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EXHIBIT 10.8
CLASS D CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
between
NETSTART, INC.
and
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I
Dated as of September 11, 1997
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TABLE OF CONTENTS
Page
ARTICLE I THE PREFERRED SHARES........................................................... 1
1.1 Issuance, Sale and Delivery
of the Preferred Shares........................................ 1
1.2 Closing .......................................................... 1
1.3 Subsequent Authorizations and Sales............................... 1
ARTICLE II REPRESENTATIONS AND WARRANTIES
OF THE COMPANY.................................................... 2
2.1 Organization, Qualifications and
Corporate Power .............................. 2
2.2 Authorization of Agreements, Etc. 2
2.3 Validity .............................. 3
2.4 Authorized Capital Stock.......................................... 3
2.5 Financial Statements.............................................. 4
2.6 Events Subsequent to the Date of the
Balance Sheet .............................. 5
2.7 Litigation; Compliance with Law................................... 5
2.8 Proprietary Information of Third Parties.......................... 6
2.9 Patents, Trademarks, Etc.......................................... 6
2.10 Title to Properties .............................. 7
2.11 Leasehold Interests .............................. 7
2.12 Insurance .............................. 7
2.13 Taxes .............................. 7
2.14 Other Agreements .............................. 8
2.15 Loans and Advances................................................ 10
2.16 Assumptions, Guaranties, Etc.
of Indebtedness of Other Persons............................... 10
2.17 Significant Customers and Suppliers............................... 10
2.18 Governmental Approvals............................................ 10
2.19 Disclosure .............................. 10
2.20 Offering of the Preferred Shares.................................. 11
2.21 Brokers .............................. 11
2.22 Officers .............................. 11
2.23 Transactions With Affiliates...................................... 11
2.24 Employees .............................. 11
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2.25 U.S. Real Property Holding Corporation............................ 12
2.26 ERISA .............................. 12
2.27 Disqualified Persons.............................................. 13
ARTICLE III REPRESENTATIONS AND WARRANTIES
OF THE PURCHASERS.................................. 13
ARTICLE IV CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASERS.................................. 14
ARTICLE V COVENANTS OF THE COMPANY.......................................... 19
5.1 Financial Statements, Reports, Etc. .............................. 19
5.2 Right of First Offer .............................. 20
5.3 Reserve for Conversion Shares..................................... 22
5.4 Corporate Existence............................................... 22
5.5 Properties, Business, Insurance................................... 22
5.6 Inspection, Consultation and Advice............................... 23
5.7 Restrictive Agreements Prohibited................................. 23
5.8 Transactions with Affiliates...................................... 23
5.9 Use of Proceeds .............................. 23
5.10 Board of Directors Meetings....................................... 23
5.11 Compensation .............................. 24
5.12 By-laws .............................. 24
5.13 Performance of Contracts.......................................... 24
5.14 Vesting of Reserved Employee Shares............................... 24
5.15 Employee Nondisclosure and
Developments Agreements........................................ 24
5.16 Activities of Subsidiaries........................................ 24
5.17 Compliance with Laws.............................................. 24
5.18 Keeping of Records and Books of Account........................... 25
5.19 Change in Nature of Business...................................... 25
5.20 U.S. Real Property Interest Statement............................. 25
5.21 Rule 144A Information............................................. 25
5.22 Termination of Covenants 26
ARTICLE VI MISCELLANEOUS................................................................. 26
6.1 Expenses .............................. 26
6.2 Survival of Agreements............................................ 26
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6.3 Brokerage .............................. 26
6.4 Parties in Interest .............................. 26
6.5 Notices .............................. 27
6.6 Governing Law .............................. 27
6.7 Entire Agreement .............................. 27
6.8 Counterparts .............................. 27
6.9 Amendments .............................. 27
6.10 Severability .............................. 27
6.11 Titles and Subtitles .............................. 27
6.12 Assignment .............................. 27
6.13 Certain Defined Terms............................................. 28
INDEX TO SCHEDULES
SCHEDULE I Purchasers
SCHEDULE II Disclosure Schedule
SCHEDULE III Security Holders
SCHEDULE IV Agreements
SCHEDULE V Disqualified Persons
INDEX TO EXHIBITS
EXHIBIT A Form of Amended and Restated Registration Rights Agreement
EXHIBIT B Charter and All Amendments Thereto
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THIS CLASS D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is made as of September 11, 1997 between NetStart, Inc., a Delaware
corporation (the "Company"), and the several purchasers named in the attached
Schedule I (individually a "Purchaser" and collectively the "Purchasers").
WHEREAS, the Company wishes to issue and sell to the Purchasers an
aggregate of up to 2,045,785 shares (the "Preferred Shares") of the authorized
but unissued Class D Convertible Preferred Stock, $.001 par value, of the
Company (the "Class D Convertible Preferred Stock") in a transaction involving
two or more separate closing dates; and
WHEREAS, the Purchasers, severally, wish to purchase the Preferred
Shares on the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
THE PREFERRED SHARES
1.1 Issuance, Sale and Delivery of the Preferred Shares. The
Company agrees to issue and sell to each Purchaser, and each Purchaser hereby
agrees to purchase from the Company, the number of Preferred Shares set forth
opposite the name of such Purchaser under the heading "Number of Preferred
Shares to be Purchased" on Schedule I, at the aggregate purchase price set forth
opposite the name of such Purchaser under the heading "Aggregate Purchase Price
for Preferred Shares" on Schedule I.
1.2 Closing. The first closing shall take place at the offices
of ▇▇▇▇ and ▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇, at
10 a.m., on September 11, 1997, or at such other location, date and time as may
be agreed upon between the Purchasers and the Company (such closing being called
the "Closing" and such date and time being called the "Closing Date"). At the
Closing, the Company shall issue and deliver to each Purchaser a stock
certificate or certificates in definitive form, registered in the name of such
Purchaser, representing the Preferred Shares being purchased by it at the
Closing. As payment in full for the Preferred Shares being purchased by it under
this Agreement, and against delivery of the stock certificate or certificates
therefor as aforesaid, on the Closing Date each Purchaser shall (i) deliver to
the Company a check payable to the order of the Company, in the amount set forth
opposite the name of such Purchaser under the heading "Aggregate Purchase Price
for Preferred Shares" on the "First Closing" list of Schedule I, (ii) transfer
such sum to the account of the Company by wire transfer, (iii) deliver to the
Company for cancellation
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promissory notes issued by the Company in the amount of such sum, or (iv)
deliver or transfer such sum to the Company by any combination of such methods
of payments.
1.3 Subsequent Authorizations and Sales. At any time on or
before the 90th day following the Closing, the Company may sell shares of Class
D Convertible Preferred Stock up to the total number of such shares authorized
by the Company's Certificate of Incorporation, as amended (the "Charter") less
any amounts already sold at the Closing, provided that at least one new
investor, which is unaffiliated with any then-current investor in the Company,
shall participate in such sale by purchasing at least a majority of the shares
of Class D Convertible Preferred Stock offered in such sale. All such sales
shall be made on the terms and conditions set forth in this Agreement and the
purchasers thereof shall be "Purchasers" under this Agreement; provided,
however, that the representations and warranties of the Company set forth in
this Agreement, its Exhibits and the disclosure set forth on Schedules II, III,
IV and V. shall speak as of the Closing and shall not be revised to reflect any
changes in the representations and warranties occurring after the Closing for
any such future closings. Should any such sales be made, the Company shall
prepare and distribute to the Purchasers a revised Schedule I reflecting such
sales.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, except as
set forth in the Disclosure Schedule attached as Schedule II:
2.1 Organization, Qualifications and Corporate Power.
(a) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and is
duly licensed or qualified to transact business as a foreign corporation and is
in good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification. The Company has the corporate power
and authority to own and hold its properties and to carry on its business as now
conducted and as proposed to be conducted, to execute, deliver and perform this
Agreement and the Amended and Restated Registration Rights Agreement with the
Purchasers in the form attached as Exhibit A (the "Amended Registration Rights
Agreement"), to issue, sell and deliver the Preferred Shares and to issue and
deliver the shares of Common Stock, $.001 par value, of the Company ("Common
Stock") issuable upon conversion of the Preferred Shares (the "Conversion
Shares").
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(b) The Company has no subsidiaries. The Company does not (i)
own of record or beneficially, directly or indirectly, (A) any shares of capital
stock or securities convertible into capital stock of any other corporation or
(B) any participating interest in any partnership, joint venture or other
non-corporate business enterprise or (ii) control, directly or indirectly, any
other entity.
2.2 Authorization of Agreements, Etc.
(a) The execution and delivery by the Company of this Agreement
and the Amended Registration Rights Agreement, the performance by the Company of
its obligations hereunder and thereunder, the issuance, sale and delivery of the
Preferred Shares, and the issuance and delivery of the Conversion Shares have
been duly authorized by all requisite corporate action and will not violate any
provision of law, any order of any court or other agency of government, the
Charter or the By- laws of the Company, as amended, or any provision of any
indenture, agreement or other instrument to which the Company or any of its
properties or assets is bound, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge, restriction, claim or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company. To the best of
the Company's knowledge, no provision of any of the Stock Restriction Agreements
dated July 12, 1996 (the "Stock Restriction Agreements") violates, conflicts
with, results in a breach of or constitutes (with due notice or lapse of time or
both ) a default by any other party under any other indenture, agreement or
instrument. The Purchasers shall not become, by virtue of this Agreement or any
documents related hereto, parties to or third party beneficiaries of such Stock
Restriction Agreements.
