CONFORMED COPY
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PRT GROUP INC.
PREFERRED STOCK PURCHASE AGREEMENT
SERIES A CONVERTIBLE PREFERRED STOCK
dated as of November 21, 1996
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TABLE OF CONTENTS
Page
ARTICLE I Purchase and Sale of Stock...................................... 1
Section 1.1 Sale and Issuance of Preferred Stock.................... 1
Section 1.2 Closing................................................. 1
ARTICLE II Representations and Warranties of the Company.................. 2
Section 2.1 Organization, Good Standing and Qualification........... 2
Section 2.2 Capitalization and Voting Rights........................ 2
Section 2.3 Subsidiaries............................................ 6
Section 2.4 Authorization........................................... 6
Section 2.5 Valid Issuance of Preferred and Common Stock............ 6
Section 2.6 Governmental Consents................................... 7
Section 2.7 Litigation; Compliance with Laws........................ 7
Section 2.8 Patents and Trademarks.................................. 8
Section 2.9 Proprietary Information of Third Parties................ 8
Section 2.10 Compliance with Other Instruments....................... 9
Section 2.11 Other Agreements........................................ 10
Section 2.12 Disclosure.............................................. 10
Section 2.13 Title to Property and Assets; Leases.................... 11
Section 2.14 Changes................................................. 12
Section 2.15 Employee Benefit Plans.................................. 14
Section 2.16 Tax Returns, Payments and Elections..................... 14
Section 2.17 Insurance............................................... 15
Section 2.18 Labor Agreements and Actions............................ 16
Section 2.19 Financial Statements.................................... 16
Section 2.20 Absence of Undisclosed Liabilities...................... 17
Section 2.21 Other Agreements........................................ 17
Section 2.22 Loans and Advances...................................... 19
Section 2.23 Employees; Officers..................................... 20
Section 2.24 [Reserved].............................................. 20
Section 2.25 Environmental Protection................................ 20
Section 2.26 Foreign Corrupt Practices Act........................... 22
Section 2.27 Federal Reserve Regulations............................. 22
Section 2.28 Offering of the Shares.................................. 22
Section 2.29 Returns................................................. 23
Section 2.30 Related-Party Transactions.............................. 23
Section 2.31 Permits................................................. 23
Section 2.32 Manufacturing and Marketing............................. 23
Section 2.33 Registration Rights..................................... 24
Section 2.34 Minute Books............................................ 24
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Page
ARTICLE III Covenants of the Company...................................... 24
Section 3.1 Financial Statements, Reports, Etc...................... 24
Section 3.2 Properties, Business, Insurance......................... 27
Section 3.3 Inspection, Consultation and Advice..................... 27
Section 3.4 Restrictive Agreements Prohibited....................... 28
Section 3.5 Transactions with Affiliates............................ 28
Section 3.6 Expenses of Directors................................... 29
Section 3.7 Board of Directors Meetings............................. 29
Section 3.8 By-laws................................................. 29
Section 3.9 Performance of Contracts................................ 30
Section 3.10 Employee Agreements..................................... 30
Section 3.11 Compliance with Laws.................................... 30
Section 3.12 Keeping of Records and Books of Account................. 30
Section 3.13 Compensation and Audit Committees....................... 30
Section 3.14 Corporate Existence..................................... 31
Section 3.15 Limitations of Certain Rights........................... 31
Section 3.16 Survival................................................ 31
Section 3.17 Use of Proceeds......................................... 31
Section 3.18 Preemptive Rights....................................... 31
Section 3.19 Reservation of Shares................................... 34
Section 3.20 Co-Sale Rights.......................................... 34
Section 3.21 Increase in Expenses.................................... 38
Section 3.22 Use of Name and Management Responsibility............... 38
Section 3.23 Right of First Offer From Founders...................... 38
Section 3.23 Board Size.............................................. 40
ARTICLE IV Representations, Warranties and Covenants of the Investors..... 40
Section 4.1 Authorization........................................... 40
Section 4.2 Purchase Entirely for Own Account....................... 40
Section 4.3 Disclosure of Information............................... 41
Section 4.4 Restricted Securities................................... 41
Section 4.5 Further Limitations on Disposition...................... 41
Section 4.6 Legends................................................. 42
Section 4.7 Accredited Investor..................................... 43
Section 4.8 [Reserved].............................................. 43
Section 4.9 No Sales to Competitors................................. 43
Section 4.10 Notification of Investor Sales of Securities............ 43
ARTICLE V Conditions of Each Investor's Obligations at Closing............ 43
Section 5.1 Representations and Warranties.......................... 43
Section 5.2 Compliance Certificate.................................. 43
Section 5.3 Proceedings and Documents............................... 44
Section 5.4 Opinion of Company Counsel.............................. 44
Section 5.5 Performance............................................. 44
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Page
Section 5.6 Purchase by Other Investors............................. 44
Section 5.7 Supporting Documents.................................... 44
Section 5.8 Certificate of Incorporation............................ 45
Section 5.9 Employee Agreements..................................... 45
Section 5.10 By-Laws................................................. 45
Section 5.11 Fees of Investors' Counsel.............................. 45
ARTICLE VI Conditions of the Company's Obligations at Closing............. 46
ARTICLE VII Registration Rights........................................... 46
Section 7.1 Definitions............................................. 46
Section 7.2 Demand for Registration................................. 47
Section 7.3 Company Registration.................................... 49
Section 7.4 Obligations of the Company.............................. 50
Section 7.5 Furnish Information..................................... 52
Section 7.6 Expenses of Demand Registration......................... 52
Section 7.7 Expenses of Company Registration........................ 53
Section 7.8 Underwriting Requirements............................... 53
Section 7.9 Delay of Registration................................... 54
Section 7.10 Indemnification......................................... 54
Section 7.11 Reports Under Securities Exchange Act of 1934........... 58
Section 7.12 Form S-3 Registration................................... 58
Section 7.13 Assignment of Registration Rights....................... 60
Section 7.14 Limitations on Subsequent Registration Rights........... 60
Section 7.15 Amendment of Registration Rights........................ 61
Section 7.16 Termination of Registration Rights...................... 61
ARTICLE VIII Miscellaneous................................................ 61
Section 8.1 Survival of Warranties.................................. 61
Section 8.2 Successors and Assigns.................................. 61
Section 8.3 Governing Law........................................... 62
Section 8.4 Counterparts; Facsimile Counterparts.................... 62
Section 8.5 Titles and Subtitles.................................... 62
Section 8.6 Notices................................................. 62
Section 8.7 Finder's Fee............................................ 62
Section 8.8 Expenses................................................ 63
Section 8.9 Amendments and Waivers.................................. 63
Section 8.10 Severability............................................ 63
Section 8.11 Entire Agreement........................................ 64
Section 8.12 Disclosure Required under the Laws of Certain
States and Foreign Countries............................ 64
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Schedule 1.1 - Investors................................................ 69
Schedule 2.1 - Organization, Good Standing and Qualifications........... 70
Schedule 2.2(c) - Capitalization........................................... 71
Schedule 2.11 - Other Agreements......................................... 73
Schedule 2.13 - Title to Property and Assets; Leases..................... 74
Schedule 2.14 - Changes.................................................. 75
Schedule 2.15 - Employee Benefit Plans................................... 76
Schedule 2.16 - Tax Matters.............................................. 77
Schedule 2.21 - Other Agreements......................................... 78
Schedule 2.23 - Executive Officers and
Key Employees of the Company............................. 80
Schedule 2.28 - Offering of the Shares................................... 81
Schedule 2.30 - Related-Party Transactions............................... 82
Exhibit A - Certificate of Incorporation
Exhibit B - Form of Employee Agreement (Executive Officers)
Exhibit C - Form of Employee Agreement (Key Employees)
Exhibit D - Form of Opinion of Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇
Exhibit E - Form of Stock Option Plan
Exhibit F - Form of Certificate of Amendment to the Certificate of
Incorporation
Exhibit G - Form of Unit Purchase Agreement
Exhibit H - Certificate of Incorporation of Total Technology Solutions
Limited
Exhibit I - Certificate of Incorporation of PRT Software Services
(India) Pvt. Ltd.
