Exhibit 4.4
SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is made March 7, 1997 (the "Effective Date"), by and between WEBTV
NETWORKS, INC., a California corporation (the "Company"), and SEAGATE
TECHNOLOGY, INC., a Delaware Corporation (the "Purchaser").
R E C I T A L S
---------------
A. The Company desires to sell to the Purchaser and the Purchaser desires
to purchase from the Company shares of the Company's Series D Convertible
Preferred Stock.
B. Capitalized terms used herein without definition shall have the
meanings given them in Section 7.1 of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein, and subject to the terms and conditions hereinafter set forth, the
parties hereby agree as follows:
ARTICLE 1
PURCHASE, SALE AND TERMS OF SHARES
1.1 The Series D Convertible Preferred Stock. The Company agrees to issue
sell to the Purchaser, and the Purchaser agrees to purchase, 1,343,570 shares of
the Company's Series D Convertible Preferred Stock, without par value (the
"Series D Preferred"), at a price of $10.42 per share (the "Per Share Price"),
for an aggregate purchase price of Thirteen Million Nine Hundred Ninety Nine
Thousand Nine Hundred Ninety Nine Dollars and Forty Cents ($13,999,999.40) (the
shares of Series D Preferred sold hereunder are sometimes referred to as the
"Shares"). If, within ninety (90) days of the date of this Agreement, an
agreement is signed providing for a Financing Event to occur at a per share
price above the Per Share Price, the Per Share Price shall be adjusted upwards
to a price which is eighty five percent (85%) of the per share price in such
Financing Event. Upon execution by the Company of an agreement providing for
such a Financing Event, the Purchaser and the Company each agree to promptly
make any filing under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976
(the "H-S-R Act") which is required as a result of the foregoing increase in the
Per Share Price. Immediately following the expiration or early termination of
the waiting period under the H-S-R Act with respect to such filing, the
Purchaser agrees to pay the additional amount owed to the Company as a result of
the foregoing increase in the Per Share Price; provided that the Company shall
refund such additional amount to the Purchaser if the Financing Event giving
rise to such filing under the H-S-R Act is not consummated. If the Purchaser
pays such additional amount, the Company will, at the Purchaser's request, seek
to cause the Company's Articles of Incorporation to be amended so that the
Liquidation Preference of the Series D Preferred reflects the amount ultimately
paid by the Purchaser for the Series D Preferred. The designation, rights,
preferences and other terms and conditions relating to the Series D Preferred
shall be as set forth in Exhibit A hereto. Any shares of Common Stock issuable
upon conversion of the Series D Preferred are herein referred to as the
"Conversion Shares."
1.2 Reservation of Shares. The Company will prior to the Closing (as
defined herein) authorize and reserve and hereby covenants to continue to
reserve a sufficient number of its previously authorized but unissued shares of
Common Stock to satisfy the rights of conversion of the holders of the Series D
Preferred.
1.3 The Closing. The closing of the purchase and sale of Shares hereunder
(the "Closing") shall be held at the offices of Venture Law Group, A
Professional Corporation, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, on March
7, 1997, at 7:00 a.m., or on such other date and at such time as may be mutually
agreed upon (the date of such Closing being referred to as the "Closing Date").
At the Closing, the Company will issue and deliver a stock certificate
evidencing the Shares sold at the Closing to the Purchaser, against payment of
the purchase price for such Shares by certified bank check or wire transfer of
immediately available funds to the account of the Company.
1.4 Representations by the Purchaser.
(a) Investment. The Purchaser represents that:
(i) The Purchaser has been advised that the Shares have not been
registered under the Securities Act nor qualified under any state securities
laws on the grounds that no distribution or public offering of the Shares is to
be effected, and that in this connection the Company is relying in part on the
representations of the Purchaser set forth herein.
(ii) It is the Purchaser's intention to acquire the Shares for its
own account and that the Shares are being and will be acquired for the purpose
of investment and not with a view to distribution or resale thereof.
(iii) The Purchaser is able to bear the economic risk of an
investment in the Shares acquired by the Purchaser pursuant to this Agreement
and can afford to sustain a total loss on such investment.
(iv) The Purchaser is an experienced and sophisticated investor, able
to fend for itself in the transactions contemplated by this Agreement, and has
such knowledge and experience in financial and business matters that it is
capable of evaluating the risks and merits of acquiring the Shares. The
Purchaser has not been formed or organized for the specific purpose of acquiring
the Shares. The Purchaser has had, during the course of this transaction and
prior to the Purchaser's purchase of the Shares, the opportunity to ask
questions of, and receive answers from, the Company and its management
concerning the Company and the terms and conditions of this Agreement. The
Purchaser hereby acknowledges that the Purchaser or its representatives have
received all such information as the Purchaser considers necessary for
evaluating the risks and merits of acquiring the Shares and for verifying the
accuracy of any information furnished to the Purchaser or to which the Purchaser
had access. The Purchaser represents and warrants that the nature and amount of
the Shares being purchased is consistent with the Purchaser's investment
objectives, abilities and resources.
(v) Notwithstanding any other provision contained in this Agreement,
subject to the registration rights set forth in Article 5 hereof, the Purchaser
understands that there is no public market for the Shares and that there may
never be such a public market, and that
-2-
even if such a public market develops the Purchaser may never be able to sell or
dispose of the Shares and may thus have to bear the risk of the Purchaser's
investment for a substantial period of time, or forever. The Purchaser is aware
of the provisions of Rule 144 promulgated under the Securities Act which permit
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the
availability of certain current public information about the issuer, the resale
occurring not less than two (2) years after a party has purchased and paid for
the security to be sold, the sale being effected through a "broker's
transaction" or in transactions directly with a "market maker" and the number of
shares being sold during any three (3) month period not exceeding specified
limitations.
(vi) The Purchaser, by reason of its business or financial
experience, has the capacity to protect its own interests in connection with the
purchase of the Shares.
(vii) The Purchaser acknowledges that the stock certificate
representing the Shares, when issued, shall contain a legend in substantially
the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND ANY SALE,
TRANSFER, PLEDGE OR OTHER DISPOSITION THEREOF MAY BE MADE ONLY IN A TRANSACTION
REGISTERED UNDER SAID ACT AND SUCH STATE SECURITIES LAWS OR IN A TRANSACTION FOR
WHICH AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND SUCH LAWS IS AVAILABLE
AND THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL TO SUCH EFFECT REASONABLY
SATISFACTORY TO IT.
(viii) The Purchaser represents that it is an "accredited investor,"
as that term is defined in Rule 501 of Regulation D under the Securities Act.
(b) Authorization. The Purchaser further represents that:
(i) The Purchaser has duly authorized, executed and delivered this
Agreement and all other agreements and instruments executed in connection
herewith.
(ii) This Agreement and such other agreements and instruments
constitute the valid and binding obligations of the Purchaser, enforceable
against it in accordance with its respective terms, except (A) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, (B) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (C) to the extent the indemnification
provisions contained in Article 5 hereof may be limited by applicable federal or
state securities laws..
(iii) No consent or approval of any Person is required in connection
with the execution, delivery and performance of this Agreement and such other
agreements and instruments by the Purchaser which has not been obtained.
(c) Broker's or Finder's Fees. The Purchaser represents that no
Person has or will have, as a result of the transactions contemplated by this
Agreement, any right, interest or
-3-
valid claim upon or against the Company for any commission, fee or other
compensation as a finder or broker because of any act or omission by it, and the
Purchaser agrees to indemnify and hold the Company harmless against any such
commissions, fees or other compensation.
ARTICLE 2
CONDITIONS TO PURCHASE AND SALE OBLIGATIONS
2.1 Conditions to the Purchaser's Obligations at the Closing. The
obligation of the Purchaser to purchase and pay for the Shares to be delivered
at the Closing is subject to the following conditions:
(a) Representations and Warranties. Each of the representations
and warranties of the Company set forth in Article 3 hereof shall be true and
correct when made, and shall be true and correct on the Closing Date.