(b) The Preferred Shares have been duly authorized and, when
issued in accordance with this Agreement, will be validly issued, fully paid and
nonassessable shares of Class D Convertible Preferred Stock 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 the Amended Registration Rights Agreement and the
Charter. The Conversion Shares have 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 shares of Common Stock 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 the Amended Registration Rights
Agreement. Neither the issuance, sale or delivery of the Preferred Shares nor
the issuance or delivery of the Conversion Shares is subject to any preemptive
right of stockholders of the Company, or to any right of first refusal or other
right in favor of any person, which have not been duly and validly waived.
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2.3 Validity. This Agreement has been duly executed and delivered by
the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms. The Amended Registration
Rights Agreement, when executed and delivered in accordance with this Agreement,
will constitute the legal, valid and binding obligations of the Company,
enforceable in accordance with their respective terms.
2.4 Authorized Capital Stock. The authorized capital stock of the
Company consists of (i) 1,562,500 shares of Class A Convertible Preferred Stock,
$.001 par value (the "Class A Preferred Stock"), (ii) 2,151,420 shares of Class
B Convertible Preferred Stock, $.001 par value (the "Class B Preferred Stock"),
(iii) 3,188,889 shares of Class C Convertible Preferred Stock, $.001 par value,
(the "Class C Preferred Stock"), (iv) 2,045,785 shares of Class D Convertible
Preferred Stock, $.001 par value, and (v) 16,000,000 shares of Common Stock.
Immediately prior to the Closing, 4,312,500 shares of Common Stock, 1,562,500
shares of Class A Preferred Stock, 2,151,420 shares of Class B Preferred Stock
and 3,188,889 shares of Class C Preferred Stock will be validly issued and
outstanding, fully paid and nonassessable with no personal liability attaching
to the ownership thereof and no shares of Class D Preferred Stock will have been
issued. The stockholders of record and holders of subscriptions, warrants,
options, convertible securities, and other rights (contingent or other) to
purchase or otherwise acquire equity securities of the Company, and the number
of shares of Common Stock and the number of such subscriptions, warrants,
options, convertible securities, and other such rights held by each, are as set
forth in the attached Schedule III. The designations, powers, preferences,
rights, qualifications, limitations and restrictions in respect of each class
and series of authorized capital stock of the Company are as set forth in the
Charter, a copy of which is attached as Exhibit B, and all such designations,
powers, preferences, rights, qualifications, limitations and restrictions are
valid, binding and enforceable and in accordance with all applicable laws.
Except as set forth in the attached Schedule III, (i) no person owns of record
or is known to the Company to own beneficially any share of Common Stock, Class
A Preferred Stock, Class B Preferred Stock or Class C Preferred Stock, (ii) no
subscription, warrant, option, convertible security, or other right (contingent
or other) to purchase or otherwise acquire equity securities of the Company is
authorized or outstanding, and (iii) there is no commitment by the Company to
issue shares, subscriptions, warrants, options, convertible securities or other
such rights or to distribute to holders of any of its equity securities any
evidence of indebtedness or asset. Except as provided for in the Charter or as
set forth in the attached Schedule II, the Company has no obligation (contingent
or otherwise) to purchase, redeem or otherwise acquire any of its equity
securities or any interest therein or to pay any dividend or make any other
distribution in respect thereof. Except as set forth in Schedule II, to the best
of the Company's knowledge there are no voting trusts or agreements,
stockholders' agreements, pledge agreements, buy-sell agreements, rights of
first refusal, preemptive rights or proxies relating to any securities of the
Company (whether or not the Company is a party thereto). All of the outstanding
securities of the
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Company were issued in compliance with all applicable Federal and state
securities laws.
2.5 Financial Statements.
(a) The Company has furnished to the Purchasers the audited
balance sheet of the Company as of September 30, 1996 and the related audited
statements of income, stockholders' equity and cash flows of the Company for the
fiscal year ended September 30, 1996. All such financial statements have been
prepared in accordance with generally accepted accounting principles
consistently applied and fairly present the financial position of the Company as
of September 30, 1996 and the results of its operations and cash flows for the
fiscal year ended September 30, 1996.
(b) The Company has furnished to the Purchasers the unaudited
balance sheet of the Company as of June 30, 1997 (the "Balance Sheet") and the
related unaudited statements of income, stockholders' equity, and cash flows of
the Company for the nine months ended June 30, 1997. All such financial
statements have been prepared in accordance with generally accepted accounting
principles consistently applied (except that such unaudited financial statements
do not contain all of the required footnotes and are subject to normal year-end
adjustment) and fairly present the financial position of the Company as of June
30, 1997 and the results of its operations and cash flows for the nine months
ended June 30, 1997. Since the date of the Balance Sheet, (i) there has been no
change in the assets, liabilities or financial condition of the Company from
that reflected in the Balance Sheet except for changes in the ordinary course of
business which in the aggregate have not been materially adverse and (ii) none
of the business, prospects, financial condition, operations, property or affairs
of the Company have been materially adversely affected by any subsequent
occurrence or development, individually or in the aggregate, whether or not
insured against.
2.6 Events Subsequent to the Date of the Balance Sheet. Since the date
of the Balance Sheet, the Company has not (i) issued any stock, bond or
other corporate security, (ii) borrowed any amount or incurred or become subject
to any liability (absolute, accrued or contingent), except current liabilities
incurred and liabilities under contracts entered into in the ordinary course of
business, (iii) discharged or satisfied any lien or encumbrance or incurred or
paid any obligation or liability (absolute, accrued or contingent) other than
current liabilities shown on the Balance Sheet and current liabilities incurred
since the date of the Balance Sheet in the ordinary course of business, (iv)
declared or made any payment or distribution to stockholders or purchased or
redeemed any shares of its capital stock or other security, (v) mortgaged,
pledged, encumbered or subjected to lien any of its assets, tangible or
intangible, other than liens of current real property taxes not yet due and
payable, (vi) sold, assigned or transferred any of its tangible assets except in
the ordinary course of business, or canceled any debt or claim, (vii) sold,
assigned, transferred or granted any exclusive license with respect to any
patent, trademark, trade name, service ▇▇▇▇,
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copyright, trade secret or other intangible asset, (viii) suffered any loss of
property or waived any right of substantial value whether or not in the ordinary
course of business, (ix) made any change in officer compensation except in the
ordinary course of business and consistent with past practice, (x) made any
material change in the manner of business or operations of the Company, (xi)
entered into any transaction except in the ordinary course of business or as
otherwise contemplated hereby or (xii) entered into any commitment (contingent
or otherwise) to do any of the foregoing.
2.7 Litigation; Compliance with Law. There is no (i) action, suit,
claim, proceeding or investigation pending or, to the best of the Company's
knowledge, threatened against or specifically affecting the Company, at law or
in equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) arbitration proceeding relating to the Company pending under
collective bargaining agreements or otherwise or (iii) governmental inquiry
pending or, to the best of the Company's knowledge, threatened against or
specifically affecting the Company (including without limitation any inquiry as
to the qualification of the Company to hold or receive any license or permit),
nor is the Company aware that there is any basis for the foregoing. The Company
has not received any opinion or memorandum or legal advice from legal counsel to
the effect that it is exposed, from a legal standpoint, to any liability or
disadvantage which may be material to its business, prospects, financial
condition, operations, property or affairs. The Company is not in default with
respect to any order, writ, injunction or decree known to or served upon the
Company of any court or of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign. There is no action or suit by the Company pending or threatened against
others. To the best of the Company's knowledge, the Company has complied with
all laws, rules, regulations and orders applicable to its business, operations,
properties, assets, products and services, the Company has all necessary
permits, licenses and other authorizations required to conduct its business as
conducted and as proposed to be conducted, and the Company has been operating
its business pursuant to and in compliance with the terms of all such permits,
licenses and other authorizations. There is no existing law, rule, regulation or
order, and the Company after due inquiry is not aware of any proposed law, rule,
regulation or order, whether Federal, state, county or local, which would
prohibit or restrict the Company from, or otherwise materially adversely affect
the Company in, conducting its business in any jurisdiction in which it is now
conducting business or in which it proposes to conduct business.
