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EXHIBIT 10.9
INTERNET SECURITY SYSTEMS, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
February 14, 1997
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TABLE OF CONTENTS
PAGE
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1. Purchase and Sale of Preferred Stock.................................. -1-
1.1 Sale and Issuance of Series B Preferred Stock................ -1-
1.2 Closing...................................................... -1-
2. Representations and Warranties of the Company......................... -1-
2.1 Organization Good Standing and Qualification................. -2-
2.2 Capitalization............................................... -2-
2.3 Subsidiaries................................................. -3-
2.4 Authorization................................................ -3-
2.5 Governmental Consents........................................ -3-
2.6 Permits...................................................... -4-
2.7 Litigation................................................... -4-
2.8 Proprietary Information and Inventions Agreement............. -4-
2.9 Patents and Other Intangible Assets.......................... -4-
2.10 Manufacturing and Marketing Rights........................... -5-
2.11 Compliance with Other Instruments............................ -5-
2.12 Agreements, Action........................................... -5-
2.13 Brokers or Finders; Other Offers............................. -6-
2.14 Disclosure................................................... -6-
2.15 No Conflict of Interest...................................... -7-
2.16 Rights of Registration....................................... -7-
2.17 Private Placement............................................ -7-
2.18 Corporate Documents.......................................... -7-
2.19 Title to Property and Assets................................. -7-
2.20 Financial Statements......................................... -8-
2.21 Changes...................................................... -8-
2.22 Employee Benefit Plans....................................... -9-
2.23 Tax Returns and Payments..................................... -9-
2.24 Insurance.................................................... -9-
2.25 Labor Agreements and Actions................................. -9-
2.26 Environmental and Safety Laws................................ -10-
2.27 Minute Books................................................. -10-
2.28 Section 1202 of the Internal Revenue Code.................... -10-
2.29 Use of Proceeds.............................................. -11-
3. Representations and Warranties of the Purchasers...................... -11-
3.1 Authorization................................................ -11-
3.2 Purchase Entirely for Own Account............................ -12-
3.3 Disclosure of Information.................................... -12-
3.4 Investment Experience........................................ -12-
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TABLE OF CONTENTS
(CONTINUED)
PAGE
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3.5 Restricted Securities......................................................... -12-
3.6 No Public Market.............................................................. -13-
3.7 Further Limitations on Disposition............................................ -13-
3.8 Legends....................................................................... -13-
3.9 Accredited Investor........................................................... -14-
3.10 Brokers or Finders............................................................ -14-
4. Representations and Warranties of the Founders.
4.1 Litigation.................................................................... -14-
4.2 Capitalization................................................................ -15-
4.3 Patents and Other Intangible Assets........................................... -15-
5. Conditions of the Purchasers' Obligations at Closing................................... -16-
5.1 Representations and Warranties................................................ -16-
5.2 Performance................................................................... -16-
5.3 Compliance Certificate........................................................ -16-
5.4 Qualifications................................................................ -16-
5.5 Proceedings and Documents..................................................... -16-
5.6 Opinion of Company Counsel.................................................... -17-
5.7 Rights Agreement.............................................................. -17-
5.8 Right of First Refusal and Co-Sale Agreement.................................. -17-
5.9 Letter Agreement Relating to Sale of Stock in the Event Directed Shares
are Offered................................................................... -17-
5.10 Agreement Regarding Acceleration of Vesting of Future Optionees.............. -17-
5.11 Voting Agreement.............................................................. -17-
6. Conditions of the Company's Obligations at Closing..................................... -17-
6.1 Representations and Warranties................................................ -17-
6.2 Qualifications................................................................ -17-
6.3 Covenants..................................................................... -18-
7. Right of First Offer................................................................... -18-
8. Miscellaneous.......................................................................... -19-
8.1 Survival of Warranties........................................................ -19-
8.2 Transfer; Successors and Assigns.............................................. -19-
8.3 Governing Law................................................................. -20-
8.4 Counterparts.................................................................. -20-
8.5 Titles and Subtitles.......................................................... -20-
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TABLE OF CONTENTS
(CONTINUED)
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8.6 Notices................................... -20-
8.7 Finder's Fee.............................. -20-
8.8 Expenses.................................. -21-
8.9 Attorneys' Fees........................... -21-
8.10 Amendments and Waivers.................... -21-
8.11 Severability.............................. -21-
8.12 Delays or Omissions....................... -21-
8.13 Entire Agreement.......................... -21-
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TABLE OF CONTENTS
(CONTINUED)
Exhibit A - Schedule of Purchasers
Exhibit B - Certificate of Amendment
Exhibit C - Schedule of Exceptions to Representations and Warranties
Exhibit D - List of Stockholders of the Company
Exhibit E - Form of Amended and Restated Rights Agreement
Exhibit F - Form of Amended and Restated Right of First Refusal and
Co-Sale Agreement
Exhibit G - Letter Agreement Relating to Sale of Stock in the Event
Directed Shares are Offered
Exhibit H - Form of Agreement Regarding Acceleration of Vesting of
Future Optionees
Exhibit I - Form of Voting Agreement
Exhibit J - Form of Legal Opinion of ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
Exhibit K - List of Company Founders
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INTERNET SECURITY SYSTEMS, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (the "AGREEMENT") is
made as of the 14th day of February, 1997 by and between INTERNET SECURITY
SYSTEMS, INC. a Georgia corporation (the "COMPANY"), the investors purchasing
Series B Preferred Stock (the "Series B Preferred") listed on Exhibit A attached
hereto (each a "PURCHASER" and together the "PURCHASERS") and ▇▇▇▇▇▇ ▇▇▇▇▇▇ and
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (each a "FOUNDER" and together the "FOUNDERS")
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Preferred Stock.
1.1 Sale and Issuance of Series B Preferred Stock.
(a) The Company shall file with the Secretary of
State of the State of Georgia on or before the Closing (as defined below) a
Certificate of Amendment setting forth the rights, privileges, preferences and
limitations of the Series B Preferred Stock in the form attached hereto as
Exhibit B.