(b) Consents, Waivers, etc. Prior to the Closing Date, the Company
shall have obtained all consents or waivers necessary to execute and deliver
this Agreement, issue the Series D Preferred and to carry out the transactions
to be consummated at the Closing and all such consents and waivers shall be in
full force and effect. All corporate and other action and governmental filings
and approvals necessary to approve and effectuate the terms of this Agreement
and any other agreements and instruments to be executed and delivered by the
Company in connection with the Closing shall have been made, obtained or taken,
except for any post-sale filing that may be required under applicable federal
and state securities laws which will be made within the applicable time periods
permitted thereunder.
(c) Covenants. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to the Closing Date
shall have been performed or complied with.
(d) Opinion of Company's Counsel. The Purchasers shall have received
from Venture Law Group, A Professional Corporation, counsel to the Company, an
opinion addressed to them, dated the Closing Date, in substantially the form of
Exhibit B hereto.
(e) Compliance Certificate. The Company shall have delivered to the
Purchaser a certificate executed by the Company, dated the Closing Date, and
certifying to the fulfillment of the conditions specified in this Section 2.1.
(f) Documents and Proceedings. All documents and proceedings in
connection with the Closing shall have been approved by the Purchaser and its
counsel.
2.2 Conditions to the Company's Obligations at the Closing. The
obligation of the Company to issue and sell the Shares to be delivered to the
Purchaser at the Closing is subject to the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of the Purchaser set forth in Section 1.4 hereof shall be true and
correct when made, and shall be true and correct on the Closing Date.
-4-
(b) Consents, Waivers, etc. Prior to the Closing Date, the Company
shall have obtained all consents or waivers necessary to execute and deliver
this Agreement, issue the Series D Preferred and to carry out the transactions
to be consummated at the Closing, and all such consents and waivers shall be in
full force and effect. All corporate and other action and governmental filings
and approvals necessary to approve and effectuate the terms of this Agreement
and any other agreements and instruments to be executed and delivered by the
Company in connection with the Closing shall have been made, obtained or taken,
except for any post-sale filing that may be required under applicable federal
and state securities laws which will be made within the applicable time periods
permitted thereunder.
(c) Documents and Proceedings. All documents and proceedings in
connection with the Closing shall have been approved by the Company and its
counsel.
(d) Voting Agreement. The Purchaser shall have executed and delivered
to the Company the Voting Agreement attached as Exhibit C hereto (the "Voting
Agreement").
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as otherwise set forth in the Disclosure Schedule attached hereto as
Exhibit D (the "Disclosure Schedule"), the Company represents and warrants to
the Purchaser that:
3.1 Organization and Standing of the Company. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the State of California and has all requisite corporate power and authority for
the ownership and operation of its properties and for the carrying on of its
business as now conducted. The Company is duly licensed or qualified and in
good standing as a foreign corporation authorized to do business in all
jurisdictions in which the failure to be so qualified would have a material
adverse effect upon the Company.
3.2 Corporate Action. The Company has the corporate power and will, prior
to the Closing Date, have taken all necessary corporate action required to
authorize, execute, deliver and perform this Agreement and any other agreements
and instruments executed in connection herewith, and to issue, sell and deliver
the Shares and the Conversion Shares. When executed and delivered by the
Company, this Agreement and any other agreements and instruments executed in
connection herewith will constitute the valid and binding obligations of the
Company, enforceable in accordance with their terms except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, (b) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (c) to the extent the indemnification
provisions contained in Article 5 hereof may be limited by applicable federal or
state securities laws.
3.3 Governmental Approvals. Except for the filings already made and the
filings to be made, if any, to comply with exemptions from registration or
qualification under federal and state securities laws, no authorization,
consent, approval, license, exemption of or filing or registration with any
court or governmental agency or instrumentality is necessary for the offer,
sale, or issuance of the Shares, the execution or delivery by the Company, or
for the performance by it of its
-5-
obligations under, this Agreement, or any other agreements or instruments
executed in connection herewith.
3.4 Litigation. There is no litigation or governmental proceeding or
investigation pending, or, to the Company's knowledge, threatened against the
Company affecting any of its properties or assets that might result in any
material adverse change in the business, assets, liabilities, financial
condition, results of operations or prospects of the Company or that might call
into question the validity of this Agreement or the Shares, or that might result
in any change in equity ownership of the Company. All pending, or to the
Company's knowledge, threatened litigation (other than routine ▇▇▇▇ collection
matters) is set forth on the Disclosure Schedule.
3.5 Compliance with Other Instruments. The Company is in compliance in all
respects with the terms and provisions of its Articles of Incorporation, bylaws
and in all material respects with the terms and provisions of each mortgage,
indenture, lease, agreement and other instrument relating to obligations of the
Company in excess of $250,000, and of any judgments, decrees, governmental
orders, statutes, rules or regulations by which it is bound or to which its
properties or assets are subject. Neither the execution and delivery of this
Agreement or other agreements or instruments executed in connection herewith,
nor the consummation of any transaction contemplated hereby or thereby, has
constituted or resulted in a default or violation of any term or provision in
any of the foregoing documents or instruments; and there is no such violation or
default or event which, with the passage of time or giving of notice or both,
would, individually or in the aggregate, constitute a violation or default that
would reasonably be expected to materially and adversely affect the business,
assets, liabilities, financial condition or results of operations of the
Company.
3.6 Registration Rights. Except for the holders of the Company's
outstanding Preferred Stock, certain lessors of equipment to the Company, the
Founders and as set forth in Article 5 hereof, no Person has demand or other
rights to cause the Company to file any registration statement under the
Securities Act relating to any securities of the Company or any right to
participate in an offering of shares under any such registration statement. All
registration rights of the Founders are subordinate to those of the Purchaser
hereunder. All such registration rights (other than those set forth herein) and
the agreements relating thereto are identified on the Disclosure Schedule.
3.7 Securities Act of 1933. Subject in part to the truth and accuracy of
the Purchaser's representations set forth in Section 1.4 of this Agreement, the
offer, sale and issuance of the Series D Preferred as contemplated by this
Agreement are exempt from the registration requirements of the Securities Act.
3.8 No Brokers or Finders. No Person has or will have, as a result of the
transactions contemplated by this Agreement, any right, interest or valid claim
upon or against the Purchaser for any commission, fee or other compensation as a
finder or broker because of any act or omission by it, and the Company agrees to
indemnify and hold the Purchaser harmless against any such commissions, fees or
other compensation.
3.9 Capitalization; Status of Capital Stock. The Company represents and
warrants that immediately prior to the Closing Date the Company will have a
total authorized capitalization consisting of (i) 100,000,000 shares of Common
Stock, without par value, of which 18,866,348 shares are issued and outstanding,
and (ii) 25,000,000 shares of Preferred Stock, of which 1,510,533
-6-
shares of Series A Convertible Preferred Stock are issued and outstanding,
6,316,705 shares of Series B Convertible Preferred Stock are issued and
outstanding and 4,819,538 shares of Series C Convertible Preferred Stock are
issued and outstanding. The Company has reserved 8,000,000 shares of Common
Stock for issuance under the Company's 1996 Stock Incentive Plan (the "Plan"),
under which options to purchase 6,382,323 shares have been granted, stock grants
for 5,000 shares have been made, 3,861,323 shares have been issued upon exercise
of options, 30,200 shares have been returned to the Plan, options for 2,490,775
shares are currently outstanding, and 1,642,877 shares remain available for
future grant under the Plan. The Company has issued warrants to purchase 53,000
shares of Common Stock to certain individuals and warrants to purchase 86,000
shares of Series B Convertible Preferred Stock and 36,553 shares of Series C
Convertible Preferred Stock, respectively, to equipment lessors. All of the
outstanding shares of capital stock of the Company have been duly authorized,
are validly issued and are fully paid and nonassessable and all shares issuable
upon exercise of outstanding options and warrants have been duly authorized and,
when issued in accordance with the terms of such options and warrants, will be
validly issued, fully paid and nonassessable and issued in compliance with
federal and state securities laws. The Company has reserved sufficient shares of
Common Stock for issuance upon conversion of the Series D Preferred. The
Conversion Shares, when issued and delivered upon conversion of the Series D
Preferred, will be duly authorized, validly issued and fully paid and
nonassessable. Except as set forth in this Agreement and the Disclosure
Schedule, there are no options, warrants or rights to purchase shares of capital
stock or other securities authorized, issued or outstanding, nor is the Company
obligated in any manner to issue shares of its capital stock or other
securities. Except as set forth in this Agreement and the Disclosure Schedule,
no holder of any security of the Company is entitled to preemptive or similar
statutory or contractual rights, either arising pursuant to any agreement or
instrument to which the Company is a party or that are otherwise binding upon
the Company. The offer and sale of all shares of capital stock or other
securities of the Company issued before the Closing complied with or were exempt
from registration or qualification under all federal and state securities laws.