Exhibit J - Certificate of Incorporation of PRT Europe Limited
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PREFERRED STOCK PURCHASE AGREEMENT
THIS PREFERRED STOCK PURCHASE AGREEMENT is made as of the 15th day of
November 1996 (the "Agreement"), by and among PRT Group Inc., a Delaware
corporation (the "Company"), and the investors listed on Schedule 1.1 hereto,
each of which is herein referred to as an "Investor." Any reference herein to
an "Investor" shall further include all mutual funds or other pooled investment
vehicles or entities under the control or management of such Investor, or the
general partner or investment advisor thereof, or any affiliate of any of the
foregoing.
THE PARTIES HEREBY AGREE AS FOLLOWS:
ARTICLE I
Purchase and Sale of Stock
Section 1.1 Sale and Issuance of Preferred Stock. Subject to the terms
and conditions of this Agreement each Investor agrees, severally and not
jointly, to purchase at the Closing (as defined below) and the Company agrees
to sell and issue to each such Investor at the Closing, the number of shares
(the "Shares"), of the Company's Series A Convertible Preferred Stock, par
value $.01 per share (the "Series A Preferred Stock"), set forth opposite such
Investor's name on Schedule 1.1 hereto for a price equal to $65.62 per Share
and an aggregate purchase price as set forth opposite such Investor's name
thereon, such consideration to be payable by certified or bank cashier's check
in immediately available funds or by wire transfer payable to the order of the
Company.
Section 1.2 Closing. The closing of the purchase and sale of the
Shares shall be on a date by mutual agreement of the parties but, without the
consent of the Company, in no event later than November 30, 1996 and shall take
place at the offices of Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (which time and place are designated as the
"Closing"). At the Closing, the Company shall deliver to each Investor
certificates representing the number of Shares such Investor is purchasing as
specified on Schedule 1.1 hereto.
ARTICLE II
Representations and Warranties of the Company
The Company, on behalf of itself and each of its Subsidiaries (as
hereinafter defined), hereby represents, warrants and covenants to each
Investor that:
Section 2.1 Organization, Good Standing and Qualification. The Company
and each Subsidiary (as defined herein) is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and each has all requisite corporate power and authority
necessary to own and operate its properties and to carry on its business as now
conducted and as proposed to be conducted as described in the Confidential
Offering Memorandum of the Company dated July 15, 1996 (the "Memorandum"). The
Company has the corporate power and authority to execute, deliver and perform
this Agreement, to issue, sell and deliver the Shares, and to issue and deliver
the Common Stock, $.01 par value per share ("Common Stock"), of the Company
issuable upon conversion of the Shares (the "Conversion Shares"). Except as set
forth on Schedule 2.1 attached hereto, the Company and each Subsidiary 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, affairs, financial condition, properties or prospects.
Section 2.2 Capitalization and Voting Rights. The authorized capital
of the Company consists, or will consist immediately prior to the Closing, of:
(a) Preferred Stock. Five hundred thousand (500,000) shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock"), consisting
of (i) two hundred seventy five thousand nine hundred and sixty one (275,961)
shares of Series A Convertible Preferred Stock, $.01 par value per share, none
of which have been issued, and (ii) two hundred twenty four thousand and thirty
nine(224,039) shares of undesignated preferred stock, none of which have been
issued. The rights, privileges and preferences of the Series A Preferred Stock
are as stated in the Company's Certificate of Amendment to the Certificate of
Incorporation dated as of November 21, 1996 attached hereto as Exhibit F (the
"Certificate of Amendment").
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(b) Common Stock. 5,000,000 shares of Common Stock, of which
1,053,750 shares are outstanding as of the date hereof and were duly and
validly issued, and are fully paid and non-assessable, with no personal
liability attaching to the ownership thereof; provided that, on the date
hereof, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ is selling 48,631 shares of Common Stock to SMALLCAP
World Fund, Inc. pursuant to the Common Stock and Warrant Unit Purchase
Agreement, dated as of the date hereof, by and among the Company, ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ and certain investors, as set forth therein, (the "Unit Purchase
Agreement") a form of which is attached hereto as Exhibit G, and ▇▇▇▇▇ ▇▇▇▇▇ is
selling 6,095 shares of Common Stock to the Company. An appropriate number of
shares of Common Stock have been reserved for issuance upon the (i) exercise of
options issued, and issuable, pursuant to the Company's 1996 Stock Incentive
Plan (the "Option Plan"), a copy of which is attached hereto as Exhibit E (ii)
conversion of the Series A Preferred Stock and (iii) conversion of the warrants
(the "Warrants") issued pursuant to the Unit Purchase Agreement. The term
"Units", as used herein, shall mean the Units sold by the Company pursuant to
the Unit Purchase Agreement.
(c) Options, Warrants, etc. The stockholders of record and
holders of subscriptions, warrants, options, convertible securities, and other
rights (contingent or otherwise) to purchase or otherwise acquire equity
securities of the Company and each Subsidiary, and the number of shares of
equity securities and the number of such subscriptions, warrants, options,
convertible securities, and other such rights held by each, are as set forth in
the attached Schedule 2.2(c).
