement to the contrary, (i) the
indemnification provided to each Indemnified Party herein shall be limited to
the "Original Conversion Price" (as that term is defined in the Series D
Certificate of Designation) based on the Indemnified Party's cost basis in the
number of shares of Series D Preferred Stock held by such an Indemnified Party
on the date any such indemnification payments are due hereunder, less any
amounts received by such Indemnified Party as a result of either (x)
distributions on any securities of the Company held by the Indemnified Party,
and (y) any proceeds received by such Indemnified Party upon such Indemnified
Party's conversion and/or sale of any securities of the Company in excess of the
Indemnified Party's basis in any such securities converted and/or sold, and
(iii) the indemnification provided for in this Section 7 with respect to each
Indemnified Party shall expire three (3) years from the Closing Date of each
such Indemnified Party's purchase of its shares of Series D Preferred Stock
hereunder.
(b) If any action, suit, proceeding or investigation is commenced, as
to which an Indemnified Party proposes to demand indemnification, it shall
notify the Company with reasonable promptness; provided, however, that any
-------- -------
failure by an Indemnified Party to notify the Company shall not relieve the
Company from its obligations hereunder, except to the extent that the Company
shall have been materially prejudiced in its ability to defend the action, suit,
proceedings or investigation for which such indemnification is sought by reason
of such failure. Except as set forth below, an Indemnified Party shall not have
the right to retain counsel of its own choice, and the Company shall pay the
reasonable fees, reasonable expenses and reasonable disbursements of counsel
selected by the Company; and such counsel shall to the extent consistent with
its professional responsibilities cooperate with the Company and any counsel
designated by the Company.
20
In the event the Company does not assume or fails to conduct in a diligent
manner the defense of any claim or litigation resulting therefrom, (a) the
Indemnified Party may defend, using its own counsel, against such claim or
litigation, in such manner as it deems appropriate, including, but not limited
to, settling such claim or litigation, after giving notice of the same to the
Company, on such terms as the Indemnified Party may deem appropriate, and (b)
the Company shall be entitled to participate in (but not control) the defense of
such action, with its counsel and at its own expense. The Company shall pay the
reasonable fees, reasonable expenses and reasonable disbursements of counsel
selected by an Indemnified Party in the circumstances described in the previous
sentence. If the Company thereafter seeks to question the manner in which the
Indemnified Party defended such third party claim or the amount or nature of any
such settlement, the Company shall have the burden to prove by a preponderance
of the evidence that the Indemnified Party did not defend or settle such third
party claim in a reasonably prudent manner.
The Company shall be liable for any settlement of any claim against an
Indemnified Party made with the Company's written consent or made in connection
with the circumstances described in the first sentence of the previous
paragraph. The Company shall not, without prior written consent of an
Indemnified Party, which consent shall not be unreasonably withheld or delayed,
settle or compromise any claim, or permit a default or consent to the entry of
any judgment in respect thereof.
Each party agrees to cooperate fully with the other, such cooperation to
include, without limitation, attendance at depositions and the provision of
relevant documents as may be reasonably requested by the other parties, provided
that the Company will reimburse the Indemnified Party for all of its out-of-
pocket expenses incurred in connection with such cooperation by the Indemnified
Party.
(c) In order to provide for just and equitable contribution, if a
claim for indemnification pursuant to these indemnification provisions is made
but it is found in a final judgment by a court of competent jurisdiction (not
subject to further appeal) that such indemnification may not be enforced in such
case, even though the express provisions hereof provide for indemnification in
such case, then the Company (as applicable), on the one hand, and an Indemnified
Party, on the other, shall contribute to the losses, claims, damages,
obligations, penalties, judgments, awards, liabilities, costs and expenses to
which the indemnified persons may be subject in accordance with the relative
benefits received by the Company (as the case may be), on the one hand, and an
Indemnified Party, on the other hand, in connection with the statements, acts or
omissions which resulted in expenses and the relevant equitable considerations
shall also be considered. No person found liable for a fraudulent
misrepresentation shall be entitled to contribution from any person who is not
also found liable for such fraudulent misrepresentation.
21
8. Miscellaneous.
-------------
(a) Preservation of Confidential Information. Except as otherwise
----------------------------------------
required by law, the Investors shall keep confidential any and all non-public
information obtained from the Company concerning the Company's properties,
operations and business (unless readily ascertainable from public or published
information or trade sources) until the same ceases to be non-public (or becomes
so ascertainable).
