Exhibit 10.12
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PREFERRED STOCK PURCHASE AGREEMENT
INTERNET CAPITAL GROUP, L.L.C.
and
WATER ONLINE, INC.
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TABLE OF CONTENTS
Page
ARTICLE I - PURCHASE, SALE AND TERMS OF SHARES.......................................................1
1.01. The Preferred Shares...........................................................................1
1.02. The Conversion Shares..........................................................................1
1.03. Purchase Price and Closing.....................................................................1
1.04. Use of Proceeds................................................................................2
1.05. Representations by the Purchaser...............................................................2
(a) Investment Representations..............................................................2
(b) Access to Information...................................................................3
(c) General Access..........................................................................3
(d) Sophistication and Knowledge............................................................3
(e) Transfer Restrictions Imposed by Securities Laws........................................3
(f) Lack of Liquidity.......................................................................3
(g) Suitability and Investment Objectives...................................................3
(h) Accredited Investor Status..............................................................4
(i) Restrictions on Future Investments......................................................4
1.06. Brokers or Finders.............................................................................4
ARTICLE II - CONDITIONS TO PURCHASER'S OBLIGATIONS...................................................4
2.01. Representations and Warranties.................................................................4
2.02. Documentation at Closing.......................................................................4
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................6
3.01. Organization and Standing of the Company.......................................................6
3.02. Corporate Action...............................................................................6
3.03. Governmental Approvals.........................................................................7
3.04. Litigation.....................................................................................7
3.05. Certain Agreements of Officers and Employees...................................................8
3.06. Compliance with Other Instruments..............................................................8
3.07. Title to Assets, Patents.......................................................................8
3.08. Financial Information..........................................................................10
3.09. Taxes..........................................................................................10
3.10. ERISA..........................................................................................10
3.11. Transactions with Affiliates...................................................................10
3.12. Assumptions or Guaranties of Indebtedness of Other Persons.....................................11
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3.13. Investments in Other Persons...................................................................11
3.14. Securities Act of 1933.........................................................................11
3.15. Disclosure.....................................................................................11
3.16. Brokers or Finders.............................................................................11
3.17. Capitalization; Status of Capital Stock........................................................12
3.18. Registration Rights............................................................................12
3.19. Insurance......................................................................................12
3.20. Books and Records..............................................................................13
3.21. Material Agreements............................................................................13
3.22. Absence of Certain Developments................................................................13
3.23. Environmental and Safety Laws..................................................................13
3.24. U.S. Real Property Holding Corporation.........................................................13
3.25. Business Plan..................................................................................13
ARTICLE IV - COVENANTS OF THE COMPANY................................................................14
4.01. Affirmative Covenants of the Company Other Than Reporting Requirements.........................14
(a) Maintenance of Key Man Insurance........................................................14
(b) Inspection Rights.......................................................................14
(c) Budgets Approval........................................................................14
(d) Financing...............................................................................15
(e) New Developments........................................................................15
(f) Meetings of Directors, Committees and Observer Rights...................................15
(g) Agreements of Officers and Employees....................................................15
(h) By-laws; Meetings and Indemnification...................................................16
(i) Corporate Existence.....................................................................16
(j) Properties, Business, Insurance.........................................................16
(k) Expenses of Directors...................................................................16
(l) Compliance with Laws....................................................................16
(m) Keeping of Records and Books of Account.................................................16
(n) Size of Board...........................................................................17
(o) Rule 144A Information...................................................................17
4.02. Negative Covenants of the Company..............................................................17
(a) Dealings with Affiliates................................................................17
(b) Issuance of Equity Securities...........................................................17
(c) Compensation to Officers................................................................18
(d) Maintenance of Ownership of Subsidiaries................................................18
(e) Transfer of Technology..................................................................18
(f) Conduct of Business.....................................................................18
(g) Assumptions or Guaranties of Indebtedness of Other Persons..............................18
(h) Investments in Other Corporations or Entities...........................................19
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(i) Amendments..............................................................................19
4.03. Reporting Requirements.........................................................................19
(a) Monthly Reports.........................................................................19
(b) Annual Reports..........................................................................20
(c) Budgets and Operating Plan..............................................................20
(d) Notice of Adverse Changes...............................................................20
(e) Reports and Other Information...........................................................20
ARTICLE V- REGISTRATION RIGHTS.......................................................................20
5.01. Piggy-Back Registrations.......................................................................21
5.02. Required Registration..........................................................................21
5.03. Registrations on Form S-3......................................................................22
5.04. Effectiveness..................................................................................22
5.05. Indemnification of Holder of Registrable Shares................................................22
5.06. Indemnification of Company.....................................................................24
5.07. Exchange Act Registration......................................................................26
5.08. Damages........................................................................................26
5.09. Further Obligations of the Company.............................................................26
5.10. Expenses.......................................................................................28
5.11. Approval of Underwriter........................................................................28
5.12. Transferability................................................................................28
5.13. "Lock-Up" Agreement............................................................................28
(a) Initial Public Offering.................................................................28
(b) Lock-Up after Initial Public Offering...................................................29
5.14. Mergers, Etc...................................................................................29
ARTICLE VI - RIGHT OF FIRST REFUSAL..................................................................30
6.01. Right of First Refusal.........................................................................30
6.02. Notice of Acceptance...........................................................................31
6.03. Conditions to Acceptances and Purchase.........................................................31
(a) Permitted Sales of Refused Securities...................................................31
(b) Reduction in Amount of Offered Securities...............................................31
(c) Closing.................................................................................31
6.04. Further Sale...................................................................................32
6.05. Termination and Waiver of Right of First Refusal...............................................32
6.06. Exception......................................................................................32
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ARTICLE VII - DEFINITIONS AND ACCOUNTING TERMS.......................................................33
7.01. Certain Defined Terms..........................................................................33
7.02. Accounting Terms...............................................................................36
ARTICLE VIII - DISPUTE RESOLUTION....................................................................36
8.01. Good-Faith Negotiations........................................................................36
ARTICLE IX - MISCELLANEOUS...........................................................................38
9.01. No Waiver; Cumulative Remedies.................................................................38
9.02. Amendments, Waivers and Consents...............................................................38
9.03. Addresses for Notices..........................................................................38
9.04. Costs, Expenses and Taxes......................................................................39
9.05. Binding Effect; Assignment.....................................................................39
9.06. Survival of Representations and Warranties.....................................................39
9.07. Prior Agreements...............................................................................39
9.08. Severability...................................................................................39
9.09. Confidentiality................................................................................40
9.10. Public Announcements...........................................................................40
9.11. Governing Law..................................................................................40
9.12. Headings.......................................................................................40
9.13. Counterparts...................................................................................40
9.14. Further Assurances.............................................................................41
EXHIBIT 1.01
EXHIBIT 2.02(a)
EXHIBIT 2.02(b)
EXHIBIT 2.02(i)(A)
EXHIBIT 2.02(j)
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PREFERRED STOCK PURCHASE AGREEMENT
WATER ONLINE, INC.
As of September 12, 1996
Internet Capital Group, L.L.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Series A Preferred Stock
Gentlemen:
Water Online, Inc. (the "Company"), a Pennsylvania corporation, agrees with you
as follows:
ARTICLE I
PURCHASE, SALE AND TERMS OF SHARES
1.01. The Preferred Shares. The Company has authorized the issuance,
sale and exchange of 1,000,000 shares (the "Series A Shares") of its authorized
but unissued shares of Series A Preferred Stock, $.01 par value (the "Series A
Preferred Stock"), at a purchase price of $1.00 per share to Internet Capital
Group, L.L.C. (the "Series A Purchaser") and in the amount set forth in Exhibit
1.01 hereto. The Series A Preferred Stock is sometimes hereinafter referred to
as the "Preferred Stock"; the Series A Shares are sometimes hereinafter referred
to as the "Preferred Shares"; and the Series A Purchaser is sometimes
hereinafter referred to as the "Purchaser". The designation, rights, preferences
and other terms and provisions of the Preferred Stock are set forth in Exhibit
2.02(a) hereto.
1.02. The Conversion Shares. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of shareholders, a sufficient number of its
authorized but unissued shares of Common Stock to satisfy the rights of
conversion of the holders of the Preferred Shares. Any shares of Common Stock
issuable upon conversion of the Preferred Shares (and such shares when issued)
are herein referred to as the "Conversion Shares". The Preferred Shares and
Conversion Shares are sometimes collectively referred to as the "Shares".
1.03. Purchase Price and Closing. The Company agrees to issue, sell and
exchange to the Purchaser and, in consideration of and in express reliance upon
the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchaser agrees to purchase, that number of the Preferred Shares
set forth in Exhibit 1.01. The aggregate purchase price of the Preferred Shares
being
acquired by Purchaser is set forth in Exhibit 1.01. The closing of the
purchase, sale and exchange of the Preferred Shares to be acquired by the
Purchaser from the Company under this Agreement shall take place at the offices
of the Purchaser, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇, ▇▇ ▇▇▇▇▇ at 10:00 a.m. on
September __, 1996, or at such time and date thereafter as the Purchaser and the
Company may agree (the "Closing"). At the Closing, the Company will deliver to
the Purchaser certificates for the number and series of Preferred Shares set
forth under the heading "Number of Series A Shares", in Exhibit 1.01 registered
in the Purchaser's name, against delivery of a check or checks payable to the
order of the Company, or a transfer of funds to the account of the Company by
wire transfer, representing the net cash consideration set forth on Exhibit
1.01, and the cancellation of an aggregate of $60,000 of principal of, and
accrued interest on, indebtedness of the Company to the Purchaser as so set
forth on Exhibit 1.01, as payment in full of the purchase price of the Series A
Shares.
1.04. Use of Proceeds. The Company shall use the cash proceeds from the
sale of the Preferred Shares for working capital and general corporate purposes;
provided, however, that the proceeds shall not be used by the Company to reduce
any outstanding indebtedness other than accounts payable incurred in the normal
course of business, and provided further that the Company may use up to $60,000
to exercise its right to repurchase 6% of the currently existing shares of
Common Stock from certain minority shareholders.
1.05. Representations by the Purchaser.
(a) Investment Representations. Purchaser represents that it
is its present intention to acquire the Shares to be acquired by it for its own
account (and it will be the sole beneficial owner thereof) and that the Shares
are being and will be acquired by it for the purpose of investment and not with
a view to distribution or resale thereof except pursuant to registration under
the Securities Act or exemption therefrom. The acquisition by Purchaser of the
Preferred Shares acquired by it shall constitute a confirmation of this
representation by Purchaser. Purchaser further represents that it understands
and agrees that, until registered under the Securities Act or transferred
pursuant to the provisions of Rule 144 or Rule 144A as promulgated by the
Commission, all certificates evidencing any of the Shares, whether upon initial
issuance or upon any transfer thereof, shall bear a legend, prominently stamped
or printed thereon, reading substantially as follows:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 or applicable state securities laws.
These securities have been acquired for investment and not with a view to
distribution or resale. These securities may not be offered for sale, sold,
delivered after sale, transferred, pledged or hypothecated in the absence of an
effective registration statement covering such shares under the Act and any
applicable state securities laws, or the availability, in the opinion of
counsel, of an exemption from registration thereunder."
(b) Access to Information. Purchaser or its representative
during the course of this transaction, and prior to the purchase of any
Preferred Shares, has had the opportunity to ask questions of and receive
answers from management of the Company concerning the terms and conditions of
the
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offering of the Preferred Shares and the additional information, documents,
records and books relative to its business, assets, financial condition, results
of operations and liabilities (contingent or otherwise) of the Company.
(c) General Access. Purchaser or its representative has
received and read or reviewed, and is familiar with, this Agreement and the
other agreements executed or delivered herewith, including the terms of the
Preferred Stock, and confirms that all documents, records and books pertaining
to Purchaser's investment in the Company and requested by Purchaser or its
representative have been made available or delivered to him.
(d) Sophistication and Knowledge. Purchaser or its
representative has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the purchase of
the Preferred Shares. Purchaser can bear the economic risks of this investment
and can afford a complete loss of its investment.
(e) Transfer Restrictions Imposed by Securities Laws.
Purchaser understands that: the Shares have not been registered under the
Securities Act and applicable state securities laws, and, therefore, cannot be
resold unless they are subsequently registered under the Securities Act and
applicable state securities laws or unless an exemption from such registration
is available; Purchaser is and must be purchasing the Preferred Shares for
investment for the account of Purchaser and not for the account or benefit of
others, and not with any present view toward resale or other distribution
thereof. Purchaser agrees not to resell or otherwise dispose of all or any part
of the Shares purchased by it, except as permitted by law, including, without
limitation, any regulations under the Securities Act and applicable state
securities laws; the Company does not have any present intention and is under no
obligation to register the Shares under the Securities Act and applicable state
securities laws, except as provided in Article V hereof; and Rule 144 or Rule
144A under the Securities Act may not be available as a basis for exemption from
registration of the Shares thereunder.