As of and immediately following the Closing, each share of Series A Convertible
Preferred Stock outstanding will be convertible into 1.1 shares of Common Stock
and each share of Series B Convertible Preferred Stock, Series C Convertible
Preferred Stock and Series D Preferred outstanding will be convertible into one
share of Common Stock.
3.10 Financial Statements. The Company has furnished to the Purchasers, or
will furnish to the Purchasers prior to the date of this Agreement, the
unaudited balance sheet of the Company as of December 31, 1996 and the unaudited
statements of operations and cash flows for the nine month period then ended
(all of such financial statements are referred to collectively herein as the
"Financial Statements"). The Financial Statements were prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied
throughout the period involved, and fairly present the financial position and
results of operations of the Company at the date specified and reflect all
liabilities, contingent or otherwise, at the date thereof.
3.11 Absence of Changes; No Undisclosed Liabilities. Since December 31,
1996, no event has occurred or failed to occur that would be required to be
disclosed in the footnotes of the Financial Statements for such statements to be
prepared in accordance with generally accepted accounting principles, and there
has been no fact, event or change that would reasonably be expected to result in
a material adverse change in the business, assets, liabilities, financial
condition or results of operations of the Company. Except to the extent
reflected in the Financial Statements, the Company does not have any material
liabilities or obligations of any nature, whether absolute,
-7-
contingent or otherwise, other than obligations which have arisen after December
31, 1996 in the ordinary course of business.
3.12 Good and Marketable Title. The Company has good and marketable title
to all of its properties and assets which it owns, and a valid leasehold
interest in the premises which it currently occupies, free and clear of all
liens, claims, security interests, charges and encumbrances, and has the right
to use all the assets it presently uses in the operation of its business. The
properties and assets of the Company are in all material respects in good
operating condition and repair, normal wear and tear excepted.
3.13 Subsidiaries. The Company does not own, control, directly or
indirectly, any other corporation, association, partnership or other business
entity or own any shares of capital stock or other securities of any other
Person.
3.14 Tax Matters. The Company has filed all federal, state and local tax
returns and reports required to be filed by it. All taxes shown to be due and
payable on such returns have been paid or will be paid prior to the time they
become delinquent. The provision for taxes of the Company as shown in the
Financial Statements is adequate for taxes due or accrued as of the date
thereof.
3.15 Insurance. The Company has in full force and effect fire and casualty
insurance policies, sufficient in amount (subject to reasonable deductibles) to
allow it to replace any of its properties or assets that might be damaged or
destroyed that are material to the present conduct of its business.
3.16 Certain Transactions. Other than the interest arising from a Person's
stock ownership of the Company or for compensation as an employee or director of
the Company, there currently are no material transactions between the Company,
on the one hand, and its officers, directors or shareholders, or their immediate
family members, on the other hand.
3.17 Material Contracts and Commitments. Except as set forth in this
Agreement and the Disclosure Schedule, there are no contracts, agreements or
instruments to which the Company is a party or by which it is bound that may
involve (a) obligations (contingent or otherwise) of, or payments to the Company
in excess of $250,000, or (b) the license of any patent, trademark, service
▇▇▇▇, trade name, copyright, trade secret or other proprietary right to or from
the Company (other than licenses which are immaterial, could be readily
replaced, or were entered into in the ordinary course of business for content or
services to be included in the WebTV Service). All such contracts, agreements
and instruments are, to the Company's knowledge valid, binding and in full force
and effect in all material respects, subject to (a) applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, and (b) laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies. The Company has not received any notice of default of, and to the
Company's knowledge there is no default of, any third party under any material
contract, agreement or instrument to which the Company is a party.
-8-
3.18 Patents, Copyrights and Trademarks.
The Company owns or has the right to use, all Intellectual Property
used in or necessary for its business as now conducted (except as to
Intellectual Property the Company believes it will be able to acquire from third
parties in the ordinary course of business on reasonable terms), including,
without limitation, all Intellectual Property assigned or licensed to the
Company by the Founders. The Company has not violated, and is not violating, any
Intellectual Property Rights of any other Person or entity and has not received
any communications to that effect. The Company is not aware of any Person who is
infringing upon or violating any of the Intellectual Property Rights of the
Company. Except as set forth in this Agreement and the Disclosure Schedule, the
Company has not granted any license or option or entered into any material
agreement of any kind with respect to the use of its Intellectual Property. To
the Company's knowledge, none of the Company's employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such employee's best
efforts to promote the interests of the Company or that would conflict with the
Company's business as now conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's business by the employees of the
Company, nor the conduct of the Company's business as now conducted, will, to
the Company's knowledge, 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 of such employees is now obligated. In
addition to and not as a modification of the foregoing, the Company does not
believe it is or will be necessary to utilize any inventions of any of its
employees (or people it currently intends to hire) made prior to their
employment by the Company other than technology rights and the like previously
assigned and/or licensed to the Company by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and
▇▇▇▇▇ ▇▇▇▇, which assignments and/or licenses, as the case may be, transferred
to the Company such rights in the Intellectual Property used in or necessary for
the Company's business as now conducted. All current and former employees of the
Company have executed the Proprietary Information Agreement referred to in
Section 4.1(c) hereof.
3.19 Environmental Matters. The Company has not, contrary to applicable
statutes and regulations, stored or disposed of, on, under or about their
premises hazardous materials, and to the Company's knowledge, during the time
period any prior owners owned or leased such premises, such prior owners or
lessees or third parties did not so store or dispose of on, under or about such
premises or transfer to or from the premises any hazardous materials. As used in
this Agreement, the term "hazardous materials" shall mean substances defined as
"hazardous substances" or "hazardous materials" or "toxic substances" in the
Comprehensive Environmental Response and Compensation Liability Act of 1980, as
amended, 42 U.S.C., Section 9601, et seq.; The Hazardous Materials
Transportation Act, 49 U.S.C., Section 1801, et seq.; The Resource Conservation
Recovery Act, 42 U.S.C., Section 6901, et seq.
3.20 Employees and Employee Benefit Plans. To the Company's knowledge,
no employee of the Company is in violation of any term of any employment
contract, patent disclosure agreement or any other contract or agreement
relating to the relationship of any such employee with the Company or any other
party. The Company does not have any collective bargaining agreements
-9-
covering any of its employees. The Company is not party to or bound by any
deferred compensation agreements, bonus plans, incentive plans, profit sharing
plans, retirement agreements, or other employee benefit plans subject to the
Employer Retirement Income Security Act of 1974.
