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EXHIBIT 10.6
CYBERSOURCE CORPORATION
SERIES B PREFERRED
STOCK PURCHASE AGREEMENT
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made
as of the 12th day of July, 1996 by and among CYBERSOURCE CORPORATION, a
California corporation (the "Company"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇▇")
(solely with respect to Sections 7.1 through 7.17 and 8.7 hereof) and the
purchasers listed on the signature pages hereto under the heading "Investors",
each of whom is herein referred to as an "Investor".
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereby agree as follows:
1. Purchase and Sale of Series B Preferred Stock.
1.1 Sale and Issuance of Series B Preferred Stock.
(a) The Board of Directors of the Company shall adopt and
file with the Secretary of State of the State of California on or
before the Closing (as defined below) the Amended and Restated
Articles of Incorporation and the Certificate of Amendment of such
Amended and Restated Articles of Incorporation (collectively, the
"Restated Articles") in substantially the form attached hereto as
Exhibit A-1 and Exhibit A-2 respectively.
(b) Subject to the terms and conditions of this Agreement,
each Investor agrees severally and not jointly to purchase, and the
Company agrees to sell and issue to each Investor, severally and not
jointly, at the Closing (as defined below) the number of shares of
Series B Preferred Stock (the "Preferred Shares"), set forth
opposite such Investor's name on the Schedule of Investors attached
as Exhibit B to this Agreement (the "Schedule of Investors"), for an
aggregate of 2,037,038 Preferred Shares at a purchase price of $2.70
per share, for the purchase price shown opposite such Investor's
name on the Schedule of Investors (for an aggregate purchase price
of $5,500,002.60).
1.2 Closing. The purchase and sale of the Preferred Shares shall
take place at the offices of ▇▇▇▇▇▇▇ Tufts Cole & Black, LLP, ▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ on July 17, 1996, or at such other time
and place as the Company and Investors mutually agree upon (which time and
place are designated as the "Closing"). At the Closing, the Company will
deliver to the Investors stock certificates representing 2,037,038
Preferred Shares against payment of the purchase price therefor of $2.70
per share by wire transfers of immediately available funds.
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2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Investor, except as set forth on the Schedule of
Exceptions attached hereto as Exhibit C, which exceptions shall be deemed to be
representations and warranties as if made hereunder as follows:
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 California and has all requisite corporate power
and authority to carry on its business as now conducted and as proposed to
be conducted. The Company has full corporate power and authority to enter
into and perform its obligations under this Agreement and to carry out the
transactions contemplated by this Agreement. The Company is 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. A copy of the Company's Articles of Incorporation
(as amended) and the Company's Bylaws (as amended) have been delivered to
each Investor.
2.2 Capitalization.
(a) Immediately prior to the Closing the authorized capital
of the Company consists, or will consist of:
(i) Preferred Stock. 10,000,000 shares of Preferred
Stock, 1,985,520 of which have been designated Series A
Preferred Stock, no par value (the "Series A Preferred
Stock"), of which 1,985,520 shares are issued and outstanding,
and 2,500,000 of which have been designated Series B Preferred
Stock, no par value. No shares of Series B Preferred Stock
were issued and outstanding immediately prior to the Closing.
The rights, preferences and privileges of the Series A
Preferred Stock and the Series B Preferred Stock will be as
stated in the Restated Articles.
(ii) Common Stock. 30,000,000 shares of Common Stock,
9,000,000 shares of Common Stock of which were issued and
outstanding.
(b) The list set forth in item 2.2(b) of the Schedule of
Exceptions hereto is a complete and correct list of all security
holders of the Company, showing their holdings of issued and
outstanding shares of Series A Preferred Stock, Common Stock and
other Company securities (including options and warrants) as of the
date of this Agreement. To the best knowledge of the Company, each
such holder is the sole beneficial owner of all of the shares as to
which such holder is the record holder. Except as set forth in Item
2.2 of the Schedule of Exceptions hereto, holders of shares of the
Company's Series A Preferred Stock and Common Stock have no
preemptive rights. True and complete copies of the Series A
Preferred Stock Purchase Agreements (as defined in Section 2.11 of
this Agreement), have been furnished to each Investor requesting
them prior to the date hereof. All such issued and outstanding
shares have been duly authorized and validly issued, are fully paid
and nonassessable
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and have been issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
(c) Agreements for Purchase of Shares. Except for:
(i) the conversion privileges and preemptive rights of
the Series A Preferred Stock and the Series B Preferred Stock;
and
(ii) options issued pursuant to the Company's stock
option plan and other agreements (as of the Closing and after
giving effect to the stock split contemplated by the Restated
Articles, options for 2,010,000 shares, including options for
1,000,000 shares issued outside of the Company's stock option
plan, are presently outstanding and an additional 990,000
shares are available for grant under the Company's stock
option plan, as amended, in each case after giving effect to
the stock split under the Restated Articles);
prior to the Closing there will not be any outstanding options,
warrants, rights (including conversion, preemptive rights or rights
of first offer) or agreements for the purchase or acquisition from
the Company of any shares of its capital stock.
2.3 Subsidiaries. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation,
association, partnership or other business entity.
2.4 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance
of all obligations of the Company hereunder and the authorization,
issuance (or reservation for issuance) and delivery of the Preferred
Shares being sold hereunder and the Common Stock issuable upon conversion
of the Preferred Shares, has been taken or will be taken on or prior to
the Closing, and this Agreement constitutes a valid and legally binding
obligation of the Company enforceable in accordance with its terms, except
as affected by (i) bankruptcy or insolvency laws, or (ii) equitable
principles or public policy.
2.5 Valid Issuance of Preferred Stock. The Preferred Shares, when
issued, sold and delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly issued, fully
paid and nonassessable and, based in part upon the representations of the
Investors set forth in Section 3 of this Agreement, will be issued in
compliance with all applicable federal and state securities laws free and
clear of all restrictions on transfer (other than those arising from
application of the securities laws). The Common Stock issuable upon
conversion of the Preferred Shares purchased under this Agreement have
been duly and validly reserved for issuance and when issued and delivered
in accordance with the Restated Articles will be duly and validly issued,
fully paid and non-assessable.
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2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration
or filing with, any United States federal, state, local or provincial
governmental authority on the part of the Company is required in
connection with:
(a) the Company's valid execution, delivery, or performance
of this Agreement; and
(b) the offer, sale, or issuance of the Preferred Shares by
the Company hereunder or (assuming the exemption provided by Section
3(a)(9) of the Securities Act of 1933, as amended, in its current
form is available and no commission is paid in conjunction
therewith) the issuance of Common Stock upon conversion of the
Preferred Shares;
except such filings as have been made prior to the Closing, and except for
any notices of sale required to be filed with the Securities and Exchange
Commission under Regulation D of the Securities Act of 1933, as amended
(the "Securities Act"), or such post-closing filings as may be required
under applicable state securities laws, which will be timely filed within
the applicable periods therefor. To the best knowledge of the Company,
neither the Company nor anyone acting on its behalf has offered any of the
Series B Preferred Stock being sold hereunder or substantially similar
securities of the Company for sale to, or solicited offers to buy any
securities of the Company from, or otherwise approached or negotiated with
respect thereto with any prospective purchaser other than the Investors
and other persons whom the Company believes to be Accredited Investors as
(as defined in Section 3.7 of this Agreement). The Company agrees that
neither the Company nor anyone acting on its behalf will offer such
securities of the Company or any part thereof or any similar securities
for issuance or sale to, or solicit any offer to acquire any of the same
from, anyone so as to make the issuance and sale of the Preferred Shares
being sold hereunder not exempt from the registration requirements of
Section 5 of the Securities Act. None of the shares of the Company's
capital stock issued and outstanding has been offered or sold in such a
manner as to make the issuance and sale of such shares or the Preferred
Shares being sold hereunder not exempt from such registration
requirements, and all such shares of capital stock have been offered and
sold in compliance with all applicable federal and state securities laws.
2.7 Litigation. Except as disclosed in Item 2.7 of the Schedule of
Exceptions, there is no action, suit, proceeding or investigation pending
or currently threatened against the Company which questions the validity
of this Agreement or the right of the Company to enter into this
Agreement, or to consummate the transactions contemplated hereby, or which
might result, either individually or in the aggregate, in any material
adverse change in the assets, prospects, business, operations, or
condition (financial or otherwise) of the Company or any change in the
current equity ownership of the Company, nor is the Company aware that
there is any basis for the foregoing. 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
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action, suit, proceeding or investigation by the Company currently pending
or which the Company intends to initiate.
2.8 Patents and Trademarks.
(a) The list set forth in Item 2.8 of the Schedule of
Exceptions is a true and complete list and summary description of
all patents, patent applications, registered trademarks, registered
service marks, registered trade names and registered copyrights, and
licenses and rights to the foregoing presently owned or held by the
Company, none of which is in dispute or in any conflict with the
right of any other person or entity except as indicated on Item 2.7
of the Schedule of Exceptions.