(f) Lack of Liquidity. Purchaser has no present need for
liquidity in connection with its purchase of the Preferred Shares.
(g) Suitability and Investment Objectives. The purchase of the
Preferred Shares by Purchaser is consistent with the general investment
objectives of the Purchaser. The Purchaser understands that the purchase of the
Preferred Shares involves a high degree of risk in view of the fact that, among
other things, the Company is a start-up enterprise, and there may be no
established market for the Company's capital stock.
(h) Accredited Investor Status. Purchaser is an "Accredited
Investor" as that term is defined in Rule 501 of Regulation D promulgated under
the Securities Act.
(i) Restrictions on Future Investments. Purchaser represents
that it is not subject to any provisions in the limited liability company
agreement or other governing instrument that may operate
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to restrict or limit its ability to make investments on or after the date hereof
in capital stock of the Company.
1.06. Brokers or Finders. Purchaser represents that no Person has or
will have, as a result of the transactions contemplated by this Agreement, any
right, interest or valid claim against or upon the Company for any commission,
fee or other compensation as a finder or broker because of any act or omission
by Purchaser or its respective agents.
ARTICLE II
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligation of Purchaser to purchase and pay for the Preferred
Shares to be purchased by it at the Closing is subject to the following
conditions (all of which shall be deemed satisfied or waived by the Purchaser at
or prior to the Closing in the event all of the transactions contemplated to be
effected at the Closing are consummated):
2.01. Representations and Warranties. Each of the representations and
warranties of the Company set forth in Article III hereof shall be true,
accurate and correct on the date of the Closing.
2.02. Documentation at Closing. The Purchaser shall have received prior
to or at the Closing all of the following materials, each in form and substance
satisfactory to the Purchaser and its special counsel, and each of the following
events shall have occurred, or each of the following documents shall have been
delivered, prior to or simultaneous with the Closing:
(a) A copy of the Articles of Incorporation of the Company, as
amended or restated to date, together with such evidence as may be available of
the filing thereof; a copy of the resolutions of the Board of Directors
providing for the approval of the Restated Articles of Incorporation of the
Company in the form attached as Exhibit 2.02(a), the approval of this Agreement,
the issuance of the Preferred Shares, such amendment of the By-laws of the
Company as may be reasonably requested by the Purchaser, and all other
agreements or matters contemplated hereby or executed in connection herewith; a
copy of a consent of stockholders of the Company approving the Restated Articles
of Incorporation of the Company; and a copy of the By-laws of the Company, all
of which have been certified by the Secretary of the Company to be true,
complete and correct in every particular; and certified copies of all documents
evidencing other necessary corporate or other action and governmental approvals,
if any, required to be obtained at or prior to the Closing with respect to this
Agreement and the issuance of the Preferred Shares.
(b) The favorable opinion of ▇▇▇▇ ▇. ▇▇▇▇▇, Esquire, counsel
for the Company, in the form set forth in Exhibit 2.02(b).
(c) A certificate of the Secretary or an Assistant Secretary
of the Company which shall certify the names of the officers of the Company
authorized to sign this Agreement, the certificates for
4
the Preferred Shares and the other documents, instruments or certificates to be
delivered pursuant to this Agreement by the Company or any of its officers,
together with the true signatures of such officers.
(d) A certificate of the President and the Treasurer of the
Company stating that the representations and warranties of the Company contained
in Article III hereof and otherwise made by the Company in writing in connection
with the transactions contemplated hereby are true and correct as of the time of
the Closing and that all conditions required to be performed prior to or at the
Closing have been performed as of the Closing.
(e) The Company shall have obtained any consents or waivers
necessary to be obtained at or prior to the Closing to execute and deliver this
Agreement, the Preferred Shares and the other agreements and instruments
executed and delivered by the Company in connection herewith and to carry out
the transactions contemplated hereby and thereby, and such consents and waivers
shall be in full force and effect at the Closing. All corporate and other action
and governmental filings necessary to effectuate the terms of this Agreement,
the Preferred Shares and the other agreements and instruments executed and
delivered by the Company in connection herewith shall have been made or taken.
(f) The Articles of Incorporation of the Company shall have
been amended and restated in the form set forth in Exhibit 2.02(a) attached
hereto.
(g) A Certificate of the Secretary of State of the
Commonwealth of Pennsylvania as to the due incorporation and good standing of
the Company and a certificate of the Secretary of State of each jurisdiction in
which the Company is required to qualify to do business as a foreign corporation
shall have been provided to the Purchaser and its special counsel.
(h) Payment for the costs, attorneys' fees, consulting fees,
expenses, taxes and filing fees identified in Section 9.04.
(i) Each of the employees listed on Exhibit 2.02(i)A shall
have entered into Nondisclosure, Assignment of Developments and Non-Solicitation
Agreements in the form satisfactory to the Purchaser (collectively, the
"Nondisclosure Agreements") , and the Company and each of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
("▇▇▇▇▇") and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇") shall have entered into
Nondisclosure, Assignment of Developments, Non-Solicitation, Noncompetition and
Severance Agreements in the form satisfactory to the Purchaser (collectively,
the " Noncompetition Agreements") and copies thereof shall have been delivered
to counsel for the Purchaser.
(j) The Purchaser, the Company, ▇▇▇▇▇ and ▇▇▇▇▇▇▇ shall have
entered into a Voting, Stock Restriction and Co-Sale Agreement in the form
attached as Exhibit 2.02(j) hereto (the "Voting and Stock Restriction
Agreement").
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(k) This Agreement shall have been executed by Purchaser and
Purchaser shall have delivered to the Company the full purchase price for such
Series A Preferred Stock., net the cancellation of the $60,000 indebtedness, per
Section 1.03 above.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants as of the Closing as follows:
3.01. Organization and Standing of the Company. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the Commonwealth of Pennsylvania and has all requisite corporate power and
authority for the ownership and operation of its properties and for the carrying
on of its business as now conducted and as now proposed to be conducted and to
execute and deliver this Agreement and the Voting and Stock Restriction
Agreement, to issue, sell and deliver the Preferred Shares and to issue and
deliver the Conversion Shares and to perform its other obligations pursuant
hereto and thereto. The Company is duly licensed or qualified and in good
standing as a foreign corporation authorized to do business in all jurisdictions
wherein the character of the property owned or leased or the nature of the
activities conducted by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
material adverse effect on the business, operations or financial condition of
the Company.
3.02. Corporate Action. This Agreement, the Voting and Stock
Restriction Agreement, the Noncompetition Agreements, and the other agreements
executed in connection herewith have been duly authorized, executed and
delivered by the Company and constitute the legal, valid and binding obligations
of the Company, enforceable against the Company in accordance with their
respective terms. The Voting and Stock Restriction Agreement and the
Noncompetition Agreements have been duly authorized, executed and delivered by
the Shareholders (as defined therein) and constitutes the legal, valid and
binding obligations of the Shareholders, enforceable against the several
Shareholders in accordance with their respective terms. The Preferred Shares
have been duly authorized. The issuance, sale and delivery of the Preferred
Shares and the issuance and delivery of the Conversion Shares upon conversion of
the Preferred Shares have been duly authorized by all required corporate action;
the Preferred Shares have been validly issued, are fully paid and nonassessable
with no personal liability attaching to the ownership thereof and are free and
clear of all liens, charges, restrictions, claims and encumbrances imposed by or
through the Company except as set forth in this Agreement and the Voting and
Stock Restriction Agreement; and the Conversion Shares have, as of the Closing,
been duly reserved for issuance upon conversion of the Preferred Shares and,
when so issued, will be duly authorized, validly issued, fully paid and
nonassessable with no personal liability attaching to the ownership thereof and
will be free and clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Company except as set forth in this
Agreement and the Voting and Stock Restriction Agreement.
3.03. Governmental Approvals. Except as set forth on Exhibit 3.03 and
except for the filing of any notice prior or subsequent to the Closing that may
be required under applicable state and/or Federal
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securities laws (which, if required, shall be filed on a timely basis), no
authorization, consent, approval, license, exemption of or filing or
registration with any court of governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution and delivery by the Company of this
Agreement, for the offer, issue, sale, execution or delivery of the Preferred
Shares, or for the performance by the Company of its obligations under this
Agreement, the Voting and Stock Restriction Agreement or the Shares.
3.04. Litigation. Except as disclosed in Exhibit 3.04, there is no
litigation or governmental proceeding or investigation pending or, to the
knowledge of the Company, threatened against the Company affecting any of its
properties or assets, or against any officer, Key Employee (defined in Section
7.01 below) or the holder of more than ten percent (10%) of the capital stock of
the Company relating to the Company or its business, nor, to the best knowledge
of the Company, has there occurred any event or does there exist any condition
on the basis of which any litigation, proceeding or investigation might properly
be instituted. Neither the Company nor, to the best knowledge of the Company,
any officer, Key Employee or holder of more than ten percent (10%) of the
capital stock of the Company is in default with respect to any order, writ,
injunction, decree, ruling or decision of any court, commission, board or other
government agency, which such default might have a material adverse effect on
the business, assets, liabilities, operations, Intellectual Property Rights
(defined in Section 7.01 below), management or financial condition of the
Company. There are no actions or proceedings pending or, to the Company's
knowledge, threatened (or any basis therefor known to the Company) which might
result, either in any case or in the aggregate, in any material adverse change
in the business, operations, Intellectual Property Rights, affairs or financial
condition of the Company or in any of its properties or assets, or which might
call into question the validity of this Agreement, any of the Preferred Shares,
or any action taken or to be taken pursuant hereto or thereto. The foregoing
sentences include, without limiting their generality, actions pending or, to the
Company's knowledge, threatened (or any basis therefor known to the Company)
involving the prior employment or engagement of any of the Company's officers,
employees or consultants or their use in connection with the Company's business
of any information or techniques allegedly proprietary to any of their former
employers or to any other Person. Without limitation to the foregoing
representations, a brief summary of the Company's material litigation and the
disposition of such matters is set forth on Exhibit 3.04.
3.05. Certain Agreements of Officers and Employees.
(a) No officer, employee or consultant of the Company is, or
is now, to the Company's knowledge, expected to be, in violation of any term of
any employment contract, patent disclosure agreement, proprietary information
agreement, noncompetition agreement, nonsolicitation agreement, confidentiality
agreement, or any other similar contract or agreement or any restrictive
covenant, including those set forth on Exhibit 3.05, relating to the right of
any such officer, employee, or consultant to be employed or engaged by the
Company because of the nature of the business conducted or to be conducted by
the Company or relating to the use of trade secrets or proprietary information
of others, and to the Company's best knowledge and belief, the continued
employment or engagement of the Company's officers, employees or consultants
does not subject the Company or Purchaser to any liability
7
with respect to any of the foregoing matters.
(b) No officer, consultant or Key Employee of the Company
whose termination, either individually or in the aggregate, could have an
adverse effect on the Company, has terminated since the date hereof, or to the
best knowledge of the Company, has any present intention of terminating, his
employment or engagement with the Company.
3.06. Compliance with Other Instruments. The Company is in compliance
in all respects with the terms and provisions of this Agreement and of its
Articles of Incorporation and By-laws, each as amended and/or restated to date,
and in all respects with the material terms and provisions of all mortgages,
indentures, leases, agreements and other instruments by which it is bound or to
which it or any of its properties or assets are subject. The Company is in
compliance in all material respects with all judgments, decrees, governmental
orders, laws, statutes, rules or regulations by which it is bound or to which it
or any of its properties or assets are subject. Neither the execution, issuance
and delivery of this Agreement, the Voting and Stock Restriction Agreement, the
Noncompetition Agreements or the Preferred Shares, nor the consummation of any
transaction contemplated hereby or thereby, has constituted or resulted in or
will constitute or result in a default or violation of any term or provision of
any of the foregoing documents, instruments, judgments, agreements, decrees,
orders, statutes, rules and regulations. A schedule of Indebtedness of the
Company as of September 1, 1996 (including lease obligations required to be
capitalized in accordance with applicable Statements of Financial Accounting
Standards) is attached as Exhibit 3.06.