2.8 Proprietary Information of Third Parties. To the best of the
Company's knowledge, no third party has claimed or has reason to claim that any
person employed by or affiliated with the Company has (a) violated or may be
violating any of the terms or conditions of his employment, non-competition or
non-disclosure agreement with such third party, (b) disclosed or may be
disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third
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party or (c) interfered or may be interfering in the employment relationship
between such third party and any of its present or former employees. No third
party has requested information from the Company which suggests that such a
claim might be contemplated. To the best of the Company's knowledge, no person
employed by or affiliated with the Company has employed or proposes to employ
any trade secret or any information or documentation proprietary to any former
employer, and to the best of the Company's knowledge, no person employed by or
affiliated with the Company has violated any confidential relationship which
such person may have had with any third party, in connection with the
development, manufacture or sale of any product or proposed product or the
development or sale of any service or proposed service of the Company, and the
Company has no reason to believe there will be any such employment or violation.
To the best of the Company's knowledge, none of the execution or delivery of
this Agreement, or the carrying on of the business of the Company as officers,
employees or agents by any officer, director or key employee of the Company, or
the conduct or proposed conduct of the business of the Company, will conflict
with or result in a breach of the terms, conditions or provisions of or
constitute a default under any contract, covenant or instrument under which any
such person is obligated.
2.9 Patents, Trademarks, Etc. Set forth in Schedule II is a list and
brief description of all domestic and foreign patents, patent rights, patent
applications, trademarks, trademark applications, service marks, service ▇▇▇▇
applications, trade names and copyrights, and all applications for such which
are in the process of being prepared, owned by or registered in the name of the
Company, or of which the Company is a licensor or licensee or in which the
Company has any right, and in each case a brief description of the nature of
such right. The Company owns or possesses adequate licenses or other rights to
use all patents, patent applications, trademarks, trademark applications,
service marks, service ▇▇▇▇ applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets, customer lists and know how (collectively,
"Intellectual Property") necessary or desirable to the conduct of its business
as conducted and as proposed to be conducted, and no claim is pending or, to the
best of the Company's knowledge, threatened to the effect that the operations of
the Company infringe upon or conflict with the asserted rights of any other
person under any Intellectual Property, and there is no basis for any such claim
(whether or not pending or threatened). No claim is pending or threatened to the
effect that any such Intellectual Property owned or licensed by the Company, or
which the Company otherwise has the right to use, is invalid or unenforceable by
the Company, and there is no basis for any such claim (whether or not pending or
threatened). All prior art known to the Company which may be or may have been
pertinent to the examination of any United States patent or patent application
listed in Schedule II has been cited to the United States Patent and Trademark
Office. To the best of the Company's knowledge, all technical information
developed by and belonging to the Company which has not been patented has been
kept confidential. The Company has not granted or assigned to any other person
or entity any right to manufacture, have manufactured,
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assemble or sell the products or proposed products or to provide the services or
proposed services of the Company.
2.10 Title to Properties. The Company has good, clear and marketable
title to its properties and assets reflected on the Balance Sheet or acquired by
it since the date of the Balance Sheet (other than properties and assets
disposed of in the ordinary course of business since the date of the Balance
Sheet), and all such properties and assets are free and clear of mortgages,
pledges, security interests, liens, charges, claims, restrictions and other
encumbrances (including without limitation, easements and licenses), except
liens for or current taxes not yet due and payable and minor imperfections of
title, if any, not material in nature or amount and not materially detracting
from the value or impairing the use of the property subject thereto or impairing
the operations or proposed operations of the Company, including without
limitation, the ability of the Company to secure financing using such properties
and assets as collateral. To the best of the Company's knowledge after due
inquiry, there are no condemnation, environmental, zoning or other land use
regulation proceedings, either instituted or planned to be instituted, which
would adversely affect the use or operation of the Company's properties and
assets for their respective intended uses and purposes, or the value of such
properties, and the Company has received no notice of any special assessment
proceedings which would affect such properties and assets.
2.11 Leasehold Interests. Each lease or agreement to which the Company
is a party under which it is a lessee of any property, real or personal, is a
valid and subsisting agreement, duly authorized and entered into, without any
default of the Company thereunder and, to the best of the Company's knowledge,
without any default thereunder of any other party thereto. No event has occurred
and is continuing which, with due notice or lapse of time or both, would
constitute a default or event of default by the Company under any such lease or
agreement or, to the best of the Company's knowledge, by any other party
thereto. The Company's possession of such property has not been disturbed and,
to the best of the Company's knowledge after due inquiry, no claim has been
asserted against the Company adverse to its rights in such leasehold interests.
2.12 Insurance. The Company holds valid policies covering all of the
insurance required to be maintained by it under Section 5.5.
2.13 Taxes. The Company has filed all tax returns, Federal, state,
county and local, required to be filed by it, and the Company has paid all taxes
shown to be due by such returns as well as all other taxes, assessments and
governmental charges which have become due or payable, including without
limitation all taxes which the Company is obligated to withhold from amounts
owing to employees, creditors and third parties. The Company has established
adequate reserves for all taxes accrued but not yet payable. All tax elections
have been made by the Company in accordance with generally accepted practice.
The Federal income tax returns of the Company have never
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been audited by the Internal Revenue Service. No deficiency assessment with
respect to or proposed adjustment of the Company's Federal, state, county or
local taxes is pending or, to the best of the Company's knowledge, threatened.
There is no tax lien, whether imposed by any Federal, state, county or local
taxing authority, outstanding against the assets, properties or business of the
Company. Neither the Company nor any of its present or former stockholders has
ever filed an election pursuant to Section 1362 of the Internal Revenue Code of
1986, as amended (the "Code"), that the Company be taxed as an S corporation.
2.14 Other Agreements. Except as set forth in the attached Schedule IV,
the Company is not a party to or otherwise bound by any written or oral
agreement, instrument, commitment or restriction which individually or in the
aggregate could materially adversely affect the business, prospects, financial
condition, operations, property or affairs of the Company. Except as set forth
in the attached Schedule IV, the Company is not a party to or otherwise bound by
any written or oral:
(a) distributor, dealer, manufacturer's representative or sales
agency agreement which is not terminable on less than ninety (90) days' notice
without cost or other liability to the Company (except for agreements which, in
the aggregate, are not material to the business of the Company);
(b) sales agreement which entitles any customer to a rebate or
right of set-off, to return any product to the Company after acceptance thereof
or to delay the acceptance thereof, or which varies in any material respect from
the Company's standard form agreements;
(c) agreement with any labor union (and, to the knowledge of
the Company, no organizational effort is being made with respect to any of its
employees);
(d) agreement with any supplier containing any provision
permitting any party other than the Company to renegotiate the price or other
terms, or containing any pay-back or other similar provision, upon the
occurrence of a failure by the Company to meet its obligations under the
agreement when due or the occurrence of any other event;
(e) agreement for the future purchase of fixed assets or for
the future purchase of materials, supplies or equipment in excess of its normal
operating requirements;
(f) agreement for the employment of any officer, employee or
other person (whether of a legally binding nature or in the nature of an
informal understanding) on a full-time or consulting basis which is not
terminable on notice
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without cost or other liability to the Company, except normal severance
arrangements and accrued vacation pay;
(g) bonus, pension, profit-sharing, retirement, hospi-
talization, insurance, stock purchase, stock option or other plan, agreement or
understanding pursuant to which benefits are provided to any employee of the
Company (other than group insurance plans applicable to employees generally);
(h) agreement relating to the borrowing of money or to the
mortgaging or pledging of, or otherwise placing a lien or security interest on,
any asset of the Company;
(i) guaranty of any obligation for borrowed money or otherwise;
(j) voting trust or agreement, stockholders' agreement,
pledge agreement, buy-sell agreement or first refusal or preemptive rights
agreement relating to any securities of the Company;
(k) agreement, or group of related agreements with the
same party or any group of affiliated parties, under which the Company has
advanced or agreed to advance money or has agreed to lease any property as
lessee or lessor;
(l) agreement or obligation (contingent or otherwise) to issue,
sell or otherwise distribute or to repurchase or otherwise acquire or retire any
share of its capital stock or any of its other equity securities;
(m) assignment, license or other agreement with respect to any
form of intangible property;
(n) agreement under which it has granted any person any
registration rights, other than the Amended Registration Rights Agreement;
(o) agreement under which it has limited or restricted its
right to compete with any person in any respect;
(p) other agreement or group of related agreements with
the same party involving more than $50,000 or continuing over a period of more
than six months from the date or dates thereof (including renewals or extensions
optional with another party), which agreement or group of agreements is not
terminable by the Company without penalty upon notice of thirty (30) days or
less, but excluding any agreement or group of agreements with a customer of the
Company for the sale, lease or rental of the Company's products or services if
such agreement or group of agreements was entered into by the Company in the
ordinary course of business; or
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15
(q) other agreement, instrument, commitment, plan or
arrangement, a copy of which would be required to be filed with the Securities
and Exchange Commission (the "Commission") as an exhibit to a registration
statement on Form S-1 if the Company were registering securities under the
Securities Act of 1933, as amended (the "Securities Act").