(b) Subject to the terms and conditions of this
Agreement, each Purchaser agrees, severally and not jointly, to purchase at the
Closing (as defined below) and the Company agrees to sell and issue to each
Purchaser at the Closing that number of shares set forth opposite each
Purchaser's name on Exhibit A attached hereto at a purchase price of $2.53 per
share. The shares of Series B Preferred sold to the Purchasers pursuant to this
Agreement shall be hereinafter referred to as the "STOCK."
1.2 Closing. The purchase and sale of the Stock shall
take place at the offices of the Company, ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ at 10:00 a.m., on February 14, 1997 or at such other time
and place as the Company and the Purchasers mutually agree upon, orally or in
writing (which time and place are designated as the "CLOSING"). At the Closing,
the Company shall deliver to each Purchaser a certificate representing the Stock
being purchased thereby against payment of the purchase price therefor, by a
bank or certified check payable to the Company or by wire transfer to the
Company's bank account.
2. Representations and Warranties of the Company. The Company
hereby represents and warrants to each Purchaser that, as of the date hereof and
the date of the closing, except as set forth on the Schedule of Exceptions
attached hereto as Exhibit C, specifically identifying the relevant subsection
hereof which exceptions shall be deemed to be representations and warranties as
if made hereunder:
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2.1 Organization Good Standing and Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Georgia and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company and its subsidiary are duly qualified to transact
business and is in good standing in each jurisdiction in which the failure so to
qualify would have a material adverse effect on its business or properties.
2.2 Capitalization. The authorized capital of the
Company consists, or will consist, immediately prior to the Closing, of:
(i) Preferred Stock. 10,000,000 shares of
Preferred Stock, of which (A) 3,650,000 shares have been designated Series A
Preferred Stock all of which are issued and outstanding and (B) 2,086,957 shares
have been designated Series B Preferred Stock all of which shall be issued and
outstanding immediately following the Closing. The rights, privileges and
preferences of the Preferred Stock are as stated in the Restated Articles of
Incorporation as amended by the Certificate of Amendment.
(ii) Common Stock. 25,000,000 shares of
Common Stock and 7,901,971 shares of which shall be issued and outstanding as of
the Closing.
(iii) An accurate list of the Company's
stockholders and their holdings is set forth in Exhibit D to this Agreement.
Based in part upon the representations of the Purchasers in this Agreement and
subject to the provisions of Section 2.5 below, the Stock (and the Common Stock
issuable upon conversion thereof) has been issued or will be issued in
compliance with all applicable federal and state securities laws.
(iv) Except for (A) conversion privileges
of Series A Preferred Stock, (B) conversion privileges of Series B Preferred
Stock, (C) the Rights of First Offer described in Section 7 of that certain
Series A Preferred Stock Purchase Agreement dated as of February 2, 1996 by and
between the Company and the investors listed on Exhibit A thereto (the "SERIES A
PURCHASE AGREEMENT"), (D) the Rights of First Offer described in Section 7
hereof, and (E) outstanding options to purchase 894,900 shares of Common Stock
granted to employees, there are no outstanding options, warrants, rights
(including conversion or preemptive rights) or agreements, orally or in writing,
for the purchase or acquisition from the Company of any shares of its capital
stock. The Company has reserved 1,548,029 shares of Common Stock for issuance,
at the discretion of the Board of Directors, to officers, directors, employees
and consultants. Except as otherwise contemplated herein, the Company is not a
party or subject to any agreement or understanding, and, to the best of the
Company's knowledge, there is no agreement or understanding between any persons
that affects or relates to the voting or giving of written consents with respect
to any security or the voting by a director of the Company.
2.3 Subsidiaries. The Company does not currently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity.
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2.4 Authorization. All corporate action on the part of
the Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the Amended and
Restated Rights Agreement in the form attached as Exhibit E (the "RIGHTS
AGREEMENT"), the Amended and Restated Right of First Refusal and Co-Sale
Agreement in the form attached as Exhibit F (the "CO-SALE AGREEMENT"), the
Letter Agreement Relating to the Sale of Stock in the Event Directed Shares are
Offered in the form attached as Exhibit G (the "DIRECTED SHARE AGREEMENT"), the
Amended and Restated Agreement Regarding Acceleration of Vesting of Future
Optionees in the form attached as Exhibit H (the "ACCELERATION AGREEMENT") and
the Amended and Restated Voting Agreement in the form attached as Exhibit I
hereto (the "VOTING AGREEMENT"); the performance of all obligations of the
Company hereunder and thereunder and the authorization, issuance and delivery of
the Stock (and the Common Stock issuable upon conversion of the Stock) has been
taken or will be taken prior to the Closing, and this Agreement, the Rights
Agreement, the Co-Sale Agreement, the Acceleration Agreement, the Directed Share
Agreement and the Voting Agreement constitute valid and legally binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditor's rights generally, as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, or (ii) to the extent the indemnification
provisions contained in the Rights Agreement may be limited by applicable
federal or state securities laws. The Stock, when issued in compliance with the
provisions of this Agreement, will be validly issued and will be fully paid and
nonassessable and will have the rights, preferences and privileges described in
the Certificate of Amendment. The shares of Common Stock issuable upon
conversion of the Stock have been duly and validly reserved and, when issued in
compliance with the provisions of this Agreement and the Amended and Restated
Articles of Incorporation of the Company, as amended (the "RESTATED ARTICLES")
will be validly issued, fully paid and nonassessable, and the Stock (and the
Common Stock issuable upon conversion thereof) will be free of any liens or
encumbrances other than those created by or imposed upon the holders thereof
through no action of the Company, and the Stock (and the Common Stock issuable
upon conversion thereof) will be free of restrictions on transfer other than the
restrictions on transfer under this Agreement, the Rights Agreement and the
Co-Sale Agreement and under the applicable state and federal securities laws.