3.07. Title to Assets, Patents. The Company has good and marketable
title in fee to such of its fixed assets as are real property, and good and
merchantable title to all of its other assets, now carried on its books, which
assets consist of those reflected in the most recent balance sheet of the
Company which forms Exhibit 3.08 attached hereto, or acquired since the date of
such balance sheet (except personal property disposed of since said date in the
ordinary course of business) free of any mortgages, pledges, charges, liens,
security interests or other encumbrances other than (a) any such created in
accordance with the terms of the leases, security agreements and other financing
documents listed in Exhibit 3.07, (b) liens for taxes not yet due and payable,
(c) liens imposed by law and incurred in the ordinary course of business for
obligations not yet due and payable to landlords, carriers, warehousemen,
materialmen and the like, and (d) unperfected purchase money security interests
existing in the ordinary course of business without the execution of a separate
security agreement. The Company enjoys peaceful and undisturbed possession under
all leases under which it is operating, and all said leases are valid and
subsisting and in full force and effect.
The Company owns or has a valid right to use the Intellectual Property
Rights being used to conduct its business as now operated and as now proposed to
be operated (a complete list of licenses and registrations of such Intellectual
Property Rights is attached hereto as Exhibit 3.07); and the conduct of its
business as now operated and as now proposed to be operated does not and will
not conflict with or infringe upon the intellectual property rights of others.
Except as set forth on Exhibit 3.07, no claim is pending or threatened against
the Company and/or its officers, employees and consultants to the effect
8
that any such Intellectual Property Right owned or licensed by the Company, or
which the Company otherwise has the right to use, is invalid or unenforceable by
the Company. Except pursuant to the terms of any licenses specified on Exhibit
3.07, the Company has no obligation to compensate any Person for the use of any
such Intellectual Property Rights and the Company has not granted any Person any
license or other right to use any of the Intellectual Property Rights of the
Company, whether requiring payment of royalties or not.
The Company has taken all reasonable measures to protect and preserve
the security, confidentiality and value of its Intellectual Property Rights,
including its trade secrets and other confidential information. All employees
and consultants of the Company involved in the design, review, evaluation or
development of products or Intellectual Property Rights have executed
nondisclosure and assignment of inventions agreements sufficient to protect the
confidentiality and value of the Company's Intellectual Property Rights and to
vest in the Company exclusive ownership of such Intellectual Property Rights. To
the best knowledge of the Company, all trade secrets and other confidential
information of the Company are presently valid and protectible and are not part
of the public domain or knowledge, nor, to the best knowledge of the Company,
have they been used, divulged or appropriated for the benefit of any person
other than the Company or otherwise to the detriment of the Company. To the best
of the Company's knowledge, no employee or consultant of the Company has used
any trade secrets or other confidential information of any other person in the
course of their work for the Company. The Company is the exclusive owner of all
right, title and interest in its Intellectual Property Rights as purported to be
owned by the Company, and such Intellectual Property Rights are valid and in
full force and effect. Neither the Company, nor any of its employees or
consultants has received notice of, and, to the best of the Company's knowledge
after reasonable investigation, there are no claims that the Company's
Intellectual Property Rights or the use or ownership thereof by the Company
infringes, violates or conflicts with any such right of any third party. No
university, hospital, government agency (whether federal or state) or other
organization which sponsored research and development conducted by the Company
has any claim of right to or ownership of or other encumbrance upon the
Intellectual Property Rights of the Company.
3.08. Financial Information. The financial statements of the Company,
including (i) the Company's Compiled Financial Statements from the date of its
incorporation, (September 1, 1995) through December 31, 1995, and the internally
prepared financial statements for the six months ended June 30, 1996, attached
hereto as Exhibit 3.08, present fairly the financial position of the Company as
at the date or dates thereof (the "Financial Statements"). The Company does not
have, and has no reasonable grounds to know of, any liability, contingent or
otherwise, not adequately reflected in or reserved against in the Financial
Statements. Except as set forth in Exhibit 3.08, since December 31, 1995, (i)
there has been no material adverse change in the business, assets, operations,
affairs, prospects or financial condition of the Company; (ii) neither the
business, financial condition, operations, prospects or affairs of the Company
nor any of its properties or assets, including without limitation, its
Intellectual Property Rights, have been materially adversely affected as the
result of any legislative or regulatory change, any revocation or change in any
franchise, permit, license or right to do business, or any other event or
occurrence, whether or not insured against; and (iii) the Company has not
entered into any
9
material transaction other than in the ordinary course of business, made any
distribution on its capital stock, or redeemed or repurchased any of its capital
stock, except as set forth on Exhibit 3.08.
3.09. Taxes. The Company has accurately prepared and timely filed all
federal, state and other tax returns required by law to be filed by it, has paid
or made provision for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been made and are reflected
in the Company's financial statements for all current taxes and other charges to
which the Company is subject and which are not currently due and payable. None
of the federal income tax returns of the Company have been audited by the
Internal Revenue Service. The Company knows of no additional assessments,
adjustments or contingent tax liability (whether federal or state) pending or
threatened for any period, nor of any basis for any such assessment, adjustment
or contingency. Neither the Company nor, to the best of the Company's knowledge,
any of its stockholders, has ever filed a consent pertaining to the Company
pursuant to Section 341(f) of the Code relating to collapsible corporations.
3.10. ERISA. The Company makes no contributions to any employee pension
benefit plans for its employees which are subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
3.11. Transactions with Affiliates. Except as set forth in Exhibit
3.11, there are no loans, leases, royalty agreements or other continuing
transactions between (a) the Company or any of its customers or suppliers, and
(b) any officer, employee, consultant or director of the Company or any Person
owning five percent (5%) or more of the capital stock of the Company or any
member of the immediate family of such officer, employee, consultant, director
or stockholder or any corporation or other entity controlled by such officer,
employee, consultant, director or stockholder, or a member of the immediate
family of such officer, employee, consultant, director or stockholder.
3.12. Assumptions or Guaranties of Indebtedness of Other Persons. The
Company has not assumed, guaranteed, endorsed or otherwise become directly or
contingently liable on (including, without limitation, liability by way of
agreement, contingent or otherwise, to purchase, to provide funds for payment,
to supply funds to or otherwise invest in the debtor or otherwise to assure the
creditor against loss) any Indebtedness of any other Person except as set forth
in Exhibit 3.12.
3.13. Investments in Other Persons. Except as set forth in Exhibit
3.13, the Company has not made any loans or advances to any Person which is
outstanding on the date of this Agreement in excess of $5,000 in the aggregate,
nor is it committed or obligated to make any such loan or advance, nor does the
Company own any capital stock, assets comprising the business of, obligations
of, or any interest in, any Person. The Company does not have, and has not since
its incorporation had, any Subsidiaries.
3.14. Securities Act of 1933. The Company has complied and will comply
with all applicable federal and state securities laws in connection with the
offer, issuance and sale of the Preferred Shares hereunder. Neither the Company
nor anyone acting on its behalf has or will sell, offer to sell or solicit
10
offers to buy the Preferred Shares or similar securities to, or solicit offers
with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any Person, so as to bring the issuance and
sale of the Preferred Shares under the registration provisions of the Securities
Act and applicable state securities laws.
3.15. Disclosure. Neither this Agreement, the Financial Statements, nor
any other agreement, document, certificate, statement, whether oral or written,
furnished to the Purchaser or its special counsel by or on behalf of the Company
in connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein, in light of the
circumstances in which made, not misleading. Projections made in the Business
Plan are not considered to be facts for the purpose of this Section. Such
projections were prepared in good faith on the basis of reasonable assumptions,
and all such assumptions which are material to such projections have been
disclosed in the Business Plan. There is no fact within the knowledge of the
Company or any of its executive officers which has not been disclosed herein or
in writing by them to the Purchaser and which materially adversely affects, or
in the future in their opinion may, insofar as they can now foresee, materially
adversely affect the business, operations, properties, Intellectual Property
Rights, assets or condition, financial or other, of the Company. Without
limiting the foregoing, the Company has no knowledge that there exists, or there
is pending or planned, any patent, invention, device, application or principle
or any statute, rule, law, regulation, standard or code which would materially
adversely affect the business, operations, Intellectual Property Rights, affairs
or financial condition of the Company.
3.16. Brokers or Finders. No Person has or will have, as a result of
the transactions contemplated by this Agreement, any right, interest or valid
claim against or upon the Company for any commission, fee or other compensation
as a finder or broker because of any act or omission by the Company or its
respective agents.
3.17. Capitalization; Status of Capital Stock. As of the Closing, the
Company will have a total authorized capitalization consisting of (i) 4,000,000
shares of Common Stock, $.01 par value, and (ii) 2,000,000 shares of Preferred
Stock, $.01 par value, of which 1,000,000 shares will be designated as Series A
Preferred Stock. As of the Closing, 1,100,800 shares of Common Stock will be
issued and outstanding, and, without giving effect to the transactions
contemplated hereby, no shares of Series A Preferred Stock will be issued or
outstanding. A complete list of the capital stock of the Company which has been
previously issued and the names in which such capital stock is registered on the
stock transfer book of the Company is set forth in Exhibit 3.17 hereto. All the
outstanding shares of capital stock of the Company have been duly authorized,
and are validly issued, fully paid and non-assessable. The Series A Shares when
issued and delivered in accordance with the terms hereof, and the Conversion
Shares, when issued and delivered upon conversion of the Series A Shares, will
be duly authorized, validly issued, fully-paid and non-assessable. Except for
210,080shares of Common Stock that will be reserved for issuance upon exercise
of stock options as further set forth in Exhibit 3.17, no options, warrants,
subscriptions or purchase rights of any nature to acquire from the Company, or
commitments of the Company to issue, shares of capital stock or other securities
are authorized, issued or outstanding, nor is the Company
11
obligated in any other manner to issue shares or rights to acquire any of its
capital stock or other securities except as contemplated by this Agreement. None
of the Company's outstanding securities or authorized capital stock or the
Preferred Stock are subject to any rights of redemption, repurchase, rights of
first refusal, preemptive rights or other similar rights, whether contractual,
statutory or otherwise, for the benefit of the Company, any stockholder, or any
other Person, except pursuant hereto or the Voting and Stock Restriction
Agreement. Except as set forth in Exhibit 3.17, there are no restrictions on the
transfer of shares of capital stock of the Company other than those imposed by
relevant federal and state securities laws and as otherwise contemplated by this
Agreement. Except as set forth in Exhibit 3.17, there are no agreements,
understandings, trusts or other collaborative arrangements or understandings
concerning the voting or transfer of the capital stock of the Company. The offer
and sale of all capital stock and other securities of the Company issued before
the Closing complied with or were exempt from all applicable federal and state
securities laws and no stockholder has a right of rescission or damages with
respect thereto.
3.18. Registration Rights. Except as set forth on Exhibit 3.18, and
except for the rights granted hereunder, no Person has demand or other rights to
cause the Company to file any registration statement under the Securities Act
relating to any securities of the Company or any right to participate in any
such registration statement.
3.19. Insurance. The Company carries insurance covering its properties
and business adequate and customary for the type and scope of the properties,
assets and business, and similar to companies of comparable size and condition
similarly situated in the same industry in which the Company operates, but in
any event in amounts sufficient to prevent the Company from becoming a co-
insurer or self-insurer, with provision for reasonable deductibles.
3.20. Books and Records. The books of account, ledgers, order books,
records and documents of the Company accurately and completely reflect all
material information relating to the business of the Company, the location and
collection of its assets, and the nature of all transactions giving rise to the
obligations or accounts receivable of the Company.
3.21. Material Agreements. Except as set forth in Exhibit 3.21, the
Company is not a party to any written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement, a copy of which would be required
to be filed with the Commission as an exhibit to a registration statement on
Form S-1 or Form S-18 if the Company were registering securities under the
Securities Act, or any other agreement which could adversely affect the
business, assets, liabilities, Intellectual Property Rights, financial condition
or operations of the Company. The Company, and to the best of the Company's
knowledge, each other party thereto have in all material respects performed all
the obligations required to be performed by them to date, have received no
notice of default and are not in default under any lease, agreement or contract
now in effect to which the Company is a party or by which it or its property may
be bound, the result of which could cause a material adverse change in the
business, assets, liabilities, Intellectual Property Rights, operations or
financial condition of the Company. Except as set forth in Exhibit 3.21, each of
the contracts or agreements listed in Exhibit 3.21 is in full force and effect
with no
12
default, anticipated or threatened default or failure of performance or
observance of any obligations or conditions contained therein, and none of the
foregoing parties nor the Company has provided any notice of default or of its
intention to terminate these agreements.
3.22. Absence of Certain Developments. Except as provided in Exhibit
3.22 attached hereto, since June 30, 1996 the Company has not engaged in any
activities except in the normal course of business, none of which are material.