3.21 Disclosure. No representation, warranty or statement by the Company
in this Agreement or in any written statement or certificate required by this
Agreement to be furnished to the Purchasers or their counsel pursuant to this
Agreement contains or will contain any untrue statement of material fact or
omits to state a material fact necessary to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE 4
COVENANTS OF THE COMPANY AND THE PURCHASER
4.1 Affirmative Covenants of the Company. Without limiting any other
covenants and provisions hereof, the Company covenants and agrees that, until
the earlier of (i) such time as the Purchaser no longer holds at least two
percent (2%) of TVP, or (ii) the closing of a Qualified Public Offering, it will
perform and observe the following covenants and provisions and will not, without
approval of the holders of a majority of the Shares, amend or revise any terms
of this Section 4.1:
(a) Reporting Requirements. The Company shall furnish to the Purchaser
so long as the Purchaser holds at least 700,000 shares of the Company's capital
stock (as adjusted for any recapitalization, stock dividend, stock split,
reverse stock split or similar event (each a "Recapitalization")) (i) on an
annual basis, within 75 days after the end of each fiscal year, a balance sheet,
related statements of operations and cash flows presented in accordance with
GAAP, with any required notes thereto, audited by a nationally recognized public
accounting firm, and at least 35 days prior to the end of such fiscal year, a
Board-approved plan and budget for the next fiscal year; (ii) on a quarterly
basis, within 30 days after the end of each calendar quarter, an unaudited
balance sheet and related statements of operations and cash flows; (iii) on a
monthly basis, within 30 days after the end of each month, a monthly unaudited
balance sheet and related statements of operations and cash flows; and (iv) such
other information about the Company's affairs as may be reasonably requested by
the Purchaser. Such annual, quarterly and monthly results shall be prepared in a
form which permits comparison to the budget for the corresponding period and, in
the case of the annual and quarterly results, comparison to the prior year's
results.
(b) Insurance. The Company shall maintain insurance in such amounts,
with such deductibles and against such risks and losses as are reasonable for
the business and assets of the Company, and the Company shall maintain such
other insurance as may be required by law, and maintain in effect until the
consummation of a Qualified Public Offering term life insurance insuring each of
the lives of the Founders for $3,000,000 and naming the Company as beneficiary.
(c) Proprietary Information Agreements. The Company agrees to obtain
from each person employed by the Company having access to confidential
information of the Company and/or any party with whom the Company conducts
business a Proprietary Information Agreement substantially in the form furnished
to the Purchaser and its counsel.
-10-
4.2 Confidentiality. The Purchaser severally represents and warrants
that any confidential information obtained from this Agreement shall be treated
as confidential and shall not be disclosed to a third party without the consent
of the Company or used for any purpose other than allowing such Purchaser to
exercise its rights under this Agreement. Notwithstanding the foregoing,
"confidential information" shall not include (a) any information that becomes
generally known to the public through no fault of the Purchaser, or (b) any
information required to be disclosed by law; provided that prior to making any
disclosure which the Purchaser believes to be required by law, the Purchaser
shall notify the Company and afford the Company an opportunity to contest such
disclosure.
ARTICLE 5
REGISTRATION RIGHTS
5.1 Demand Registrations; S-3 Registrations. The provisions of this
Section 5.1 shall commence on the date of the this Agreement and terminate at
such time as all Holders are permitted to resell the Registrable Securities held
by them in a single three month period without restriction pursuant to Rule 144
promulgated under the Securities Act.
(a) Notice and Registration. Upon a Registration Notice from one
or more Holders to the Company requesting that the Company effect the
registration under the Securities Act of at least 40% of the Registrable
Securities or any lesser percentage so long as the anticipated proceeds from
such offering exceed $20,000,000, which Registration Notice shall specify the
intended method or methods of disposition of such Registrable Securities, the
Company shall use its best efforts to effect (at the earliest possible date) the
registration under the Securities Act of such Registrable Securities for
disposition in accordance with the intended method or methods of disposition
stated in such Registration Notice (including, but not limited to, an offering
on a delayed or continuous basis pursuant to Rule 415, or any successor rule to
similar effect, promulgated under the Securities Act; provided that:
(i) except as provided otherwise in Section 5.1(a)(iii), a
Holder shall have the right to deliver Registration Notices to effect three (3)
demand registrations pursuant to this Section 5.1 (each, a "Demand") and no
more;
(ii) a Holder may not deliver a Registration Notice prior to six
months following the effective date of the initial registration statement used
for a Qualified Public Offering or during any Registration Process; and
(iii) In addition to the Demand rights set forth in Section
5.1(a)(i) above, a Holder who holds 5% or more of the Registrable Securities may
request the Company to effect a registration on Form S-3, if available; provided
that the number of such registrations is limited to two (2) per twelve month
period and that the anticipated proceeds from such offering are at least
$1,000,000.
(b) Designation of Investment Bank. In the event that any
registration pursuant to this Section 5.1 shall involve, in whole or in part, an
underwritten offering, the Company shall have the right to designate one or more
nationally recognized investment banking
-11-
firms, reasonably acceptable to the requesting Holder, as the lead
underwriter(s) of such underwritten offering.
(c) Withdrawal of Registration Notice. A Holder shall have the
right to withdraw any Registration Notice or, subject to Section 5.1(a) hereof,
to change the number of Registrable Securities covered thereby at any time and
for any reason.
(d) Effect of Demand. A registration requested by a Holder
pursuant to this Section 5.1 shall not be deemed to have been effected for
purposes of Section 5.1(a)(i): (i) unless such registration statement has
become effective and been maintained effective in accordance with Section 5.4
hereof, (ii) if after it has become effective such registration is interfered
with by any stop order, injunction or other order or requirement of the SEC or
other governmental agency or court for any reason other than a material
misrepresentation or a material omission by the Holder specified in the
Registration Notice or (iii) if the conditions to closing specified in the
purchase agreement or underwriting agreement entered into in connection with
such registration are not satisfied other than by reason of some act or omission
by any of such persons.
(e) Delay of Registration. Notwithstanding anything in this
Section 5.1 to the contrary, the Company shall not be obligated to take any
action to effect a Demand pursuant to this Section 5.1 if the Company shall
furnish to the requesting Holder, within ten (10) days after the delivery of the
Registration Notice relating thereto, a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors it
would be seriously detrimental to the Company or its stockholders for a
registration statement to be filed in the near future. If the Company has
delivered such a certificate to the requesting Holder, then the Company's
obligation to effect such Demand under this Section 5.1 shall be deferred for a
period not to exceed one hundred twenty (120) days from the date of receipt of
the Holder's Registration Notice; provided, however, that the Company may not
utilize this right more than once during any twelve month period.
5.2 Piggyback Registration. If the Company at any time proposes to
register any of its Common Stock or any equity securities exercisable for,
convertible into or exchangeable for Common Stock under the Securities Act,
whether or not for sale for its own account (the "Company Securities"), in a
manner which would permit registration of Registrable Securities for sale to the
public under the Securities Act, each such time it will promptly deliver a
Registration Notice to each Holder, which Registration Notice will describe the
rights of each Holder under this Section 5.2, at least 20 days prior to the
anticipated filing date of the registration statement relating to such
registration. Such notice shall offer each Holder the opportunity to include in
such registration statement such number of Registrable Securities held by such
Holder as such Holder may request. Upon the written request of the Holders
requesting Registrable Securities to be registered pursuant to such registration
statement (collectively, the "Piggyback Securities"), made within 10 days after
the receipt of the Company's Registration Notice, which request shall specify
the number of Piggyback Securities intended to be disposed of, the Company will
use its best efforts to effect, in connection with the registration of the
Company Securities, the registration under the Securities Act of all Piggyback
Securities, to the extent required to permit the disposition (in accordance with
such intended methods thereof) of the Piggyback Securities, provided that:
-12-
(a) Relief from Company Obligation. If, at any time after giving
such written notice of its intention to register any Company Securities and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
register the Company Securities, the Company may, at its election, give written
notice of such determination to the Holder and thereupon the Company shall be
relieved of its obligation to register the Piggyback Securities in connection
with the registration of such Company Securities (but not from its obligation to
pay Registration Expenses to the extent incurred in connection therewith as
provided in Section 5.3 hereof), without prejudice, however, to the right of the
Holder immediately to request that such registration be effected as a
registration under Section 5.1 hereof to the extent permitted thereby.