2.5 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except (i) the filing of the Certificate of
Amendment with the Secretary of State of the State of Georgia and (ii) such
filings as may be required under applicable state and federal securities laws,
which filings will be timely filed within the applicable periods therefor.
2.6 Permits. The Company has all franchises, permits,
licenses and any similar authority as necessary for the conduct of its business
as now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects or financial
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condition of the Company and believes it can obtain, without undue burden or
expense, any similar authority for the conduct of its business as planned to be
conducted. The Company is not in default in any material respect under any of
such franchises, permits, licenses or other similar authority.
2.7 Litigation. There is no action, suit or proceeding
pending against the Company or any of its real property, or against any Founder,
nor, to the best knowledge of the Company, is there any basis therefor, nor is
there any action, suit, proceeding or investigation pending or currently
threatened against the Company that questions the validity of this Agreement,
the Rights Agreement, the Co-Sale Agreement, the Voting Agreement or the right
of the Company to enter into each such agreement, or to consummate the
transactions contemplated hereby or thereby. The foregoing includes, without
limitation, actions pending or threatened (or any basis therefor known to the
Company) involving the prior employment of any of the Company's employees, their
use in connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no investigation pending
or threatened against the Company, its properties or any of its officers or
directors (nor, to the best knowledge of the Company, is there any basis
therefor) by or before any governmental agency or entity. There is no action,
suit, proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
2.8 Proprietary Information and Inventions Agreement.
Each employee and officer of the Company has executed an agreement with the
Company regarding confidentiality and proprietary information substantially in
the form or forms delivered to the Purchasers. The Company is not aware that any
of its employees are in violation thereof.
2.9 Patents and Other Intangible Assets. The Company owns
or possesses sufficient legal rights to all patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and proprietary
rights and processes necessary for its business as now conducted and to the best
of the Company's knowledge, as proposed to be conducted without any conflict
with, or infringement with the rights of, others. The Company has not received
any communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights, trade secrets or other proprietary rights or
processes of any other person or entity. Furthermore, the Company is not
obligated to pay any royalty or fee to any third party on account of the
Company's ownership of such patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and proprietary rights, nor is
the Company obligated to pay any future royalty or fee to any of the Company's
employees or consultants on account of any such intellectual property rights of
such employee or consultant that have not been assigned to the Company. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree of order of any court or administrative
agency, that would interfere with the use of such employees' best efforts to
promote the interest
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of the Company or that would conflict with the Company's business as proposed to
be 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 proposed, will, to the best of 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 such employee is now obligated. The
Company does not believe it is or will be necessary to use any inventions of any
of its employees (or persons it currently intends to hire) made prior to their
employment by the Company.
2.10 Manufacturing and Marketing Rights. The Company has
not granted rights to manufacture, produce, assemble, license, market, or sell
its products to any other person (other than rights to sell the Company's
products granted to distributors and resellers in the ordinary course) and is
not bound by any agreement that affects the Company's exclusive right to
develop, manufacture, assemble, distribute, market or sell its products.
2.11 Compliance with Other Instruments.
(a) The Company is not in violation or default of any
provisions of its Restated Articles or By-laws or in any material respect of any
instrument, contract, indenture or agreement relating to the payment or receipt
of money on an annual basis in excess of $3,000 (a "MATERIAL CONTRACT") to which
it is a party or by which it is bound or, of any provision of federal or state
judgment, order, writ, decree, statute, rule or regulation applicable to the
Company. To the best of the Company's knowledge, all parties having material
contracts and commitments with the Company are in compliance therewith in all
material respects. The execution, delivery and performance of this Agreement,
the Rights Agreement, the Co-Sale Agreement, the Acceleration Agreement, the
Directed Share Agreement and the Voting Agreement and the consummation of the
transactions contemplated hereby and thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company.
(b) The Company has materially complied with all
Material Contracts and has not performed any act, the occurrence of which would
result in the Company's loss of any right granted under any license,
distribution or other agreement (other than the terms of employment arrangements
previously disclosed in writing to the Purchasers).
2.12 Agreements, Action.
(a) There are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.
(b) Except for agreements explicitly contemplated
hereby and agreements for the sale or distribution of the Company's products and
services in the ordinary
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course of business, there are no agreements, understandings, instruments,
contracts or proposed transactions to which the Company is a party or by which
it is bound that involve (i) current or future obligations of, or payments to
the Company in excess of, $50,000, (ii) obligations that have a duration of
greater than one year, or (iii) the license of any patent, copyright, trade
secret or other proprietary right to or from the Company.
(c) The Company has not (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for money
borrowed that remains outstanding or incurred any other liabilities that remain
outstanding individually in excess of $25,000 or in excess of $125,000 in the
aggregate, (iii) made any loans or advances to any person, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.
(d) The Company is not a party to and is not bound by
any contract, agreement or instrument, or subject to any restriction under its
Restated Articles or By-laws, that materially adversely affects its business as
now conducted or as proposed to be conducted, its properties or its financial
condition.
(e) The Company has not engaged in the past six (6)
months in any discussion (i) with any representative of any corporation or
corporations regarding the merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company or a
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, or (iii) regarding any
other form of liquidation, dissolution or winding up of the Company.
2.13 Brokers or Finders; Other Offers. The Company has not
incurred, and will not incur, directly or indirectly, as a result of any action
taken by the Company, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement.
2.14 Disclosure. The Company has fully provided the
Purchasers with all the information which the Purchasers have requested for
deciding whether to acquire the Stock. In addition, the Company has made
representations concerning its business, including certain of the Company's
projections describing its proposed business (collectively, the "Business Plan")
to the Purchasers. In the course of its representations to the Purchasers
concerning its business, the Company has not omitted any information of which it
is aware that is material to its business prospects. No representation or
warranty of the Company contained in this Agreement and the exhibits attached
hereto, any certificate furnished or to be furnished to Purchasers at the
Closing, or the Business Plan (when read together) contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein or therein not misleading in light of the
circumstances under which they were made. The Business
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Plan and the financial projections contained in the Business Plan were prepared
in good faith; provided, however, that the Company does not represent or warrant
that it will achieve such financial projections.