(b) The Company's business as now conducted and as presently
proposed to be conducted does not conflict with or infringe upon
anyone's patents, copyrights, trademarks, trade secrets, trade
dress, know how, processes, or other proprietary rights. The Company
owns, or has the unrestricted right to use free and clear of all
material liens, claims and restrictions, all patents, copyrights,
trademarks, trade secrets, trade dress or other proprietary rights
necessary for the conduct of its business as it is presently
conducted or currently contemplated to be conducted, without
infringing on the right or claim of any person, any patents,
copyrights, trademarks, trade secrets, trade dress, know how,
processes, or other proprietary rights of others. Notwithstanding
any other provision of this Agreement, the exceptions described in
the Schedule of Exceptions do not apply to this subparagraph (b) of
Section 2.8.
2.9 Compliance with Laws and Other Instruments. The Company is not
in violation or default of any provisions of its Articles of Incorporation
or Bylaws or of any instrument, judgment, order, writ, decree or contract
to which it is a party or by which it is bound or, to its knowledge, of
any provision of federal or state statute, rule or regulation applicable
to the Company or any of its property, which violation or default would be
materially adverse to the assets, properties, prospects, business,
operations, or condition (financial or otherwise) of the Company. To the
best knowledge of the Company, there is no contamination of any real
property leased or operated by the Company that could subject the Company
to liability in the aggregate in excess of $10,000 under any environmental
laws or regulations. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby
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, which
violation, default, conflict or event would be materially adverse to the
assets, properties, prospects, business, operations, or condition
(financial or otherwise) of the Company.
2.10 Agreements; Action.
(a) Except as set forth in Item 2.10 of the Schedule of
Exceptions, there are no agreements, understandings, instruments,
contracts or proposed transactions to
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which the Company is a party or by which it is bound which involve
(i) obligations of, or payments to the Company in excess of,
$25,000; (ii) the license of any patent, copyright, trade secret or
other proprietary right of the Company; (iii) material restrictions
on the Company's business; or (iv) material proprietary rights of
the Company.
(b) 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 or incurred any other liabilities or obligations
(absolute or contingent), individually in excess of $10,000 or in
excess of $25,000 in the aggregate not reflected in the balance
sheet dated April 30, 1996 other than obligations or liabilities of
the Company for compensation under employment, advisor or consulting
agreements, or other than obligations or liabilities incurred in the
ordinary course of business, (iii) made any loans or advances to any
person, other than in the ordinary course of its business. Without
limiting the generality of the foregoing, the Company does not know
of any basis for the assertion against the Company of any material
liabilities of the Company (not provided for in the documents listed
in Item 2.10 of the Schedule of Exceptions or the Financial
Statements).
2.11 Registration Rights. Except as set forth in (i) that certain
Series A Preferred Stock Purchase Agreement dated as of the 6th day of
January 1995, as amended as of (A) the 27th day of February, 1996, (B) the
3rd day of July, 1996, and (C) the 12th day of July, 1996, and (ii) that
certain Series A Preferred Stock Purchase Agreement dated as of the 27th
day of February, 1996 (collectively, the "Series A Stock Purchase
Agreements"), and except as provided in Section 7 of this Agreement, the
Company has not granted or agreed to grant any registration rights,
including piggy-back rights, to any person or entity.
2.12 Title to Property and Assets. The Company has good and
marketable title to the property and assets it purports to own 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 holds a valid leasehold interest
free of any liens, claims or encumbrances, which liens, claims or
encumbrances would be materially adverse to the Company. Except as set
forth in Item 2.12 of the Schedule of Exceptions, the Company owns or has
the right to use all assets (tangible and intangible), necessary for the
conduct of its business as presently conducted and believes it can acquire
the right to use or the ownership of all assets, necessary for the conduct
of its business as it is proposed to be conducted, except for such assets
that are individually or in the aggregate immaterial to the business of
the Company. The Company knows of no assets required for the conduct of
its business as it is presently conducted; or as it is proposed to be
conducted, the right to use or ownership of which it is unlikely to
obtain, except for such assets that are individually or in the aggregate
immaterial to the business of the Company. Notwithstanding any other
provision of this Agreement, except as set forth in Item 2.12 of the
Schedule of Exceptions, the exceptions described in the Schedule of
Exceptions do not apply to this Section 2.12.
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2.13 Financial Statements. The Company has delivered to each
Investor its unaudited financial statements (balance sheet and profit and
loss statement) at and for the periods ended December 31, 1995, March 31,
1996 and April 30, 1996 (the "Financial Statements"). The Financial
Statements are complete and correct in all material respects and have been
prepared in accordance with generally accepted accounting principles on a
consistent basis throughout the periods indicated. The Financial
Statements fairly present the financial condition and operating results of
the Company as of the dates, and for the period, indicated therein,
subject to normal year-end adjustments. All accounts receivable shown on
the balance sheet constitute accounts receivable resulting from the sale
of goods and services in the ordinary course of business, and, to the best
knowledge of the Company, such accounts receivable are subject to no
conditions as to payment, offsets, counterclaims, defenses of any kind,
returns, allowances, or credits other than to the extent of the allowance
for doubtful accounts shown thereon, and other than warranty claims that
in the aggregate do not exceed $5,000. The Company has not received any
material customer complaints concerning its products or services.
2.14 Changes. Since April 30, 1996, there has not been (i) any
change in the assets, liabilities, condition (financial or otherwise),
business, or operating results, or to the best of the Company's knowledge,
prospects of the Company from that reflected in the Financial Statements,
except changes in the ordinary course of business which have not been, in
the aggregate, materially adverse; (ii) any damage, destruction or loss,
whether or not covered by insurance, affecting in any material way the
assets, properties, condition (financial or otherwise), operating results,
prospects or business of the Company (as such business is presently
conducted and as it is proposed to be conducted); (iii) any waiver by the
Company of a material right or of a material debt owed to it or any
satisfaction or discharge of any material lien, claim or encumbrance or
payment of any obligation by the Company, except in the ordinary course of
business; (iv) any change or amendment in any material respect to a
material contract or agreement by which the Company or any of its assets
or properties is bound or subject; or (v) any change in any compensation
arrangement or agreement with any officer, director or key employee. For
the purposes of this Section 2.14 only, prospects shall not include
general economic or industry trends. Notwithstanding any other provision
of this Agreement, the exceptions described in the Schedule of Exceptions
do not apply to this Section 2.14.
2.15 Proprietary Information. To the best of the Company's
knowledge, it has done nothing to compromise the secrecy, confidentiality
or value of any of its trade secrets, know-how, inventions, prototypes,
designs, processes or technical data required to conduct its business as
now conducted or as proposed to be conducted and has taken security
measures to protect the secrecy, confidentiality and value of all the
intellectual property which it believes are reasonable and customary in
the industry in which it operates. All of the Company's employees and
consultants have executed a non-disclosure/invention assignments agreement
in the form attached as Annex III to the Schedule of Exceptions. To the
Company's knowledge, no employee of the Company in connection with such
employee's employment with the Company, has violated the terms of any
agreement with a previous employer.
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2.16 Permits. The Company has all franchises, permits, licenses,
and any similar authority 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 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.
2.17 Shareholder Agreements. Except as set forth in the Series A
Preferred Stock Purchase Agreements, there are presently no outstanding
shareholder agreements, voting trusts, proxies or other arrangements or
understandings between the Company and its shareholders, or among any of
the shareholders of the Company, relating to either the voting or the
disposition of their respective shares.
2.18 Brokers or Finders. The Company has not engaged any broker,
investment banker or finder other than ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Company, L.L.C. in
connection with the sale of the Preferred Shares.
2.19 Disclosure. The Company has provided each Investor with all
information that such Investor has requested in connection with such
Investor's decision to invest in the Preferred Shares. To the best of the
Company's knowledge after due inquiry, neither this Agreement nor any
other written statement made or delivered in connection herewith
(including without limitation the Private Placement Offering Memorandum)
contains any untrue statement of a material fact or, taking this Agreement
and all such written statements as a whole, omits to state a material fact
necessary to make statements herein or therein misleading; provided,
however, with respect to any projections or expressions of opinion or
predictions, the Company represents only that such projections or
expressions of opinions and predictions were made in good faith and that
the Company believes that there is a reasonable basis therefor.
2.20 Insurance. Set forth in Item 2.20 of the Schedule of
Exceptions is a true and complete list of all current insurance policies
of the Company, all of which are in full force and effect.