The Company, and to the best of the Company's knowledge after due inquiry, each
other party thereto have in all material respects performed all the obligations
required to be performed by them to date (or each non-performing party has
received a valid, enforceable and irrevocable written waiver with respect to its
non-performance), have received no notice of default and are not in default
(with due notice or lapse of time or both) under any agreement, instrument,
commitment, plan or arrangement to which the Company is a party or by which it
or its property may be bound. The Company has no present expectation or
intention of not fully performing all its obligations under each such agreement,
instrument, commitment, plan or arrangement, and the Company has no knowledge of
any breach or anticipated breach by the other party to any agreement,
instrument, commitment, plan or arrangement to which the Company is a party. The
Company is in full compliance with all of the terms and provisions of its
Charter and By-laws, as amended.
2.15 Loans and Advances. The Company does not have any outstanding
loans or advances to any person and is not obligated to make any such loans or
advances, except, in each case, for advances to employees of the Company in
respect to reimbursable business expenses anticipated to be incurred by them in
connection with their performance of services for the Company.
2.16 Assumptions, Guaranties, Etc. of Indebtedness of Other Persons.
The Company has not assumed, guaranteed, endorsed or otherwise become directly
or contingently liable on any indebtedness of any other person (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), except for
guaranties by endorsement of negotiable instruments for deposit or collection in
the ordinary course of business.
2.17 Significant Customers and Suppliers. No customer or supplier which
was significant to the Company during the period covered by the financial
statements referred to in Section 2.5 or which has been significant to the
Company there after, has terminated, materially reduced or threatened to
terminate or materially reduce its purchases from or provision of products or
services to the Company, as the case may be.
2.18 Governmental Approvals. Subject to the accuracy of the
representations and warranties of the Purchasers set forth in Article III, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other
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16
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Company of this Agreement or the
Amended Registration Rights Agreement, the issuance, sale and delivery of the
Preferred Shares or, upon conversion thereof, the issuance and delivery of the
Conversion Shares, other than (i) filings pursuant to state securities laws (all
of which filings have been made by the Company, other than those which are
required to be made after the Closing and which will be duly made on a timely
basis) in connection with the sale of the Preferred Shares and (ii) with respect
to the Amended Registration Rights Agreement, the registration of the shares
covered thereby with the Commission and filings pursuant to state securities
laws.
2.19 Disclosure. Neither this Agreement, nor any Schedule or
Exhibit to this Agreement, nor the Business Plan of the Company dated July 28,
1997 (the "Business Plan"), contains an untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein or
therein not misleading. None of the statements, documents, certificates or other
items prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not misleading.
There is no fact which the Company has not disclosed to the Purchasers and their
counsel in writing and of which the Company is aware which materially and
adversely affects or could materially and adversely affect the business,
prospects, financial condition, operations, property or affairs of the Company.
The financial projections and other estimates contained in the Business Plan
were prepared by the Company based on the Company's experience in the industry
and on assumptions of fact and opinion as to future events which the Company, at
the date of the issuance of the Business Plan, believed to be reasonable, but
which the Company cannot and does not assure or guarantee the attainment of in
any manner. As of the date hereof no facts have come to the attention of the
Company which would, in its opinion, require the Company to revise or amplify
the assumptions underlying such projections and other estimates or the
conclusions derived therefrom.
2.20 Offering of the Preferred Shares. Neither the Company nor any
person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering or sale of the Preferred Shares or any
security of the Company similar to the Preferred Shares has offered the
Preferred Shares or any such similar security for sale to, or solicited any
offer to buy the Preferred Shares or any such similar security from, or
otherwise approached or negotiated with respect thereto with, any person or
persons, and neither the Company nor any person acting on its behalf has taken
or will take any other action (including, without limitation, any offer,
issuance or sale of any security of the Company under circumstances which might
require the integration of such security with Preferred Shares under the
Securities Act or the rules and regulations of the Commission thereunder), in
either case so as to subject the offering, issuance or sale of the Preferred
Shares to the registration provisions of the Securities Act.
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2.21 Brokers. The Company has no contract, arrangement or understanding
with any broker, finder or similar agent with respect to the transactions
contemplated by this Agreement.
2.22 Officers. Set forth in Schedule II is a list of the names of the
officers of the Company, together with the title or job classification of each
such person and the total compensation anticipated to be paid to each such
person by the Company in 1997. None of such persons has an employment agreement
or understanding, whether oral or written, with the Company, which is not
terminable on notice by the Company without cost or other liability to the
Company.
2.23 Transactions With Affiliates. No director, officer, employee
or stockholder of the Company, or member of the family of any such person, or
any corporation, partnership, trust or other entity in which any such person, or
any member of the family of any such person, has a substantial interest or is an
officer, director, trustee, partner or holder of more than 5% of the outstanding
capital stock thereof, is a party to any transaction with the Company, including
any contract, agreement or other arrangement providing for the employment of,
furnishing of services by, rental of real or personal property from or otherwise
requiring payments to any such person or firm, other than employment at will
arrangements in the ordinary course of business.
2.24 Employees. Each of the officers of the Company, each key employee
and each other employee now employed by the Company who has access to
confidential information of the Company has executed an Employee Nondisclosure
and Developments Agreement (collectively, the "Employee Nondisclosure and
Developments Agreements"), and such agreements are in full force and effect. No
officer or key employee of the Company has advised the Company (orally or in
writing) that he intends to terminate employment with the Company. The Company
has complied in all material respects with all applicable laws relating to the
employment of labor, including provisions relating to wages, hours, equal
opportunity, collective bargaining and the payment of Social Security and other
taxes, and with the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
2.25 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, and the Company has filed with the
Internal Revenue Service all statements, if any, with its United States income
tax returns that are required under Section 1.897-2(h) of such Regulations.
2.26 ERISA.
(a) Schedule II lists each Employee Plan that covers any
employee of the Company, copies or descriptions of all of which have previously
been
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made available or furnished to the Purchasers. With respect to each Employee
Plan, the Company has provided the most recently filed Form 5500 and an accurate
summary description of such plan. The Company has provided the Purchasers with
complete age, salary, service and related data as of the most recent practicable
date for employees of the Company.
(b) Schedule II also includes a list of each Benefit
Arrangement of the Company, copies or descriptions of all of which have been
made available or furnished previously to the Purchasers.
(c) No Employee Plan is a Multiemployer Plan and no Employee
Plan is subject to Title IV of ERISA. The Company and its Affiliates have not
incurred any liability under Title IV of ERISA arising in connection with the
termination of any plan covered or previously covered by Title IV of ERISA.
(d) None of the Employee Plans or other arrangements listed on
Schedule II covers any non-United States employee or former employee of the
Company.
(e) No "prohibited transaction," as defined in Section 406 of
ERISA or Section 4975 of the Code, has occurred with respect to any Employee
Plan.
(f) No Employee Plan is an "employee pension benefit plan" as
defined in Section 3(2) of ERISA.
(g) Each Employee Plan and each Benefit Arrangement has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Employee Plan or Benefit Arrangement.
(h) All contributions and payments accrued under each Employee
Plan and Benefit Arrangement, determined in accordance with prior funding and
accrual practices, as adjusted to include proportional accruals for the period
ending on the Closing Date, will be discharged and paid on or prior to the
Closing Date except to the extent reflected on the Balance Sheet. Except as
disclosed in writing to the Purchasers prior to the date hereof, there has been
no amendment to, written interpretation of or announcement (whether or not
written) by the Company or any of its ERISA Affiliates relating to, or change in
employee participation or coverage under, any Employee Plan or Benefit
Arrangement that would increase materially the expense of maintaining such
Employee Plan or Benefit Arrangement above the level of the expense incurred in
respect thereof for the fiscal year ended prior to the date hereof.
(i) There is no contract, agreement, plan or arrangement
covering any employee or former employee of the Company that, individually or
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19
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to the terms of Section 280G of the Code.
(j) No tax under Section 4980B of the Code has been incurred in
respect of any Employee Plan that is a group health plan, as defined in Section
5000(b)(1) of the Code.
(k) With respect to the employees and former employees of the
Company, there are no employee post-retirement medical or health plans in
effect, except as required by Section 4980B of the Code.
(l) No employee of the Company will become entitled to any
bonus, retirement, severance or similar benefit or enhanced benefit solely as a
result of the transactions contemplated hereby.
(m) The Company does not have, nor is it reasonably expected to
have, any liability under Title IV of ERISA.