2.15 No Conflict of Interest. The Company is not indebted,
directly or indirectly, to any of its officers or directors or to their
respective spouses or children, in any amount whatsoever other than in
connection with expenses or advances of expenses incurred in the ordinary course
of business. None of the Company's officers or directors, or any members of
their immediate families, are indebted to the Company or to the best of the
Company's knowledge, have any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation which competes with the
Company except that officers, directors and/or stockholders of the Company may
own stock in publicly traded companies which may compete with the Company. To
the best of the Company's knowledge, no officer or director or any member of
their immediate families is, directly or indirectly, interested in any Material
Contract with the Company. The Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
2.16 Rights of Registration. Except as contemplated in the
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity. At the
Closing, the Company will enter into the Rights Agreement in the form attached
hereto as Exhibit E between the Company, certain members of the Company's
Management and each Purchaser.
2.17 Private Placement. Subject in part to the truth and
accuracy of each Purchaser's representations set forth in this Agreement, the
offer, sale and issuance of the Stock as contemplated by this Agreement is
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "SECURITIES ACT"), and neither the Company nor any authorized agent
acting on its behalf will take any action hereafter that would cause the loss of
such exemption.
2.18 Corporate Documents. The Restated Articles and Bylaws
of the Company are in the form provided to the Purchasers.
2.19 Title to Property and Assets. The Company owns its
property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens which arise in the ordinary
course of business and do not materially impair the Company's ownership or use
of such property or assets. With respect to the property and assets it leases,
the Company is in compliance with such leases and, to the best of its knowledge,
holds a valid leasehold interest free of any liens, claims or encumbrances.
2.20 Financial Statements. The Company has delivered to
the Purchasers its unaudited financial statements (including balance sheet and
profit and loss statement) for the period ended December 31, 1996 (the
"FINANCIAL STATEMENTS"). The Financial Statements have
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been complied on a consistent basis throughout the periods indicated and with
each other. The Financial Statements fairly present the financial condition and
operating results of the Company as of the dates, and for the periods, indicated
therein, subject to normal year-end audit adjustments. Except as set forth in
the Financial Statements, the Company has no material liabilities, obligations,
claims or guarantees contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to December 31, 1996 and
(ii) obligations under contracts and commitments incurred in the ordinary course
of business and not required under generally accepted accounting principles to
be reflected in the Financial Statements, which, in both cases, individually or
in the aggregate are not material to the financial condition or operating
results of the Company. The Company hereby represents and warrants that the
Financial Statements and all yearly financials thereafter shall be audited by an
independent certified public accounting firm of national recognition and such
financials shall be in accordance with generally accepted accounting principles.
2.21 Changes. Since December 31, 1996, there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the business,
properties, prospects, or financial condition of the Company (as such business
is presently conducted and as it is proposed to be conducted);
(c) any waiver or compromise by the Company of a
valuable right or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim,
or encumbrance or payment of any obligation by the Company, except in the
ordinary course of business and that is not material to the business,
properties, prospects or financial condition of the Company (as such business is
presently conducted and as it is proposed to be conducted);
(e) any material change to a Material Contract or
agreement by which the Company or any of its assets is bound or subject;
(f) any material change in any compensation
arrangement or agreement with any employee, officer, director or stockholder;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
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(h) any resignation or termination of employment of
any key officer of the Company; and the Company, to the best of its knowledge,
does not know of any impending resignation or termination of employment of any
such officers;
(i) receipt of notice that there has been a loss of,
or material order cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security
interest in, or lien, created by the Company, with respect to any of its
material properties or assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or
for the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(l) any declaration, setting aside or payment or
other distribution in respect to any of the Company's capital stock, or any
direct or indirect redemption, purchase, or other acquisition of any of such
stock by the Company; or
(m) any arrangement or commitment by the Company to
do any of the above items described in this Section 2.21.
2.22 Employee Benefit Plans. The Company does not have any
Employee Benefit Plan as defined in the Employee Retirement Income Security Act
of 1974.
2.23 Tax Returns and Payments. The Company has filed all
tax returns and reports as required by law. These returns and reports are true
and correct in all material respects. The Company has paid all taxes and other
assessments due.
2.24 Insurance. The Company has in full force and effect
fire and casualty insurance policies, with extended coverage, sufficient in
amount (subject to reasonable deductibles) to allow it to replace any of its
properties that might be damaged or destroyed. The Company has in effect term
life insurance policies, payable to the Company, on the lives of ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇, each in the amount of $2,500,000.
2.25 Labor Agreements and Actions. The Company is not
bound by or subject to (and none of its assets or properties is bound by or
subject to) any written or oral, express or implied, contract, commitment or
arrangement with any labor union, and no labor union has requested or, to the
knowledge of the Company, has sought to represent any of the employees,
representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending, or to the knowledge of the Company
threatened, which could have a material adverse effect on the assets,
properties, financial condition, operating results, or business of the Company
(as such business is presently conducted and as it is proposed to be conducted),
nor is the Company aware of any labor organization activity involving its
employees. The Company is
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15
not aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
2.26 Environmental and Safety Laws. To the Company's
knowledge, it is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety which would have a
material effect on the employees, and to the best of its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
2.27 Minute Books. The copy of the minute books of the
Company provided to the counsel for the Purchasers contains minutes of all
meetings of directors and stockholders and all actions by written consent
without a meeting by the directors and stockholders since the date of
incorporation and reflects all actions by the directors (and any committee of
directors) and stockholders with respect to all transactions referred to in such
minutes accurately in all material respects.