3.23. Environmental and Safety Laws. To the best of the Company's
knowledge after due investigation, it is not in violation of any applicable
statute, law or regulation relating to the environment or occupational safety
and health, and to the best of its knowledge after due investigation, no
material expenditures will be required in order to comply with any such statute,
law or regulation.
3.24. U.S. Real Property Holding Corporation. The Company is not now
and has never been a "United States Real Property Holding Corporation" as
defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service.
3.25. Business Plan. All factual information contained in the Business
Plan was when given and is at the date of this Agreement true, complete and
accurate in all material respects and not misleading and, without prejudice to
the generality of the foregoing, the financial forecasts contained in the
Business Plan have been diligently prepared and such assumptions upon which they
are based as to the prospects of the Company have been carefully considered and
are honestly believed to be reasonable, having regard to the information
available and to the market conditions prevailing at the time of their
preparation and that the Company has made due and careful inquiry so as to
ascertain (as far as possible) all such information and conditions which are
relevant to the preparation of the Business Plan.
ARTICLE IV
COVENANTS OF THE COMPANY
4.01. Affirmative Covenants of the Company Other Than Reporting
Requirements. Without limiting any other covenants and provisions hereof, and
except to the extent the following covenants and provisions of this Section 4.01
are waived in any instance by all of the Investor Directors, the Company
covenants and agrees that until the consummation of a Qualified Public Offering,
it will perform and observe the following covenants and provisions, and will
cause each Subsidiary, if and when such Subsidiary exists, to perform and
observe such of the following covenants and provisions as are applicable to such
Subsidiary:
(a) Maintenance of Key Man Insurance. Within 90 days from the
date hereof, maintain term life insurance on the lives of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, each in the amount of $250,000, in each case for so long as
such person remains an officer or employee of the Company, the proceeds of which
are payable to the Company. The Company will add Purchaser as a notice party to
13
such policy and will request that the issuer of such policy provide the
Purchaser with at least twenty (20) days' notice before such policy is
terminated (for failure to pay premium or otherwise) or assigned, or before any
change is made in the designation of the beneficiary thereof.
(b) Inspection Rights. Permit during normal business hours,
upon reasonable request and notice, the Purchaser or any of its employees,
agents or representatives, to examine and make copies of and extracts from the
records and books of account of, and visit and inspect the properties, assets,
operations and business of the Company and any Subsidiary, and to discuss the
affairs, finances and accounts of the Company and any Subsidiary with any of its
officers, consultants, directors, Key Employees, attorneys or independent
accountants; provided, however, that Purchaser, and its employees, agents or
representatives, as the case may be, agrees to hold all information confidential
on the terms set forth in Section 9.09 hereof.
(c) Budgets Approval. At least thirty (30) days prior to the
commencement of each fiscal year, prepare and submit to, and obtain in respect
thereof the approval of two-thirds of the members of the Board of Directors, a
business plan and monthly operating budget in detail for each fiscal year,
monthly operating expenses and profit and loss projections, quarterly cash flow
projections and a capital expenditure budget for the fiscal year.
(d) Financing. Promptly, fully and in detail, inform the
Directors of any discussions, offers or contracts relating to possible financing
of any material nature for the Company, whether initiated by the Company or any
other Person.
(e) New Developments. Cause all technological developments,
patentable or unpatentable inventions, discoveries or improvements by the
Company's or any Subsidiary's employees or consultants to be documented in
accordance with industry practice and, where possible and appropriate, to file
and prosecute United States and foreign patent, copyright, trademark, mask work
or other Intellectual Property Right applications relating to and protecting the
Company's inventions, discoveries or developments on behalf of the Company or
any Subsidiary.
(f) Meetings of Directors, Committees and Observer Rights.
Hold meetings of the Company's Board of Directors not less than on a quarterly
basis; hold meetings of the Company's Executive Committee of the Board of
Directors not less than four times a year; permit Purchaser or its designee who
is not affiliated with the Investor Directors to have one representative attend
each meeting of the Board of Directors of the Company; permit Purchaser or its
designee to attend each meeting of any committee thereof and to participate in
all discussions during each such meeting; send to Purchaser and each Executive
Shareholder (as defined in the Voting and Stock Restriction Agreement) the
notice of the time and place of such meeting in the same manner and at the same
time as it shall send such notice to its directors or committee members, as the
case may be; and provide to Purchaser and each Executive Shareholder copies of
all notices, reports, minutes and consents at the time and in the manner as they
are provided to the Board of Directors or any committee thereof.
14
(g) Agreements of Officers and Employees. Cause each employee
of the Company or any Subsidiary now or hereafter employed to execute and
deliver a Nondisclosure and Assignment of Developments Agreement in form and
substance satisfactory to the Purchaser (or as otherwise approved by the Board
of Directors of the Company, including a majority of the Investor Directors) and
cause each Key Employee of the Company or any Subsidiary hereafter employed to
execute and deliver a Non-competition Agreement in form and substance
satisfactory to the Purchaser (or as otherwise approved by the Board of
Directors of the Company, including a majority of the Investor Directors), and
use its best efforts to cause all consultants of the Company involved in the
design, review, evaluation or development of products or Intellectual Property
Rights to execute and deliver a Nondisclosure and Assignment of Developments
Agreement in form and substance satisfactory to the Purchaser (or as otherwise
approved by the Board of Directors, including a majority of the Investor
Directors), and, if requested by Purchaser, to cause all employees of the
Company or any Subsidiary, now or hereafter employed, who owns or acquires any
capital stock of the Company, to execute and deliver a Stock Restriction
Agreement in form and substance satisfactory to the Purchaser (or as otherwise
approved by the Board of Directors of the Company, including a majority of the
Investor Directors), except those employees who are Shareholders under the
Voting and Stock Restriction Agreement; and the Company shall not amend or waive
any of the provisions of such Nondisclosure and Assignment of Developments
Agreements, Non-competition Agreements or Stock Restriction Agreements.
(h) By-laws; Meetings and Indemnification. The Company shall
use its best efforts to at all times cause its By-laws to provide that, (A)
unless otherwise required by the laws of the state of its incorporation, (i) any
two directors or (ii) any holder or holders of at least 25% of the outstanding
shares of Preferred Stock, voting as a separate class, shall have the right to
call a meeting of the Board of Directors or stockholders, respectively and (B) a
quorum for a meeting of the Board of Directors or any Committee hereof of which
an Investor Director is a member shall require the attendance of at least one
Investor Director (as defined in the Voting and Stock Restriction Agreement),
except as otherwise provided in the Company's By-laws. The Company shall at all
times maintain provisions in its By-laws or Articles of Incorporation
indemnifying all directors against liability to the maximum extent permitted
under the laws of the state of its incorporation.
(i) Corporate Existence. Maintain and cause each of its
Subsidiaries to maintain their respective corporate existence, Intellectual
Property Rights, other rights and franchises in full force and effect to the
extent appropriate in accordance with good business practice.
(j) Properties, Business, Insurance. Maintain and cause each
of its Subsidiaries to maintain as to their respective properties and business,
with financially sound and reputable insurers, insurance against such casualties
and contingencies and of such types and in such amounts as is customary for
companies of a similar size and financial condition similarly situated within
the same industry.
(k) Expenses of Directors. Promptly reimburse in full each
director of the Company for all of his reasonable out-of-pocket expenses
incurred in attending each meeting of the Board of
15
Directors of the Company or any Committee thereof.
(l) Compliance with Laws. Comply, and cause each Subsidiary to
comply, with all applicable laws, rules, regulations and orders, noncompliance
with which could materially adversely affect its business, assets, Intellectual
Property Rights, operations or condition, financial or otherwise.
(m) Keeping of Records and Books of Account. Keep, and cause
each Subsidiary to keep, adequate records and books of account, in which
complete entries will be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial transactions of the
Company and such Subsidiary, and in which, for each fiscal year, all proper
reserves for depreciation, depletion, obsolescence, amortization, taxes, bad
debts and other purposes in connection with its business shall be made.
(n) Size of Board. Fix and maintain the number of Directors on
the Board of Directors of the Company at seven members, including four directors
nominated by the Purchaser, one of which shall be the Chairman of the Board.
(o) Rule 144A Information. At all times during which the
Company is neither subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under
the Exchange Act, it will provide as promptly as practicable (in any event not
later than twenty (20) days after initial request) in written form, upon the
written request of the Purchaser or a prospective buyer of Shares from any
Purchaser, all information required by Rule 144A(d)(4)(i) of the General
Regulations promulgated by the Commission under the Securities Act ("Rule 144A
Information"). The Company further covenants, upon written request, as promptly
as practicable (in any event not later than twenty (20) days after initial
request) to cooperate with and assist the Purchaser or any member of the
National Association of Securities Dealers, Inc. system for Private Offerings
Resales and Trading through Automated Linkage ("PORTAL") in applying to
designate and thereafter maintain the eligibility of the Shares for trading
through PORTAL. The Company's obligations under this Section 4.01(o) shall at
all times be contingent upon the Purchaser obtaining from a prospective
purchaser an agreement to take all reasonable precautions to safeguard the Rule
144A Information from disclosure to anyone other than a person who will assist
such purchaser in evaluating the purchase of the Shares.
4.02. Negative Covenants of the Company. The Company covenants and
agrees that until the consummation of a Qualified Public Offering, it will
comply with and observe the following negative covenants and provisions, and
will cause each Subsidiary to comply with and observe such of the following
covenants and provisions as are applicable to such Subsidiary, if and when such
Subsidiary exists, and will not without the written consent or written waiver of
all of the Investor Directors:
(a) Dealings with Affiliates. Enter into any transaction,
including, without limitation, any loans or extensions of credit or royalty
agreements with any employee, consultant, officer or director of the Company or
any Subsidiary or holder of five percent (5%) of any class of capital stock of
the
16
Company or any Subsidiary, or any member of their respective immediate families
or any corporation or other entity directly or indirectly controlled by one or
more of such employees, consultants, officers, directors or 5% stockholders or
members of their immediate families, (i) on terms less favorable to the Company
or any Subsidiary than it would obtain in a transaction between unrelated
parties or (ii) except in the case of any transaction or series of transactions
entered into in the ordinary course of business and involving less than $5,000
in the aggregate, without the approval of two-thirds of the Board of Directors
(including a majority of the Investor Directors).
(b) Issuance of Equity Securities. Authorize or issue, or
obligate itself to issue, any additional shares or capital stock of the Company
of any class, provided, however, that the provisions of this Section 4.02(b)
shall not apply to the issuance of: (i) the Conversion Shares; or (ii) up to
210,080 shares of Common Stock or options or warrants exercisable therefor,
issued on or after the date hereof to directors, officers, employees or
consultants of the Company and any Subsidiary pursuant to any qualified or non-
qualified stock option plan or agreement, employee stock ownership plan,
employee benefit plan, stock purchase agreement, stock plan, stock restriction
agreement, or consulting agreement or such other options, arrangements,
agreements or plans approved by two-thirds of the members of the Compensation
Committee (including any Investor Director on such Committee), or if no such
committee, by two-thirds of the members of the Board of Directors of the Company
(including a majority of the Investor Directors).
(c) Compensation to Officers. Except in any instance in which
approval has been obtained by all of the Investor Directors or otherwise
pursuant to Section 4.01(c) hereof, during any calendar year pay to any officer
or senior manager compensation (including salary and bonus) which exceeds the
compensation customarily paid to management in companies of similar size, of
similar maturity, and in similar businesses.
(d) Maintenance of Ownership of Subsidiaries. Sell or
otherwise dispose of any shares of capital stock of any Subsidiary, except to
another Subsidiary, or permit any Subsidiary to issue, sell or otherwise dispose
of any shares or rights to acquire any of its capital stock or the capital stock
of any Subsidiary, except to the Company or another Subsidiary; provided,
however, that the Company may liquidate, merge or consolidate any Subsidiary or
Subsidiaries into or with itself, provided that the Company is the surviving
entity, or into or with another Subsidiary or Subsidiaries, or the Company may
sell all or a portion of any Subsidiary to the Company or any other subsidiary,
provided that after giving effect to the transaction, the Subsidiary continues
to remain a member of the Company's "consolidated group" for tax and accounting
purposes.
(e) Transfer of Technology. Transfer, sell, dispose of,
assign, lease, license or donate any ownership or interest in, or material
rights relating to, and of its technology, or other Intellectual Property Rights
to any person or entity which is not a member of the "consolidated group" of the
Company and its Subsidiaries; provided, however, that this Section shall not
apply to transfers or licenses of technology or Intellectual Property Rights
accomplished in the ordinary course of business as presently conducted or
proposed to be conducted.