(b) Reduction in Piggyback Securities. If the registration
referred to in the first sentence of this Section 5.2 is to be an underwritten
primary registration on behalf of the Company, and the managing underwriter(s)
advise the Company in writing that, in their good faith opinion, inclusion of
all the Piggyback Securities together with all other securities of the Company
that are entitled to "piggyback" registration rights in such offering would
materially and adversely affect the offering and sale of the Company Securities,
including the per share price thereby obtainable, the Company shall only include
in such registration: (i) first, all the Company Securities being registered for
sale for the Company's own account, with such priorities among them as the
Company may determine, (ii) second, up to the full number of securities of the
Company having "piggyback" registration rights which, in the good faith opinion
of such underwriter(s) can be so sold without materially and adversely affecting
such offering (and, if less than the full number of such "piggyback" securities,
allocated pro rata among the Holders and the other holders of securities of the
Company that are entitled to "piggyback" registration rights other than the
Founders (the "Other Non-Founder Holders") on the basis of the number of
securities requested to be included therein by each such Holder and Other Non-
Founder Holder) and (iii) finally, up to the full number of securities of the
Company that are entitled to "piggyback" registration rights held by the
Founders which, in the good faith opinion of such underwriter(s) can be so sold
without materially and adversely affecting such offering (and, if less than the
full number of such securities, allocated pro rata among the Founders on the
basis of the number of securities requested to be included therein by each such
Founder).
(c) Exceptions. The Company shall not be required to effect any
registration of Registrable Securities held by any Holder under this Section 5.2
incidental to the registration of any of its securities in connection with
mergers, acquisitions, exchange offers, subscription offers, dividend
reinvestment plans or stock option or other employee benefit plans.
(d) No Effect on Demand Rights. No registration of Registrable
Securities effected under this Section 5.2 shall relieve the Company of its
obligation to effect a registration of other Registrable Securities pursuant to
Section 5.1 hereof.
(e) Withdrawal of Piggyback Securities. A Holder may withdraw all
or any part of the Holder's Piggyback Securities from the proposed registration
at any time prior to the later of (i) the registration statement being declared
effective by the SEC and (ii) the execution of any underwriting agreement.
-13-
(f) Same Terms and Conditions. The Company may require that any
Piggyback Securities be included in the offering proposed by the Company on the
same terms and conditions as the Company Securities are included therein.
5.3 Expenses. The Company will pay all Registration Expenses in
connection with (i) each Demand and (ii) all registrations of Holders'
Registrable Securities pursuant to Section 5.2. In the event the requesting
Holder withdraws a Registration Notice, abandons a registration statement or
following an effected Demand does not sell Registrable Securities, then all
Registration Expenses in respect of such Registration Notice shall be borne, at
the requesting Holder's option, either by the requesting Holder or by the
Company (in which case, if borne by the Company and subject to Section 5.1(d)
hereof, such withdrawn Registration Notice shall be deemed to be an effected
Demand for purposes of Section 5.1 hereof).
5.4 Registration and Qualification. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Sections 5.1 or 5.2 hereof,
the Company will as promptly as is practicable:
(a) prepare and file with the SEC, as soon as possible, and use its
best efforts to cause to become effective, a registration statement under the
Securities Act relating to the Registrable Securities to be offered on such form
as the requesting Holder, or if not filed pursuant to a Demand, the Company,
determines and for which the Company then qualifies;
(b) prepare and file with the SEC such amendments (including post-
effective amendments) and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
until the later of such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition set forth in
such registration statement or the expiration of one hundred twenty (120) days
after such registration statement becomes effective;
(c) furnish to the Holder and to any underwriter of Registrable
Securities such number of conformed copies of such registration statement and of
each such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such registration
statement (including each preliminary prospectus and any summary prospectus), in
conformity with the requirements of the Securities Act, such documents
incorporated by reference in such registration statement or prospectus, and such
other documents, as the Holder or such underwriter may reasonably request, and,
if requested, a copy of any and all transmittal letters or other correspondence
to, or received from, the SEC or any other governmental agency or regulatory
body or other body having jurisdiction (including any domestic or foreign
securities exchange) relating to such offering;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of such registration statement at the earliest
possible moment;
(e) use its best efforts to register or qualify all Registrable
Securities covered by such registration statement under the securities or blue
sky laws of any domestic jurisdiction,
-14-
and to list or qualify for such securities exchanges and other trading markets,
as the requesting Holder or any underwriter of such Registrable Securities shall
request, and use its best efforts to obtain all necessary registrations, permits
and consents required in connection therewith, and do any and all other acts and
things which are reasonably requested to enable the Holder or any such
underwriter to consummate the disposition in such jurisdictions of the
Registrable Securities covered by such registration statement, except that the
Company shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified, or to subject itself to taxation in any such jurisdiction, or to
consent to general service of process in any such jurisdiction;
(f) if requested by a requesting Holder, (i) furnish to each Holder an
opinion of counsel for the Company addressed to each Holder and dated the date
of the closing under the underwriting agreement (if any) (or if such offering is
not underwritten, dated the effective date of the registration statement), and
(ii) use its best efforts to furnish to each Holder a "comfort" or "special
procedures" letter addressed to each Holder and signed by the independent public
accountants who have audited the Company's financial statements included in such
registration statement, in each such case covering substantially the same
matters with respect to such registration statement (and the prospectus included
therein) as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public offerings
of securities and such other matters as the Holder may reasonably request and,
in the case of such accountants' letter, with respect to events subsequent to
the date of such financial statements;
(g) immediately notify the Holders in writing (i) at any time when a
prospectus relating to a registration pursuant to Section 5.1 or 5.2 hereof is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (ii) of any request by the SEC or any other regulatory body
or other body having jurisdiction for any amendment of or supplement to any
registration statement or other document relating to such offering, and in
either such case (i) or (ii) at the request of a Holder prepare and furnish to
such Holders a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading;
(h) use its best efforts to list all such Registrable Securities
covered by such registration statement on each securities exchange and inter-
dealer quotation system on which a class of common equity securities of the
Company is then listed, and to pay all fees and expenses in connection
therewith; and
(i) upon the transfer by a Holder in connection with a registration
pursuant to Section 5.1 or 5.2 furnish unlegended certificates representing
ownership of the Registrable
-15-
Securities being sold in such denominations as shall be requested by the Holders
or the underwriters.
5.5 Underwriting; Due Diligence, etc.
(a) Underwriting Agreement. If requested by the underwriters for
any underwritten offering of Registrable Securities pursuant to a registration
requested under this Agreement, the Company will enter into an underwriting
agreement with such underwriters for such offering, which, in the case of a
Demand, shall be in form reasonably acceptable to the requesting Holder and
which, in the case of a Company Registration Process, shall be in form
reasonably acceptable to the Company, any such agreement to contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including indemnities and contribution (provided,
any indemnities and contribution shall, unless the requesting Holder and the
Company agree otherwise, be to the effect and only to the extent provided in
Section 5.9 hereof) and the provision of opinions of counsel and accountants'
letters to the effect and to the extent provided in Section 5.4(f) hereof;
provided, however, the Company may negotiate and agree to differing
indemnification obligations with respect to the underwriters, provided such (i)
do not adversely affect the Holders with respect to their rights and obligations
hereunder and (ii) shall not excuse the Company from entering into (or delaying
the execution of) an underwriting agreement on the terms as provided herein.
The Holder on whose behalf the Registrable Securities are to be distributed by
such underwriters shall be parties to any such underwriting agreement, and the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters, shall also be made to and
for the benefit of the Holder. The Company shall use reasonable efforts to
prevent any Holder from being required to make any representation or warranty,
other than as to its ownership of the Registrable Securities and as to the due
authorization, execution and enforceability, with respect to it, of the
underwriting agreement. Such underwriter shall be instructed to use its
reasonable best efforts to effect a wide distribution of the Registrable
Securities being distributed so long as doing so shall not, in any manner,
adversely affect the marketing (including timing) or price of such shares. The
Company, if requested by the Requesting Holder or the underwriters, will enter
into an agreement with the Independent Underwriter on customary terms.