2.21 Taxes. The Company has accurately prepared and timely filed
all federal, state and local reports, returns, estimates, declarations,
information returns and statements with respect to taxes (together, "Tax
Returns") that are required to be filed by it and has paid or made
provision for the payment of all taxes due with respect to the periods
covered by such Tax Returns. No such Tax Returns of the Company have been
audited by any taxing authority, and there are no waivers in effect of the
applicable statute of limitations for any period. No deficiency assessment
or proposed adjustment of federal income taxes or state or municipal taxes
or the Company is pending and the Company has no knowledge of any proposed
liability for any tax to be imposed. There are no tax sharing agreements
or similar contracts or arrangements to which the Company is a party. The
Company has not been a member of an affiliated group (within the meaning
of
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Section 1504 of the Internal Revenue Code), filing a consolidated federal
income Tax Return. No closing agreement pursuant to Section 7121 of the
Internal Revenue Code, or similar provision of any state or local law, has
been entered into by or with respect to the Company. For the purpose of
this Section 2.21, "tax" or "taxes" shall mean all federal, state, local
or foreign taxes, including but not limited to income, gross receipts,
windfall profits, alternative minimum, value added, severance, property,
production, sales, use, license, excise, franchise, employment,
withholding or similar taxes, together with any interest, additions or
penalties with respect thereto and any interest in respect of such
additions or penalties.
2.22 ERISA. Except as listed in Item 2.22 of the Schedule of
Exceptions, the Company does not maintain, sponsor, or contribute to any
program or arrangement that is an "employee pension benefit plan" (a
"Pension Plan"), and "employee welfare benefit plan" or a "multiemployer
plan", as those terms are defined in Section 3(2), 3(1), and 3(37) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Except as listed in Item 2.22 of the Schedule of Exceptions, the Company
has no other incentive or benefit arrangements. Each plan listed on Item
2.22 of the Schedule of Exceptions which is subject to ERISA is in
substantial compliance with ERISA. Each plan listed on Section 2.22 of the
Schedule of Exceptions which is a Pension Plan intended to be qualified
under Section 401(a) of the Internal Revenue Code of 1986, as amended, has
been amended to comply with the qualification provisions of the Tax Reform
Act of 1986 and subsequent legislation before the expiration of the
applicable remedial amendment period and has received a favorable
determination letter form the Internal Revenue Service, and the Company is
not aware of circumstances likely to result in the revocation of any such
favorable determination letter.
2.23 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 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 best knowledge of the Company threatened, which could
have a material adverse effect on the assets, properties, condition
(financial or otherwise), operating results, prospects 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 not aware that any officer, key
employee, key consultant or key contractor, or that any group of key
employees, intends to terminate such person's employment or relationship
with the Company, as the case may be, nor does the Company have a present
intention to terminate the employment of or relationship with any of the
foregoing persons.
2.24 Qualified Small Business Stock. To the best of the Company's
knowledge, the Preferred Shares will meet each of the requirements for
qualification as "qualified small business stock" set forth in Section
1202(c) of the Internal Revenue Code of 1986, as amended (the "Code"). The
Company (and any predecessor):
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(a) is and will be a domestic C corporation;
(b) will not have made any purchases of its own stock
described in Code Section 1202(c)(3)(B) during the one year period
preceding the Closing;
(c) will not have made any purchases of its own stock
described in Code Section 1202(c)(3)(A) during the two year period
preceding the Closing; and
(d) has maintained and will maintain aggregate gross assets,
as defined by Code Section 1202(d)(2), at all times between August
10, 1993 and through the Closing of less than $50 million, taking
into account the assets of any corporation required to be aggregated
with the Company in accordance with Code Section 1202(d)(3).
3. Representations and Warranties of Each Investor. Each Investor
hereby severally and not jointly represents and warrants that:
3.1 Authorization. This Agreement constitutes such Investor's
valid and legally binding obligation, enforceable in accordance with its
terms except as affected by (i) bankruptcy or insolvency laws, and (ii)
equitable principles or public policy. Each Investor who is not a natural
person, hereby represents that the person executing this Agreement on its
behalf is duly authorized to do so.
3.2 Purchase Entirely for Own Account. This Agreement is made with
each Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such
Investor hereby confirms, that the Preferred Shares to be received by such
Investor hereunder will be acquired for investment for such Investor'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 such Investor has no present
intention of otherwise distributing the same. By executing this Agreement,
each Investor purchasing Preferred Shares hereunder further represents
that such Investor does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to
such person or to any third person, with respect to any of the Preferred
Shares, or any portion thereof. Each Investor that is an entity represents
that it has full power and authority to enter into this Agreement.
3.3 Disclosure of Information. Each Investor believes he or it has
received all the information he or it considers necessary or appropriate
for deciding whether to purchase the Preferred Shares. Each such Investor
further represents that he or it has had an opportunity to ask questions
and receive answers from the Company regarding the terms and conditions of
the offering of the Preferred Shares. The foregoing does not modify the
Company's representations and warranties set forth herein or the
Investor's right to rely thereon.
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3.4 Investment Experience. Each Investor is an investor in
securities of companies in the development stage and acknowledges that he
or it is able to fend for himself or itself, can bear the economic risk of
his or its investment and has such knowledge and experience in financial
or business matters that he or it is capable of evaluating the merits and
risks of the investment in the Preferred Shares. If other than an
individual, Investor also represents it has not been organized solely for
the purpose of acquiring the Preferred Shares.
3.5 Restricted Securities. Each Investor purchasing Preferred
Shares hereunder understands that the Preferred Shares 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
Preferred Shares may be resold without registration under the Securities
Act only in certain limited circumstances. In this connection each
Investor represents that he or it is familiar with Securities and Exchange
Commission ("SEC") Rule 144, as presently in effect, and understands the
resale limitations imposed thereby and by the Securities Act
3.6 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, each Investor purchasing
Preferred Shares hereunder further agrees not to make any disposition of
all or any portion of the Preferred Shares (or the Common Stock issuable
upon the conversion of the Preferred Shares) 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) Such Investor shall have notified the Company of the
proposed disposition, (ii) if reasonably requested by the Company,
such Investor shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such Preferred Shares
under the Securities Act and (iii) if reasonably requested by the
Company, the transferee shall have furnished to the Company its
agreement to abide by the restrictions on transfer set forth herein
as if it were a purchaser hereunder.
3.7 Accredited Investor. The term "Accredited Investor" as used in
this Agreement means a person or entity who:
(a) is a director or executive officer of the Company; or
(b) is a natural person whose individual net worth, or joint
net worth with his or her spouse, at the time of purchase exceeds
$1,000,000, and the total purchase price does not exceed ten percent
(10%) of his or her individual net worth, or joint net worth with
his or her spouse, at the time of sale; or
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12
(c) is a natural person who had an individual income in
excess of $200,000 in each of the two most recent years or joint
income with that person's spouse in excess of $300,000 in each of
those years and reasonably expects to reach the same income level in
the current year, and the total purchase price does not exceed ten
percent (10%) of his or her individual net worth, or joint net worth
with his or her spouse, at the time of sale; or
(d) is a private business development company as defined in
section 202(a)(22) of the Investment Advisors Act of 1940; or
(e) is either (i) a bank as defined in section 3(a)(2) of
the Securities Act, or a savings and loan association or other
institution as defined in section 3(a)(5)(A) of the Securities Act
whether acting in its individual or fiduciary capacity; (ii) a
broker or dealer registered pursuant to section 15 of the Securities
Exchange Act of 1934; (iii) an insurance company as defined in
section 2(13) of the Securities Act; (iv) an investment company
registered under the Investment Company Act of 1940 or a business
development company as defined in section 2(a)(48) of that Act; (v)
a Small Business Investment Company licensed by the U.S. Small
Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958; or (vi) an employee benefit plan
within the meaning of Title I of the Employee Retirement Income
Security Act of 1974, if the investment decision is made by a plan
fiduciary, as defined in section 3(21) of such Act, which is either
a bank, savings and loan association, insurance company, or
registered investment adviser, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self-directed plan,
with investment decisions made solely by persons that are Accredited
Investors; or
(f) is any organization described in section 501(c)(3) of
the Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific purpose
of acquiring the Shares offered (and, in the case of an Investor
located in Washington, operating for not less than twelve months),
with total assets in excess of $5,000,000 (or, in the case of an
Investor located in the State of Washington, $10,000,000); or
(g) is any trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the Shares offered,
whose purchase is directed by a sophisticated person as described in
Regulation 230.506(b)(2)(ii) promulgated under the Securities Act;
or
(h) is an entity in which all of its equity owners meet one
or more of the standards set forth in (a) through (g) above.
As used in this Section 3.7, the term "net worth" means the excess of
total assets over total liabilities, and "income" means actual economic income,
which may differ from adjusted gross income for federal income tax purposes.
- 12 -
13
3.8 Representations and Warranties as to Accredited Investors and
Excluded Purchasers Status. Each Investor as to himself or itself,
severally and not jointly, further represents to the Company that such
Investor is (i) an Accredited Investor and (ii) an excluded purchaser (as
such term is described in Section 260.102.13 of Title 10 of the California
Code of Regulations or section 25102(f) of the California Corporate
Securities Law of 1968).