17
(f) Conduct of Business. The Company covenants that it will
not, and will not permit any of its Subsidiaries to engage in any business other
than the business engaged in by each of them on the date hereof and any
businesses or activities substantially similar or related thereto other than as
contemplated by the Business Plan.
(g) Assumptions or Guaranties of Indebtedness of Other
Persons. Assume, guarantee, endorse or otherwise become directly or contingently
liable on, or permit any Subsidiary to assume, guarantee, endorse or otherwise
become directly or contingently liable on (including, without limitation,
liability by way of agreement, contingent or otherwise, to purchase, to provide
funds for payment, to supply funds to or otherwise invest in the debtor or
otherwise to assure the creditor against loss) any Indebtedness of any other
Person, except for guaranties by endorsement of negotiable instruments for
deposit or endorsement of negotiable instruments for deposit or collection in
the ordinary course of business, and except for the guaranties of the permitted
obligations of any wholly-owned Subsidiary except as provided for in Exhibit
3.12.
(h) Investments in Other Corporations or Entities. Make, or
permit any Subsidiary to make, any loan or advance to any Person, or purchase,
otherwise acquire, or permit any Subsidiary to purchase or otherwise acquire,
the capital stock, assets comprising the business of, obligations of, or any
interest in, any other corporation or entity which will not be operated as a
wholly-owned Subsidiary, except:
(i) investments by the Company or a Subsidiary in
evidences of indebtedness issued or fully guaranteed by the United States of
America and having a maturity of not more than one year from the date of
acquisition;
(ii) investments by the Company or a Subsidiary in
certificates of deposit, notes, acceptances and repurchase agreements having a
maturity of not more than one year from the date of acquisition issued by a bank
organized in the United States having capital, surplus and undivided profits of
at least $50,000,000;
(iii) investments by the Company or a Subsidiary in
the highest-rated commercial paper having a maturity of not more than one year
from the date of acquisition;
(iv) investments by the Company or a Subsidiary in
"Money Market" fund shares, or in money market accounts fully insured by the
Federal Deposit Insurance Corporation and sponsored by banks and other financial
institutions, provided that the investments consist principally of the types of
investments described in clauses (i), (ii) or (iii) of this subsection 4.02(h);
or
(v) loans or advances from a Subsidiary to the
Company or from the Company to a Subsidiary.
(i) Amendments. Amend the Articles of Incorporation or By-laws
of the Company.
18
4.03. Reporting Requirements. Until the consummation of the Initial
Public Offering, the Company will furnish the following to each Person who holds
any of the shares issued pursuant to this Agreement:
(a) Monthly Reports. As soon as available and in any event
within 15 days after the end of each calendar month, consolidated and
consolidating balance sheets of the Company and its Subsidiaries as of the end
of such month and consolidated and consolidating statements of income and
retained earnings and a summary statement of monthly cash flow of the Company
and its Subsidiaries for such month and for the period commencing at the end of
the previous fiscal year and ending with the end of such month, setting forth in
each case in comparative form the corresponding figures for the corresponding
period of the preceding fiscal year, and including comparisons to the monthly
budget or business plan and an analysis of the variances from the budget or
plan, prepared in accordance with generally accepted accounting principles
consistently applied; and, as soon as available and in any event within 15 days
after the end of each fiscal quarter, a consolidated and consolidating statement
of changes in financial position of the Company and its Subsidiaries for such
quarter and for the corresponding period of the prior fiscal year, prepared in
accordance with generally accepted accounting principles consistently applied;
(b) Annual Reports. As soon as available and in any event
within 45 days after the end of each fiscal year of the Company, a copy of the
annual audit report for such year for the Company and its Subsidiaries,
including therein consolidated and consolidating balance sheets of the Company
and its Subsidiaries as of the end of such fiscal year and consolidated and
consolidating statements of income and retained earnings and of changes in
financial position of the Company and its Subsidiaries for such fiscal year,
setting forth in each case in comparative form the corresponding figures for the
preceding fiscal year, all such consolidated statements to be duly certified by
the chief financial officer of the Company and an independent public accountant
of recognized national standing approved by a majority of the Board of
Directors;
(c) Budgets and Operating Plan. As soon as available and in
any event at least 60 days before the beginning of each fiscal year of the
Company, a business plan and monthly and quarterly operating budgets for the
forthcoming fiscal year, and as soon as available and in any event within 15
days after the end of each calendar month, monthly comparisons against the
business plan and monthly operating budgets;
(d) Notice of Adverse Changes. Promptly after the occurrence
thereof and in any event within five (5) business days after each occurrence,
notice of any material adverse change in the business, assets, Intellectual
Property Rights, management, operations or financial condition of the Company;
and
(e) Reports and Other Information. Promptly upon receipt,
publication, commencement or occurrence provide to each Purchaser copies of all
consulting reports, notices of all material actions, suits or proceedings,
copies of all accountant's reviews, and reports to management, and
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such other information as the Company shall make available to its directors or
stockholders or the Purchasers shall reasonably request.
ARTICLE V
REGISTRATION RIGHTS
5.01. Piggy-Back Registrations. If at any time the Company shall
determine to register for its own account or the account of others under the
Securities Act (including pursuant to the Qualified Public Offering, the Initial
Public Offering or a demand for registration of any shareholder of the Company
other than the Purchaser exercising registration rights with respect to the
Preferred Stock) any of its equity securities, other than on Form S-8 or Form S-
4 or their then equivalents relating to shares of Common Stock to be issued
solely in connection with any acquisition of any entity or business or shares of
Common Stock issuable in connection with stock option or other employee benefit
plans, it shall send to each holder of Registrable Shares, including each holder
who has the right to acquire Registrable Shares, written notice of such
determination and, if within fifteen (15) days after receipt of such notice,
such holder shall so request in writing, the Company shall use its best efforts
to include in such registration statement all or any part of the Registrable
Shares such holder requests to be registered, except that if, in connection with
any offering involving an underwriting of Common Stock to be issued by the
Company, the managing underwriter shall impose a limitation on the number of
shares of such Common Stock which may be included in the registration statement
because, in its judgment, such limitation is necessary to effect an orderly
public distribution, then the Company shall be obligated to include in such
registration statement only such limited portion of the Registrable Shares with
respect to which such holder has requested inclusion hereunder; provided,
however, that the Company shall not so exclude any Registrable Shares held by
the Series A Purchaser unless it has first excluded any securities to be offered
and sold by directors, officers or other employees of the Company or by holders
who do not have contractual, incidental rights to include such securities
(collectively, "Excludable Shares"); provided, further, that as between the
Company and holders of Registrable Shares, in no event shall the Registrable
Shares included in such offering be limited to less than twenty-five percent
(25%) of the aggregated shares offered. Any exclusion of Series A Preferred
Stock or capital stock issued or issuable on conversion thereof, shall be made
pro rata among the Series A Purchasers (or their assigns) seeking to include
such shares, in proportion to the number of such shares sought to be included by
such Purchasers (or their assigns). No incidental right under this Section 5.01
shall be construed to limit any registration required under Section 5.02. The
obligations of the Company under this Section 5.01 may be waived at any time
upon the written consent of holders of sixty percent (60%) in interest of the
Series A Shares and shall expire on the tenth anniversary following the
consummation of an Initial Public Offering.
5.02. Required Registration. If on any occasion one or more holders of
at least sixty percent (60%) of the Series A Shares shall notify the Company in
writing that it or they intend to offer or cause to be offered for public sale
at least thirty percent (30%) of the Registrable Shares, the Company will so
notify all holders of Registrable Shares, including all holders who have a right
to acquire Registrable Shares. Upon written request of any holder given within
fifteen (15) days after the receipt by such holder
20
from the Company of such notification, the Company will use its best efforts to
cause such of the Registrable Shares as may be requested by any holder thereof
(including the holder or holders giving the initial notice of intent to offer)
to be registered under the Securities Act as expeditiously as possible. The
Company shall not be required to effect more than one registration during any
twelve (12) month period pursuant to this Section 5.02 and two such
registrations in the aggregate. If the Company determines to include shares to
be sold by it or by other selling shareholders in any registration request
pursuant to this Section 5.02, such registration shall be deemed to have been a
"piggy back" registration under Section 5.01, and not a "demand" registration
under this Section 5.02 if the holders of Registrable Shares are unable to
include in any such registration statement eighty-five percent (85%) of the
Registrable Shares initially requested for inclusion in such registration
statement. The Company shall not be required to effect a registration pursuant
to this Section 5.02 unless the minimum market value of any offering and
registration of Registrable Shares made pursuant thereto is at least $1,000,000,
before calculation of underwriting discounts and commissions. The holders of
Registrable Shares may not exercise their rights under this Section 5.02 until
the earlier to occur of (i) 30months following the date of the Closing or (ii)
90 days after the effectiveness of any registration statement covering the
Initial Public Offering.
5.03. Registrations on Form S-3. In addition to the rights provided the
holder of Registrable Shares in Sections 5.01 and 5.02 above, if the
registration of Registrable Shares under the Securities Act can be effected on
Form S-3 (or any similar form promulgated by the Commission), then upon the
written request of one or more holders of at least sixty percent (60%) of the
Series A Shares, the Company will so notify each holder of Registrable Shares,
including each holder who has a right to acquire Registrable Shares, and then
will, as expeditiously as possible, use its best efforts to effect qualification
and registration under the Securities Act on Form S-3 of all or such portion of
the Registrable Shares as the holder or holders shall specify; provided,
however, the Company shall not be required to effect a registration pursuant to
this Section 5.03 unless the market value of the Registrable Shares to be sold
in any such registration shall be estimated to be at least $500,000 at the time
of filing such registration statement, and further provided that the Company
shall not be required to effect more than one (1) registration during any twelve
(12) month period pursuant to this Section 5.03.
5.04. Effectiveness. The Company will use its best efforts to maintain
the effectiveness for up to 90 days (or such shorter period of time as the
underwriters need to complete the distribution of the registered offering, or
one year in the case of a "shelf" registration statement on Form S-3) of any
registration statement pursuant to which any of the Registrable Shares are being
offered, and from time to time will amend or supplement such registration
statement and the prospectus contained therein to the extent necessary to comply
with the Securities Act and any applicable state securities statute or
regulation. The Company will also provide each holder of Registrable Shares with
as many copies of the prospectus contained in any such registration statement as
it may reasonably request.
5.05. Indemnification of Holder of Registrable Shares. In the event
that the Company registers any of the Registrable Shares under the Securities
Act, the Company will indemnify and hold harmless each holder and each
underwriter of the Registrable Shares (including their officers, directors,
affiliates and partners) so registered (including any broker or dealer through
whom such shares may be sold) and
21
each Person, if any, who controls such holder or any such underwriter within the
meaning of Section 15 of the Securities Act from and against any and all losses,
claims, damages, expenses or liabilities, joint or several, to which they or any
of them become subject under the Securities Act, applicable state securities
laws or under any other statute or at common law or otherwise, as incurred, and,
except as hereinafter provided, will reimburse each such holder, each such
underwriter and each such controlling Person, if any, for any legal or other
expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions whether or not resulting in any
liability, as incurred, insofar as such losses, claims, damages, expenses,
liabilities or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the registration
statement, in any preliminary or amended preliminary prospectus or in the final
prospectus (or the registration statement or prospectus as from time to time
amended or supplemented by the Company) or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act or any state securities laws applicable to
the Company and relating to action or inaction required of the Company in
connection with such registration, unless (i) such untrue statement or alleged
untrue statement or omission or alleged omission was made in such registration
statement, preliminary or amended preliminary prospectus or final prospectus in
reliance upon and in conformity with information furnished in writing to the
Company in connection therewith by any such holder of Registrable Shares (in the
case of indemnification of such holder), any such underwriter (in the case of
indemnification of such underwriter) or any such controlling Person (in the case
of indemnification of such controlling person) expressly for use therein, or
unless (ii) in the case of a sale directly by such holder of Registrable Shares
(including a sale of such Registrable Shares through any underwriter retained by
such holder of Registrable Shares to engage in a distribution solely on behalf
of such holder of Registrable Shares), such untrue statement or alleged untrue
statement or omission or alleged omission was contained in a preliminary
prospectus and corrected in a final or amended prospectus copies of which were
delivered to such holder of Registrable Shares or such underwriter on a timely
basis, and such holder of Registrable Shares failed to deliver a copy of the
final or amended prospectus at or prior to the confirmation for the sale of the
Registrable Shares to the person asserting any such loss, claim, damage or
liability in any case where such delivery is required by the Securities Act.