2.28 Section 1202 of the Internal Revenue Code. The
capital stock issuable hereunder will constitute "qualified small business
stock" within the meaning of Section 1202 of the Internal Revenue Code of 1986,
as amended (the "CODE"), as of the date of issuance and the Company hereby
represents and warrants that it shall continue to do the following:
(a) use its best efforts to comply with the
reporting and record keeping requirements of Section 1202 of the Code and any
regulations promulgated thereunder; and
(b) use its best efforts to provide the
Purchasers with notice at least ten (10) business days prior to taking any of
the following actions:
(i) Within the two-year period ending
one year from the date hereof, purchase an amount of its own stock (within the
meaning of Section 1202(c)(3) of the Code) having an aggregate value at the
time(s) of purchase exceeding five percent of the aggregate value of all of its
outstanding stock determined as of the start of such period;
(ii) Conduct any of the following
businesses (as defined for purposes of Section 1202(e)(3) of the Code):
(A) any business involving the
performance of services in the fields of law, accounting, actuarial science,
performing arts, athletics, or brokerage services;
(B) any banking or insurance
business;
(C) any farming business
(including the business of raising or harvesting trees);
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16
(D) any business involving the
production or extraction of natural resources with respect to which a deduction
is allowable under Section 613 or 613A of the Code; or
(E) any business of operating a
hotel, motel, restaurant or similar establishment;
(iii) Permit more than 10 percent of the
value of its assets to consist of stock issued by other companies (other than
stock of companies that qualify as subsidiaries of the Company within the
meaning of Section 1202(e)(5) of the Code or stock that is held as working
capital or reasonably expected to be sold within two years to finance research
and experimentation within the meaning of Section 1202(e)(6) of the Code);
(iv) Permit more than 10 percent of the
value of its assets to consist of real property which is not used in the active
conduct of a qualified trade or business within the meaning of Section
1202(e)(7) of the Code;
(v) Make an election under Section 936
of the Code (relating to the Puerto Rico and possessions tax credit) or permit a
subsidiary to make such an election; or
(vi) In a single transaction or series
of related transactions, raise capital of more than $1 million through the
issuance of securities or the incurrence of indebtedness if such transaction or
series of related transactions likely would cause the Company to fail to satisfy
the active business requirement set forth in Section 1202(e)(1) of the Code by
virtue of holding excess cash or investment assets.
For purposes of the foregoing, any valuation or other
determination (including, without limitation, a determination that a specific
course of action does not constitute the conduct of a business described in
2(b), above) made by the Company's Board of Directors in good faith or for which
there was, at the time made, a reasonable basis in law or fact shall be
conclusive.
2.29 Use of Proceeds. The proceeds of the financing
contemplated herein shall be used for general corporate and working capital
purposes including repayments of advances made under existing lines of credit.
3. Representations and Warranties of the Purchasers. Each
Purchaser hereby represents and warrants to the Company that:
3.1 Authorization. This Agreement and the Rights
Agreement, when executed and delivered by such Purchaser will constitute a valid
and legally binding obligation of the Purchaser, enforceable in accordance with
its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and any other laws of general
application affecting enforcement of creditors rights generally, as limited by
laws relating
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17
to the availability of a specific performance, injunctive relief or
other equitable remedies, or (ii) to the extent the indemnification provisions
contained in the Rights Agreement may be limited by applicable federal or state
securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is
made with the Purchaser in reliance upon the Purchaser's representation to the
Company, which by the Purchaser's execution of this Agreement the Purchaser
hereby confirms, that the Stock (and Common Stock issuable upon conversion
thereof) to be acquired by the Purchaser will be acquired for investment for the
Purchaser's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof and that the Purchaser has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, the Purchaser further represents that the
Purchaser does not presently have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to such
person or to any third person, with respect to any of the Stock (or the Common
Stock issuable upon conversion thereof). The Purchaser understands that the
Stock (and the Common Stock issuable upon conversion thereof) have not been, and
will not be, registered under the Securities Act by reason of a specific
exemption from the registration provisions of the Securities Act which depends
upon, among other things, the bona fide nature of the investment intent and the
accuracy of the Purchaser's representations as expressed herein. The Purchaser
has not been formed for the specific purpose of acquiring the Stock (and the
Common Stock issuable upon conversion thereof). The Purchaser represents that it
has full power and authority to enter into this Agreement.
3.3 Disclosure of Information. The Purchaser believes it
has received all the information it considers necessary or appropriate for
deciding whether to acquire the Stock. The Purchaser further represents that it
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Stock. The Purchaser's
decision to purchase the Stock is based in part on the answers to such questions
as the Purchaser and its representatives have raised concerning the transaction
and on its own evaluation of the risks and merits of the purchase and the
Company's proposed business activities. The foregoing, however, does not limit
or modify the representations and warranties of the Company in Section 2 of this
Agreement or the right of the Purchaser to rely thereon.
3.4 Investment Experience. Such Purchaser is an investor
in securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series B
Preferred Stock.
3.5 Restricted Securities. The Purchaser understands that
the Stock (and the Common Stock issuable upon conversion thereof) are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such Stock (and the Common Stock issuable upon conversion thereof) may be resold
without
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18
registration under the Securities Act only in certain limited circumstances. The
Purchaser acknowledges that the Stock (and the Common Stock issuable upon
conversion thereof) must be held indefinitely unless subsequently registered
under the Securities Act or an exemption from such registration is available.
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 existence of a public market for the shares, the availability
of certain current public information about the Company, the resale occurring
not less than two 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" (as provided by Rule 144(f)) and the
number of shares being sold during any three-month period not exceeding
specified limitations.
3.6 No Public Market. The Purchaser understands that no
public market now exists for any of the securities issued by the Company, that
the Company has made no assurances that a public market will ever exist for the
Stock or the underlying Common Stock and that, even if such a public market
exists at some future time, the Company may not then be satisfying the current
public information requirements of Rule 144.