2.27 Disqualified Persons. To the Company's knowledge, none of the
persons listed on Schedule V hereto holds, directly or indirectly, any
securities of the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser severally represents and warrants to the Company that:
(a) it is an "accredited investor" within the meaning of
Rule501 under the Securities Act and was not organized for the specific purpose
of acquiring the Preferred Shares;
(b) it received any materials in connection with the offering
of the Preferred Shares and first learned of such offering in the state listed
as its address set forth on Schedule I hereto, and intends that the state
securities laws of that state alone shall govern its purchase of Preferred
Shares;
(c) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of development
so as to be able to evaluate the risks and merits of its investment in the
Company and it is able financially to bear the risks thereof;
(d) it has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's management;
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20
(e) the Preferred Shares being purchased by it are being
acquired for its own account for the purpose of investment and not with a view
to or for sale in connection with any distribution thereof;
(f) it understands that (i) the Preferred Shares and the
Conversion Shares have not been registered under the Securities Act by reason of
their issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated
under the Securities Act, (ii) the Preferred Shares and, upon conversion
thereof, the Conversion Shares must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration, (iii) the Preferred Shares and the Conversion Shares will
bear a legend to such effect and (iv) the Company will make a notation on its
transfer books to such effect; and
(g) if it sells any Conversion Shares pursuant to Rule 144A
promulgated under the Securities Act, it will take all necessary steps in order
to perfect the exemption from registration provided thereby, including (i)
obtaining on behalf of the Company information to enable the Company to
establish a reasonable belief that the purchaser is a qualified institutional
buyer and (ii) advising such purchaser that Rule 144A is being relied upon with
respect to such resale.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS
The obligation of each Purchaser to purchase and pay for the Preferred
Shares being purchased by it on the Closing Date is, at its option, subject to
the satisfaction, on or before the Closing Date, of the following conditions:
(a) Opinion of Company's Counsel. The Purchasers shall have
received from ▇▇▇▇ and ▇▇▇▇ LLP, counsel for the Company, an opinion dated as of
the Closing Date, in form and scope satisfactory to the Purchasers and their
counsel, to the effect that:
(i) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. To the knowledge of such counsel, the Company has no
subsidiaries. The Company is duly licensed or qualified to transact business as
a foreign corporation and is in good standing in Virginia. The Company has the
corporate power and authority to own and hold its properties and to carry on its
business as currently conducted and as proposed to be conducted. The Company has
the corporate power and authority to execute, deliver and perform this Agreement
and the Amended Registration Rights Agreement, to issue, sell and deliver the
Preferred Shares and, upon conversion thereof, to issue and deliver the
Conversion Shares.
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21
(ii) This Agreement and the Amended Registration Rights
Agreement have been duly authorized, executed and delivered by the Company and
constitute the legal, valid and binding obligations of the Company, enforceable
in accordance with their respective terms (subject, as to enforcement of
remedies, to the discretion of courts in awarding equitable relief and to
applicable bankruptcy, reorganization, insolvency, moratorium and similar laws
affecting the rights of creditors generally), except that such counsel need not
express any opinion as to the validity or enforceability of the indemnification
and contribution provisions of the Amended Registration Rights Agreement.
(iii) The execution and delivery by the Company of this
Agreement and the Amended Registration Rights Agreement, the performance by the
Company of its obligations hereunder and thereunder, the issuance, sale and
delivery of the Preferred Shares and, upon conversion thereof, the issuance and
delivery of the Conversion Shares, will not violate any provision of law
applicable to the Company, the Charter or By-laws, as amended, of the Company,
any order of any court or other agency of government specifically applicable to
the Company or its property or any agreement of the Company listed on Schedule
II hereto, or conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement
or other instrument, or result in the creation or imposition of any lien,
charge, restriction, claim or encumbrance of any nature whatsoever upon any of
the properties or assets of the Company. In rendering the foregoing opinion,
such counsel may assume full disclosure to the Purchasers of all material facts
and, with respect to performance by the Company of its obligations under the
Amended Registration Rights Agreement, may assume compliance by the Company at
such time with the registration requirements of the Securities Act and with
applicable state securities laws and may disclaim any opinion as to the validity
or enforceability of the indemnification and contribution provisions of the
Amended Registration Rights Agreement.
(iv) The authorized capital stock of the Company as of
the date hereof consists of (i) 1,562,500 shares of Class A Convertible
Preferred Stock, $.001 par value (the "Class A Preferred Stock"), (ii) 2,151,420
shares of Class B Convertible Preferred Stock, $.001 par value (the "Class B
Preferred Stock"), (iii) 3,188,889 shares of Class C Convertible Preferred
Stock, $.001 par value (the "Class C Preferred Stock"), (iv) 2,045,785 shares of
Class D Convertible Preferred Stock, $.001 par value (the "Class D Convertible
Preferred Stock") and (v) 16,000,000 shares of Common Stock. Immediately prior
to the Closing, 4,312,500 shares of Common Stock, 1,562,500 shares of Class A
Preferred Stock, 2,151,420 shares of Class B Preferred Stock and 3,188,889
shares of Class C Preferred Stock will be validly issued and outstanding, fully
paid and nonassessable with no personal liability attaching to the ownership
thereof and no shares of Class D Preferred Stock will have been issued.
Immediately prior to the Closing, based on a review by such counsel of the stock
record and minute books of the Company, the stockholders of record and holders
of record of subscriptions, warrants,
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22
options, convertible securities, and other rights (contingent or other) to
purchase or otherwise acquire equity securities of the Company, and the number
of shares of Common Stock and the number of such subscriptions, warrants,
options, convertible securities, and other such rights held by each, will be as
set forth in Schedule II and Schedule III. The designations, powers,
preferences, rights, qualifications, limitations and restrictions in respect of
each class or series of authorized capital stock of the Company are as set forth
in the Charter, and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid, binding and enforceable
against the Company and in accordance with all applicable laws (subject, as to
enforcement, to the discretion of courts in awarding equitable relief and to
applicable bankruptcy, reorgani zation, insolvency, moratorium and similar laws
affecting the rights of creditors generally). Except as set forth in Schedule
II, to the knowledge of such counsel, immediately prior to the Closing no
subscription, warrant, option, convertible security, or other right (contingent
or otherwise) to purchase or acquire equity securities of the Company will be
authorized or outstanding and there will be no commitment by the Company to
issue shares, subscriptions, warrants, options, convertible securities, or other
such rights or to distribute to holders of any of its equity securities any
evidence of indebtedness or asset. Except as set forth in Schedule II or as
provided for in the Charter, to the knowledge of such counsel, the Company has
no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interest therein or to pay any dividend or
make any other distribution in respect thereof.
(v) The Preferred Shares and the Conversion 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, to the knowledge
of such counsel, are free and clear of all liens, charges, restrictions, claims
and encumbrances imposed by or through the Company except as set forth in the
Amended Registration Rights Agreement; and the Conversion Shares have been duly
reserved for issuance upon conversion of the Preferred Shares and, when so
issued, will be validly issued, fully paid and nonassessable with no personal
liability attaching to the ownership thereof and, to the knowledge of such
counsel, will be free and clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Company except as set forth in the
Amended Registration Rights Agreement. Neither the issuance, sale or delivery of
the Preferred Shares nor the issuance or delivery of the Conversion Shares is
subject to any preemptive right of stockholders of the Company arising under law
or the Charter or By-laws of the Company, each as amended, or, to the knowledge
of such counsel, to any contractual right of first refusal or other right in
favor of any person, except as set forth on Schedule II.
(vi) Except as described in Schedule II, to the knowledge
of such counsel there is no (A) action, suit, claim, proceeding or investigation
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23
pending or threatened against or affecting the Company, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, (B)
arbitration proceeding relating to the Company pending under collective
bargaining agreements or (C) governmental inquiry pending or threatened against
or affecting the Company (including, without limitation, any inquiry as to the
qualification of the Company to hold or receive any license or permit). To the
knowledge of such counsel, the Company is not in default with respect to any
order, writ, injunction or decree known to such counsel of any court or of any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign.
(vii) To the knowledge of such counsel, no third party has
claimed that any person employed by or affiliated with the Company has violated
or may be violating any of the terms or conditions of his employment,
non-competition or non-disclosure agreement with such third party, or disclosed
or may be disclosing or utilized or may be utilizing any trade secret or
proprietary information or documentation of such third party or interfered or
may be interfering in the employment relationship between such third party and
any of its present or former employees.
(viii) Assuming the accuracy of the representations and
warranties of the Purchasers set forth in Article III, the offer and sale of the
Series D Preferred Stock pursuant to the terms of this Agreement and the Amended
Registration Rights Agreement are exempt from the registration requirements of
Section 5 of the Securities Act of 1933, as amended, and, under such securities
laws as they presently exist, the issuance of Common Stock upon conversion of
the Series D Preferred Stock will also be exempt from such registration and
qualification requirements.
(b) Representations and Warranties to be True and Correct. The
representations and warranties contained in Article II shall be true, complete
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and the
President and Treasurer of the Company shall have certified to such effect to
the Purchasers in writing.
(c) Performance. The Company shall have performed and complied
with all agreements contained herein required to be performed or complied with
by it prior to or at the Closing Date, and the President and Treasurer of the
Company shall have certified to the Purchasers in writing to such effect and to
the further effect that all of the conditions set forth in this Article IV have
been satisfied.
(d) All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be
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satisfactory in form and substance to the Purchasers and their counsel, and the
Purchasers and their counsel shall have received all such counterpart originals
or certified or other copies of such documents as they reasonably may request.