The designations, powers, preferences, rights, qualifications,
limitations and restrictions in respect of each class and series of authorized
capital stock of the Company are as set forth in the Company's Certificate of
Incorporation dated as of September 18, 1996 attached hereto as Exhibit A (the
"Certificate of Incorporation"), and all such designations, powers,
preferences, rights, qualifications, limitations and restrictions are valid,
binding and enforceable and in accordance with all applicable laws (subject, as
to enforcement, to the discretion of the courts in awarding equitable relief
and to applicable bankruptcy, reorganization, insolvency, moratorium and
similar laws affecting the rights of creditors generally). Except as provided
for in this Agreement, the Unit Purchase Agreement, or as set forth in the
attached Schedule 2.2(c), (i) no person
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owns of record, or is known to the Company to own beneficially, any share of
Common Stock or Preferred Stock, (ii) no subscription, warrant, option,
convertible security or other right (contingent or otherwise) to purchase or
otherwise acquire equity securities of the Company is authorized or outstanding
and (iii) there is no commitment by the Company to issue shares, subscriptions,
warrants, options, convertible securities, or other such rights or to
distribute to holders of any of its equity securities, any evidence of
indebtedness or asset.
The designations, powers, preferences, rights, qualifications,
limitations and restrictions in respect of each class and series of authorized
capital stock of each of the Subsidiaries of the Company are as set forth in
the corporate constituent documents attached hereto as Exhibits H, I and J, all
such designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable and in accordance with all
applicable laws (subject, as to enforcement, to the discretion of the courts in
awarding equitable relief and to applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting the rights of creditors
generally). Except as provided for in the attached Schedule 2.2(c), (i) no
person owns of record, or is known to the Company to own beneficially, any
share of capital stock of such Subsidiary, (ii) no subscription, warrant,
option, convertible security or other right (contingent or otherwise) to
purchase or otherwise acquire equity securities of the Subsidiaries is
authorized or outstanding and (iii) there is no commitment by the Company or
any Subsidiary to issue shares, subscriptions, warrants, options, convertible
securities, or other such rights or to distribute to holders of any of the
equity securities, any evidence of indebtedness or asset of any Subsidiary.
(d) Outstanding Agreements. The Company and each Subsidiary has
no obligation (contingent or otherwise) to pay any dividend or make any other
distribution in respect of any of its capital stock. Except as set forth on
Schedule 2.2(c) hereto, the Company and each Subsidiary is not a party to, and
to the Company's knowledge there are no voting trusts or agreements,
stockholders' agreements, pledge agreements, buy-sell agreements, rights of
first refusal or proxies relating to any securities of the Company or any
Subsidiary (whether or not the Company or any Subsidiary is a party thereto).
All of the outstanding securities of the Company and each Subsidiary were
issued in compliance
4
with all applicable federal and state securities laws. Except as set forth in
the certificate of incorporation for the Company and each Subsidiary or in this
Agreement, the Company and each Subsidiary has no obligation (contingent or
otherwise) to repurchase, redeem or otherwise acquire any shares of its capital
stock, except as set forth in Section 2.2(b) hereof.
(e) Series A Board Members. The Company's Certificate of
Incorporation provides that, or on the date of the Closing will provide that,
(i) prior to an Initial Public Offering (as defined below) and (ii) after an
Initial Public Offering and until the Investors shall hold, in the aggregate,
less than 60% of the total number of Shares purchased hereunder and shares of
Common Stock or other securities into which such Shares have been converted,
the Company's Board of Directors shall include two members elected solely by
the Investors voting as a separate class (the "Series A Board Members"). One of
such Series A Board Members may be elected by The Travelers Insurance Company,
and one of such Series A Board Members may be elected by Tudor (as defined
below), at their respective sole option, each for so long as The Travelers
Insurance Company or Tudor, respectively, continues to hold securities of the
Company with a liquidation preference or fair market value, whichever is lower,
in excess of 10% of the amount purchased by such Investor hereunder; the
Investors hereby agree to vote for the respective nominees of The Travelers
Insurance Company and Tudor for so long as each, respectively, may so appoint a
Series A Board Member.
For the purposes of this Agreement, the term "Initial Public
Offering" shall mean the Company's initial public offering of its Common Stock
pursuant to a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), and declared effective by the Securities and
Exchange Commission, in which the aggregate gross proceeds to the Company equal
or exceed $25,000,000 (before deducting underwriting discounts and commissions
and offering expenses) at a price per share of at least $131.24 (as
appropriately adjusted for any stock dividend, stock split or similar
recapitalization event). For the purposes of this Agreement, the term "Tudor"
shall mean Tudor Investment Corporation and its affiliates (including all
mutual funds or other pooled investment vehicles or entities under the control
or management of Tudor Investment Corporation or any of its affiliates),
collectively.
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Section 2.3 Subsidiaries. The Company has formed Total Technology
Solutions Limited ("TTSL") under the laws of Barbados, PRT Software Services
(India) Pvt. Ltd. under the laws of India and PRT Europe Limited under the laws
of the United Kingdom (the "Subsidiaries"). Other than the Subsidiaries, the
Company and each Subsidiary does not presently own or control, directly or
indirectly, any interest in any other corporation, association, or other
business entity.
Section 2.4 Authorization. All corporate action on the part of the
Company and its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and the authorization, issuance, sale and
delivery of the Shares and reservation, issuance and delivery of the Conversion
Shares has been taken or will be taken prior to the Closing, and this Agreement
constitutes a valid and legally binding obligation of the Company, enforceable
in accordance with its terms. The Company has obtained, or prior to the Closing
will have obtained, any authorization, consent or approval or other action by,
or made any filing with any court or administrative body that is required under
the applicable state securities laws in connection with the issuance of the
Shares and the conversion of the Shares.
Section 2.5 Valid Issuance of Preferred and Common Stock.
(a) The 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 non-assessable with no personal liability
attaching to the ownership thereof, and will be free and clear of all liens,
charges, restrictions, claims and encumbrances imposed by or through the
Company except as set forth in Article VII hereof and, in reliance upon the
representations of the Investors in this Agreement, will be issued in
compliance with all applicable federal and state securities laws. The
Conversion Shares have been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Certificate of Incorporation shall
be duly and validly issued, fully paid and nonassessable, with no personal
liability attaching to the ownership thereof and will be free and clear of all
liens, charges, restrictions, claims and encumbrances imposed by or through the
Company except as set forth in Article VII hereof, and shall be
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issued in compliance with all applicable federal and state securities laws, as
presently in effect.
(b) In reliance upon the representations of the Investors,
neither the offer, sale or delivery of the Shares nor the issuance and delivery
of the Conversion Shares upon conversion of the Shares in conformity with the
terms of this Agreement will violate the Securities Act, as presently in
effect.
Section 2.6 Governmental and Third Party Consents. No permit, consent,
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state or local
governmental authority or any third party on the part of the Company or any
Subsidiary is required in connection with the execution, delivery and
performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby, except for (a) filings pursuant to Regulation
D under the Securities Act, and pursuant to applicable state securities laws,
and (b) with respect to Article VII hereof, registration under the Securities
Act.