3.7 Further Limitations on Disposition. Without in any
way limiting the representations set forth above, the Purchaser further agrees
not to make any disposition of all or any portion of the Stock (and the Common
Stock issuable upon conversion thereof) unless and until:
(a) There is then in effect a Registration
Statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such Registration Statement; or
(b) (i) The Purchaser shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (ii) if reasonably requested by the Company, the Purchaser shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for routine transactions made pursuant to Rule 144.
(c) Notwithstanding the provisions of paragraphs
(a) and (b) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by the Purchaser to a constituent stockholder or
constituent partner (including any constituent of a constituent) of the
Purchaser, if the transferee or transferees agree in writing to be subject to
the terms hereof to the same extent as if they were the Purchaser hereunder.
3.8 Legends. The Purchaser understands that the Stock
(and the Common Stock issuable upon conversion thereof), and any securities
issued in respect thereof or exchange therefor, may bear one or all of the
following legends:
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19
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) Any legend required by the laws of the State
of Georgia and the laws of the State of California.
(c) Any legend required by the Blue Sky laws of
any other state to the extent such laws are applicable to the shares represented
by the certificate so legended.
A certificate shall not bear such legends if in the opinion of counsel
satisfactory to the Company (it being agreed that ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇ or ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP shall be satisfactory) that the
securities represented thereby may be publicly sold without registration under
the Securities Act and any applicable state securities laws.
3.9 Accredited Investor. The Purchaser is an
accredited investor as defined in Rule 501(a) of Regulation D promulgated under
the Act.
3.10 Brokers or Finders. The Company has not incurred, and
will not incur, directly or indirectly, as a result of any action taken by the
Purchaser any liability for brokerage or finders' fees or agents' commissions or
any similar charges in connection with this Agreement.
4. Representations and Warranties of the Founders.
4.1 Litigation. Each Founder, severally and not jointly,
represents and warrants to the Purchasers that, to the best knowledge of such
Founder, there is no action, suit or proceeding pending against the Company or
any of its real property, or against such Founder, nor is there any basis
therefor, nor is there any action, suit, proceeding or investigation pending or
currently threatened against the Company that questions the validity of this
Agreement, the Rights Agreement or the Co-Sale Agreement or the right of the
Company to enter into each such agreement, or to consummate the transactions
contemplated hereby or thereby. The foregoing includes, without limitation,
actions pending or threatened (or any basis therefor known to such Founder)
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no investigation pending
or threatened against the Company, its properties or such Founder (nor, to the
best knowledge of such Founder, is there any basis therefor) by or before any
governmental agency or entity. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.
-14-
20
4.2 Capitalization. Each Founder, severally and not
jointly, represents and warrants to the Purchasers that, except as set forth in
the Schedule of Exceptions under Section 2.2, to the best knowledge of such
Founder, the authorized capital of the Company consists, or will consist,
immediately prior to the Closing, of:
(i) Preferred Stock. 10,000,000 shares of
Preferred Stock, of which (A) 3,650,000 shares have been designated Series A
Preferred Stock all of which are issued and outstanding and (B) 2,086,957 shares
have been designated Series B Preferred Stock all of which shall be issued and
outstanding immediately following the Closing. The rights, privileges and
preferences of the Preferred Stock are as stated in the Restated Articles and
the Certificate of Amendment.
(ii) Common Stock. 25,000,000 shares of
Common Stock and 7,901,971 shares of which shall be issued and outstanding as of
the Closing.
(iii) An accurate list of the Company's
stockholders and their holdings is set forth in Exhibit D to this Agreement.
(iv) Except for (A) conversion privileges
of Series A Preferred Stock, (B) Conversion Privileges of Series B Preferred
Stock, (C) the Rights of First Offer described in Section 7 of the Series A
Purchase Agreement, (D) the Rights of First Offer described in Section 7 hereof,
and (E) outstanding options to purchase 894,900 shares of Common Stock granted
to employees, there are no outstanding options, warrants, rights (including
conversion or preemptive rights) or agreements, orally or in writing, for the
purchase or acquisition from the Company of any shares of its capital stock. The
Company has reserved 1,548,029 shares of Common Stock for issuance, at the
discretion of the Board of Directors, to officers, directors, employees and
consultants. Except as otherwise contemplated herein, the Company is not a party
or subject to any agreement or understanding, and, to the best of such Founders
knowledge, there is no agreement or understanding between any persons that
affects or relates to the voting or giving of written consents with respect to
any security or the voting by a director of the Company.
4.3 Patents and Other Intangible Assets. ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ represents and warrants to the Purchasers that, except as set forth in the
Schedule of Exceptions under Section 2.9, to the best of his knowledge, the
Company owns or possesses sufficient legal rights to all patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information and
proprietary rights and processes necessary for its business as now conducted and
as proposed to be conducted without any conflict with, or infringement with the
rights of, others. Neither he nor the Company has received any communications
alleging that the Company has violated or, by conducting its business as
proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights, trade secrets or other proprietary rights or processes of any
other person or entity. Furthermore, the Company is not obligated to pay any
royalty or fee to any third party on account of the Company's ownership of such
necessary patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information and proprietary rights, nor is the
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21
Company obligated to pay any future royalty or fee to any of the Company's
employees or consultants on account of any such intellectual property rights of
such employee or consultant that have not been assigned to the Company.
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ is not aware that any employee is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree of order of any court or administrative
agency, that would interfere with the use of such employees' best efforts to
promote the interest of the Company or that would conflict with the Company's
business as proposed to be 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 proposed, will, to the
best of ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇' 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 such employee is now obligated.
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ does not believe that or that it will be necessary to use any
inventions of any of the Company's employees (or persons the Company currently
intends to hire) made prior to their employment by the Company.
5. Conditions of the Purchasers' Obligations at Closing. The
obligations of each Purchaser to the Company under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 Representations and Warranties. The representations
and warranties of the Company contained in Section 2 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the date of the Closing.