(e) Supporting Documents. The Purchasers and their counsel
shall have received copies of the following documents:
(i) (A) the Charter, certified as of a recent date by
the Secretary of State of the State of Delaware and (B) a certificate of said
Secretary dated as of a recent date as to the due incorporation and good
standing of the Company, the payment of all excise taxes by the Company and
listing all documents of the Company on file with said Secretary;
(ii) a certificate of the Secretary or an Assistant
Secretary of the Company dated the Closing Date and certifying: (A) that
attached thereto is a true and complete copy of the By-laws of the Company as in
effect on the date of such certification; (B) that attached thereto is a true
and complete copy of all resolutions adopted by the Board of Directors or the
stockholders of the Company authorizing the execution, delivery and performance
of this Agreement and the Amended Registration Rights Agreement, the issuance,
sale and delivery of the Preferred Shares and the reservation, issuance and
delivery of the Conversion Shares, and that all such resolutions are in full
force and effect and are all the resolutions adopted in connection with the
transactions contemplated by this Agreement and the Amended Registration Rights
Agreement; (C) that the Charter has not been amended since the date of the last
amendment referred to in the certificate delivered pursuant to clause (i)(B)
above; and (D) to the incumbency and specimen signature of each officer of the
Company executing this Agreement and the Amended Registration Rights Agreement,
the stock certificates representing the Preferred Shares and any certificate or
instrument furnished pursuant hereto, and a certification by another officer of
the Company as to the incumbency and signature of the officer signing the
certificate referred to in this clause (ii); and
(iii) such additional supporting documents and other
information with respect to the operations and affairs of the Company as the
Purchasers or their counsel reasonably may request.
(f) Amended Registration Rights Agreement. The Company and each
Prior Investor (as such term is defined therein) shall have executed and
delivered the Amended Registration Rights Agreement.
(g) Non-Competition Agreements. Copies of the Non-Competition
Agreements with the Company signed by each of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
and ▇▇▇▇ ▇▇▇▇▇▇ (collectively, the "Non-Competition Agreements") shall have been
delivered to counsel for the Purchasers.
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(h) Charter. The Charter shall read in its entirety as set
forth in Exhibit B. The Charter shall have been duly amended, if necessary, to
provide that: (i) all directors of the Company shall be indemnified against, and
absolved of, liability to the Company and its stockholders to the maximum extent
permitted under the laws of the State of Delaware, and (ii) the number of shares
of authorized Common Stock of the Company may be increased or decreased (but not
below the number then outstanding) by the affirmative vote of the holders of a
majority of the outstanding shares of capital stock of the Company entitled to
vote thereon, voting together as a single class notwithstanding the provisions
of Section 242(b)(2) of the General Corporation Law of the State of Delaware.
(i) By-Laws. The Company's By-laws shall have been amended, if
necessary, to provide that (i) unless otherwise required by the laws of the
State of Delaware, any two directors, TTC Ventures, New Enterprise Associates
VI, Limited Partnership, or 21st Century Internet Fund, L.P. shall have the
right to call a meeting of the Board of Directors and (ii) the number of
directors fixed in accordance therewith shall in no event conflict with any of
the terms or provisions of the Class D Convertible Preferred Stock as set forth
in the Charter.
(j) Employee Agreements. Copies of the Employee Nondisclosure
and Developments Agreements shall have been delivered to counsel for the
Purchasers.
(k) Election of Directors. The number of directors
constituting the entire Board of Directors shall have been fixed at seven and
the following persons shall have been elected as the directors and shall each
hold such position as of the Closing Date: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇ as
the directors elected solely by the holders of the Common Stock, ▇▇▇▇▇ ▇▇▇▇▇▇▇
as the director elected solely by the holders of the Class A Preferred Stock,
▇▇▇▇▇ ▇▇▇▇▇▇ as the director elected solely by the holders of the Class B
Preferred Stock (the "Class B Director"), J. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ as the director
elected solely by the holders of the Class C Preferred Stock (the "Class C
Director"), and D. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ as the director appointed by TTC Ventures on
behalf of the holders of the Class D Convertible Preferred Stock (the "Class D
Director"). The director to be elected solely by the holders of the Common
Stock, acting as a separate class, and approved by the holders of the Class B
Preferred Stock, the Class C Preferred Stock and the Class D Convertible
Preferred Stock, each acting as a separate class, shall be nominated and elected
at a later date.
(l) Preemptive Rights. All stockholders of the Company having
any preemptive, first refusal or other rights with respect to the issuance of
the Preferred Shares or the Conversion Shares shall have irrevocably exercised
or waived the same in writing.
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(m) Fees of Purchasers' Counsel. The Company shall have paid in
accordance with Section 6.1 the fees and disbursements of Purchasers' counsel
invoiced at the Closing.
(n) Blue Sky. The Preferred Shares shall have been qualified
under applicable state securities laws.
All such documents shall be satisfactory in form and substance to the
Purchasers and each of their counsels.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the Purchasers that:
5.1 Financial Statements, Reports, Etc. The Company shall furnish to
each Purchaser holding at least 100,000 Preferred Shares, and to each
stockholder listed on Schedule III hereto (individually, an "Existing
Stockholder" and collectively, the "Existing Stockholders"), so long as such
Existing Stockholder holds at least 50% of the outstanding stock of the Company
held by such Existing Stockholder as of the date hereof (calculated on a
fully-diluted basis and adjusting for stock splits, stock dividends and the
like):
(a) within ninety (90) days after the end of each fiscal year of
the Company a consolidated balance sheet of the Company and its subsidiaries as
of the end of such fiscal year and the related consolidated statements of
income, stockholders' equity and cash flows for the fiscal year then ended,
prepared in accordance with generally accepted accounting principles and
certified by a firm of independent public accountants of recognized national
standing selected by the Board of Directors of the Company;
(b) within thirty (30) days after the end of each quarter in
each fiscal year (other than the last quarter in each fiscal year) a
consolidated balance sheet of the Company and its subsidiaries and the related
consolidated statements of income, stockholders' equity and cash flows,
unaudited but prepared in accordance with generally accepted accounting
principles and certified by the Chief Executive Officer or Chief Financial
Officer of the Company, such consolidated balance sheet to be as of the end of
such quarter and such consolidated statements of income, stockholders' equity
and cash flows to be for such quarter and for the period from the beginning of
the fiscal year to the end of such quarter, in each case with comparative
statements for the prior fiscal year, provided
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that the Company's obligations under this Section 5.1(b) shall terminate upon
the completion of a firm commitment underwritten public offering of the
Company's securities;
(c) at the time of delivery of each quarterly statement
pursuant to Section 5.1(b), a management narrative report explaining all
significant variances from forecasts and all significant current developments in
staffing, marketing, sales and operations;
(d) no later than fifteen (15) days prior to the start of each
fiscal year, consolidated capital and operating expense budgets, cash flow
projections and income and loss projections for the Company and its subsidiaries
in respect of such fiscal year, all itemized in reasonable detail and prepared
on a monthly basis, and, promptly after preparation, any revisions to any of the
foregoing;
(e) promptly following receipt by the Company, each audit
response letter, accountant's management letter and other written report
submitted to the Company by its independent public accountants in connection
with an annual or interim audit of the books of the Company or any of its
subsidiaries;
(f) promptly upon sending, making available or filing the same,
all press releases, reports and financial statements that the Company sends or
makes available to its stockholders or directors or files with the Commission;
and
(g) promptly, from time to time, such other information
regarding the business, prospects, financial condition, operations, property or
affairs of the Company and its subsidiaries as such Purchaser reasonably may
request.
5.2 Right of First Offer. So long as any shares of Class A Preferred
Stock, Class B Preferred Stock, Class C Preferred Stock or Class D Convertible
Preferred Stock are outstanding, the Company shall, prior to any issuance by the
Company of any of its securities (other than debt securities with no equity
feature), offer to each Purchaser and to each then existing holder of such
Preferred Stock (an "Existing Stockholder") by written notice the right, for a
period of thirty (30) days, to purchase all of such securities for cash at an
amount equal to the price or other consideration for which such securities are
to be issued; provided, however, that the first refusal rights of the Purchasers
and Existing Stockholders pursuant to this Section 5.2 shall not apply to
securities issued (A) upon conversion of any of the Preferred Shares, (B) as a
stock dividend or upon any subdivision of shares of Common Stock, provided that
the securities issued pursuant to such stock dividend or subdivision are limited
to additional shares of Common Stock, (C) pursuant to subscriptions, warrants,
options, convertible securities, or other rights which are listed in Schedule
III as being outstanding on the date of this Agreement, (D) solely in
consideration for the acquisition (whether by merger or otherwise) by
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the Company or any of its subsidiaries of all or substantially all of the stock
or assets of any other entity, (E) pursuant to a firm commitment underwritten
public offering, and (F) pursuant to the exercise of options to purchase Common
Stock granted to directors, officers, employees or consultants of the Company in
connection with their service to the Company, not to exceed in the aggregate
1,950,000 shares (appropriately adjusted to reflect stock splits, stock
dividends, combinations of shares and the like with respect to the Common Stock)
less the number of shares (as so adjusted) issued pursuant to subscriptions,
warrants, options, convertible securities, or other rights outstanding on the
date of this Agreement and listed in Schedule III pursuant to clause (C) above
(the shares exempted by this clause (F) being hereinafter referred to as the
"Reserved Employee Shares") provided that the number of Reserved Employee Shares
may be increased prior to December 31, 1998, with the approval of a majority of
the Board of Directors including the Class B Director, the Class C Director and
the Class D Director and at any time after December 31, 1998, with the approval
of either (i) a majority of the Board of Directors including the Class B
Director, the Class C Director and the Class D Director or (ii) all directors
other than the Class B Director, the Class C Director or the Class D Director.