Section 2.7 Litigation; Compliance with Laws. There is no action,
suit, proceeding or investigation pending or currently threatened against the
Company or any Subsidiary which questions the validity of this Agreement or the
right of the Company to execute and deliver 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,
condition, affairs or prospects of the Company or any Subsidiary, financial or
otherwise, or any change in the current equity ownership of the Company, nor is
the Company or any Subsidiary aware that there is any basis for the foregoing.
The Company and each Subsidiary is not in default under the material provisions
of any law, regulation or order, is not under any order of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality wherever located, and there are no (i)
claims, actions, suits or proceedings pending, or to its knowledge threatened
against or affecting the Company or any Subsidiary at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality wherever located; (ii)
arbitration proceedings relating to the Company or any Subsidiary pending under
collective bargaining agreements or otherwise; or (iii)
7
governmental inquiries pending or, to the Company's or any Subsidiary's
knowledge, threatened against or affecting the Company or any Subsidiary
(including without limitation any inquiry as to the qualification of the
Company or any Subsidiary to hold or receive any license or permit). The
Company and each Subsidiary has not taken any action which has resulted in, or
is reasonably likely to result in, the Company or any Subsidiary incurring any
liability which may be material to its business, prospects, financial
condition, operations, property or affairs, other than as reflected in
financial statements at September 30, 1996. There is no action or suit by the
Company or any Subsidiary pending or threatened against others.
Section 2.8 Patents and Trademarks. The Company and its Subsidiaries
have sufficient title and ownership of, or license rights to, or have applied
for, all patents, patent applications, trademarks, trademark applications,
service marks, service ▇▇▇▇ applications, trade names, copyrights, trade
secrets, information, proprietary rights and processes (collectively,
"Intellectual Property") necessary for their business as now conducted and as
proposed to be conducted as described in the Memorandum. No claim is pending
or, to the Company's or any Subsidiary's knowledge, threatened to the effect
that the operations of the Company or any Subsidiary infringe upon or conflict
with the asserted rights of any other person with respect to any Intellectual
Property and the Company and each Subsidiary knows of no basis for such claim.
No claim is pending or threatened to the effect that any Intellectual Property
owned or licensed by the Company or any Subsidiary, or which the Company or any
Subsidiary otherwise has the right to use, is invalid or unenforceable by the
Company or any Subsidiary and the Company and each Subsidiary knows of no basis
for such claim. The Company and each Subsidiary have used reasonable efforts to
maintain the confidentiality of all proprietary information developed by and
belonging to them which has not been patented. To the Company's and each
Subsidiary's knowledge, all scientific and technical information developed by
and belonging to the Company or any Subsidiary which has not been patented has
been kept confidential.
Section 2.9 Proprietary Information of Third Parties. To the Company's
and each Subsidiary's knowledge, no third party has claimed that any person
employed by or under the control of the Company or any Subsidiary has (a)
violated or may be violating any of the terms or
8
conditions of his employment, non-competition or nondisclosure agreement with
such third party, (b) disclosed or may be disclosing or utilized or may be
improperly utilizing any trade secret or proprietary information or
documentation of such third party or (c) interfered or may be interfering in
the employment relationship between such third party and any of its present or
former employees and no third party has requested information from the Company
or any Subsidiary which suggests that such a claim might be contemplated. To
the Company's and each Subsidiary's knowledge, none of the execution or
delivery of this Agreement, or the carrying on of the business of the Company
or any Subsidiary by any officer, director or key employee of the Company and
each Subsidiary, or the conduct or proposed conduct of the business of the
Company and each Subsidiary as described in the Memorandum, will conflict with
or result in a breach of the terms, conditions or provisions of, or constitute
a default under, any contract, covenant or instrument under which any such
person is obligated. To the Company's and each Subsidiary's knowledge, no
person employed by or under the control of the Company or any Subsidiary has,
in connection with such person's performance of any employment or other
services rendered to the Company or any Subsidiary, employed any trade secret
or any information or documentation proprietary to any former employer, and to
the Company's and each Subsidiary's knowledge, no person employed by or under
the control of the Company or any Subsidiary has, in connection with such
person's performance of any employment or other services rendered to the
Company or any Subsidiary, violated any confidentiality obligation which such
person may have owed to any third party.
Section 2.10 Compliance with Other Instruments. The Company and each
Subsidiary are not in violation or default of any provisions of (i) its
certificate of incorporation or by-laws or (ii) any instrument, judgment,
order, writ, decree, contract or other agreement to which it is a party or by
which it is bound which violation or default would either individually or in
the aggregate have a material adverse effect on the condition, financial or
otherwise, or operation of the Company and its Subsidiaries taken as a whole,
and the Company and each Subsidiary has not received notice alleging any
material violation thereof. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby,
including but not limited to the issuance, sale and delivery of the Shares or
the Conversion Shares, will not result in any such
9
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, contract or other agreement or an
event which results in the creation of any lien, charge or encumbrance upon any
assets of the Company or any Subsidiary or the suspension, revocation,
impairment, forfeiture, or nonrenewal of any permit, license, authorization or
approval applicable to the Company or any Subsidiary, except (i) for pledges or
liens which either individually or in the aggregate are not material to the
Company and its Subsidiaries taken as a whole, or (ii) a violation or conflict
with any permit, license, authorization or approval which would not have a
material adverse effect on the condition, financial or otherwise, or operation
of the Company and its Subsidiaries taken as a whole. The Shares are not
subject to any preemptive rights.
Section 2.11 Other Agreements; Action. Except as otherwise disclosed
herein or as set forth on Schedule 2.11 attached hereto, there are no, and
within the past year there have not been any, agreements, understandings or
proposed transactions between the Company or any Subsidiary and any of their
stockholders, officers, directors, affiliates, or any affiliate thereof.
Section 2.12 Disclosure. Neither this Agreement, nor any schedule or
exhibit to this Agreement, nor the Memorandum, as amended by the disclosures
set forth in this Agreement, taken together as a whole, contains an untrue
statement of a material fact or omits a material fact necessary, in light of
the circumstances under which they were made, to make the statements contained
herein or therein not misleading; provided, that the Company has not made, and
will not make, any statement regarding the tax consequences of an investment in
the Shares or the Conversion Shares, and the Investors hereby acknowledge that
no such statement has been or will be made and such Investors have not relied
upon any disclosure (or non-disclosure) by the Company regarding such tax
consequences in making their decision to invest in the Shares or the Conversion
Shares. None of the statements, documents, certificates or other items prepared
or supplied by the Company with respect to the transactions contemplated hereby
contains an untrue statement of a material fact or omits a material fact
necessary to make the statements contained therein not misleading. There is no
fact which the Company has not disclosed to the Investors and their counsel in
writing and of which the Company is
10
aware which materially and adversely affects or could reasonably be expected to
materially and adversely affect the business, prospects, financial condition,
operations, property or affairs of the Company or any of its subsidiaries.