Promptly after receipt by any holder of Registrable Shares, any
underwriter or any controlling Person of notice of the commencement of any
action in respect of which indemnity may be sought against the Company, such
holder of Registrable Shares, or such underwriter or such controlling Person, as
the case may be, will notify the Company in writing of the commencement thereof
(provided, that failure to so notify the Company shall not relieve the Company
from any liability it may have hereunder) and, subject to the provisions
hereinafter stated, the Company shall be entitled to assume the defense of such
action (including the employment of counsel, who shall be counsel reasonably
satisfactory to such holder of Registrable Shares, such underwriter or such
controlling Person, as the case may be), and the payment of expenses insofar as
such action shall relate to any alleged liability in respect of which indemnity
may be sought against the Company.
Such holder of Registrable Shares, any such underwriter or any such
controlling Person shall have
22
the right to employ separate counsel in any such action and to participate in
the defense thereof but the fees and expenses of such counsel subsequent to any
assumption of the defense by the Company shall not be at the expense of the
Company unless the employment of such counsel has been specifically authorized
in writing by the Company. The Company shall not be liable to indemnify any
Person for any settlement of any such action effected without the Company's
written consent. The Company shall not, except with the approval of each party
being indemnified under this Section 5.05, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to the parties being so
indemnified of a release from all liability in respect to such claim or
litigation.
In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which any holder of
Registrable Shares exercising rights under this Article V, or any controlling
Person of any such holder, makes a claim for indemnification pursuant to this
Section 5.05 but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this Section 5.05
provides for indemnification in such case, then, the Company and such holder
will contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and of
the holder of Registrable Shares on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative fault of the
Company on the one hand and of the holder of Registrable Shares on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company on the one
hand or by the holder of Registrable Shares on the other, and each party's
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission; provided, however, that, in any such case,
(A) no such holder will be required to contribute any amount in excess of the
public offering price of all such Registrable Shares offered by it pursuant to
such registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
5.06. Indemnification of Company. In the event that the Company
registers any of the Registrable Shares under the Securities Act, each holder of
the Registrable Shares so registered will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed or
otherwise participated in the preparation of the registration statement, each
underwriter of the Registrable Shares so registered (including any broker or
dealer through whom such of the shares may be sold) and each Person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act from
and against any and all losses, claims, damages, expenses or liabilities, joint
or several, to which they or any of them may become subject under the Securities
Act, applicable state securities laws or under any other statute or at common
law or otherwise, and, except as hereinafter provided, will reimburse the
Company and each such director, officer, underwriter or controlling Person for
any legal or other
23
expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement, in any
preliminary or amended preliminary prospectus or in the final prospectus (or in
the registration statement or prospectus as from time to time amended or
supplemented) or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, but only insofar as any
such statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company in connection therewith by such
holder of Registrable Shares expressly for use therein; provided, however, that
such holder's obligations hereunder shall be limited to an amount equal to the
proceeds received by such holder of Registrable Shares sold in such
registration.
Promptly after receipt of notice of the commencement of any action in
respect of which indemnity may be sought against such holder of Registrable
Shares, the Company will notify such holder of Registrable Shares in writing of
the commencement thereof (provided, that failure to so notify such holder shall
not relieve such holder from any liability it may have hereunder), and such
holder of Registrable Shares shall, subject to the provisions hereinafter
stated, be entitled to assume the defense of such action (including the
employment of counsel, who shall be counsel reasonably satisfactory to the
Company) and the payment of expenses insofar as such action shall relate to the
alleged liability in respect of which indemnity may be sought against such
holder of Registrable Shares. The Company and each such director, officer,
underwriter or controlling Person shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel subsequent to any assumption of the defense by
such holder of Registrable Shares shall not be at the expense of such holder of
Registrable Shares unless employment of such counsel has been specifically
authorized in writing by such holder of Registrable Shares. Such holder of
Registrable Shares shall not be liable to indemnify any Person for any
settlement of any such action effected without such holder's written consent.
In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which the Company exercising
its rights under this Article V, makes a claim for indemnification pursuant to
this Section 5.06, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding that this
Section 5.06 provides for indemnification, in such case, then, the Company and
such holder will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion as is appropriate to reflect the relative fault of the Company
on the one hand and of the holder of Registrable Shares on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of the
holder of Registrable Shares on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
24
fact or omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or by the holder of
Registrable Shares on the other, and each party's relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission; provided, however, that, in any such case, (A) no such holder will be
required to contribute any amount in excess of the public offering price of all
such Registrable Shares offered by it pursuant to such registration statement;
and (B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation.
5.07. Exchange Act Registration. If the Company at any time shall list
any class of equity securities of the type which may be issued upon the
conversion of the Preferred Stock on any national securities exchange and shall
register such class of equity securities under the Exchange Act, the Company
will, at its expense, simultaneously list on such exchange and maintain such
listing of, the Common Stock. If the Company becomes subject to the reporting
requirements of either Section 13 or Section 15(d) of the Exchange Act, the
Company will use its best efforts to timely file with the Commission such
information as the Commission may require under either of said Sections; and in
such event, the Company shall use its best efforts to take all action as may be
required as a condition to the availability of Rule 144 or Rule 144A under the
Securities Act (or any successor exemptive rule hereinafter in effect) with
respect to such Common Stock. The Company shall furnish to any holder of
Registrable Shares forthwith upon request (i) a written statement by the Company
as to its compliance with the reporting requirements of Rule 144, (ii) a copy of
the most recent annual or quarterly report of the Company as filed with the
Commission, and (iii) such other reports and documents as a holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing a holder to sell any such Registrable Shares without
registration. After the occurrence of the Initial Public Offering, the Company
agrees to use its best efforts to facilitate and expedite transfers of the
Shares pursuant to Rule 144 under the Securities Act, which efforts shall
include timely notice to its transfer agent to expedite such transfers of
Shares.
5.08. Damages. The Company recognizes and agrees that the holder of
Registrable Shares will not have an adequate remedy if the Company fails to
comply with this Article V and that damages may not be readily ascertainable,
and the Company expressly agrees that, in the event of such failure, it shall
not oppose an application by the holder of Registrable Shares or any other
Person entitled to the benefits of this Article V requiring specific performance
of any and all provisions hereof or enjoining the Company from continuing to
commit any such breach of this Article V.
5.09. Further Obligations of the Company. Whenever under the preceding
Sections of this Article V, the Company is required hereunder to register
Registrable Shares, it agrees that it shall also do the following:
(a) Furnish to each selling holder such copies of each
preliminary and final prospectus and such other documents as said holder may
reasonably request to facilitate the public offering of its Registrable Shares;
25
(b) Use its best efforts to register or qualify the
Registrable Shares covered by said registration statement under the applicable
securities or "blue sky" laws of such jurisdictions as any selling holder may
reasonably request; provided, however, that the Company shall not be obligated
to qualify to do business in any jurisdictions where it is not then so qualified
or to take any action which would subject it to the service of process in suits
other than those arising out of the offer or sale of the securities covered by
the registration statement in any jurisdiction where it is not then so subject;
(c) Furnish to each selling holder a signed counterpart,
addressed to the selling holders, of
(i) an opinion of counsel for the Company, dated the
effective date of the registration statement, and
(ii) "comfort" letters signed by the Company's
independent public accountants who have examined and reported on the Company's
financial statements included in the registration statement, to the extent
permitted by the standards of the American Institute of Certified Public
Accountants, covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and (in the case of
the accountants' "comfort" letters) with respect to events subsequent to the
date of the financial statements, as are customarily covered in opinions of
issuer's counsel and in accountants' "comfort" letters delivered to the
underwriters in underwritten public offerings of securities, to the extent that
the Company is required to deliver or cause the delivery of such opinion or
"comfort" letters to the underwriters in an underwritten public offering of
securities;
(d) Permit each selling holder of Registrable Shares or his
counsel or other representatives to inspect and copy such corporate documents
and records as may reasonably be requested by them;
(e) Furnish to each selling holder of Registrable Shares a
copy of all documents filed with and all correspondence from or to the
Commission in connection with any such offering of securities;
(f) Use its best efforts to insure the obtaining of all
necessary approvals from the National Association of Securities Dealers, Inc.;
and
(g) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earning statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
registration statement covering the Initial Public Offering, which earning
statement shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder.
Whenever under the preceding Sections of this Article V the holders of
Registrable Shares are
26
registering such shares pursuant to any registration statement, each such holder
agrees to (i) timely provide to the Company, at its request, such information
and materials as it may reasonably request in order to effect the registration
of such Registrable Shares and (ii) convert all shares of Preferred Stock
included in any registration statement to shares of Common Stock, such
conversion to be effective at the closing of such offering pursuant to such
registration statement.
5.10. Expenses. In the case of each registration effected under Section
5.01, 5.02 or 5.03, the Company shall bear all reasonable costs and expenses of
each such registration on behalf of the selling holders of Registrable Shares,
including, but not limited to, the Company's printing, legal and accounting fees
and expenses, Commission and NASD filing fees and "Blue Sky" fees and expenses
and the reasonable fees and disbursements (such fees not to exceed $25,000) of
one counsel for the selling holders of Registrable Shares in connection with the
registration of their Registrable Shares; provided, however, that the Company
shall have no obligation to pay or otherwise bear any portion of the
underwriters' commissions or discounts attributable to the Registrable Shares
being offered and sold by the holders of the Registrable Shares, or the fees and
expenses of more than one counsel for the selling holders of Registrable Shares
in connection with the registration of the Registrable Shares. The Company shall
pay all expenses of the holders of the Registrable Shares in connection with any
registration initiated pursuant to this Article V which is withdrawn, delayed or
abandoned at the request of the Company, except if such withdrawal, delay or
abandonment is caused by the fraud, material misstatement or omission of a
material fact by a holder of Registrable Shares to be included in such
registration.
5.11. Approval of Underwriter. Any managing underwriter engaged in any
registration made pursuant to Section 5.02 shall be a nationally recognized firm
requiring the approval in writing of the holders of a majority of the
Registrable Shares requesting such registration and the consent of the Company,
which consent shall not be unreasonably withheld or delayed.
5.12. Transferability. The rights to register securities granted by the
Company under this Article V may be assigned by any holder of the Registrable
Shares provided that (i) any assignee or transferee of the Registrable Shares
acquires at least ten percent (10%) of the Registrable Shares purchased by the
Purchaser on the date hereof and is not a competitor of the Company, or is a
general or limited partner or officer or director of the Purchaser or its
affiliates, including, but not limited to, their immediate family, irrevocable
trusts for estate planning purposes and personal representatives;; (ii) such
transfer may otherwise be and is effected in accordance with applicable
securities laws; and (iii) such assignee or transferee agrees in writing to be
bound by all of the provisions of this Agreement, including, without limitation,
Section 5.13 hereof.
27
5.13. "Lock-Up" Agreement.
(a) Initial Public Offering. Each holder of Registrable Shares
agrees, if so requested by the Company and an underwriter of Common Stock or
other securities of the Company, not to sell, grant any option or right to buy
or sell, or otherwise transfer or dispose of in any manner, whether in
privately-negotiated or open-market transactions, any Common Stock or other
securities of the Company held by it during the 90-day period following the
effective date of a registration statement filed pursuant to the Initial Public
Offering, provided that:
(i) Such agreement shall apply only to the Initial
Public Offering; and
(ii) All holders of Registrable Shares, any other
security holders whose securities are included in such registration statement,
and all officers, directors and Key Employees of the Company shall also enter
into similar agreements.
Such "lock-up" agreement shall be in writing and in form and substance
satisfactory to the Company and such underwriter. The Company may impose stop-
transfer instructions with respect to the shares subject to the foregoing
restrictions until the end of said 90-day period. No holder of Registrable
Shares shall be so restricted unless all holders are similarly and
proportionately restricted.
(b) Lock-Up after Initial Public Offering. Each holder of
Registrable Shares agrees that in the event the Company proposes to offer for
sale to the public any of its equity securities after the Initial Public
Offering, and (1) if such holder of Registrable Shares is an "affiliate" of the
Company (for example, because a general partner of a Purchaser is a director of
the Company) or otherwise holds beneficially or of record ten percent (10%) or
more of the outstanding equity securities of the Company; and (2) if requested
by the Company and an underwriter of Common Stock or other securities of the
Company; and (3) if all other "affiliates" and such 10% stockholders similarly
situated are requested by the Company and such underwriter to sign, and actually
do sign, any "Lock-Up Agreement" (as described herein), then it will not sell,
grant any option or right to buy or sell, or otherwise transfer or dispose of in
any manner, to the public in open market transactions, any Common Stock or other
securities of the Company held by it during the 90-day period following the
effective date of the registration statement of the Company filed under the
Securities Act. The Company agrees that it will sign a Lock-Up Agreement upon
substantially similar terms and conditions in the event of a registration
effected pursuant to Section 5.02 or 5.03 hereof. Such agreements shall be in
writing and in form and substance reasonably satisfactory to the holder of
Registrable Shares, the Company and such underwriter and pursuant to customary
and prevailing terms and conditions.