3.9 Legends. To the extent applicable, each certificate or other
document evidencing any of the Preferred Shares issued hereunder or any
Common Stock issued upon conversion of the Preferred Shares shall be
endorsed with the legends set forth below, and such Investor covenants
that, except to the extent such restrictions are waived by the Company,
such Investor shall not transfer the securities without complying with the
restrictions on transfer described in the legends endorsed thereon;
(a) The following legend under the Securities Act:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION
OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) If required by the authorities of any state in
connection with the issuance or sale of the Preferred Shares, the
legend required by such state authority.
The Company shall not be required (i) to transfer on its books any
Preferred Shares which shall have been transferred in violation of any of
the provisions set forth in this Agreement, or (ii) to treat as owner of
such Preferred Shares or to accord the right to vote as such owner or to
pay dividends to any transferee to whom such Preferred Shares shall have
been so transferred.
3.10 Removal of Legends.
(a) Any legend endorsed on a certificate pursuant to Section
3.09(a) or (b) hereof shall be removed (i) if Preferred Shares
represented by such certificate shall have been effectively
registered under the Securities Act or otherwise lawfully sold in a
public transaction, (ii) if such Preferred Shares may be transferred
in compliance with Rule 144(k) promulgated under the Securities Act,
or (iii) if the holder of such Preferred Shares shall have provided
the Company with an opinion from counsel, in form and substance
reasonably acceptable to the Company and from attorneys reasonably
acceptable to the Company, stating that a
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14
public sale, transfer or assignment of such Preferred Shares may be
made without registration.
(b) Any legend endorsed on a certificate pursuant to Section
3.9(b) hereof shall be removed if the Company receives an order of
the appropriate state authority authorizing such removal or if the
holder of the Preferred Shares provides the Company with an opinion
of counsel, in form and substance reasonably acceptable to the
Company and from attorneys reasonably acceptable to the Company,
stating that such state legend may be removed.
4. California Commissioner of Corporations.
4.1 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 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.
5. Conditions of Each Investor's Obligations at Closing. The
obligations of each Investor under subsection 1.1(b) of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions, the waiver of which shall not be effective against any Investor who
does not consent in writing thereto:
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 such Closing.
5.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or
before the Closing. The entering into, delivery and performance of this
Agreement by the Company shall have been duly authorized by all necessary
corporate action.
5.3 Consents, etc. The Company shall have secured all permits,
consents and authorizations that shall be necessary or required lawfully
to consummate this Agreement, to issue the Preferred Shares to be
purchased by the Investors hereunder and to issue the Common Stock into
which it may be converted, including without limitation the waiver of
rights of first refusal granted to holders of Series A Preferred Stock by
such holders of Series A Preferred Stock as are satisfactory to Vulcan
Ventures, Inc., the consent of the required majority of the holders of the
Series A Preferred Stock, and
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15
amendment of the Series A Preferred Stock Purchase Agreements to permit
the Company to grant to the Investors the registration rights and co-sale
rights contained herein.
5.4 Compliance Certificate. At the Closing, the Chief Executive
Officer of the Company shall deliver to the Investors a certificate
certifying that the conditions set forth in Sections 5.1, 5.2 and 5.3 have
been fulfilled.
5.5 Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be in
substance and form reasonably satisfactory to Vulcan Ventures, Inc., and
its counsel, and such Investor and its counsel shall have received all
such counterpart originals or certified or other copies of such documents
as such Investor or its counsel may reasonably request.
5.6 Qualifications. The Commissioner of Corporations of the State
of California and any applicable United States state securities regulatory
authority shall have issued permits qualifying the offer and sale of the
Preferred Shares to the Investors pursuant to this Agreement, or such
offer and sale shall be exempt from such qualification under the
California Corporate Securities Law of 1968, as amended, and any other
applicable state blue-sky law.
5.7 Restated Articles. The Company shall have adopted and filed
with the Secretary of State of the State of California on or before the
date of the Closing, the Restated Articles.
5.8 Legal Investment. At the time of such Closing, the purchase of
the Preferred Shares by the Investors shall be legally permitted by all
laws and regulations to which such Investors and the Company are subject.
5.9 Opinion of Counsel. At the Closing, the Investors shall have
received an opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ & Black, LLP., counsel for the
Company dated the Closing Date and substantially in the form of Exhibit D
hereto.
5.10 Minimum Investment. The Investors shall have subscribed for a
minimum of 2,037,038 Preferred Shares at an aggregate purchase price of
$5,500,002.60.
6. Conditions of the Company's Obligations at Closing. The obligations
of the Company to each Investor purchasing Preferred Shares hereunder are
subject to the fulfillment on or before the Closing of each of the following
conditions by such Investor:
6.1 Representations and Warranties. The representations and
warranties of the Investor contained in Section 3 hereof shall be true on
and as of the date of the Closing with the same effect as though such
representations and warranties had been made on and as of the Closing.
- 15 -
16
6.2 Payment of Purchase Price. Each Investor shall have delivered
the purchase price specified in Section 1.2.
6.3 California Qualification. The Commissioner of Corporations of
the State of California and any applicable United States state regulatory
authority shall have issued permits qualifying the offer and sale to the
Investors of the Preferred Shares or such offer and sale shall be exempt
from such qualification under the California Corporate Securities Law of
1968, as amended, and any other applicable state blue-sky law.
6.4 Restated Articles. The Company shall have adopted and filed
with the Secretary of State of the State of California on or before the
Closing, the Restated Articles.
6.5 Legal Investment. At the time of such Closing, the purchase of
the Preferred Shares by the Investors shall be legally permitted by all
laws and regulations to which the Investors and the Company are subject.
7. Registration Rights. The Company covenants and agrees as follows:
7.1 Definitions. For purposes of this Section 7:
(a) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the
Securities Act, and the declaration or ordering of effectiveness of
such registration statement or document;
(b) The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Preferred Shares
being purchased hereunder (ii) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or
other distribution with respect to, or in exchange for or in
replacement of, such Preferred Shares, excluding in all cases,
however, any Registrable Securities sold by a person in a
transaction in which his registration rights are not assigned and
(iii) all shares of Common Stock which the Investors and their
permitted assignees may hereafter purchase (or shares of Common
Stock issuable upon exercise or conversion of securities hereafter
purchased) pursuant to their rights of first refusal or otherwise;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common
Stock outstanding which are, and the number of shares of Common
Stock issuable pursuant to the exercisable or convertible securities
which are exercisable or convertible into, Registrable Securities;
(d) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in
accordance with Section
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17
7.13 hereof. It is acknowledged and agreed by the parties that the
registration rights contained in this Section 7 are pari-passu with
and are not superior to the registration rights granted pursuant to
the Series A Purchase Agreements;
(e) The term "Series A Holder" shall mean a Holder under the
Series A Purchase Agreements.
7.2 Request for Registration.
(a) If the Company shall receive (i) at any time after six
(6) months following the closing of the Company's initial public
offering of securities a written request from Holders holding at
least forty percent (40%) of the Registrable Securities then
outstanding (the "Initiating Holders") that the Company file a
registration statement under the Securities Act covering the
registration in an underwritten public offering of at least 40% of
the Registrable Securities then outstanding and such registration
would cover sales having an anticipated aggregate offering price,
net of underwriting discounts and commissions, equal to or more than
$7,500,000 or (ii) the requisite notice from the Series A Holders of
a demand registration, then the Company shall, within twenty-one
(21) days of the receipt thereof, give written notice of such
request to all Holders and Series A Holders and shall, subject to
the limitations of subsection 7.2(b), file as soon as practicable a
registration statement under the Securities Act covering all
Registrable Securities which the Holders and Series A Holders
request to be registered within twenty (20) days of the mailing of
such notice by the Company in accordance with Section 9.6.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action to effect any such registration
pursuant to this Section 7.2:
(i) in any particular jurisdiction in which the
Company would be required to execute a general consent to
service of process in effecting such registration, unless the
Company is already subject to service in such jurisdiction and
except as may be required by the Securities Act; or
(ii) if the Company shall have initiated two (2)
registrations pursuant to this Section 7.2 and the applicable
registration statement has been declared effective by the SEC
and remained effective until the earlier of (A) such time as
all of the Registrable Securities included by the Holders in
such registration have been sold or disposed of by them or (B)
the expiration of the period described in Section 7.4(a). In
addition, a request for registration shall not be deemed to
constitute a registration for purposes of this subparagraph
if: (I) 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 the Holders requesting such
registration; (II) the Company voluntarily takes any action
that would result in the Holder not
- 17 -
18
being able to sell such Registrable Securities covered thereby
during the period during which the registration statement must
be kept effective; or (III) if, after it has become effective,
such registration becomes subject to any stop order,
injunction or other order or requirement of the SEC or other
governmental agency or court and such order, injunction or
requirement is not promptly withdrawn or lifted, and such
registration has not otherwise remained effective for the
relevant period (including effective periods both before and
after the order, injunction or requirement is made or
imposed).