The Company's written notice to the Purchasers and Existing Stockholders shall
describe the securities proposed to be issued by the Company and specify the
number, price and payment terms. Each Purchaser and Existing Stockholder may
accept the Company's offer as to the full number of securities offered to it or
any lesser number, by written notice thereof given by it to the Company prior to
the expiration of the aforesaid thirty (30) day period, in which event the
Company shall promptly sell and such Purchaser or Existing Stockholder shall
buy, upon the terms specified, the number of securities agreed to be purchased
by such Purchaser or Existing Stockholder. Notwithstanding the foregoing, if the
Purchasers and Existing Stockholders agree, in the aggregate, to purchase more
than the full number of securities offered by the Company, then each Purchaser
and Existing Stockholder accepting the Company's offer shall first be allocated
the lesser of (i) the number of securities which such Purchaser or Existing
Stockholder agreed to purchase and (ii) the number of securities as is equal to
the full number of securities offered by the Company multiplied by a fraction,
the numerator of which shall be the number of shares of Common Stock held by
such Purchaser or Existing Stockholder as of the date of the Company's notice of
offer (treating such Purchaser or Existing Stockholder, for the purpose of such
calculation, as the holder of the number of shares of Common Stock which would
be issuable to such Purchaser or Existing Stockholder upon conversion, exercise
or exchange of all securities (including but not limited to the Preferred
Shares) held by such Purchaser or Existing Stockholder on the date such offer is
made, that are convertible, exercisable or exchangeable into or for (whether
directly or indirectly) shares of Common Stock) and the denominator of which
shall be the aggregate number of shares of Common Stock (calculated as
aforesaid) held on such date by all Purchasers and Existing Stockholders who
accepted the Company's offer, and the balance of the securities (if any) offered
by the Company shall be allocated among the Purchasers and Existing Stockholders
accepting the Company's offer in proportion to their
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relative equity ownership interests in the Company (calculated as aforesaid),
provided that no Purchaser or Existing Stockholder shall be allocated more than
the number of securities which such Purchaser or Existing Stockholder agreed to
purchase and provided further that in cases covered by this sentence all
Purchasers and Existing Stockholders shall be allocated among them the full
number of securities offered by the Company. The Company shall be free at any
time prior to ninety (90) days after the date of its notice of offer to the
Purchasers and Existing Stockholders, to offer and sell to any third party or
parties the number of such securities not agreed by the Purchasers and Existing
Stockholders to be purchased by them, at a price and on payment terms no less
favorable to the Company than those specified in such notice of offer to the
Purchasers and Existing Stockholders. However, if such third party sale or sales
are not consummated within such ninety (90) day period, the Company shall not
sell such securities as shall not have been purchased within such period without
again complying with this Section 5.2.
5.3 Reserve for Conversion Shares. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, for the purpose of effecting the conversion of the Preferred Shares and
otherwise complying with the terms of this Agreement, such number of its duly
authorized shares of Common Stock as shall be sufficient to effect the
conversion of the Preferred Shares from time to time outstanding or otherwise to
comply with the terms of this Agreement. If at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of the Preferred Shares or otherwise to comply with the terms of this
Agreement, the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes. The Company will
obtain any authorization, consent, approval or other action by or make any
filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock upon conversion of the Preferred Shares.
5.4 Corporate Existence. The Company shall maintain and, except as
otherwise permitted by Section 5.16, cause each of its subsidiaries to maintain,
their respective corporate existence, rights and franchises in full force and
effect.
5.5 Properties, Business, Insurance. The Company shall 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 similarly situated, which insurance shall be deemed by
the Company to be sufficient. The Company shall also maintain in effect "key
person" life insurance policies, payable to the Company, on the life of ▇▇▇▇▇▇
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30
▇▇▇▇▇▇▇▇ (so long as he remains an employee of the Company), in the amount of
$2,000,000. The Company shall not cause or permit any assignment or change in
beneficiary and shall not borrow against such policy. If requested by Purchasers
holding at least a majority of the outstanding Preferred Shares, the Company
will add one designee of such Purchasers as a notice party for such policy and
shall request that the issuer of such policy provide such designee with ten (10)
days' notice before such policy is terminated (for failure to pay premiums or
otherwise) or assigned or before any change is made in the beneficiary thereof.
5.6 Inspection, Consultation and Advice. The Company shall permit and
cause each of its subsidiaries to permit each Purchaser and such persons as it
may designate, at such Purchaser's expense, to visit and inspect any of the
properties of the Company and its subsidiaries, examine their books and take
copies and extracts there from, discuss the affairs, finances and accounts of
the Company and its subsidiaries with their officers, employees and public
accountants (and the Company hereby authorizes said accountants to discuss with
such Purchaser and such designees such affairs, finances and accounts), and
consult with and advise the management of the Company and its subsidiaries as to
their affairs, finances and accounts, all at reasonable times and upon
reasonable notice.
5.7 Restrictive Agreements Prohibited. Neither the Company nor any of
its subsidiaries shall become a party to any agreement which by its terms
restricts the Company's performance of this Agreement, the Amended Registration
Rights Agreement or the Charter.
5.8 Transactions with Affiliates. Except for transactions contemplated
by this Agreement or as otherwise approved by the Board of Directors, neither
the Company nor any of its subsidiaries shall enter into any transaction with
any director, officer, employee or holder of more than 5% of the outstanding
capital stock of any class or series of capital stock of the Company or any of
its subsidiaries, affiliates, member of the family of any such person, or any
corporation, partnership, trust or other entity in which any such person, or
member of the family of any such person, is a director, officer, trustee,
partner or holder of more than 5% of the outstanding capital stock thereof,
except for transactions on customary terms related to such person's employment.
5.9 Use of Proceeds. The Company shall use the proceeds from the sale
of the Preferred Shares solely for working capital.
5.10 Board of Directors Meetings. The Company shall use its best
meetings of its Board of Directors are held at least four
times each year and at least once each quarter. The Company shall permit TTC
Ventures and 21st Century Internet Fund L.P. ("21st Century Internet Fund"), so
long as they, individually, (i) hold of record or beneficially at least 500,000
Preferred
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Shares and/or Conversion Shares and (ii) are not represented on the Board of
Directors, directly or by one of its affiliates ("Unrepresented"), to have one
representative attend each meeting of the Board of Directors of the Company and
each meeting of any Committee thereof. While either or both of TTC Ventures and
21st Century Internet Fund is Unrepresented, the Company shall send to such
Unrepresented party a notice containing the time and place of all Board meetings
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 shall provide to such
Unrepresented party 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
committee, except for information reasonably designated as proprietary
information by the Board of Directors.
5.11 Compensation. The Company shall not pay to its management
compensation in excess of that compensation customarily paid to management in
companies of similar size, of similar maturity, and in similar businesses
without the written consent of a majority of the members of the Board of
Directors of the Company.
5.12 By-laws. The Company shall at all times cause its By-laws to
provide that, (a) unless otherwise required by the laws of the State of
Delaware, any two directors, TTC Ventures, New Enterprise Associates VI, Limited
Partnership or 21st Century Internet Fund shall have the right to call a meeting
of the Board of Directors or stockholders and (b) the number of directors fixed
in accordance therewith shall in no event conflict with any of the terms or
provisions of the Class D Convertible Preferred Stock as set forth in the
Charter. The Company shall at all times maintain provisions in its By-laws
and/or Charter indemnifying all directors against liability and absolving all
directors from liability to the Company and its stockholders to the maximum
extent permitted under the laws of the State of Delaware.
5.13 Performance of Contracts. The Company shall not amend, modify,
terminate, waive or otherwise alter, in whole or in part, any of the Employee
Nondisclosure and Developments Agreements or the Non-Competition Agreements
without the written consent of a majority of the members of the Board of
Directors of the Company.
5.14 Vesting of Reserved Employee Shares. The Company shall not grant
to any of its employees options to purchase Reserved Employee Shares which will
become exercisable at a rate in excess of 25% per annum from the date of such
grant (except as set forth on Schedule II) without the consent of the Board of
Directors.
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5.15 Employee Nondisclosure and Developments Agreements. The Company
shall use its best efforts to obtain, and shall cause its subsidiaries to use
their best efforts to obtain, an Employee Nondisclosure and Developments
Agreement from all future officers, key employees and other employees who will
have access to confidential information of the Company or any of its
subsidiaries, upon their employment by the Company or any of its subsidiaries.
5.16 Activities of Subsidiaries. The Company shall not permit any
subsidiary to consolidate or merge into or with or sell or transfer all or
substantially all its assets, except that any subsidiary may (i) consolidate or
merge into or with or sell or transfer assets to any other subsidiary, or (ii)
merge into or sell or transfer assets to the Company. The Company shall not sell
or otherwise transfer any shares of capital stock of any subsidiary, except to
the Company or another subsidiary, or permit any subsidiary to issue, sell or
otherwise transfer any shares of its capital stock or the capital stock of any
subsidiary, except to the Company or another subsidiary. The Company shall not
permit any subsidiary to purchase or set aside any sums for the purchase of, or
pay any dividend or make any distribution on, any shares of its stock, except
for dividends or other distributions payable to the Company or another
subsidiary.