The Company may impose stop-transfer instructions with respect to the
securities subject to the foregoing restrictions until the end of said 90-day
period.
5.14. Mergers, Etc. The Company shall not, directly or indirectly,
enter into any merger, consolidation or reorganization in which the Company
shall not be the surviving corporation unless the
28
proposed surviving corporation shall, prior to such merger, consolidation or
reorganization, agree in writing to assume the obligations of the Company under
Article V of this Agreement, and for that purpose references hereunder to
Registrable Shares shall be deemed to be references to the securities which the
Purchaser would be entitled to receive in exchange for Registrable Shares under
any such merger, consolidation or reorganization; provided, however, that the
provisions of this Section 5.14 shall not apply in the event of any merger,
consolidation, or reorganization in which the Company is not the surviving
corporation if all stockholders are entitled to receive in exchange for their
Registrable Shares consideration consisting solely of (i) cash, (ii) securities
of the acquiring corporation which may be immediately sold to the public without
registration under the Securities Act, or (iii) securities of the acquiring
corporation which the acquiring corporation has agreed to register within 90
days of completion of the transaction for resale to the public pursuant to the
Securities Act.
5.15 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the holders of at least a majority of the Registrable Securities, enter into
any agreement with any holder or prospective holder of any securities of the
Company which would allow such holder or prospective holder of any securities of
the Company the right to require the Company to initiate any registration of any
securities of the Company. Any right given by the Company to any holder or
prospective holder of the Company's securities in connection with the
registration of securities shall be conditioned such that it shall be consistent
with the provisions of this Article V and with the rights of the holder provided
in this Agreement. This Article V shall not limit the right of the Company to
enter into any agreements with any holder or prospective holder of any
securities of the Company giving such holder or prospective holder the right to
require the Company, upon any registration of any of its securities, to include,
among the securities which the Company is then registering, securities owned by
such holder if such rights are subordinate to the rights of a holder of
Registrable Securities.
ARTICLE VI
RIGHT OF FIRST REFUSAL
6.01. Right of First Refusal. Before the Company shall issue, sell or
exchange, agree or obligate itself to issue, sell or exchange, or reserve or set
aside for issuance, sale or exchange, any (i) shares of Common Stock, (ii) any
other equity security of the Company, including without limitation, shares of
Preferred Stock, (iii) any convertible debt security of the Company, including
without limitation, any debt security which by its terms is convertible into or
exchangeable for any equity security of the Company, (iv) any security of the
Company that is a combination of debt and equity, or (v) any option, warrant or
other right to subscribe for, purchase or otherwise acquire any such equity
security or any such debt security of the Company, the Company shall, in each
case, first offer to sell such securities (the "Offered Securities") to the
Purchaser as follows: The Company shall offer to sell to Purchaser (a) that
portion of the Offered Securities up to an aggregate price of $1,000,000 in any
investment next succeeding the investment by Purchaser pursuant hereto (the
"Next Round Investment") and (b) in respect of any next succeeding investment or
any investment thereafter that portion of the Offered Securities as the number
29
of shares of Preferred Stock and Conversion Shares then held by Purchaser bears
to the total number of shares of Preferred Stock and Conversion Shares held by
all Purchasers (the "Basic Amount"), at a price and on such other terms as shall
have been specified by the Company in writing delivered to the Purchaser (the
"Offer"), which Offer by its terms shall remain open and irrevocable for a
period of thirty (30) days from receipt of the Offer.
6.02. Notice of Acceptance. Notice of Purchaser's intention to accept,
in whole or in part, any Offer made pursuant to Section 6.01 shall be evidenced
by a writing signed by Purchaser and delivered to the Company prior to the end
of the 30-day period of such offer, setting forth such of the Purchaser's Next
Round Investment or Basic Amount as the Purchaser elects to purchase.
6.03. Conditions to Acceptances and Purchase.
(a) Permitted Sales of Refused Securities. In the event that a
Notice of Acceptance are not given by the Purchaser in respect of all the
Offered Securities, the Company shall have ninety (90) days from the end of said
30-day period to sell any such Offered Securities as to which a Notice of
Acceptance has not been given by the Purchaser (the "Refused Securities") to the
Person or Persons specified in the Offer, but only for cash and otherwise in all
respects upon terms and conditions, including, without limitation, unit price
and interest rates, which are no more favorable, in the aggregate, to such other
Person or Persons or less favorable to the Company than those set forth in the
Offer.
(b) Reduction in Amount of Offered Securities. In the event
the Company shall propose to sell less than all of the Refused Securities (any
such sale to be in the manner and on the terms specified in Section 6.03(a)
above), then Purchaser may reduce the number of shares or other units of the
Offered Securities specified in its Notice of Acceptance to an amount which
shall be not less than the amount of the Offered Securities which the Purchaser
elected to purchase pursuant to Section 6.02 multiplied by a fraction, (i) the
numerator of which shall be the amount of Offered Securities which the Company
actually proposes to sell, and (ii) the denominator of which shall be the amount
of all Offered Securities. In the event that Purchaser so elects to reduce the
number or amount of Offered Securities specified in its Notice of Acceptance,
the Company may not sell or otherwise dispose of more than the reduced amount of
the Offered Securities until such securities have again been offered to the
Purchaser in accordance with Section 6.01.
(c) Closing. Upon the closing, which shall include full
payment to the Company, of the sale to such other Person or Persons of all or
less than all the Refused Securities, the Purchaser shall purchase from the
Company, and the Company shall sell to the Purchaser, the number of Offered
Securities specified in the Notice of Acceptance, as reduced pursuant to Section
6.03(b) if the Purchaser has so elected, upon the terms and conditions specified
in the Offer. The purchase by the Purchaser of any Offered Securities is subject
in all cases to the preparation, execution and delivery by the Company and the
Purchaser of a purchase agreement relating to such Offered Securities reasonably
satisfactory in form and substance to the Purchaser and its counsel.
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6.04. Further Sale. In each case, any Offered Securities not purchased
by the Purchaser or other Person or Persons in accordance with Section 6.03 may
not be sold or otherwise disposed of until they are again offered to the
Purchaser under the procedures specified in Section 6.01, 6.02 and 6.03.
6.05. Termination and Waiver of Right of First Refusal. The rights of
the Purchaser under this Article VI may be waived only upon the prior written
consent of the holders of two-thirds in interest of the Preferred Stock and
shall terminate immediately prior to the effectiveness of the registration
statement with respect to the Initial Public Offering, but expressly conditioned
on the consummation of the Initial Public Offering.
6.06. Exception. The rights of the Purchaser under this Article VI
shall not apply to:
(a) Common Stock issued as a stock dividend to holders of
Common Stock or upon any subdivision or combination of shares of Common Stock;
(b) Preferred Stock issued as a dividend to holders of
Preferred Stock upon any subdivision or combination of shares of Preferred
Stock;
(c) the Conversion Shares;
(d) up to 210,080 shares of Common Stock, or options
exercisable therefor, issued on or after the date hereof to directors, officers,
employees or consultants of the Company and any Subsidiary pursuant to any
qualified or non-qualified stock option plan or agreement, employee stock
ownership plan, employee benefit plan, stock purchase agreement, stock plan,
stock restriction agreement, or consulting agreement or such other options,
arrangements, agreements or plans approved by two-thirds of the members of the
Compensation Committee (including any Investor Director on such committee), or
if no such committee, by two-thirds of the members of the Board of Directors of
the Company (including a majority of the Investor Directors).
Each of the foregoing numbers shall be subject to equitable adjustment
in the event of any stock dividend, stock split, combination, reorganization,
recapitalization, reclassification or other similar event.
ARTICLE VII
DEFINITIONS AND ACCOUNTING TERMS
7.01. Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Accredited Investor" shall have the meaning assigned to that term in
Rule 501 under the Securities Act.
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"Agreement" means this Preferred Stock Purchase Agreement as from time
to time amended and in effect between the parties, including all Exhibits
hereto.
"Basic Amount" shall have the meaning assigned to that term in Section
6.01.
"Board of Directors" means the board of directors of the Company as
constituted from time to time.
"Closing" shall have the meaning assigned to that term in Section 1.03.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act or Exchange Act.
"Common Stock" includes (a) the Company's Common Stock, $.01 par value,
as authorized on the date of this Agreement, (b) any other capital stock of any
class or classes (however designated) of the Company authorized on or after the
date hereof, the holders of which shall have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which shall ordinarily, in the
absence of contingencies or in the absence of any provision to the contrary in
the Company's Articles of Incorporation, be entitled to vote for the election of
a majority of directors of the Company (even though the right so to vote has
been suspended by the happening of such a contingency or provision), and (c) any
other securities into which or for which any of the securities described in (a)
or (b) may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
"Company" means Water Online, Inc., a Pennsylvania corporation, and its
successors and assigns.
"Consolidated" and "consolidating" when used with reference to any term
defined herein mean that term as applied to the accounts of the Company and its
Subsidiaries consolidated in accordance with generally accepted accounting
principles consistently applied throughout reporting periods.
"Conversion Shares" shall have the meaning assigned to that term in
Section 1.02 of this Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
(or of any other Federal agency then administering the Exchange Act) thereunder,
all as the same shall be in effect at the time.
"Indebtedness" means (i) any liability for borrowed money or evidenced
by a note or similar obligation given in connection with the acquisition of any
property or other assets (other than trade
32
accounts payable incurred in the ordinary course of business); (ii) all
guaranties, endorsements and other contingent obligations, in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, and (iii) the present value of
any lease payments due under leases required to be capitalized in accordance
with applicable Statements of Financial Accounting Standards, determined by
discounting all such payments at the interest rate determined in accordance with
applicable Statements of Financial Accounting Standards.
"Initial Public Offering" means the first underwritten public offering
of Common Stock of the Company for the account of the Company and offered on a
"firm commitment" or "best efforts" basis pursuant to an offering registered
under the Securities Act with the Commission on Form S-1, Form S-18 or their
then equivalents.
"Intellectual Property Rights" means any and all, whether domestic or
foreign, patents, patent applications, patent right, trade secrets, confidential
business information, formula, processes, laboratory notebooks, algorithms,
copyrights, mask works, claims of infringement against third parties, licenses,
permits, license rights, contract rights with employees, consultants and third
parties, trademarks, trademark rights, inventions and discoveries, and other
such rights generally classified as intangible, intellectual property assets in
accordance with generally accepted accounting principles.
"Investor Directors" means those directors of the Company who are
representatives of the Series A Purchaser.
"Key Employee" means and includes the Chairman, President, Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, or any
other individual so designated by the Board of Directors of the Company or by a
majority of the Investor Directors.
"Nondisclosure Agreement" shall have the meaning assigned to that term
in Section 2.02(i).
"Notice of Acceptance" shall have the meaning assigned to that term in
Section 6.02.
"Offer" shall have the meaning assigned to that term in Section 6.01.
"Offered Securities" shall have the meaning assigned to that term in
Section 6.01.
"Person" means an individual, corporation, partnership, joint venture,
trust, university, or unincorporated organization, or a government, or any
agency or political subdivision thereof.
"Preferred Shares" shall have the meaning assigned to that term in
Section 1.01.
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"Purchaser" shall have the meaning assigned to that term in Section
1.01 of this Agreement and shall include the original Purchaser and also any
other holder of any of the Shares.
"Qualified Public Offering" means a fully underwritten, firm commitment
public offering pursuant to an effective registration under the Securities Act
covering the offer and sale by the Company of its Common Stock in which the
aggregate gross proceeds to the Company exceed $15,000,000 and in which the
price per share of such Common Stock equals or exceeds $4.00 (such price subject
to equitable adjustment in the event of any stock split, stock dividend,
combination, reorganization, reclassification or other similar event).
"Refused Securities" shall have the meaning assigned to that term in
Section 6.03.