(c) Subject to the foregoing paragraph 7.2(b), the Company
shall file a registration statement as soon as possible after
receipt of the request or requests of the Initiating Holders under
this Section 7.2; provided, however, that if the Company shall
furnish to such Initiating Holders within sixty (60) days of receipt
of such request a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of
the Company (as evidenced by a board resolution) it would be
significantly detrimental to the Company and its shareholders for
such registration statement to be filed on or before the date filing
would be required and it is therefore essential to defer the filing
of such registration statement, the Company shall have the right to
defer such filing to a date not later than one hundred twenty (120)
days after receipt of such request, provided that the Company will
not exercise this right more than once in any twelve-month period.
(d) The underwriting shall be managed by an underwriter or
underwriters of national reputation selected by the Initiating
Holders, which selection shall be subject to the consent of the
Company, which consent shall not be unreasonably withheld. The right
of any Holder to registration pursuant to Section 7.2 shall be
conditioned upon such Holder's participation in such underwriting
and the inclusion of such Holder's Registrable Securities in the
underwriting. The Company shall (together with all Holders and
Series A Holders proposing to distribute their securities through
such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected as above
provided. Notwithstanding any other provision of this Section 7.2,
if the underwriters advise the Initiating Holders and the Company in
writing that marketing factors require a limitation of the number of
shares to be underwritten and that the total amount of securities
that all Holders and Series A Holders (initiating and
non-initiating) request pursuant to this Section 7.2(d) to be
included in such offering exceeds the amount of securities that the
underwriters reasonably believe compatible with the success of the
offering, the Company shall so advise all Holders and all of the
shares to be included in the registration shall be allocated among
all Holders and Series A Holders requesting inclusion (initiating
and non-initiating) pro rata according to the total amount of
securities entitled to be included in such registration owned by
each Holder and each Series A Holder requesting inclusion
(initiating or non-initiating) or in such other
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19
proportions as shall be mutually agreed by such selling
shareholders; provided, however, that in the event of such an
allocation ▇▇▇▇▇▇▇▇▇ may not include more than 35% of the shares to
be included in such registration statement by all selling
shareholders without the consent of the holders of the majority of
the shares requesting inclusion in the registration. For the
purposes of this Section 7.2(d) and Section 7.8 of this Agreement,
the language in such sections referring to ▇▇▇▇▇▇▇▇▇'▇ right to
participate as a selling shareholder at the 35% level means that all
▇▇▇▇▇▇▇▇▇ Shares (as defined in the Series A Stock Purchase
Agreements) included in such a registration, whether held by
▇▇▇▇▇▇▇▇▇ or a transferee of ▇▇▇▇▇▇▇▇▇, shall be counted against
such 35% limit. In addition, the language in Section 7.2(d) and
Section 7.8 referring to the ability of the holders of a majority of
the shares requesting inclusion in a registration to waive such 35%
limit means that only the holders of a majority of such shares,
calculated without regard to any ▇▇▇▇▇▇▇▇▇ shares, may effect such a
waiver.
If any person does not agree to the terms of any such underwriting,
he shall be excluded therefrom by written notice from the Company or the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such
registration. If shares are so withdrawn from the registration, the
Company shall then offer to all persons who have retained the right to
include securities in the registration the right to include additional
securities in the registration in an aggregate amount equal to the number
of shares so withdrawn, with such shares to be allocated among the persons
requesting additional inclusion pro rata according to the total amount of
securities entitled to be included in such registration owned by each such
person or in such other proportions as shall be mutually agreed by such
selling shareholders.
7.3 Company Registration. If (but without any obligation to do so)
at any time after the date of the Closing hereunder the Company proposes
to register (including for this purpose a registration effected by the
Company for shareholders other than the Holders of Registrable Securities
except a registration in which the Holders have the right to include
Registrable Securities under Section 7.2) any of its stock or other
securities under the Securities Act in connection with the public offering
of such securities solely for cash (other than a registration relating
solely to the sale of securities to participants in a Company stock plan,
or a registration relating to shares to be issued in connection with the
acquisition of another company, or a registration on any form which does
not include substantially the same information as would be required to be
included in a registration statement covering the sale of the Registrable
Securities), the Company shall, at such time, promptly give each Holder of
Registrable Securities written notice of such registration. Upon the
written request of each Holder of Registrable Securities given within
twenty (20) days after the effectiveness of such notice by the Company in
accordance with Section 9.6, the Company shall, subject to the provisions
of Section 7.8, cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder of Registrable Securities has
requested to be registered.
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20
7.4 Obligations of the Company. Whenever required under this
Section 7 to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective (but in no
event later than 120 days after the initial request for
registration), and, upon the request of the Holders of a majority of
the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred twenty (120)
days, plus a period equal to any period during which the Holders are
prohibited from making sales because of any stop order, injunction
or other order or requirement of the SEC or any other governmental
agency or court or a period during which the happening of any event
which makes any statement made in the registration statement, the
prospectus or any document incorporated therein by reference untrue
or misleading in any material respect until a curative amendment or
supplement is filed and furnished to the Holders; provided, however,
that before filing a registration statement or prospectus or any
amendments or supplements thereto (including documents that would be
incorporated or deemed to be incorporated therein by reference) the
Company will furnish to the Holders of the Registrable Securities
covered by such registration and, the underwriters, and any
attorney, accountant or other agent retained by the Holders of
Registrable Securities covered by such registration statement or
underwriters copies of all such documents proposed to be filed,
which documents will be subject to the reasonable and timely review
and comment of such Holders, such counsel and underwriters, if any,
and the Company will not file any registration statement or any
amendment thereto or any prospectus or any supplement thereto filed
in connection with a registration pursuant to Section 7.2 (including
such documents incorporated by reference and proposed to be filed
after the initial filing of the registration statement) to which the
Holders of a majority of the Registrable Securities covered by such
registration statement or the underwriters, if any, shall reasonably
and timely object;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used
in connection with such registration statement as may be necessary
to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration
statement;
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus and all amendments
and supplements thereto, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable
Securities owned by them;
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21
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Holders of Registrable Securities,
provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions; and
(e) Enter into and perform its obligations under an
underwriting agreement, in usual and customary form, with the
managing underwriter of such offering. Each Holder of Registrable
Securities participating in such underwriting shall also enter into
and perform its obligations under such an agreement.
7.5 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 7
that the selling Holders of Registrable Securities shall furnish to the
Company such information regarding themselves, the Registrable Securities
held by them, and the intended method of disposition of such securities as
shall be required to effect the registration of the Registrable
Securities.
7.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 7.2,
including (without limitation) all registration, filing and qualification
fees, printers' and accounting fees, fees and disbursements of counsel for
the Company, and the reasonable fees and disbursements (not to exceed
$35,000) of one counsel for the selling Holders and selling Series A
Holders shall be borne by the Company; provided, however, that the Company
shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 7.2 if the registration request is
subsequently withdrawn at the request of the Holders (initiating and
non-initiating) holding a majority of the Registrable Securities to be
registered (in which case all participating Holders shall bear such
expenses), unless the Holders of at least 66-2/3% of the Registrable
Securities agree to forfeit their right to initiate one demand
registration pursuant to Section 7.2. (provided that if immediately prior
to the time of such withdrawal, the Holders have learned of a materially
adverse change in the condition, business or prospects of the Company from
that known to the Holders at the time of their request, then the Holders
shall not be required to pay any such expenses and shall retain their
rights pursuant to Section 7.2).
7.7 Expenses of Company Registration. The Company shall bear and
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 7.3 for each Holder (which right may be assigned as
provided in Section 7.13), including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees
relating or apportionable thereto and the fees and disbursements of one
counsel (not to exceed $35,000) for the selling Holders and selling Series
A Holders selected by them, but excluding underwriting discounts and
commissions relating to Registrable Securities.
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22
7.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares being issued by the Company, the
Company shall not be required under Section 7.3 to include any of the
Holders' Registrable Securities in such underwriting unless they accept
the terms of the underwriting as agreed upon between the Company and the
underwriters selected by it, and then only in such quantity as will not,
in the opinion of the underwriters, jeopardize the success of the offering
by the Company. If the total amount of securities, including Registrable
Securities, requested by shareholders to be included in an offering (other
than a registration effected pursuant to Section 7.2) exceeds the amount
of securities sold other than by the Company that the underwriters
reasonably believe compatible with the success of the offering, then the
Company shall be required to include in the offering only that number of
such securities, including Registrable Securities, which the underwriters
believe will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling shareholders,
including Series A Holders, according to the total amount of securities
entitled to be included therein owned by each selling shareholder or in
such other proportions as shall mutually be agreed to by such selling
shareholders). The underwriters, pursuant to the preceding sentence, may
completely exclude the Holder's Registrable Securities from such
underwriting if no other selling shareholders' securities are so included.