(b) Amendment; Waiver. This Agreement shall not be changed, modified
-----------------
or amended in any respect except by the mutual written agreement of the parties
hereto. Any provision of this Agreement may be waived in writing by the party
which is entitled to the benefits thereof. No waiver of any provision of this
Agreement shall be deemed to or shall constitute a waiver of any other provision
hereof (whether or not similar), nor shall any such waiver constitute a
continuing waiver.
(c) Binding Effect; Assignment. This Agreement may not be
--------------------------
transferred, assigned, pledged or hypothecated by and party hereto, other than
by operation of law. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
(d) Governing Law; Venue, Jurisdiction and Litigation Costs. This
-------------------------------------------------------
Agreement and its validity, construction and performance shall be governed in
all respects by the internal laws of the State of New York without giving effect
to such State's conflicts of laws provisions. Each of the Company and each of
the Investors expressly irrevocably consent to the jurisdiction and venue of the
federal courts located in the State of New York, County of New York. The
prevailing party or parties in any such litigation shall be entitled to receive
from the losing party or parties all costs and expenses, including reasonable
counsel fees, incurred by the prevailing party or parties.
(e) Severability. Any term or provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction
only, be ineffective only to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof affecting the validity or
enforceability of such provision in any other jurisdiction.
(f) Headings. The captions, headings and titles preceding the text of
--------
each or any Section, subsection or paragraph hereof are for convenience of
reference only and shall not effect the construction, meaning or interpretation
of this Agreement or any term or provisions hereof.
(g) Counterparts. This Agreement may be executed in one or more
------------
original or facsimile counterparts, each of which shall be deemed an original
and all of which shall be considered one and the same agreement, binding on all
of the parties hereto, notwithstanding that all parties are not signatories to
the same counterpart. Upon delivery of an executed counterpart
22
by the undersigned Investors to the Company, which in turn is executed and
delivered by the Company, this Agreement shall be binding as one original
agreement between the Investor and the Company.
(h) Transfer Taxes. Each party hereto shall pay all such sales,
--------------
transfer, use, gross receipts, registration and similar taxes arising out of or
in connection with the transactions contemplated by this Agreement
(collectively, the "Transfer Taxes") as are payable by such party under
applicable law, and the Company shall pay the cost of any documentary stock
transfer stamps, if any, to be affixed to the certificates representing the
Series D Preferred Stock.
(i) Entire Agreement. The Transaction Documents merge and supersede
----------------
any and all prior agreements, understandings, discussions, assurances, promises,
representations or warranties among the parties with respect to the subject
matter thereof, and contains the entire agreement among the parties with respect
to the subject matter set forth therein.
(j) Authority; Enforceability. Each of the undersigned Investors is
-------------------------
duly authorized to enter into this Agreement and to perform its obligations
hereunder. Upon the execution and delivery of this Agreement by each of the
undersigned Investors, this Agreement shall be enforceable against each of the
undersigned Investors in accordance with its terms.
(k) Notices. Except as otherwise specified herein to the contrary,
-------
all notices, requests, demands and other communications required or desired to
be given hereunder shall only be effective if given in writing by hand, by
certified or registered mail, return receipt requested, postage prepaid, or by
U.S. express mail service, or by private overnight mail service (e.g. Federal
Express), or by facsimile transmission. Any such notice shall be deemed to have
been given (a) on the business day actually received if given by hand or
facsimile transmission, (b) on the business day immediately subsequent to
mailing, if sent by U.S. express mail service or private overnight mail service,
or (c) three (3) business days following the mailing thereof, if mailed by
certified or registered mail, postage prepaid, return receipt requested, and all
such notices shall be sent to the following addresses (or to such other address
or addresses as a party may have advised the other in the manner provided in
this Section 8(k)):
If to the Company:
▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Phase2Media, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile no. (▇▇▇) ▇▇▇-▇▇▇▇
23
with copies simultaneously by like means to:
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇▇ ▇▇▇▇ & Brandeis, LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile no. (▇▇▇) ▇▇▇-▇▇▇▇
If to the Investors, notice shall be given to all parties set forth in
Section 7.5 of the Amended Securityholders' Agreement.