(b) Same Terms. In the event that any registration pursuant to
Sections 5.1 or 5.2 shall involve, in whole or in part, an underwritten
offering, the Company may require the Registrable Securities requested to be
registered pursuant to Sections 5.1 or 5.2 to be included in such underwriting
on the same terms and conditions as shall be applicable to the other securities
being sold through underwriters under such registration. The representations
and warranties in such underwriting agreement by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters, shall also
be made to and for the benefit of the Holders. The Company shall use reasonable
efforts to prevent any Holder from being required to make any representation or
warranty, other than as to its ownership of the Registrable Securities and as to
the due authorization, execution and enforceability, with respect to it, of the
underwriting agreement. In the event a Holder enters into any underwriting
agreement with underwriters in connection with a registration which contains
representations and warranties more extensive than
-16-
those contained in this Section 5.5 above, such an agreement shall not
constitute a breach of this Agreement by the Company.
(c) Access to Books and Records. In connection with the
preparation and filing of each registration statement registering Registrable
Securities under the Securities Act, the Company will give the Holders of
Registrable Securities and the underwriters, if any, and their respective
counsel and accountants, such reasonable and customary access to its books and
records and such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified the Company's
financial statements as shall be necessary, in the reasonable opinion of such
Holders and such underwriters or their respective counsel, to conduct a
reasonable investigation within the meaning of the Securities Act. The Holders
and the underwriters, if any, and their respective counsel and accountants,
shall use their reasonable best efforts to coordinate and time their review so
as to not unreasonably interfere with the business and operations of the
Company.
(d) Offering Not Underwritten. In the event an offering pursuant
to this Agreement is not underwritten, the Company, at the request of the
requesting Holder, will enter into such agreements with any selling agents or
similar persons as are customary; such agreements shall contain terms and
provisions analogous to those described herein and, to the extent not so
described, customary terms and provisions.
5.6 Restrictions on Public Sale; Inconsistent Agreements.
(a) Lock-up. If required by an underwriter of Common Stock in
connection with (i) the initial Qualified Public Offering or (ii) any
registration of Registrable Securities pursuant to Sections 5.1 or 5.2, which
registration is effected in an underwritten public offering, then, in each such
case, the Holders agree not to effect any sale or distribution, including any
sale pursuant to Rule 144 (except as part of such registration), of any of the
Company's common equity securities or of any security convertible into or
exchangeable or exercisable for any equity security of the Company (x) with
respect to clause (i), for a period of time following the effective date of the
registration statement relating thereto customary in underwritten initial public
offerings, which period shall not exceed one hundred eighty (180) days (or such
longer period as the Founders and all other holders of five percent (5%) or more
of TVP shall accept), or (y) with respect to clause (ii) only for a period of
time following the effective date of the registration statement relating thereto
reasonably acceptable to the Holders, which period shall not exceed ninety (90)
days (or such longer period as the Founders and all other holders of five
percent (5%) of TVP shall accept). Such agreement shall be in writing in the
form satisfactory to the Company and such underwriter. The Company may impose a
stop-transfer instruction with respect to the shares (or other securities)
subject to the foregoing restriction until the end of such period.
(b) No Distribution. The Company agrees (i) without the written
consent of the managing underwriters, not to effect any public or private sale
or distribution of the Company's common equity securities or any security
convertible into or exchangeable or exercisable for any equity security of the
Company, including a sale pursuant to Regulation D under the Securities Act,
during the requesting Holder's Registration Process (except (A) as part of such
underwritten registration or pursuant to registrations on Form S-8 or any
successor form
-17-
or (B) equity securities issued pursuant to the conversion or exchange of any
securities convertible into or exchangeable for the Company's common equity
securities and which were outstanding prior to the commencement of such
Registration Process), and (ii) to use its reasonable efforts to cause each
holder of its privately placed securities purchased from the Company at any time
on or after the date of this Agreement to agree not to effect any public sale or
distribution of any such securities during such period, including a sale
pursuant to Rule 144 (except as part of such underwritten registration, if
permitted).
5.7 Rule 144. The Company hereby covenants that after the Company
shall have filed a registration statement pursuant to the requirements of
Section 12 of the Exchange Act or a registration statement pursuant to the
requirements of the Securities Act and such registration statement shall have
become effective, the Company will file in a timely manner all reports required
to be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the SEC thereunder (or, if the Company is not
required to file such reports, it will, upon the request of any Holder of
Registrable Securities, make publicly available other information so long as
necessary to permit sales under Rule 144), and it will take such further action
as any Holder of Registrable Securities, all to the extent required from time to
time to enable such Holders to sell Registrable Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144. Upon the request of any Holder of Registrable Securities, the Company
will deliver to such Holder a written statement as to whether it has complied
with such requirements. In addition, the Company hereby agrees that for a
period of eighteen months following the date on which a registration statement
filed pursuant to Section 5.1 or 5.2 hereof shall have become effective, the
Company shall not deregister such securities under Section 12 of the Exchange
Act (even if then permitted to do so pursuant to the Exchange Act and the rules
and regulations promulgated thereunder).
5.8 Transferability. A Holder of registration rights may transfer the
rights to any transferee who holds, subsequent to such transfer, at least
250,000 shares (as adjusted for any Recapitalizations) of Series D Preferred or
Common Stock issued up conversion thereof or other securities exercisable for or
convertible into Registrable Securities; provided (a) the Company must first be
given written notice of the transfer, and (b) such transferee shall have agreed
in writing, in form and substance reasonably satisfactory to the Company, to be
bound by the terms of this Article 5 to the same extent and in the same manner
as the transferor of such shares or securities.
5.9 Indemnification and Contribution. With respect only to the
offering of Registrable Securities contemplated by this Agreement, and in no way
limiting or modifying the other provisions of this Agreement, the following
indemnity and contribution provisions shall apply:
(a) Indemnification by Company. In the case of each offering of
Registrable Securities made pursuant to this Agreement, the Company agrees to
indemnify and hold harmless each Holder of Registrable Securities, each
underwriter of Registrable Securities so offered, each person, if any, who
controls any of the foregoing persons within the meaning of the Securities Act,
and the officers and directors of any of the foregoing from and against any and
all claims, liabilities, losses, damages, expenses and judgments, joint or
several, to which they or any of them may become subject, under the Securities
Act or otherwise, including any amount paid in settlement of any litigation
commenced or threatened, and shall promptly reimburse them, as and when
incurred, for any legal or other expenses incurred by them in connection with
-18-
investigating any claims and defending any actions, insofar as such losses,
claims, damages, liabilities or actions shall arise out of, or shall be based
upon, any untrue statement or alleged untrue statement of a material fact
contained in the registration statement (or in any preliminary or final
prospectus included therein) or in any offering memorandum or other offering
document relating to the offering and sale of such Registrable Securities, or
any amendment thereof or supplement thereto, or in any document incorporated by
reference therein, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or shall arise out of or be based upon any violation or
alleged violation by the Company of the Securities Act, any blue sky laws,
securities laws or other applicable laws of any state or country in which the
Registrable Securities are offered and relating to action or inaction required
of the Company in connection with such offering; provided, however, that the
Company shall not be liable to a particular Holder of Registrable Securities in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement, or any omission or alleged omission, (i) if such statement or
omission shall have been made in reliance upon and in conformity with
information relating to such Holder furnished to the Company in writing by or on
behalf of such Holder expressly for use in the preparation of the registration
statement (or in any preliminary or final prospectus included therein), offering
memorandum or other offering document, or any amendment thereof or supplement
thereto or a document incorporated by reference in any of the foregoing or (ii)
if such statement or omission was corrected in a prospectus delivered to such
Holders of Registrable Securities prior to the consummation of the sale in which
such loss, claim, damage, liability or action arises out of or is based upon and
such corrected prospectus shall not have been delivered or sent to the purchaser
within the time required by the Securities Act, provided that the Company
delivered the corrected prospectus to such Holders in requisite quantity on a
timely basis to permit such delivery or sending. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of a
Holder of Registrable Securities and shall survive the transfer of such
securities. The foregoing indemnity agreement is in addition to any liability
which the Company may otherwise have to each Holder of Registrable Securities,
underwriters of the Registrable Securities, any controlling person of any of the
foregoing or any officer or director of any of the foregoing.