If any person does not agree to the terms of any such underwriting,
he shall be excluded therefrom by written notice from the Company or the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such
registration. If shares are so withdrawn from the registration, the
Company shall then offer to all persons who have retained the right to
include securities in the registration the right to include additional
securities in the registration in an aggregate amount equal to the number
of shares so withdrawn, with such shares to be allocated among the persons
requesting additional inclusion pro rata according to the total amount of
securities entitled to be included in such registration owned by each such
person or in such other proportions as shall be mutually agreed by such
selling shareholders.
For purposes of the immediately preceding parenthetical concerning
apportionment, for any selling shareholder which is a holder of
Registrable Securities and which is a partnership or corporation, the
partners, retired partners and shareholders of such holder, or the estates
and family members of any such partners and retired partners, and any
trusts for the benefit of any of the foregoing persons shall be deemed to
be a single "selling shareholder," and any pro rata reduction with respect
to such "selling shareholder" shall be based upon the aggregate amount of
shares carrying registration rights owned by all entities and individuals
included in such "selling shareholder," as defined in this sentence.
7.9 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any
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23
controversy that might arise with respect to the interpretation or
implementation of this Section 7.
7.10 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 7:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless: (i) each Holder, the officers,
directors, agents, partners and legal counsel of each Holder of
Registrable Securities, and (ii) each person, if any, who controls
such Holder within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the officers, directors, agents, partners and legal counsel of
such control person, against any losses, claims, damages or
liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act or other federal or state
law, rule or regulation insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively, a "Violation"): (A) any untrue statement or alleged
untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (B) the
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 (C) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law; and
the Company will reimburse each such Holder, officer, agent,
director, partner, legal counsel, underwriter or controlling person
each officer, director, agent, partner and legal counsel of such
controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 7.10(a)
shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected
without the consent of the Company (which shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any
such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance
upon and in conformity with written information furnished expressly
for use in connection with such registration by any such Holder,
officer, partner, director, agent, legal counsel or controlling
person.
(b) To the extent permitted by law, each selling Holder
will, severally but not jointly, indemnify and hold harmless (i) the
Company; each of its officers, directors, agents, partners and legal
counsel; and (ii) each person, if any, who controls the Company
within the meaning of the Securities Act and the officers,
directors, agents, partners and legal counsel of such control
person, and any other Holder selling securities in such registration
statement or any of such other
- 23 -
24
Holder's officers, directors, agents, partners, legal counsel or any
person who controls such Holder, against any losses, claims, damages
or liabilities (joint or several) to which the Company or any
officer, director, agent, partner, legal counsel, or controlling
person, or other such Holder or director, officer, legal counsel or
controlling person of such other Holder may become subject, under
the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation
occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any officer,
director, agent, partner, legal counsel, controlling person, other
Holder, or officer, director, agent, partner, legal counsel or
controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability,
or action; provided, however, that the indemnity agreement contained
in this subsection 7.10(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if
such settlement is effected without the consent of the Investor
(which consent shall not be unreasonably withheld) and provided
further that in no event shall the liability of any selling Holder
hereunder be greater in amount than the dollar amount of the
proceeds (net of the payment of underwriting discounts and
commissions payable by such selling Holder) received by any such
selling Holder upon the sale of the Registrable Securities giving
rise to such indemnification obligation.
(c) Promptly after receipt by an indemnified party under
this Section 7.10 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if
a claim in respect thereof is to be made against any indemnifying
party under this Section 7.10, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel at
its own expense if it so desires. Notwithstanding the foregoing, if
the indemnified party and the indemnifying party have conflicting
interests with respect to the action so that joint counsel for them
would be inappropriate, (as determined by counsel to the indemnified
party and counsel to the indemnifying party), then the indemnifying
party shall pay reasonable fees and expenses of one counsel to the
indemnified party. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 7.10, but the omission to
deliver written notice to the indemnifying party will not relieve it
of any liability that it may have to any indemnified party otherwise
than
- 24 -
25
under this Section 7.10. No indemnifying party, in the defense of
any such action, shall, except with the consent of each indemnified
party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release
from liability in respect of such action.
(d) If the indemnification provided for in this Section 7.10
is held by a court of competent jurisdiction to be unavailable to an
indemnified party, then, except to the extent that contribution is
not permitted under Section 11(f) of the Securities Act, each
indemnifying party, in lieu of indemnifying such indemnified party
thereunder, hereby agrees to contribute to the amount paid or
payable by such indemnified party in such proportion as is
appropriate to reflect the relative fault of the indemnifying party
on the one hand and of the indemnified party on the other. The
parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7.10(d) were determined by pro
rata allocation or by any other method of allocation that does not
take into account the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of
this Section 7.10(d), no indemnifying party that is a selling Holder
shall be required to contribute any amount in excess of the amount
by which the net proceeds received by such selling Holder from the
sale of Registrable Securities exceeds the amount of any damages
that such selling Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The indemnity and contribution agreements
contained in this Section 7.10 are in addition to any liability that
the indemnifying parties may have to the indemnified parties.
(e) The obligations of the Company and Holders under this
Section 7.10 shall survive the completion of any offering of
Registrable Securities in a registration statement under this
Section 7, and otherwise.
7.11 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Investors purchasing Shares hereunder the benefits
of Rule 144 promulgated under the Securities Act and any other rule or
regulation of the SEC that may at any time permit a Holder to sell
securities of the Company to the public without registration, the Company
agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after
ninety (90) days after the effective date of the first registration
statement filed by the Company for the offering of its securities to
the general public;
- 25 -
26
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and
the Exchange Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written
statement by the Company that it has complied with the reporting
requirements of SEC Rule 144 (at any time after ninety (90) days
after the effective date of the first registration statement filed
by the Company), the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements),
and (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the
Company.
7.12 Form S-3 Registration. In case the Company shall receive
written request or requests from Holders of the Registrable Securities
then outstanding, that the Company effect a registration on Form S-3 and
any related qualification or compliance with respect to all or a part of
the Registrable Securities owned by such Holder or Holders, the Company
will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all
other Holders of Registrable Securities; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as
would permit or facilitate the sale and distribution of all such
portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the
Registrable Securities of any other Holder or Holders joining in
such request as are specified in a written request given within 20
days after effectiveness of such written notice from the Company
pursuant to Section 9.6 hereof; provided, however, that the Company
shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 7.12: (i) if
Form S-3 is not available for such offering by the Holders; (ii) if
the Holders, together with the holders of any other securities of
the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at
any aggregate price to the public of less than $1,000,000; (iii) if
the Company shall furnish to the Holders a certificate signed by the
Chief Executive Officer of the Company stating that in the good
faith judgment of the Board of Directors of the Company it would be
seriously detrimental to the Company and its stockholders for such
Form S-3 Registration to be effected at such time, in which event
the Company shall have the right to defer the filing of the Form S-3
Registration Statement for a period of not more than one hundred
twenty (120) days after receipt of the request of the Holder or
Holders under this Section 7.12; provided, however, that the Company
shall not utilize this right more than once in any 12 month period;
(iv) if the Company within the twelve
- 26 -
27
month period preceding the date of such request, already has
effected one registration on Form S-3 for the Holders pursuant to
this Section 7.12 or within the 48 month period preceding the date
of such request already has effected five such registrations and
other similar provisions granting rights to the registration on Form
S-3; or (v) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration,
qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable
after receipt of the request or requests of the Holders. All
expenses, other than underwriting discounts and commissions,
incurred in connection with requested pursuant to Section 7.12,
including (without limitation) all other registration, filing,
qualification, printer's and accounting fees shall be borne by the
selling Holders of Registrable Securities.
7.13 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 7 may
be assigned by a Holder to a transferee or assignee who (i) is not a
competitor of the Company and acquires at least fifty thousand (50,000)
shares (as adjusted for stock splits, combinations, etc.) of Registrable
Securities, (ii) is an Investor as defined hereunder, or (iii) is a
partner or equity holder or an affiliate of an Investor (or a third party
duly authorized to act on behalf of an Investor or its partners or equity
holders), provided that such partner or equity holder or affiliate has
appointed such Investor (or such duly authorized third party) as its
lawful attorney-in-fact to receive notices, vote and otherwise make
binding decisions under the terms of this Section 7; provided, in each
case, the Company is, within thirty days of such transfer, furnished with
written notice of the name and address of such transferee or assignee and
the securities with respect to which such registration rights are being
assigned; and provided, further, that such assignment shall be effective
only if immediately following such transfer the further disposition of
such securities by the transferee or assignee is restricted under the
Securities Act.