5.17 Compliance with Laws. The Company shall comply, and cause each
subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could materially adversely affect its business or
condition, financial or otherwise.
5.18 Keeping of Records and Books of Account. The Company shall 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.
5.19 Change in Nature of Business. The Company shall not make, or
permit any subsidiary to make, any material change in the nature of its business
as set forth in the Business Plan.
5.20 U.S. Real Property Interest Statement. The Company shall provide
prompt written notice to each Purchaser following any "determination date" (as
defined in Treasury Regulation Section 1.897-2(c)(i)) on which the Company
becomes a United States real property holding corporation. In addition, upon a
written request by any Purchaser, the Company shall provide such Purchaser with
a written statement informing the Purchaser whether such Purchaser's interest in
the Company constitutes a U.S. real property interest. The Company's
determination
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shall comply with the requirements of Treasury Regulation Section 1.897-2(h)(1)
or any successor regulation, and the Company shall provide timely notice to the
Internal Revenue Service, in accordance with and to the extent required by
Treasury Regulation Section 1.897-2(h)(2) or any successor regulation, that such
statement has been made. The Company's written statement to any Purchaser shall
be delivered to such Purchaser within ten (10) days of such Purchaser's written
request therefor. The Company's obligation to furnish a written statement
pursuant to this Section 5.20 shall continue notwithstanding the fact that a
class of the Company's stock may be regularly traded on an established
securities market.
5.21 Rule 144A Information. The Company shall, at all times during
which it is neither subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), nor
exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, provide
in writing, upon the written request of any Purchaser or a prospective buyer of
Preferred Shares or Conversion 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 also
shall, upon the written request of any Purchaser or any stockholder listed on
Schedule III, cooperate with and assist such Purchaser or any member of the
National Association of Securities Dealers, Inc. PORTAL system in applying to
designate and thereafter maintain the eligibility of the Preferred Shares or
Conversion Shares, as the case may be, for trading through PORTAL. The Company's
obligations under this Section 5.21 shall at all times be contingent upon the
relevant Purchaser's obtaining from the prospective buyer of Preferred Shares or
Conversion Shares a written agreement to take all reasonable precautions to
safeguard the Rule 144A Information from disclosure to anyone other than a
person who will assist such buyer in evaluating the purchase of any Preferred
Shares or Conversion Shares.
5.22 Termination of Covenants. The covenants set forth in Sections 5.20
and 5.21 shall terminate and be of no further force or effect as to each of the
Purchasers when such Purchaser no longer holds any shares of capital stock of
the Company. Except as otherwise provided above, all of the other covenants set
forth in this Article V shall terminate and be of no further force or effect as
to each of the Purchasers when such Purchaser owns less than 50% of the
Preferred Shares purchased by it on the date hereof (appropriately adjusted to
reflect stock splits, stock dividends, combinations of shares and the like with
respect to the Class D Convertible Preferred Stock).
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ARTICLE VI
MISCELLANEOUS
6.1 Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that the Company shall
pay the fees and disbursements, up to $10,000, of the Purchasers' counsel in
connection with such transactions and any subsequent amendment, waiver, consent
or enforcement thereof.
6.2 Survival of Agreements. All covenants, agreements,
representations and warranties made herein or in the Amended Registration
Rights Agreement, or any certificate or instrument delivered to the Purchasers
pursuant to or in connection with this Agreement or the Amended Registration
Rights Agreement, shall survive the execution and delivery of this Agreement
and the Amended Registration Rights Agreement, the issuance, sale and delivery
of the Preferred Shares, and the issuance and delivery of the Conversion
Shares, and all statements contained in any certificate or other instrument
delivered by the Company hereunder or thereunder or in connection herewith or
therewith shall be deemed to constitute representations and warranties made by
the Company.
6.3 Brokerage. Each party hereto will indemnify and hold harmless
the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
6.4 Parties in Interest. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Without limiting
the generality of the foregoing, all representations, covenants and agreements
benefiting the Purchasers shall inure to the benefit of any and all subsequent
holders from time to time of Preferred Shares or Conversion Shares.
6.5 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, addressed as follows:
(a) if to the Company, at ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇
▇▇▇▇▇, Attention: President, with a copy to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ and ▇▇▇▇ LLP,
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇; and
(b) if to any Purchaser, at the address of such Purchaser set
forth in Schedule I, with a copy to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Shearman & Sterling, ▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇;
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or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
6.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware.
6.7 Entire Agreement. This Agreement, including the Schedules and
Exhibits hereto, constitutes the sole and entire agreement of the parties with
respect to the subject matter hereof. All Schedules and Exhibits hereto are
hereby incorporated herein by reference.
6.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.9 Amendments. This Agreement may not be amended or modified, and
no provisions hereof may be waived, without the written consent of the Company
and the holders of at least two-thirds of the outstanding shares of Common
Stock issued or issuable upon conversion of the Preferred Shares.
6.10 Severability. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
6.11 Titles and Subtitles. The titles and subtitles used in this
Agreement are for convenience only and are not to be considered in construing
or interpreting any term or provision of this Agreement.
6.12 Assignment. The rights granted pursuant to this Agreement may be
assigned or otherwise conveyed by any Purchaser or by any subsequent transferee
of any such rights to any transferee, other than a competitor of the Company,
only if such transferee (i) acquires at least 100,000 Preferred Shares and/or
Common Stock issuable upon conversion of the Preferred Shares and (ii) is an
affiliate or constituent partner of any Purchaser or a direct or indirect
subsidiary of The Thomson Corporation. Such assignment, transfer or conveyance
may not be made without the prior written consent of the Company, such consent
not to be unreasonably withheld.
6.13 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):
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36
(a) "Benefit Arrangement" means each employment, severance or
other similar contract, arrangement or policy (written or oral) and each plan
or arrangement (written or oral) providing for severance benefits, insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits or for deferred compensation, profit-sharing, bonuses,
stock options, stock appreciation rights or other forms of incentive
compensation or post-retirement insurance, compensation or benefits which (i)
is not an Employee Plan and (ii) covers any employee or former employee of the
Company.
(b) "Employee Plan" means each "employee benefit plan," as
such term is defined in Section 3(3) of ERISA, that (A)(i) is subject to any
provision of ERISA and (ii) is maintained or contributed to by the Company, or
(B)(i) is subject to any provision of Title IV of ERISA and (ii) is maintained
or contributed to by any of the Company's ERISA Affiliates.
(c) "ERISA" means the Employment Retirement Income Security
Act of 1974, as amended.
(d) "ERISA Affiliate" of any entity means any other entity
that, together with such entity, would be treated as a single employer under
Section 414 of the Code.
(e) "Multiemployer Plan" means each Employee Plan that is a
multiemployer plan, as defined in Section 3(37) of ERISA.
(f) "person" shall mean an individual, corporation, trust,
partnership, joint venture, unincorporated organization, government agency or
any agency or political subdivision thereof, or other entity.
(g) "subsidiary" shall mean, as to the Company, any
corporation of which more than 50% of the outstanding stock having ordinary
voting power to elect a majority of the Board of Directors of such corporation
(irrespective of whether or not at the time stock of any other class or classes
of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned by
the Company, or by one or more of its subsidiaries, or by the Company and one
or more of its subsidiaries.
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IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Class D Convertible Preferred Stock Purchase Agreement as of the day and year
first above written.
NETSTART, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------
[Corporate Seal] Title:
-------------------
Attest:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------
Secretary
PURCHASERS:
Thomson U.S. Inc.
By:
-----------------------------
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President
21st Century Internet Fund, L.P.
By: 21st Century Internet Fund, L.P.
By: /s/ J. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
---------------------------
Name:
Title:
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New Enterprise Associates VI, Limited
Partnership
By: NEA Partners VI, Limited
Partnership
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: General Partner
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SCHEDULE I
Purchasers
FIRST CLOSING
Number of
Aggregate
Preferred Purchase
Price
Name and Shares to be for Preferred
Address of Purchaser Purchased Shares
-------------------- ------------- -------------
Thomson U.S. Inc. 560,224 $1,999,999.68
▇/▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
21st Century Internet 242,557 865,928.49
Fund L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
New Enterprise 317,667 1,134,071.19
Associates VI, Limited
Partnership
▇▇▇▇ ▇▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
TOTAL: 1,120,448 $3,999,999.36
-35-
40
Purchasers
SECOND CLOSING
Number of
Aggregate
Preferred Purchase Price
Name and Shares to be for Preferred
Address of Purchaser Purchased Shares
-------------------- ------------- --------------
21st Century Internet 85,000 $ 303,450
Fund L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
[Other Investors to be 840,337 3,000,003
Determined]
UP TO UP TO
TOTAL: 925,337 $3,303,453
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