(b) Indemnification by Holder. In the case of each offering of
Registrable Securities made pursuant to this Agreement, each Holder of
Registrable Securities included in such offering, by exercising its registration
rights hereunder, agrees to indemnify and hold harmless the Company, each
person, if any, who controls the Company within the meaning of the Securities
Act, and if requested by the underwriters, each underwriter who participates in
the offering and each person, who controls any such underwriter within the
meaning of the Securities Act, and the officers and directors of any of the
foregoing from and against any and all claims, liabilities, losses, damages,
expenses and judgments, joint or several, to which they or any of them may
become subject, under the Securities Act or otherwise, including any amount paid
in settlement of any litigation commenced or threatened, and shall promptly
reimburse them, as and when incurred, for any legal or other expenses incurred
by them in connection with investigating any claims and defending any actions,
insofar as any such losses, claims, damages, liabilities or actions shall arise
out of, or shall be based upon, any untrue statement or alleged untrue statement
of a material fact contained in the registration statement (or in any
preliminary or final
-19-
prospectus included therein) or in any offering memorandum or other offering
document relating to the offering and sale of such Registrable Securities, or
any amendment thereof or supplement thereto, or in any document incorporated by
reference therein, or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but in each case only to the extent that such untrue statement of a
material fact is contained in, or such material fact is omitted from,
information relating to such Holder furnished in writing to the Company by or on
behalf of such Holder expressly for use in the preparation of such registration
statement (or in any preliminary or final prospectus included therein), offering
memorandum or other offering document or a document incorporated by reference in
any of the foregoing. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company and shall
survive the transfer of such securities. The foregoing indemnity is in addition
to any liability which such Holder may otherwise have to the Company, or any of
its directors, officers or controlling persons. Notwithstanding the foregoing,
in no event shall the liability of a Holder hereunder be greater in amount than
the dollar amount of the net proceeds received by it upon the sale of the
Registrable Securities pursuant to such offering.
(c) Procedure for Indemnification. Each party indemnified under
this Section 5.9 shall, promptly after receipt of notice of any claim or the
commencement of any action against such indemnified party in respect of which
indemnity may be sought, notify the indemnifying party in writing of the claim
or the commencement thereof; provided that the failure of the indemnified party
to notify the indemnifying party shall not relieve the indemnifying party from
any liability which it may have to an indemnified party on account of the
indemnity agreements contained in this Section 5.9, unless the indemnifying
party was materially prejudiced by such failure, and in no event shall relieve
the indemnifying party from any other liability which it may have to such
indemnified party. If any such claim or action shall be brought against an
indemnified party, it shall notify the indemnifying party thereof and the
indemnifying party shall be entitled to participate therein and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel satisfactory to the indemnified party.
After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the indemnifying party
shall not be liable (except to the extent the proviso to this sentence is
applicable, in which event it will be so liable) to the indemnified party under
this Section 5.9 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided that each indemnified party shall have the
right to employ separate counsel to represent it and assume its defense (in
which case, the indemnifying party shall not represent it) if, in the reasonable
judgment of such indemnified party, (i) upon the advice of counsel, the
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them, or (ii) in the event the
indemnifying party has not assumed the defense thereof within 10 days of receipt
of notice of such claim or commencement of action, and in which case the fees
and expenses of one such separate counsel shall be paid by the indemnifying
party. If any indemnified party employs such separate counsel it will not enter
into any settlement agreement which is not approved by the indemnifying party,
such approval not to be unreasonably withheld. If the indemnifying party so
assumes the defense thereof, it may not agree to any settlement of any such
claim or action as
-20-
the result of which any remedy or relief, other than monetary damages for which
the indemnifying party shall be responsible hereunder, shall be applied to or
against the indemnified party, without the prior written consent of the
indemnified party. In any action hereunder as to which the indemnifying party
has assumed the defense thereof with counsel satisfactory to the indemnified
party, the indemnified party shall continue to be entitled to participate in the
defense thereof, with counsel of its own choice, but, except as set forth above,
the indemnifying party shall not be obligated hereunder to reimburse the
indemnified party for the costs thereof.
If the indemnification provided for in this Section 5.9 shall for
any reason be unavailable to an indemnified party in respect of any loss, claim,
damages or liability, or any action in respect thereof, referred to therein,
then each indemnifying party shall, in lieu of indemnifying such indemnified
party, contribute to the amount paid or payable by such indemnified party as a
result of such loss, claim, damage or liability, or action in respect thereof,
in such proportion as shall be appropriate to reflect the relative fault of the
indemnifying party on the one hand and the indemnified party on the other with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative fault shall be determined by reference to
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
indemnifying party on the one hand or the indemnified party on the other, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission, but not by
reference to any indemnified party's stock ownership in the Company. In no
event, however, shall a Holder of Registrable Securities be required to
contribute in excess of the amount of the net proceeds received by such Holder
in connection with the sale of Registrable Securities in the offering which is
the subject of such loss, claim, damages or liability. The amount paid or
payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this paragraph
shall be deemed to include, for purposes of this paragraph, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 12(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
ARTICLE 6
DEFINITIONS AND ACCOUNTING TERMS
6.1 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):
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the SEC (or of
any other federal agency then administering the Exchange Act) thereunder, all as
the same shall be in effect at the time.
"Financing Event" shall mean (a) the sale of equity or debt securities
by the Company for capital raising purposes, or (b) a merger, consolidation or
reorganization involving the Company.
-21-
"Form S-3" means the Form S-3 form for registration of securities
under the Securities Act, or any successor or substitute form.
"Founders" means each of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. Leak and ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇.
"Holder" means the Purchaser or any purchaser or transferee therefrom
holding at least 250,000 Shares or Registrable Securities (as adjusted for any
Recapitalizations).
"Independent Underwriter" shall have the meaning given under
"Registration Expenses" below.
"Intellectual Property" means intellectual property, including
licenses, software (including all source code and object code, development
documentation, programming tools, drawings, specifications and data), rights in
designs, technology, inventions, discoveries and improvements, know-how,
proprietary rights, formulae, processes, technical information, confidential and
proprietary information, and all Intellectual Property Rights associated or
related to any of the foregoing or useful in connection therewith.
"Intellectual Property Rights" means patents, patent applications,
patent rights, trademarks, trademark registrations, trademark applications,
service marks, business marks, brand names, trade names, all other names and
slogans embodying business or product goodwill (or both), copyright
registrations, mask works, copyrights (including copyrights in computer
programs), trade secrets and all other intellectual property rights.
"Person" means an individual, corporation, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Qualified Public Offering" means and includes the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act, covering the offer and sale of Common Stock for the
account of the Company from which the aggregate gross proceeds to the Company
(net of underwriting discounts and commissions) exceed $20,000,000 and at a
price that reflects a total enterprise value of at least $50,000,000.
"Registrable Securities" means any shares of Common Stock issuable
upon conversion of the Series D Preferred held by any Holder.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with its registration obligations set forth in this
Agreement, including the following: (i) the fees, disbursements and expenses of
the Company's counsel(s) (United States and, if applicable, foreign) and
accountants in connection with the registration of the Registrable Securities to
be disposed of under the Securities Act; (ii) the reasonable fees and
disbursements of one counsel (other than counsel to the Company) retained in
connection with each such registration by the requesting Holder; (iii) all
expenses incurred in connection with the preparation, printing and filing of the
registration statement, any preliminary prospectus or final prospectus, any
other offering document and amendments and supplements thereto and the mailing
and delivering of copies thereof to any underwriters and dealers; (iv) the cost
of printing
-22-
or producing any agreement(s) among underwriters, underwriting agreement(s), and
blue sky or legal investment memoranda, any selling agreements and any other
documents in connection with the offering, sale or delivery of the Registrable
Securities to be disposed of; (v) all expenses incurred in connection with the
qualification of the Registrable Securities to be disposed of for offering and
sale under state securities laws, including the reasonable fees and
disbursements of counsel for the underwriters or the Holders of Registrable
Securities in connection with such qualification and in connection with any blue
sky and legal investments surveys; (vi) the filing fees incident to securing any
required review by the NASD of the terms of the sale of the Registrable
Securities to be disposed of; (vii) transfer agents', depositories' and
registrars' fees and the fees of any other agent appointed in connection with
such offering, including the fees and expenses of any "qualified independent
underwriter," or other person acting in a similar capacity, pursuant to the
requirements of the NASD or otherwise (the "Independent Underwriter"); (viii)
all security engraving and security printing expenses; and (ix) all fees and
expenses payable in connection with the listing of the Registrable Securities on
a securities exchange or inter-dealer quotation system, but excluding any
underwriting discount, selling commission or transfer tax relating to the sale
or disposition of Holders' Registrable Securities and fees and expenses of
counsel for any Holder except as set forth in clause (ii) of this paragraph.