7.14 "Market Stand-Off" Agreement. Each Holder of Registrable
Securities hereby agrees that it shall not, to the extent requested by the
Company and an underwriter of Common Stock (or other securities) of the
Company, sell or otherwise transfer or dispose of any securities of the
Company (other than securities registered in the offering) whether or not
acquired by such Holder under this Agreement during a reasonable and
customary period of time (not to exceed one hundred twenty (120) days), as
agreed to by the Company and the underwriters, following the effective
date of a registration statement of the Company filed under the Securities
Act; provided, however, that:
(a) such agreement shall be applicable only to the first
such registration statement of the Company which covers shares (or
securities) to be sold on its behalf to the public in an
underwritten offering; and
- 27 -
28
(b) all officers and directors of the Company, holders of 5%
or more of the Company's issued and outstanding capital stock and
all other persons with registration rights (whether or not pursuant
to this Agreement) similarly agree not to sell or transfer.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such reasonable and customary period.
7.15 Amendment of Registration Rights. Any provision of this
Section 7 may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the
holders of at least 66-2/3% of the Registrable Securities. Any amendment
or waiver effected in accordance with this paragraph shall be binding upon
each holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities are
convertible), each future holder of all such securities, and the Company.
7.16 Rights That May Be Granted to Subsequent Investors.
(a) Within the limitations prescribed by this paragraph (a),
but not otherwise, the Company may grant to subsequent investors in
the Company rights of incidental registration (such as those
provided in Section 7.3). Such rights may only pertain to shares of
Common Stock, including shares of Common Stock into which any other
securities may be converted. Such rights may be granted with respect
to (i) registrations actually requested by Initiating Holders
pursuant to Section 7.2 or by Series A Holders pursuant to Section
7.2 of the Series A Purchase Agreement, but only in respect of that
portion of any such registration as remains after inclusion of all
registrable securities requested by Holders and Series A Holders,
and (ii) registrations initiated by the Company, but only in respect
of that portion of such registration as is available under the
limitations set forth in Section 7.8 (which limitations shall apply
pro-rata to all Holders and Series A Holders) and such rights shall
be limited in all cases to sharing pro-rata in the available portion
of the registration in question with Holders and the Series A
Holders, such sharing to be based on the number of shares of Common
Stock held by the respective Holders and the Series A Holders and
held by such other investors, plus the number of shares of Common
Stock into which other securities held by the Holders and Series A
Holders and such other investors are convertible, which are entitled
to registration rights. With respect to registrations which are for
underwritten public offerings, "available portion" shall mean the
portion of the underwritten shares which is available as specified
in clauses (i) and (ii) of the third sentence of this paragraph (a).
Shares not included in such underwriting shall not be registered.
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29
(b) The Company may not grant to subsequent investors in the
Company rights of registration upon request (such as those provided
in Section 7.2) unless (i) such rights are limited to shares of
Common Stock, (ii) all Holders and the Series A Holders are given
enforceable contractual rights to participate in registrations
requested by such subsequent investors on a pro-rata basis with such
subsequent investors such participation to be on a pro-rata basis,
and subject to the limitations, described in the final three
sentences of paragraph (a) of this Section 7.16, (iii) such rights
shall not become effective prior to one hundred eighty (180) days
after the effective date of the first registration pursuant to
Section 7.2 and (iv) such rights shall not be more favorable than
those granted to the Holders.
7.17 Termination of Registration Rights. The Company's obligations
pursuant to this Section 7 shall terminate with respect to each Holder of
Registrable Securities on the earlier to occur of (i) four years from the
date of consummation of the Company's sale of its Common Stock in a bona
fide, firm commitment underwriting pursuant to a registration statement on
Form S-1 under the Securities Act at a price equal to or greater than
$2.70 per share which results in gross offering proceeds to the Company of
at least $15,000,000 or (ii) such time as such Holder is eligible to sell
all of its Registrable Securities pursuant to Rule 144 (other than
pursuant to Rule 144(k)) under the Securities Act in a single three (3)
month period provided that the Company has been continually subject to the
reporting requirements of the Exchange Act for at least two years
immediately prior to the time of such sale.
8. Covenants.
8.1 Delivery of Financial Statements. The Company shall deliver to
each Investor for as long as such Investor (together with its affiliates)
holds not less than 100,000 Preferred Shares (or Common Stock into which
such Preferred Shares have been converted), as adjusted for stock splits,
stock dividends, reclassifications and similar events:
(a) as soon as practicable, but in any event within one
hundred twenty (120) days after the end of each fiscal year of the
Company, an income statement for such fiscal year, a balance sheet
of the Company as of the end of such year, and a cash flow
statement, such year-end financial reports to be in reasonable
detail, prepared in accordance with generally accepted accounting
principles ("GAAP") audited by independent public accountants of
recognized national standing; and
(b) within forty-five (45) days of the end of each quarter,
a statement of operations, cash flow analysis and balance sheet for
and as of the end of such quarter, in reasonable detail; such
quarterly statements shall also compare actual performance to budget
and to the prior year's comparable period.
- 29 -
30
8.2 Inspections. The Company shall permit each Investor or its
authorized representatives, at such Investor's expense, to visit and
inspect the Company's properties, to examine its books of account and
records and to discuss the Company's affairs, finances and accounts with
its officers, all at such reasonable times as may be requested by the
investor; provided, however, that the Company shall not be obligated
pursuant to this Section 8.2 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential
information.
8.3 Director Elected by Holders of Series B Preferred Stock. The
Investors will consult with the Company with respect to any director
elected from time to time by the holders of Series B Preferred Stock and
will make reasonable efforts to elect a director acceptable to the
Company.
8.4 Termination of Covenants. The covenants set forth in Section
8.1 and 8.2 shall terminate and be of no further force or effect when the
sale of securities pursuant to a registration statement filed by the
Company under the Securities Act in connection with the firm commitment
underwritten offering of its securities to the general public is
consummated or when the Company first becomes subject to the periodic
reporting requirements of section 13(a) or 15(d) of the Exchange Act,
whichever event shall first occur.
8.5 Insurance. The Company shall keep and maintain in full force
and effect (i) fire and casualty insurance policies, with extended
coverage, reasonably sufficient in amount to allow it to replace any of
its properties that might be damaged or destroyed and (ii) general
liability insurance in amounts customary for entities in similar business
and at a similar stage of development.
8.6 Litigation. The Company will proceed with the Action (as
defined in Item 2.7 of the Schedule of Exceptions) in the manner described
in the Schedule of Exceptions.
8.7 Co-Sale Rights. ▇▇▇▇▇▇▇▇▇ agrees that during the period ending
on the Company's initial public offering of securities or immediately
after the closing of the sale or merger of the Company (where the Company
is not the surviving entity and where there is a change of control), he
will not sell any shares of ▇▇▇▇▇▇▇▇▇'▇ Common Stock without notifying the
Investors twenty (20) or more days prior to the closing of such sale and
permitting the Investors and the holders of the Series A Preferred Stock
then entitled to similar rights to participate (through the sale of shares
of Common Stock) in such sale on a pro-rata basis, treating ▇▇▇▇▇▇▇▇▇'▇
Common Stock and all of the Preferred Shares (on an as converted to Common
Stock basis) and such Series A Preferred Stock (on an as converted to
Common Stock basis) as a group. Each Investor must notify ▇▇▇▇▇▇▇▇▇ in
writing that such Investor will participate in such sale (and sell such
Investor's shares of Common Stock in strict accordance with the terms and
conditions of such sale as described in the notice) on or before ten (10)
business days before the anticipated closing of such sale, or such
Investor will have no right to participate in such sale. This Section
- 30 -
31
8.7 shall not pertain to any transfers by ▇▇▇▇▇▇▇▇▇ to his ancestors,
descendants or spouse or to trusts for the benefit of such persons, or any
bona fide gift by ▇▇▇▇▇▇▇▇▇; provided, however, any shares of ▇▇▇▇▇▇▇▇▇'▇
Common Stock transferred in a transaction described in this sentence shall
continue to be subject to the same co-sale obligations set forth in this
Section 8.7 as if ▇▇▇▇▇▇▇▇▇ continued to own such shares.
8.8 Qualified Small Business Status. The Company shall use it best
efforts not to and shall not knowingly, without the prior written consent
or affirmative vote or written consent of the holders of at least a
majority of the total outstanding shares of Series B Preferred Stock who
purchased such shares of Series B Preferred Stock from the Company
pursuant to this Agreement, voting separately as a class, take any action
affecting, or permit any action, other than a Permitted Action (as defined
below), to affect, the capital structure (including purchases of its own
stock) or operation of its business which would cause the Preferred Shares
not to qualify as "qualified small business stock" under Code Section
1202. As used in this Agreement, "Permitted Action" shall mean a merger of
the Company with or into any other corporation or corporations (other than
a mere reincorporation transaction), a sale of all or substantially all of
the assets of the Company or a transaction or series of related
transactions in which the Company issues shares representing more than 50%
of the voting power of the Company immediately after giving effect to such
transaction.