Section 2.13 Title to Property and Assets; Leases. The Company and
each Subsidiary owns its property and assets free and clear of all mortgages,
liens and encumbrances, except such encumbrances and liens which arise in the
ordinary course of business and do not materially impair the Company's or such
Subsidiary's ownership, or use of such property or assets or the Company's or
such Subsidiary's ability to obtain financing by using such property as
collateral. To the Company's and each Subsidiary's knowledge, there are no
condemnation, environmental, zoning or other land use regulation proceedings,
either instituted or planned to be instituted, which would adversely affect the
use or operation of the Company's or any Subsidiary's properties and assets for
their respective intended uses and purposes, or the value of such properties,
and the Company and each Subsidiary has not received notice of any special
assessment proceedings which would affect such properties and assets. With
respect to the property and assets it leases, the Company and each Subsidiary
is in compliance with such leases and, to the Company's and each Subsidiary's
knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances. The Company's and each Subsidiary's possession of such property
has not been disturbed and, to the Company's and each Subsidiary's knowledge,
no claim has been asserted against the Company or any Subsidiary adverse to its
rights in such leasehold interests. Each lease or agreement to which the
Company or any Subsidiary is a party under which it is a lessee of any
property, real or personal, is a valid and subsisting agreement of the Company
or such Subsidiary, duly authorized and entered into by the Company or such
Subsidiary, without any material default of the Company or any Subsidiary
thereunder and, to the Company's and each Subsidiary's knowledge, without any
default thereunder of any other party thereto. No event has occurred and is
continuing which, with due notice or lapse of time or both, would constitute a
default or event of default by the Company or any Subsidiary under any such
lease or agreement or, to the Company's or any Subsidiary's knowledge, by any
other party thereto. The tangible assets of the Company and each Subsidiary are
located at the premises as set forth in Schedule 2.13.
11
Section 2.14 Changes. Except as set forth on Schedule 2.14 hereof,
from December 31, 1995 until the date hereof, there has not been, and from the
date hereof until the Closing, except as set forth or contemplated on Schedule
2.14, there will not be:
(a) any adverse change in the assets, liabilities, financial
condition or operating results of the Company and each Subsidiary, except
changes in the ordinary course of business which have not been, individually or
in the aggregate, materially adverse, including the expenditure of funds for
research and development and otherwise in connection with the Company's and
each Subsidiary's operations;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company and each
Subsidiary (as such business is presently conducted and as it is proposed to be
conducted);
(c) any waiver or compromise by the Company or any Subsidiary of
a valuable right or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or any Subsidiary,
except in the ordinary course of business and which is not material to the
assets, properties, financial condition, operating results, prospects or
business of the Company (as such business is presently conducted and as it is
proposed to be conducted as described in the Memorandum);
(e) any change or amendment to a contract or arrangement by which
the Company, any Subsidiary or any of their assets or properties are bound or
subject which has a material effect on the Company and its Subsidiaries taken
as a whole, except as set forth in this Agreement;
(f) any changes in the identity of, or material information
presented in the Memorandum regarding, any of the Company's or its
Subsidiaries' officers or directors or any material increases in the
compensation, including the grant of options to purchase a material number of
shares of Common Stock, of any of the
12
Company's or any Subsidiaries' employees, officers or directors;
(g) any incurrence, assumption or guarantee by the Company or
any Subsidiary of any material obligation for borrowed money, except for
current liabilities incurred in the ordinary course of business;
(h) any mortgage, pledge, lien, charge or other encumbrance
placed on or incurred with respect to any of the Company's or any Subsidiary's
properties or assets;
(i) to the Company's knowledge, any other event or condition of
any character which can reasonably be expected to materially and adversely
affect the assets, properties, financial condition, operating results,
prospects or business of the Company and its Subsidiaries taken as a whole (as
such business is presently conducted and as it is proposed to be conducted as
described in the Memorandum);
(j) any declaration or payment of any dividend or other
distribution of the assets of the Company or any Subsidiary or any direct or
indirect redemption or other acquisition of any equity security of the Company
or any Subsidiary;
(k) except as provided in Exhibit A, any change in the authorized
capital of the Company or any Subsidiary;
(l) a sale, assignment or transfer by the Company or any
Subsidiary of any of its tangible assets except in the ordinary course of
business;
(m) a sale, assignment, transfer or grant of any exclusive
license with respect to any of the Company's or any Subsidiary's Intellectual
Property;
(n) any material change in the manner of business or operations
of the Company or any Subsidiary;
(o) any transaction with respect to the Company or any Subsidiary
except in the ordinary course of business or as otherwise contemplated hereby;
(p) any resignation or termination of employment of any executive
officer or key employee of the Company or any Subsidiary; and to the best of
the
13
Company's and each Subsidiary's knowledge, any facts that would indicate that a
key officer or employee of the Company is planning to resign or expected to be
terminated;
(q) receipt of notice that there has been a loss of, or material
order cancellation by, any major customer of the Company or any Subsidiary;
(r) any loan or guarantee made by the Company or any Subsidiary
to or for the benefit of its employees, officers, directors or stockholders, or
any members of their immediate families, other than travel advances and other
advances made in the ordinary course of its business;
(s) any commitment (contingent or otherwise) to do any of the
foregoing; or
(t) any material adverse change, or, to the best of the Company's
and each Subsidiary's knowledge, the existence of any fact that would indicate
a material adverse change is likely to occur, in the arrangements between TTSL
and the government of Barbados.
Section 2.15 Employee Benefit Plans. Except as set forth on Schedule
2.15, the Company does not have any Employee Benefit Plan as defined in the
Employee Retirement Income Security Act of 1974, as amended, other than those
providing for health and medical benefits.
Section 2.16 Tax Matters. (a) Except as set forth on Schedule 2.16
hereto, (i) the Company and each Subsidiary has filed or has had filed on its
behalf in a timely manner (within any applicable extension periods) all
material Tax Returns (as defined herein) required to be filed with respect to
Taxes (as defined herein) of the Company and each Subsidiary, and (ii) all
material Taxes with respect to the Company and each Subsidiary shown to be due
and payable on such Tax Returns or on any assessment received by the Company or
a Subsidiary, as the case may be, and all other Taxes due and payable by the
Company and each Subsidiary on or before the Closing have been paid in full or
have been adequately provided for by the Company and each Subsidiary,
respectively. The Tax Returns filed by the Company and each Subsidiary are, to
the Company's and each Subsidiary's knowledge, true and correct in all material
respects. The Company and each Subsidiary have never waived any statute of
limitations on the assessment or collection of any tax or governmen-
14
tal charge. Neither the Company nor any of its present or former stockholders
has ever filed an election pursuant to Section 1362 of the Internal Revenue
Code of 1986, as amended, that the Company be taxed as an S corporation. The
federal income tax returns of the Company have never been audited by the
Internal Revenue Service, and the tax returns of each Subsidiary have never
been subject to audit by any taxing authority.