5.2 Performance. The Company shall have performed and
complied with all covenants, agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the Closing.
5.3 Compliance Certificate. The President of the Company
shall deliver to the Purchasers at the Closing a certificate certifying that the
conditions specified in Sections 5.1 and 5.2 have been fulfilled.
5.4 Qualifications. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Stock pursuant to this Agreement shall be obtained and effective
as of the Closing.
5.5 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at such Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Purchasers' counsel, and the Purchasers' counsel shall have
received all such counterpart original and certified or other copies of such
documents as it may reasonably request.
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22
5.6 Opinion of Company Counsel. The Purchasers shall
have received from ▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP, counsel for the Company, an
opinion, dated as of the Closing, in substantially the form of Exhibit J.
5.7 Rights Agreement. The Company and each Purchaser
shall have executed and delivered the Rights Agreement in substantially the form
attached as Exhibit E.
5.8 Right of First Refusal and Co-Sale Agreement. The
Company, each Founder of the Company listed in Exhibit K, and each Purchaser
shall have executed and delivered the Right of First Refusal and Co-Sale
Agreement in substantially the form attached as Exhibit F.
5.9 Letter Agreement Relating to Sale of Stock in the
Event Directed Shares are Offered. The Company, AT & T Ventures and ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ shall have executed and delivered a Letter Agreement
Relating to Sale of Stock in the Event Directed Shares are Offered in the form
attached as Exhibit G.
5.10 Agreement Regarding Acceleration of Vesting of
Future Optionees. The Company, AT & T Ventures and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇ shall have executed and delivered an Agreement to Accelerate Vesting of
Future Optionees in the Form attached as Exhibit I.
5.11 Voting Agreement. The Company, certain
shareholders of the Company and each Purchaser shall have executed and delivered
the Voting Agreement in the Form attached as Exhibit H.
6. Conditions of the Company's Obligations at Closing. The
obligations of the Company to each Purchaser under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
6.1 Representations and Warranties. The representations
and warranties of each Purchaser contained in Section 3 shall be true on and as
of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
6.2 Qualifications. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Stock pursuant to this Agreement shall be obtained and effective
as of the Closing.
6.3 Covenants. All covenants, agreements and
conditions contained in this Agreement to be performed by the Purchasers on or
prior to the Closing shall have been performed or complied with in all material
respects.
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23
7. Right of First Offer. The Company hereby grants to each
Purchaser (each a "RIGHTS HOLDER") the right of first offer to purchase a pro
rata portion of any "New Securities" (as defined below) that the Company may,
from time to time, propose to sell and issue. The Rights Holder's pro rata
share, for purposes of this right of first offer, is the ratio of (X) the number
of shares of Common Stock (assuming conversion of all outstanding Preferred)
owned by such Rights Holder to (Y) the total number of shares of Common Stock
then outstanding (assuming conversion of all outstanding Preferred) and all
outstanding options of the Company. This right of first offer shall be subject
to the following provisions:
(a) "NEW SECURITIES" shall mean any Common Stock
or Preferred Stock of the Company whether or not authorized on the date hereof,
or rights, options, or warrants to purchase such Common Stock or Preferred
Stock, or securities of any type whatsoever that are, or may become, convertible
into said Common Stock or Preferred Stock; provided, however, that "New
Securities" does not include the following:
(i) up to 1,548,029 shares of Common
Stock, or options to purchase shares of Common Stock, issued or granted to
officers, directors, employees and consultants of the Company pursuant to stock
and option plans or arrangements approved by the Board of Directors;
(ii) shares of Common Stock issuable upon
conversion of the Company's Series A Preferred Stock;
(iii) shares of Common Stock issuable upon
conversion of the Company's Series B Preferred Stock;
(iv) securities of the Company offered to
the public pursuant to a bona fide public offering;
(v) securities of the Company issued to
persons or entities with whom the Company has business relationships, including
under equipment leasing arrangements, bank or other institutional loans,
acquisitions of companies or product lines or other arrangements or transactions
wherein the principal purpose of the issuance of such shares (or warrants or
options) is for non-equity financing purposes; provided, that such arrangements
are approved by the majority vote or written consent of the Board of Directors
of the Company;
(vi) shares of Common Stock or Preferred
Stock issued in connection with any stock split, stock dividend, or
recapitalization by the Company; or
(vii) the shares of Series B Preferred
issued pursuant to this Agreement;
(b) In the event that the Company proposes to
undertake an issuance of New Securities, it shall give the Rights Holder written
notice of its intention, describing the type
-18-
24
of New Securities, the price, and the general terms upon which the Company
proposes to issue the same (the "COMPANY'S NOTICE"). The Rights Holder shall
have ten (10) business days from the date such notice is given to agree to
purchase its share of such New Securities at the price and upon the general
terms specified in the notice by giving written notice to the Company and
stating therein the quantity of New Securities to be purchased. In the event
that a Rights Holder does not elect to purchase its pro rata share (a
"NON-PARTICIPATING HOLDER"), then each Rights Holder purchasing such New
Securities shall have ten (10) business days to elect to purchase, on a pro rata
basis, each Non-Participating Holder's pro rata share.
(c) The Company shall have one hundred twenty
(120) days thereafter to sell (or enter into an agreement pursuant to which the
sale of New Securities covered thereby shall be closed, if at all, within sixty
(60) days from the date of such agreement) any New Securities not acquired by
the Rights Holder at a price and upon general terms no more favorable to the
purchasers thereof than specified in the Company's Notice. In the event the
Company has not sold the New Securities within such one hundred twenty (120) day
period (or sold and issued New Securities in accordance with the foregoing
within sixty (60) days from the date of such agreement), the Company shall not
thereafter issue or sell any New Securities without first offering such New
Securities to the Rights Holder in the manner provided above.
(d) The right of first offer granted under this
Agreement shall expire in the event the Company becomes a reporting Company
under the Securities Exchange Act of 1934, as amended.