"Registrable Shares" shall mean and include (i) the Conversion Shares;
and (ii) the shares of capital stock of the Company acquired by the Purchaser
pursuant to Article VI hereof or any shares of capital stock of the Company
acquired after the date hereof by Purchaser, including shares of Common Stock
issuable on the conversion of other securities acquired by the Purchaser
pursuant to Article VI hereof or otherwise; provided, however, that shares of
Common Stock which are Registrable Shares shall cease to be Registrable Shares
upon the consummation of any sale pursuant to a registration statement, Section
4(1) of the Securities Act or Rule 144 under the Securities Act; or capital
stock otherwise acquired primarily as, or acquired pursuant to exercise of
options or rights granted to any employee primarily as, compensation for
employment or services and not for a cash investment in the Company. Wherever
reference is made in this Agreement to a request or consent of holders of a
certain percentage of Registrable Shares, the determination of such percentage
shall include the Conversion Shares even if such conversion has not yet been
effected.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission (or of
any other Federal agency then administering the Securities Act) thereunder, all
as the same shall be in effect at the time.
"Series A Preferred Stock" means the Series A Preferred Stock of the
Company, $.01 par value, having the rights, powers, privileges and preferences
set forth in Exhibit A2 hereto.
"Series A Shares" shall have the meaning assigned to that term in
Section 1.01 of this Agreement.
"Shares" means, collectively, the Preferred Shares and the Conversion
Shares.
"Subsidiary" or "Subsidiaries" means any Person of which the Company
and/or any of its other Subsidiaries (as herein defined) directly or indirectly
owns at the time at least fifty percent (50%) of the outstanding voting shares
of every class of such corporation or trust other than directors' qualifying
shares.
"Stock Restriction Agreement" shall have the meaning assigned to that
term in Section 4.01(g) of
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this Agreement.
7.02. Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles consistently applied, and all financial data submitted pursuant to
this Agreement shall be prepared in accordance with such principles.
ARTICLE VIII
DISPUTE RESOLUTION
8.01. Good-Faith Negotiations.
(a) If any dispute arises under this Agreement that is not
settled promptly in the ordinary course of business, the parties shall seek to
resolve any such dispute between them, first, by negotiating promptly with each
other in good faith in face-to-face negotiations. These face-to-face
negotiations shall be conducted by the respective designated senior management
representative of each party. If the parties are unable to resolve the dispute
between them through these face-to-face negotiations within 20 days (or such
period as the parties shall otherwise agree) following the date of notification
(the "Notice Date") by one party to the other of the existence of such dispute,
then any such disputes shall be resolved in the following manner.
(b) Mediation. The parties shall endeavor to resolve any
dispute arising out of or relating to this Agreement by mediation under the CPR
Mediation Procedures for Business Disputes. Unless otherwise agreed, the parties
will select a mediator from the CPR Panels of Neutrals and shall notify CPR to
initiate the selection process.
(c) Resolution of Disputes.
(i) Any action, suit or proceeding where the amount
in controversy as to at least one party, exclusive of interest and costs,
exceeds $1,000,000 ("Summary Proceeding"), arising out of or relating to this
Agreement, the Voting and Stock Restriction Agreement or any other agreement
executed in connection herewith or the breach, termination or validity thereof
which has not been resolved by mediation as provided herein within [90] days of
the Notice Date, shall be litigated exclusively in the Superior Court of the
State of Delaware (the "Delaware Superior Court") as a summary proceeding
pursuant to Rules 124-131 of the Delaware Superior Court, or any successor rules
(the "Summary Proceeding Rules"). Each of the parties hereto hereby irrevocably
and unconditionally (A) submits to the jurisdiction of the Delaware Superior
Court for any Summary Proceeding, (B) agrees not to commence any Summary
Proceeding except in the Delaware Superior Court, (C) waives, and agrees not to
plead or to make, any objection to the venue of any Summary Proceeding in the
Delaware Superior Court, (D) waives, and agrees not to plead or to make any
claim that any Summary Proceeding brought in the Delaware Superior Court has
been brought in an improper or otherwise inconvenient forum, (E)
35
waives, and agrees not to plead or to make, any claim that the Delaware Superior
Court lacks personal jurisdiction over it, (F) waives its right to remove any
Summary Proceeding to the federal courts except where such courts are vested
with sole and exclusive jurisdiction by statute and (G) understands and agrees
that it shall not seek a jury trial or punitive damages in any Summary
Proceeding based upon or arising out of or otherwise related to this Agreement
or any other agreement executed in connection herewith or the breach,
termination or validity thereof, and waives any and all rights to any such jury
trial or to seek punitive damages.
(ii) In the event any action, suit or proceeding
where the amount in controversy as to at least one party, exclusive of interest
and costs, does not exceed $1,000,000 (a "Proceeding"), arising out of or
relating to this Agreement, or any other agreement executed in connection
herewith or the breach, termination or validity thereof is brought, the parties
to such Proceeding agree to make application to the Delaware Superior Court to
proceed under the Summary Proceeding Rules. Until such time as such application
is rejected, such Proceeding shall be treated as a Summary Proceeding and all of
the foregoing provisions of this Section relating to Summary Proceedings shall
apply to such Proceeding.
(iii) If a Summary Proceeding is not available to
resolve any dispute hereunder, the controversy or claim shall be settled by
arbitration conducted on a confidential basis, under the U.S. Arbitration Act,
if applicable, and the then current Commercial Arbitration Rules of the American
Arbitration Association (the "Association") strictly in accordance with the
terms of this Agreement and the substantive law of the State of Delaware,
including such law in respect of the statute of limitations. The arbitration
shall be conducted at the Association's regional office located in Philadelphia,
Pennsylvania by three arbitrators, at least one of whom shall be knowledgeable
in venture capital investments, one of whom shall be an attorney and one of whom
shall be a member of a "Big Six" accounting firm familiar with businesses
engaged in [software design, programming and implementation]. The arbitrators
are not empowered to award damages in excess of compensatory damages and each
party hereby irrevocably waives any right to recover such damages with respect
to any such disputes. Judgment upon the arbitrators' aware may be entered and
enforced in any court of competent jurisdiction.
(d) Neither party shall be precluded hereby from securing
equitable remedies in courts of any jurisdiction, including, but not limited to,
temporary restraining orders and preliminary injunctions to protect its rights
and interests but shall not be sought as a means to avoid or stay arbitration or
Summary Proceeding.
(e) Each party is required to continue to perform its
obligations under this contract pending final resolution of any dispute arising
out of or relating to this contract, unless to do so would be impossible or
impracticable under the circumstances.
ARTICLE IX
MISCELLANEOUS
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9.01. No Waiver; Cumulative Remedies. No failure or delay on the part
of any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
9.02. Amendments, Waivers and Consents. Any provision in the Agreement
to the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to this Agreement may be made, and
compliance with any covenant or provision set forth herein may be omitted or
waived, if the Company (i) shall obtain consent thereto in writing from the
holder or holders of at least a majority in interest of the Series A Shares and
Conversion Shares issued upon conversion thereof and (ii) shall deliver copies
of such consent in writing to any holders who did not execute such consent;
provided that no consents shall be effective to reduce the percentage in
interest of the Shares the consent of the holders of which is required under
this Section 8.02. Any waiver or consent may be given subject to satisfaction of
conditions stated therein and any waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
9.03. Addresses for Notices. All notices, requests, demands and other
communications provided for hereunder shall be in writing (including telegraphic
communication) and mailed, telegraphed or delivered to each applicable party at
the address set forth in Exhibit 1.01 hereto or at such other address as to
which such party may inform the other parties in writing in compliance with the
terms of this Section.
If to any other holder of the Shares: at such holder's address for
notice as set forth in the register maintained by the Company, or, as to each of
the foregoing, at the addresses set forth in Exhibit 1.01 hereto or at such
other address as shall be designated by such Person in a written notice to the
other parties complying as to delivery with the terms of this Section.
If to the Company: at the address set forth on page 1 hereof, or at
such other address as shall be designated by the Company in a written notice to
the other parties complying as to delivery with the terms of this Section.
All such notices, requests, demands and other communications shall,
when mailed (which mailing must be accomplished by first class mail, postage
prepaid; electronic facsimile transmission; express overnight courier service;
or registered or certified mail, return receipt requested) or telegraphed, and
shall be considered to be delivered three (3) days after dispatch.
9.04. Costs, Expenses and Taxes. As a condition precedent to the
Closing, the Company agrees to pay at the Closing in connection with the
preparation, execution and delivery of this Agreement and the issuance of the
Preferred Shares at the Closing, the reasonable fees, not to exceed $20,000, and
other out-of-pocket expenses of special counsel for the Purchaser. In addition,
the Company shall pay the
37
reasonable fees and out-of-pocket expenses of legal counsel, independent public
accountants, consultants and other outside experts retained by the Purchaser in
connection with any amendment or waiver to this Agreement (initiated by the
Company) or the successful enforcement of this Agreement by the Purchaser. In
addition, the Company shall pay any and all stamp, or other similar taxes
payable or determined to be payable in connection with the execution and
delivery of this Agreement, the issuance of the Preferred Shares and the other
instruments and documents to be delivered hereunder or thereunder, and agrees to
save the Purchaser harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes.
9.05. Binding Effect; Assignment. Except as provided in Section 5.12,
this Agreement shall be binding upon and inure to the benefit of the Company and
the Purchaser and their respective heirs, successors and assigns, except that
the Company shall not have the right to delegate its obligations hereunder or to
assign its rights hereunder or any interest herein without the prior written
consent of the holders of at least a majority in interest of the Shares.
9.06. Survival of Representations and Warranties. All representations
and warranties made in this Agreement, the Shares, or any other instrument or
document delivered in connection herewith or therewith, shall survive the
execution and delivery hereof or thereof.
9.07. Prior Agreements. This Agreement, the terms of the Preferred
Stock, and the other agreements executed and delivered herewith constitute the
entire agreement between the parties and supersedes any prior understandings or
agreements concerning the subject matter hereof.
9.08. Severability. The provisions of this Agreement, the Voting and
Stock Restriction Agreement, the Noncompetition Agreements and the terms of the
Preferred Stock are severable and, in the event that any court of competent
jurisdiction shall determine that any one or more of the provisions or part of a
provision contained in this Agreement, the Voting and Stock Restriction
Agreement, the Noncompetition Agreements or the terms of the Preferred Stock
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement, the Voting and Stock
Restriction Agreement, the Noncompetition Agreements or the terms of the
Preferred Stock; but this Agreement, the Voting and Stock Restriction Agreement,
the Noncompetition Agreements and the terms of the Preferred Stock shall be
reformed and construed as if such invalid or illegal or unenforceable provision,
or part of a provision, had never been contained herein, and such provisions or
part reformed so that it would be valid, legal and enforceable to the maximum
extent possible.
9.09. Confidentiality. The Purchaser agrees that it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which the Purchaser may obtain from the Company pursuant to
financial statements, reports and other materials submitted by the Company to
the Purchaser pursuant to this Agreement, or pursuant to visitation or
inspection rights granted hereunder, unless such information is known, or until
such information becomes known, to the public; provided, however, that the
Purchaser may disclose such information (i) on a confidential basis to its
attorneys,
38
accountants, consultants and other professionals to the extent necessary to
obtain their services in connection with its investment in the Company, (ii) to
any prospective purchaser of any Preferred Shares or Conversion Shares from the
Purchaser as long as such prospective purchaser agrees in writing to be bound by
the provisions of this Section 9.09, (iii) to any affiliate or partner of the
Purchaser and (iv) as required by applicable law.
9.10. Public Announcements. The Company shall not use the Purchaser's
name or refer to the Purchaser directly or indirectly in connection with the
Purchaser's relationship with the Company in any advertisement, news release or
professional or trade publication, or in any other manner, unless otherwise
required by law or with the Purchaser's prior written consent. [The parties
agree that there will be no press release or other public statement issued by
any party relating to this Agreement or the transactions contemplated hereby
unless required by law.] If the Company determines that it is required by law to
file this Agreement with the SEC, it shall at a reasonable time before making
any such filing, consult with the Purchaser regarding such filing and seek
confidential treatment for such portions of the Agreement as may be requested by
the Purchaser.
9.11. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of Delaware, and without
giving effect to choice of laws provisions.
9.12. Headings. Article, section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
9.13. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
9.14. Further Assurances. From and after the date of this Agreement,
upon the request of the Purchaser or the Company, the Company and the Purchaser
shall execute and deliver such instruments, documents and other writings as may
be reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement and the Shares.
IN WITNESS WHEREOF, the parties hereto have caused this Preferred Stock
Purchase Agreement to be executed as of the date first above written.
WATER ONLINE, INC.
By: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
39
INTERNET CAPITAL GROUP, L.L.C.
By: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Principal
40