(b) For purposes of this Agreement, (i) "Taxes" shall mean all
taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, sales, use, ad valorem, goods and services,
capital, transfer, franchise, profits, license, withholding, payroll,
employment, employee health, excise, estimated, severance, stamp, occupation,
property or other taxes, customs duties, fees, assessments or charges of any
kind whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any taxing authority and (ii) "Tax Return"
shall mean any report, return, document, declaration or other information or
filing required to be supplied to any taxing authority or jurisdiction with
respect to Taxes.
(c) PRT Corp. of America, a New York corporation ("Old PRT"), is
in the process of filing certain tax forms with respect to the merger of Old
PRT with and into the Company, with the Company surviving. Upon clearance of
such tax filings and the payment of any additional taxes due, if any, the State
of New York shall accept for filing the certificate of merger previously
submitted to the Secretary of State of the State of New York. While the Company
expects the amount of any such taxes to be sufficiently provided for in the
financial statements of the Company, the Company hereby represents and warrants
that the tax liabilities of Old PRT will not exceed $500,000 above the amount
provided for the payment of any such taxes in the financial statements of the
Company. A description of the merger is set forth on Schedule 2.16 attached
hereto.
Section 2.17 Insurance. The Company and each Subsidiary has insured by
reputable insurers its assets that are of an insurable character against risks
of liability, casualty and fire in adequate amounts and consistent with prudent
industry practice. The Company has made, and will make, available to any
Investor, upon its request, a list of all insurance coverage carried by the
Company and its Subsidiaries, the carrier and the terms and amount of coverage.
15
Section 2.18 Labor Agreements and Actions. The Company and each
Subsidiary is not bound by or subject to (and none of their assets or
properties is bound by or subject to) any written or oral, express or implied,
contract, commitment or arrangement with any labor union, and no labor union
has requested or, to the knowledge of the Company and each Subsidiary, has
sought to represent any of the employees, representatives or agents of the
Company or any Subsidiary. There is no strike or other labor dispute involving
the Company or any Subsidiary pending, or to the Company's or any Subsidiary's
knowledge, threatened, that has had or would reasonably be expected to have a
material adverse effect on the business affairs, financial condition,
properties or prospects of the Company and its Subsidiaries taken as a whole,
nor is the Company or any Subsidiary aware of any labor organization activity
involving its employees. The Company and each Subsidiary are not aware that any
officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company or any Subsidiary, nor does the
Company or any Subsidiary have a present intention to terminate the employment
of any of the foregoing. The employment of each officer and employee of the
Company and each Subsidiary is terminable at the will of the Company or the
Subsidiary, except as provided in the Employee Agreements (as defined in
Section 2.23 hereof). To its knowledge, the Company and each Subsidiary has
complied in all material respects with all applicable state and federal equal
employment opportunity and other laws related to employment.
Section 2.19 Financial Statements. The Company has furnished to the
Investors the audited consolidated balance sheet of the Company as at December
31, 1995 and the related statements of operations, stockholders' equity and
cash flows of the Company for the period from January 1, 1995 through December
31, 1995, and the related unaudited statements of income, stockholders' equity
and cash flows of the Company for the nine months ended September 30, 1996
(collectively, the "Financial Statements"). All such Financial Statements have
been prepared in accordance with generally accepted accounting principles
consistently applied (except that such unaudited financial statements do not
contain all of the required footnotes) and fairly present the financial
position of the Company and its Subsidiaries as of September 30, 1996 and
December 31, 1995, respectively, and the results of their operations and cash
flows for the year ended December 31, 1995 and the nine months ended September
30, 1996, respectively.
16
Section 2.20 Absence of Undisclosed Liabilities. The Company does not
have any material liabilities or obligations (whether accrued, absolute,
contingent, unliquidated or otherwise, whether due or to become due) which are
not reflected in this Agreement or the Financial Statements. Except as
disclosed in the Financial Statements, the Company and each Subsidiary is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation. The Company and each Subsidiary maintain and will continue to
maintain a system of accounting established and administered in accordance with
generally accepted accounting principles.
Section 2.21 Other Agreements. Except as set forth in the attached
Schedule 2.21, the Company and each Subsidiary is not a party to or otherwise
bound by any written or oral:
(a) service, distributor, dealer, manufacturer's representative
or sales agency agreement which is not terminable on less than ninety (90)
days' notice without cost or other liability to the Company or any Subsidiary,
as applicable, except for those agreements that involve less than $50,000
individually or in the aggregate;
(b) agreement which entitles any customer to a rebate or right of
set-off, to return any product to the Company or any Subsidiary after
acceptance thereof or to delay the acceptance thereof, or which varies in any
material respect from the Company's or any Subsidiary's standard form
agreements, except for those agreements which individually or in the aggregate
do not have and are not reasonably expected to have a material adverse effect
on the business, affairs, financial condition, properties or prospects of the
Company and its Subsidiaries taken as a whole;
(c) agreement with any labor union (and, to the knowledge of the
Company and each Subsidiary, no organizational effort is being made with
respect to any of its employees);
(d) agreement containing any provision permitting any party other
than the Company or any Subsidiary to renegotiate the price or other terms, or
containing any payback or other similar provision, upon the occurrence of a
failure by the Company or any Subsidiary to meet its obligations under the
agreement when due or the occurrence of any other event, except for those
17
agreements which individually or in the aggregate do not have and are not
reasonably expected to have a material adverse effect on the business, affairs,
financial condition, properties or prospects of the Company and its
Subsidiaries taken as a whole;
(e) agreement for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment, except for those
agreements that involve less than $50,000 individually or in the aggregate;
(f) agreement for the employment of any officer, employee or
other person (whether of a legally binding nature or in the nature of informal
understandings) on a full-time or consulting basis which is not terminable on
notice without cost or other liability to the Company, except normal severance
arrangements and accrued vacation pay;
(g) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option or other plan, agreement or
understanding pursuant to which benefits are provided to any employee of the
Company or any Subsidiary (other than group insurance plans applicable to
employees generally);
(h) agreement relating to the borrowing of money or to the
mortgaging or pledging of, or otherwise placing a lien or security interest
on, any asset of the Company or any Subsidiary;
(i) guaranty of any obligation for borrowed money or otherwise;
(j) agreement, or group of related agreements with the same
party or any group of affiliated parties, under which the Company or any
Subsidiary has advanced or agreed to advance money or has agreed to lease any
property as lessee or lessor, except for those leases involving less than
$50,000 individually or $250,000 in the aggregate;
(k) assignment, license, indemnification or other agreement with
respect to any form of intangible property;
(l) agreement under which it has granted any person any
registration rights, other than this Agreement;
18
(m) agreement under which it has limited or restricted its right
to compete with any person in any respect, except for certain restrictive
covenants in contracts with customers which prevent the Company from providing
services to the competitors of such customers (for confidentiality reasons),
and which restrictions do not materially adversely affect the Company and its
Subsidiaries, taken as a whole;
(n) other agreement or group of related agreements with the same
party involving more than $50,000 or continuing over a period of more than one
year from the date or dates thereof (including renewals or extensions optional
with another party), which agreement or group of agreements is not terminable
by the Company or any Subsidiary, as applicable, without penalty upon notice of
thirty (30) days or less, but excluding any agreement or group of agreements
with a customer of the Company for the sale, lease or rental of the Company's
products or services if such agreement or group of agreements was entered into
by the Company or any Subsidiary in the ordinary course of business; or
(o) other agreement, instrument, commitment, plan or
arrangement, a copy of which would be required to be filed with the SEC as an
exhibit to a registration statement on Form S-1 if the Company or any
Subsidiary were registering securities under the Securities Act.