(e) This right of first offer shall expire with
respect to any Rights Holder immediately at such time as such Rights Holder no
longer owns, in the aggregate, one-half of the shares of Series B Preferred
Stock (or Common Stock issuable upon conversion thereof) owned as of the date
hereof.
8. Miscellaneous.
8.1 Survival of Warranties. Unless otherwise set
forth in this Agreement, the warranties, representations and covenants of the
Company and the Purchasers contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing for a
period of two (2) years following the Closing.
8.2 Transfer; Successors and Assigns. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. Nothing in this Agreement,
express or implied is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement. Notwithstanding any other provision of
this Agreement to the contrary, the rights and obligations of this Agreement may
be expressly transferred by one Purchaser to another Purchaser or by a Purchaser
to any entity that is under common control with such Purchaser.
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25
8.3 Governing Law. This Agreement shall be governed
by and construed under the laws of the State of California.
8.4 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.
8.5 Titles and Subtitles. The titles and subtitles
used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
8.6 Notices.
(a) All notices, requests, demands and other
communications under this Agreement or in connection herewith shall be given to
or made upon (i) the Purchasers at each such Purchaser's address set forth on
Exhibit A, with a copy to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇,
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇; and (ii) the Company
at Internet Security Systems, Inc. attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇, with a copy to
▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇, attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
(b) All notices, requests, demands and other
communications given or made in accordance with the provisions of this Agreement
shall be in writing, and shall be sent by airmail, return receipt requested, or
by facsimile with confirmation of receipt, and shall be deemed to be given or
made when receipt is so confirmed.
(c) Any party may, by written notice to the other,
alter its address or respondent, and such notice shall be considered to have
been given three (3) days after the airmailing or faxing thereof.
8.7 Finder's Fee. Each party represents that it neither
is nor will be obligated for any finder's fee or commission in connection with
this transaction. Each Purchaser agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which each Purchaser or any of its officers, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless each Purchaser from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
8.8 Expenses. Each of the Company and the Purchasers
shall bear their own expenses incurred with respect to this Agreement and the
transactions contemplated hereby; however, the Company will pay the reasonable
fees and expenses of one special counsel to the Purchasers, in an amount not to
exceed $15,000.
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26
8.9 Attorneys' Fees. If any action at law or in
equity (including arbitration) is necessary to enforce or interpret the terms of
this Agreement, the prevailing party shall be entitled to reasonable attorneys'
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled as determined by such court, equity or arbitration
proceeding.
8.10 Amendments and Waivers. Any term of this
Agreement may be amended with the written consent of the Company and the holders
of a majority of the Common Stock issued or issuable upon conversion of the
Stock. Any amendment or waiver effected in accordance with this Section 8.10
shall be binding upon the Purchasers and each transferee of the Stock (or the
Common Stock issuable upon conversion thereof), each future holder of all such
securities, and the Company.
8.11 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, portions of such
provisions, or such provisions in their entirety, to the extent necessary, shall
be severed from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
8.12 Delays or Omissions. No delay or omission to
exercise any right, power or remedy accruing to any holder of any of the Stock,
upon any breach or default of the Company under this Agreement shall impair any
such right, power or remedy of such holder nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any holder of any breach or default under
this Agreement, or any waiver on the part of any holder of any provisions or
conditions of this agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder shall be cumulative
and not alternative.
8.13 Entire Agreement. This Agreement and the documents
referred to herein constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof, and any and all other written or oral
agreements existing between the parties hereto are expressly canceled.
IN WITNESS WHEREOF, the parties hereto have executed this Series B
Preferred Stock Purchase Agreement as of the date first above written.
COMPANY:
INTERNET SECURITY SYSTEMS, INC.
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27
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
FOUNDERS:
--------------------------------------------
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
***PURCHASE AGREEMENT***
28
PURCHASERS:
AT & T VENTURE FUND I, L.P.
By;
-----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: General Partner
GREYLOCK EQUITY LIMITED PARTNERSHIP
By: Greylock Equity Limited Partnership,
Its Partner
By:
-----------------------------------------
General Partner
--------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ VIII
By: KPCB VIII Associates
By:
-----------------------------------------
Name:
Title:
KPCB INFORMATION SCIENCES
ZAIBATSU FUND II
By: KPCB VII Associates
By:
-----------------------------------------
Name:
Title:
***PURCHASE AGREEMENT***
29
KPCB JAVA FUND
By: KPCB VIII Associates
By:
-----------------------------------------
Name:
Title:
SIGMA ASSOCIATES, III, L.P.
By: Sigma Management III, L.P.
By:
-----------------------------------------
General Partner
SIGMA INVESTORS III, L.P.
By: Sigma Management III, L.P.
By:
-----------------------------------------
General Partner
SIGMA PARTNERS III, L.P.
By: Sigma Management III, L.P.
By:
-----------------------------------------
General Partner
VENTURE FUND I, L.P.
By:
-----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: General Partner
***PURCHASE AGREEMENT***
30
EXHIBIT A
SERIES B
INVESTMENT PREFERRED
PURCHASER AMOUNT STOCK
--------- ---------- ---------
AT & T Venture Fund II, L.P. $ 855,000.85 337,945
Venture Fund I, L.P. 94,998.97 37,549
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Greylock Equity Limited Partnership 750,139.94 296,498
c/o Greylock Management Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇-▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Mr. ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇ 33,970.31 13,427
[Address]
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ VIII 825,275.88 326,196
KPCB Information Sciences Zaibatsu 75,024.62 29,654
Fund II
KPCB Java Fund 2,100,699.48 830,316
c/o Kleiner ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇ ▇▇▇▇▇▇▇
Sigma Partners III, L.P. 427,357.48 168,916
Sigma Associates, III, L.P. 105,764.12 41,804
Sigma Investors III, L.P. 11,769.56 4,652
c/o Sigma Partners
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇
TOTAL $5,280,001.21 2,086,957
============= =========
***PURCHASE AGREEMENT***