"Registration Notice" means written notice by a Holder or the Company,
as the case may be, that such party desires to begin a Registration Process in
accordance with the terms of this Agreement.
"Registration Process" means the process of registering Common Stock
or Registrable Securities, as the case may be, under the Securities Act which,
for purposes of this Agreement, shall be deemed to be the period of time from
the actual delivery of the Registration Notice until the end of any applicable
"hold back" period required by the underwriters or, if there is no such period,
then 30 days after the effectiveness of the Registration Statement; provided
that in the event that (i) a registration statement has not been filed with the
SEC within 45 days after a Registration Notice, (ii) such registration statement
has not been declared effective by the SEC within 75 days after its filing with
the SEC or (iii) the Registration Notice or the registration statement has been
abandoned or withdrawn by the requesting Holder or the Company, as the case may
be, then the Registration Process shall be deemed concluded at such time;
provided, further, with respect to an offering on a delayed or continuous basis
pursuant to Rule 415 (or any successor rule to similar effect), a Registration
Process shall end on the earlier of (x) thirty (30) days following the last sale
pursuant to such offering and (y) the end of any "hold back" period with respect
to any such offering.
"Rule 144" means Rule 144 promulgated under the Securities Act, as
amended from time to time, or any successor rule to similar effect.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the SEC (or of any
other federal agency then administering the Securities Act) thereunder, all as
the same shall be in effect at the time.
"SEC" means the U.S. Securities and Exchange Commission.
-23-
"Transfer" means to sell, exchange, deliver, assign, dispose of,
bequeath, give, pledge, mortgage, hypothecate or otherwise encumber, transfer,
or permit to be transferred, whether voluntarily, involuntarily, or by operation
of law (including, without limitation, the laws of bankruptcy, insolvency,
intestacy, descent, domestic relations, and distribution and succession), any
shares of the Company's Common Stock.
"TVP" means the total number of votes that may be cast in the election
of directors (without taking into effect cumulative voting, if any) of the
Company if all securities entitled to vote generally in such election were
present and voted, assuming full conversion, exchange or exercise of all
convertible securities, rights, warrants and options of the Company that are
issued or granted and outstanding or reserved for issuance or grant by the
Company.
6.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles, and all other financial data submitted pursuant to this Agreement
shall be prepared and calculated in all material respects in accordance with
such principles.
ARTICLE 7
MISCELLANEOUS
7.1 No Waiver: Cumulative Remedies. No failure or delay on the part of
the Purchaser or the Company in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
7.2 Addresses for Notices, etc. All notices, requests, demands and
other communications provided for hereunder shall be in writing (including
facsimile communication) and mailed, by certified or registered mail or by
recognized express courier, or faxed, or delivered to the applicable party, at
the addresses indicated below:
If to the Company:
WebTV Networks, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Chief Financial Officer
with a copy to:
Venture Law Group
A Professional Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
-24-
If to the Purchaser:
Seagate Technology, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Chief Financial Officer
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, General Counsel
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Any party to this Agreement may change its address by a written notice
to the other party complying as to delivery with the terms of this Section. All
such notices, requests, demands and other communications shall, when mailed or
faxed, be deemed deliverable when deposited in the mails or with a recognized
express courier, if mailed, or when confirmation of transmission is received, if
faxed, addressed as aforesaid.
7.3 Binding Effect, Assignment. This Agreement shall be binding upon
and inure to the benefit of the Company and the Purchaser and their respective
successors and assigns, except that neither the Company nor the Purchaser shall
have the right to assign its rights hereunder or any interest herein without the
prior written consent of the other; provided that (a) the rights and interests
of the Company and/or the Purchaser (the "Assigning Party") shall be assignable
without the consent of the other party, as the case may be, to any assignee who
controls, is controlled by or under common control with, the Assigning Party,
including control being exercised through the ownership or control, directly or
indirectly, of fifty percent (50%) or more of the voting power of the shares
entitled to vote for the election of directors or other governing authority, as
of the date of this Agreement or hereafter (an "Affiliate"), provided that such
person or entity shall be considered an Affiliate of the Assigning Party only
during the times such ownership or control exists; (b) the rights of the
Purchaser under Section 5 may be assigned in accordance with Section 5.8 hereof,
and (c) the rights of the Purchaser under Section 4.1(a) may be assigned to a
holder of at least 700,000 shares of the Company's capital stock (as adjusted
for any Recapitalizations). Notwithstanding the foregoing, the Purchaser shall
not assign its rights and interest in the Company (including the Shares) or this
Agreement to any Person (including any Affiliate) who at such time is a
competitor of the Company or an entity controlled by, under common control with
or controlling such competitor. In addition, nothing contained in this Section
7.3 shall permit a Purchaser to assign any rights or interests in this Agreement
which are not by their terms expressly assignable, except that a Purchaser may
assign its entire right to purchase the Shares hereunder (together with all
other rights under this Agreement) to an Affiliate who is otherwise permitted to
be an assignee in the immediately preceding sentence.
7.4 Survival of Representations and Warranties. All representations and
warranties made in this Agreement, or any other instrument or document delivered
in connection herewith, shall survive the execution and delivery hereof or
thereof until the earlier to occur of two years from the Effective Date or the
closing of a Qualified Public Offering.
-25-
7.5 Prior Agreements; Amendment. This Agreement constitutes the entire
agreement between the parties and supersedes any prior understandings or
agreements concerning the subject matter hereof. This Agreement may only be
amended with the approval of the Purchaser and the Company.
7.6 Severability. The invalidity or unenforceability of any provision
hereto shall in no way affect the validity or enforceability of any other
provision.
7.7 California Corporate Securities Law. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
7.8 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
7.9 Headings. Article, Section and Subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
7.10 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
7.11 Further Assurances. From and after the date of this Agreement,
upon the reasonable request of the Purchaser, or the Company, the other party
shall execute and deliver such instruments, documents and other writings as may
be reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement and the Series D Preferred.
7.12 Waiver of Conflicts. Each party to this Agreement acknowledges
that Venture Law Group, counsel for the Company, has in the past performed and
may continue to perform legal services for the Purchaser in matters unrelated to
the transactions described in this Agreement. Accordingly, each party to this
Agreement hereby (1) acknowledges that they have had an opportunity to ask for
information relevant to this disclosure; (2) acknowledges that Venture Law Group
represented the Company in the transaction contemplated by this Agreement and
has not represented the Purchaser or any individual shareholder or employee of
the Company in connection with such transaction; and (3) gives its informed
consent to Venture Law Group's representation of the Purchaser in such unrelated
matters and to Venture Law Group's representation of the Company in connection
with this Agreement and the transactions contemplated hereby.
[intentionally left blank]
-26-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
WEBTV NETWORKS, INC.
By:
---------------------------------------
---------------------------------------
Its:
---------------------------------------
SEAGATE TECHNOLOGY, INC.
By:
---------------------------------------
---------------------------------------
Its:
---------------------------------------
[SIGNATURE PAGE TO SERIES D CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT]
-27-
Exhibit A
Certificate of Amendment
of
Articles of Incorporation
Exhibit B
Legal Opinion
of
Venture Law Group, A Professional Corporation
Exhibit C
Voting Agreement
Exhibit D
Disclosure Schedule