To the Company's and each Subsidiary's knowledge, each party other
than the Company or any Subsidiary to all such agreements listed on Schedule
2.21 has in all material respects performed the obligations required to be
performed by such party to date. The Company and each Subsidiary has no
knowledge of any material breach or anticipated material breach by any other
party to any of such agreement, instrument, commitment, plan or arrangement
listed on Schedule 2.21.
Section 2.22 Loans and Advances. The Company and each Subsidiary does
not have any outstanding loans or advances to any person and is not obligated
to make any such loans or advances, except, in each case, for advances to
employees of the Company or any Subsidiary in respect of reimbursable business
expenses anticipated to be incurred by them in connection with their
performance of services for the Company or any Subsidiary.
19
Section 2.23 Employees; Officers. Set forth in Schedule 2.23 is a list
of the names of the executive officers and key employees of the Company and
each Subsidiary, together with the title or job classification of each such
person and the total compensation anticipated to be paid to each such person by
the Company and its Subsidiaries in 1996. Each of the executive officers and
each key employee employed by the Company and each Subsidiary has executed an
Employee Agreement substantially in the form of Exhibit B (in the case of
executive officers) or Exhibit C (in the case of key employees) (collectively,
the "Employee Agreements"), and such agreements are in full force and effect.
Each of the persons listed on Schedule 2.23 shall agree in their respective
Employee Agreement, to, among other things, dedicate substantially their full
working schedule to the Company or the Subsidiary, as applicable, and not to
pursue outside business activities during the Company's or any Subsidiary's
business hours, consistent with the Company's or such Subsidiary's personnel
policies, as they exist on the date hereof, until such person shall no longer
be employed by the Company or such Subsidiary. No executive officer or key
employee of the Company or any Subsidiary has advised the Company or any
Subsidiary (orally or in writing) that he or she intends to terminate
employment with the Company or such Subsidiary.
The Company and each Subsidiary has complied in all material respects
with all applicable laws relating to the employment of labor, including
provisions relating to wages, hours, equal opportunity, collective bargaining
and the payment of Social Security and other taxes, and with the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Neither the
Company, any Subsidiary nor any entity required to be aggregated with the
Company under Sections 414(b), (c), (m) or (n) of the Code sponsors, maintains,
has any obligation to contribute to, has any liability under, or is otherwise a
party to, any Benefit Plan. For purposes of this Agreement, "Benefit Plan"
shall mean any plan, fund, program, policy, arrangement or contract, whether
formal or informal, which is in the nature of (i) an employee pension benefit
plan (as defined in Section 3(2) of ERISA) or (ii) an employee welfare benefit
plan (as defined in Section 3(1) of ERISA).
Section 2.24 [Reserved]
Section 2.25 Environmental Protection. The Company and each Subsidiary
has not caused or allowed, or
20
contracted with any party for, the generation, use, transportation, treatment,
storage or disposal of any Hazardous Substances (as defined below) in
connection with the operation of its business or otherwise. The Company and
each Subsidiary, the operation of their business, and, to the knowledge of the
Company and each Subsidiary any real property that the Company or any
Subsidiary leases or otherwise occupies or uses (the "Premises") are in
compliance with all applicable Environmental Laws (as defined below) and orders
or directives of any governmental authorities having jurisdiction under such
Environmental Laws, including, without limitation, any Environmental Laws or
orders or directives with respect to any cleanup or remediation of any release
or threat of release of Hazardous Substances. The Company and each Subsidiary
has not received any citation, directive, letter or other communication,
written or oral, or any notice of any proceeding, claim or lawsuit, from any
person arising out of the ownership or occupation of the Premises, or the
conduct of its operations, and the Company and each Subsidiary is not aware of
any basis therefor. The Company and each Subsidiary has obtained and is
maintaining in full force and effect all necessary permits, licenses and
approvals required by all Environmental Laws applicable to the Premises and the
business operations conducted thereon (including operations conducted by
tenants on the Premises), and is in compliance with all such permits, licenses
and approvals. The Company and each Subsidiary has not caused or allowed a
release, or a threat of release, of any Hazardous Substance unto, at or near
the Premises, and, to the Company's and each Subsidiary's knowledge, neither
the Premises nor any property at or near the Premises has ever been subject to
a release, or a threat of release, of any Hazardous Substance. For the purposes
of this Agreement, the term "Environmental Laws" shall mean any federal, state,
local or foreign law, ordinance or regulation pertaining to the protection of
human health or the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Sections 9601, et seq., the Emergency Planning and Community Right-to-Know Act,
42 U.S.C. Sections 11001, et seq. and the Resource Conservation and Recovery
Act, 42 U.S.C. Sections 6901, et seq. For purposes of this Agreement, the term
"Hazardous Substances" shall include oil and petroleum products, asbestos,
polychlorinated biphenyls, urea formaldehyde and any other materials classified
as hazardous or toxic under any Environmental Laws.
21
Section 2.26 Foreign Corrupt Practices Act. The Company and each
Subsidiary has not taken any action which would cause it to be in violation of
the Foreign Corrupt Practices Act of 1977, as amended, or any rules and
regulations thereunder. To the Company's and each Subsidiary's knowledge, there
is not now, and there has never been, any employment by the Company or any
Subsidiary of, or beneficial ownership in the Company or any Subsidiary by, any
governmental or political official in any country in the world.
Section 2.27 Federal Reserve Regulations. The Company is not engaged
in the business of extending credit for the purpose of purchasing or carrying
margin securities (within the meaning of Regulation G of the Board of Governors
of the Federal Reserve System), and no part of the proceeds of the Shares will
be used to purchase or carry any margin security or to extend credit to
others for the purpose of purchasing or carrying any margin security or in any
other manner which would involve a violation of any of the regulations of the
Board of Governors of the Federal Reserve System.