9. Miscellaneous.
9.1 Survival of Warranties; Indemnification. The warranties,
representations and covenants of the Company and the Investors contained
in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing and shall in no way be affected
by any investigation of the subject matter thereof made by or on behalf of
the Investors or the Company. The Company agrees to indemnify and hold
harmless each Investor from any losses or damages (including without
limitation reasonable attorneys fees) suffered arising out of a breach of
any representation, warranty or covenant of the Company under this
Agreement.
9.2 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, including permitted transferees of
the Preferred Shares and the Common Stock into which it has been
converted. 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.
9.3 Governing Law. This Agreement shall be governed by and
construed under the internal substantive laws (but not the choice of law
rules) of the State of California.
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32
9.4 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.
9.5 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.
9.6 Notices. Except as otherwise expressly provided herein, any
notice required or permitted hereunder shall be given in writing and it or
any certificates or other documents delivered hereunder shall be deemed
effectively given or delivered (as the case may be) upon personal delivery
(professional courier permissible) or when mailed by receipted United
States certified mail delivery, five (5) business days after deposit in
the United States mail. Such certificates, documents or notice may be
personally delivered or sent to the following address: (a) if to a
Investor, to the address set forth with respect to such investor on
Exhibit B-2 attached hereto, or to such other address of which such
investor shall have given notice pursuant hereto the Company, or (b) if to
the Company, to CyberSource Corporation, ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or to such other address of which the Company shall have
given notice pursuant hereto.
9.7 Finder's Fee. Each Investor severally agrees to indemnify and
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 such
investor or any of its officers, partners, employees or representatives is
responsible. The Company agrees to indemnify and hold harmless each
Investor 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.
9.8 Expenses. Each party to this Agreement shall bear its own
expenses incurred in connection with the negotiation, preparation,
execution and consummation of this Agreement, including the fees, expenses
and disbursements of its respective legal counsel incurred in connection
herewith except that the Company will pay the reasonable fees and
disbursements of one counsel (not to exceed $25,000) for the Investors.
9.9 Amendments and Waivers. Except as specified in Section 7.14,
any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the holders of at least 66-2/3% of shares of
the Common Stock issued or issuable upon conversion of the Preferred
Shares; provided, however, the conditions to Closing set forth in Section
5 hereof may only be amended by unanimous agreement of the Investors.
9.10 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be
excluded from this
- 32 -
33
Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance
with its terms.
9.11 Aggregation of Stock. All Preferred Shares (or Common Stock
issued on conversion thereof) held or acquired by affiliated entities or
persons shall be aggregated together for the purpose of determining the
availability of any rights under this Agreement.
9.12 Confidentiality Agreement. Each Investor and any successor or
assign of such Investor who receives from the Company or its agents,
directly or indirectly, any information which the Company has not made
generally available to the public, pursuant to the preparation and
execution of this Agreement or disclosure in connection therewith or
pursuant to the provisions of Section 8 hereof, acknowledges and agrees
that such information is confidential and for its use only in connection
with evaluating its investment in the Company, and further agrees that it
will not disseminate such information to any person other than its
accountant, investment advisor or attorney and that such dissemination
shall be only for purposes of evaluating its investment.
9.13 Enforcement.
(a) Remedies at Law or in Equity. If the Company or any
Investor shall default in any of its obligations under this
Agreement or if any representation or warranty made by or on behalf
of the Company or any Investor, as the case may be, in this
Agreement or in any certificate, report or other instrument
delivered under or pursuant to any term hereof shall be untrue or
misleading in any material respect as of the date of this Agreement
or as of the Closing or as of the date it was made, furnished or
delivered, the Company or such Investor may proceed to protect and
enforce its rights, including by way of suit in equity or action at
law, whether for the specific performance of any term contained in
this Agreement or the Restated Articles of the Company or for an
injunction against the breach of any such term or in furtherance of
the exercise of any power granted in this Agreement or such Restated
Articles, or for damages or to enforce any other legal or equitable
right of such Investor (including Investor's right to
indemnification under Section 9.1) or to take any one or more of
such actions. In the event such an action is brought, the prevailing
party in such dispute shall be entitled to recover from the losing
party all fees, costs and expenses of enforcing any right of such
prevailing party under or with respect to this Agreement or the
Restated Articles of the Company, including without limitation such
reasonable fees and expenses of attorneys and accountants, which
shall include, without limitation, all fees, costs and expenses of
appeals.
(b) Remedies Cumulative; Waiver. No remedy referred to
herein is intended to be exclusive, but each shall be cumulative and
in addition to any other remedy referred to above or otherwise
available to the Company or any Investor at law or in equity. No
express or implied waiver by the Company or any Investor
- 33 -
34
of any default shall be a waiver of any future or subsequent default
as to such party. The failure or delay of the Company or any party
in exercising any rights granted it hereunder shall not constitute a
waiver of any such right and any single or partial exercise of any
particular right by such party shall not exhaust the same or
constitute a waiver of any other right provided herein.
9.14 Entire Agreement. This Agreement and the other documents and
agreements delivered pursuant hereto constitute the full and entire
understanding and agreement among the parties with regard to the subjects
hereof and thereof and supersedes any prior agreements (including any
memorandum of understanding or letters of intent) between the parties
regarding the subject matter hereof.
- 34 -
35
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Solely with respect to the agreements "Company"
made in Sections 7.1 - 7.17 and 8.7
hereof:
CYBERSOURCE CORPORATION, a California
corporation
___________________________________ By: ___________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President and Chief Executive
Officer
"Investors"
VULCAN VENTURES, INC.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
By: ________________________________
Name: ________________________________
Title: ________________________________
BVP INVESTORS I, L.L.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
By: ________________________________
Name: ________________________________
Title: ________________________________
▇▇▇▇▇▇ INDUSTIRES, INC.
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
By: ________________________________
Name: ________________________________
Title: ________________________________
- 35 -
36
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ AS TRUSTEE
FOR THE ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ TRUST
c/o Duchossois Industries, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
By: ________________________________
Name: ________________________________
Title: ________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ AS TRUSTEE FOR THE
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ REVOCABLE TRUST
c/o Duchossois Industries, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
By: ________________________________
Name: ________________________________
Title: ________________________________
PACIFIC ASSET PARTNERS
▇▇▇ ▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
By: ________________________________
Name: ________________________________
Title: ________________________________
----------------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
c/o ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
- 36 -
37
RAINBOW TRADING PARTNERS, LTD.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
By: ________________________________
Name: ________________________________
Title: ________________________________
RAINBOW TRADING VENTURE PARTNERS, L.P.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
By: ________________________________
Name: ________________________________
Title: ________________________________
▇▇▇▇▇▇ INC.
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
By: ________________________________
Name: ________________________________
Title: ________________________________
WILBLAIRCO ASSOCIATES, L.P.
c/o ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Company, L.L.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
By: ________________________________
Name: ________________________________
Title: ________________________________
- 37 -
38
EXHIBIT B-1
SCHEDULE OF INVESTORS
"INVESTORS" PURCHASE PRICE NO. OF SHARES PURCHASED
Vulcan Ventures, Inc. $ 2,500,000.20 925,926
BVP Investors I, L.L.C. $ 1,174,999.50 435,185
▇▇▇▇▇▇ Industries, Inc. $ 250,001.10 92,593
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ as Trustee for $ 124,999.20 46,296
the ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ Trust
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ as Trustee for $ 124,999.20 46,296
the ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ Revocable
Trust
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇. $ 99,999.90 37,037
Rainbow Trading Partners, Ltd. $ 99,999.90 37,037
Rainbow Trading Venture Partners, L.P. $ 99,999.90 37,037
Pacific Asset Partners $ 150,001.20 55,556
▇▇▇▇▇▇ Inc. $ 250,001.10 92,593
Wilblairco Associates, L.P. $ 625,001.40 231,482
TOTAL $ 5,500,002.60 2,037,038
-i-
39
EXHIBIT B-2
VULCAN VENTURES, INC.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
WITH A COPY TO:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
Irell & ▇▇▇▇▇▇▇
1800 Avenue of the Stars
▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
BVP INVESTORS I, L.L.C.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
WITH A COPY TO:
▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (312) 861-2200
-i-
40
▇▇▇▇▇▇ INDUSTRIES, INC..
Mr. ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ INC.
Mr. ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
TRUSTEE FOR ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ TRUST
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
c/o Duchossois Industries, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
TRUSTEE FOR THE ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ REV. TRUST
▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
c/o Duchossois Industries, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
-ii-
41
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Ms. ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
RAINBOW TRADING PARTNERS, LTD.
Ms. ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
RAINBOW TRADING VENTURE PARTNERS, L.P.
Ms. ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
WILBLAIRCO ASSOCIATES, L.P.
▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
c/o ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Company, L.L.C.
▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
-iii-
42
PACIFIC ASSET PARTNERS
▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
-iv-