(l) Use of Proceeds. The Company covenants and agrees that it shall
----------------
use the proceeds from the sale of the Series D Preferred Stock for general
working capital purposes, including but not limited to expansion of its sales
force, and to pay the expenses in connection with the transaction contemplated
by the Transaction Documents, including but not limited to the fees set forth in
Section 5(vii) above.
(m) No Third Party Beneficiaries. This Agreement and the rights,
----------------------------
benefits, privileges, interests, duties and obligations contained or referred to
herein shall be solely for the benefit of the parties hereto and no third party
shall have any rights or benefits hereunder as a third party beneficiary or
otherwise hereunder.
(n) Publicity. Except as otherwise required by law, none of the
---------
parties hereto shall issue any press release or make any other public statement,
in each case relating to, connected with or arising out of this Agreement or the
matters contained herein. Any statement so issued or made shall require the
reasonable prior approval of the other parties hereto as to the contents and the
manner of presentation and publication thereof.
(o) Several Representations, Warranties, Covenants, Agreements and
--------------------------------------------------------------
Obligations. The representations, warranties, covenants, agreements and
-----------
obligations of the Investor hereunder shall be several and not joint.
24
(p) Waiver of Jury Trial. The parties hereto waive all right to trial
--------------------
by jury of any action, suit or proceeding brought to enforce or defend any
rights or remedies arising under or in connection with the Transaction Documents
or the transactions contemplated thereby whether grounded in tort, contract or
otherwise.
IN WITNESS WHEREOF, the Company and each of the undersigned Investors has
each duly executed this Agreement as of this 19 day of January, 2000.
PHASE2MEDIA, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
________________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: CFO
Investors:
GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
________________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: Managing Director
VECTOR CAPITAL II, L.P.
By: Vector Capital Partners II, LLC, as
General Partner
/s/ ▇▇▇▇ ▇▇▇▇▇▇
___________________________________
By: ▇▇▇▇ ▇▇▇▇▇▇
Title: Managing Member
VECTOR MEMBER FUND II, LP
By: /s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
________________________________
Name: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Managing Member, Vector Capital
Partners II, L.L.C.
The General Partner of Vector
Member Fund II, L.P.
HACHETTE FILIPACCHI INTERACTIONS S.A.
By: /s/ Herve Digne
___________________________
Name: Herve Digne
Title: President
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
______________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
______________________________
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
______________________________
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
______________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇
______________________________
▇▇▇▇ ▇▇▇▇
/s/ Herve Digne
______________________________
Herve Digne
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
______________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
______________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
______________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
______________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇
STV PARTNERS IX, LLC
By: /s/ Illegible
________________________________
Name: Illegible
Title: General Manager
P2M INVESTMENT PARTNERSHIP
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
_______________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
General Partner
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
_________________________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇ as Trustee for the ▇▇▇▇ ▇.
▇▇▇▇▇▇ Separate Property Trust UDT 4/6/99
IN WITNESS WHEREOF, the Company and each of the undersigned Investors has
each duly executed this Agreement as of this 8 day of February, 2000.
PHASE2MEDIA, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
______________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: CFO
Investors:
BAYVIEW 2000 I, LP
By: Bayview 2000 GP, LLC
By: /s/ ▇▇▇▇ ▇▇▇▇▇
______________________________
Name: ▇▇▇▇ ▇▇▇▇▇
Title: CAO
BAYVIEW 2000 II, LP
By: Bayview 2000 GP, LLC
By: /s/ ▇▇▇▇ ▇▇▇▇▇
______________________________
Name: ▇▇▇▇ ▇▇▇▇▇
Title: CAO
P2M ACQUISITION LLC
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
______________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Authorized Signatory
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
_____________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
_____________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
_____________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇
29
IN WITNESS WHEREOF, the Company and each of the undersigned Investors has
each duly executed this Agreement as of this 31 day of March, 2000.
PHASE2MEDIA, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
________________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: CFO
Investors:
▇▇▇▇▇▇▇▇ ▇▇▇▇ VENTURES LLC
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
_______________________________
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Financial Officer
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
_______________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
READE FAMILY 1999 TRUST
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
______________________________
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Title: Trustee
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
______________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇
_______________________________
▇▇▇▇▇▇ ▇▇▇▇▇
30