Section 2.28 Offering of the Shares. Except as set forth in Schedule
2.28, neither the Company, any Subsidiary nor any person authorized or employed
by the Company or any Subsidiary as agent, broker, dealer or otherwise in
connection with the offering or sale of the Shares or any security of the
Company similar to the Shares has offered the Shares or any such similar
security for sale to, or solicited any offer to buy the Shares or any such
similar security from, or otherwise approached or negotiated with respect
thereto with, any person or persons, and neither the Company, any Subsidiary
nor any person acting on their behalf has taken or will take any other action
(including, without limitation, any offer, issuance or sale of any security of
the Company under circumstances which might require the integration of such
security with the Shares under the Securities Act or the rules and regulations
of the Commission thereunder), in either case so as to subject the offering,
issuance or sale of the Shares, Conversion Shares or other securities into
which such Shares have been converted, to the registration provisions of the
Securities Act. Except as set forth in Schedule 2.28, the Company has no
contract, arrangement or understanding with any broker, finder or similar agent
with respect to the transactions contemplated by this Agreement.
22
Section 2.29 Returns. The Company and the Subsidiaries have not had
any of their products returned by the purchasers thereof, which returns
collectively taken together have had or would reasonably be expected to have a
material adverse effect on the business, affairs, financial condition,
properties or prospects of the Company and the Subsidiaries taken as a whole.
Section 2.30 Related-Party Transactions. Except as set forth in
Schedule 2.30 attached hereto, no employee, officer, director or stockholder of
the Company or any Subsidiary or member of his or her immediate family is
indebted to the Company or any Subsidiary, nor is the Company or any Subsidiary
indebted (or committed to make loans or extend or guarantee credit) to any of
them. To the Company's and each Subsidiary's knowledge, none of such persons
has any direct or indirect ownership interest in any firm or corporation with
which the Company or any Subsidiary is affiliated or with which the Company or
any Subsidiary has a business relationship, or any firm or corporation that
competes with the Company or any Subsidiary, except that employees, officers,
directors or stockholders of the Company and the Subsidiaries and members of
their immediate families may own stock in publicly traded companies that may
compete with the Company and the Subsidiaries. Except for the MARS Agreement
between the Company and ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, no member of the
immediate family of any employee, officer, director or stockholder of the
Company or any Subsidiary is directly or indirectly interested in any material
contract with the Company or any Subsidiary.
Section 2.31 Permits. The Company and each Subsidiary have 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 has had
or would reasonably be expected to have a material adverse effect on business,
affairs, financial condition, properties or prospects of the Company and its
Subsidiaries taken as a whole, and the Company and each Subsidiary 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 and each
Subsidiary are not in default in any material respect under any of such
franchises, permits, licenses, or other similar authority.
Section 2.32 Manufacturing and Marketing Rights. The Company and each
Subsidiary have not granted rights to manufacture, produce, assemble, license,
mar-
23
ket, or sell its products to any other person and is not bound by any agreement
that affects the Company's or any Subsidiary's exclusive right to develop,
manufacture, assemble, distribute, market or sell its products.
Section 2.33 Registration Rights. Except for certain registration
rights granted to ▇.▇. ▇▇▇▇▇▇ Ventures Corporation and its affiliates pursuant
to the Registration Rights Agreement, dated July 16, 1996, between TTSL and
▇.▇. ▇▇▇▇▇▇ Ventures Corporation, and as provided herein and in the Unit
Purchase Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
Section 2.34 Minute Books. The minute books of the Company and each
Subsidiary provided to the Investors contain a summary of all meetings of
directors and stockholders since the time of incorporation and reflect all
transactions referred to in such minutes accurately in all material respects.
ARTICLE III
Covenants of the Company
Section 3.1 Financial Statements, Reports, Etc.
(a) The Company shall furnish to each Investor, as soon as
available but in no case later than ninety (90) days after the end of each
fiscal year of the Company, a consolidated balance sheet of the Company and its
subsidiaries as of the end of such fiscal year and the related consolidated
statements of income, stockholders' equity and cash flows for the fiscal year
then ended, prepared in accordance with generally accepted accounting
principles and certified by a firm of independent public accountants of
recognized national standing selected by the Board of Directors of the Company;
provided, that if the Company is subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company
may satisfy its obligations under this Section 3.1(a) by providing to each
Investor a copy of the Company's Annual Report on Form 10-K or 10-KSB and any
proxy statement and other annual report to shareholders provided to other
shareholders of the Company, as applicable.
24
(b) The Company shall furnish to each Investor purchasing Shares
with an original aggregate purchase price in excess of $1,000,000 who continues
to hold securities of the Company with an aggregate liquidation preference (if
applicable) or a fair market value in excess of $500,000 (each such Investor, a
"Qualifying Investor") as soon as available, but in no case later than:
(i) forty-five (45) days after the end of each fiscal
quarter in each fiscal year (other than the last fiscal quarter in each fiscal
year), a consolidated balance sheet of the Company and its subsidiaries and the
related consolidated statements of income, stockholders' equity and cash flows,
unaudited but prepared in accordance with generally accepted accounting
principles and certified by the Chief Financial Officer of the Company, such
consolidated balance sheet to be as of the end of such fiscal quarter and such
consolidated statements of income, stockholders' equity and cash flows to be
for such fiscal quarter and for the period from the beginning of the fiscal
year to the end of such fiscal quarter, in each case with comparative
statements for the corresponding period of the prior fiscal year; provided,
that if the Company is subject to the reporting requirements of the Exchange
Act the Company may satisfy its obligations under this Section 3.1(b) by
providing each Qualifying Investor with a copy of the Company's quarterly
report on Form 10-Q or 10-QSB and any Form 8-K filed in such fiscal quarter, as
applicable.
(ii) thirty (30) days after the end of each month in each
fiscal year (other than after the last month in each fiscal year and the last
month in each fiscal quarter of each fiscal year), a consolidated balance sheet
of the Company and its subsidiaries and the related consolidated statements of
income, stockholders' equity and cash flows, unaudited but prepared in
accordance with generally accepted accounting principles and certified by the
Chief Financial Officer of the Company, such consolidated balance sheet to be
as of the end of such month and such consolidated statements of income,
stockholders' equity and cash flows to be for such month and for the period
from the beginning of the fiscal year to the end of such month, in each case
with comparative statements for the prior fiscal year, provided that the
Company's obligations under this Section 3.1(b) shall terminate upon the
completion of an Initial Public Offering (as defined below).
25
For the purposes of this Agreement, the term "Initial Public Offering"
shall mean the Company's initial public offering of its Common Stock pursuant
to a registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), declared effective by the Securities and Exchange
Commission, in which the aggregate gross proceeds to the Company equal or
exceed $25,000,000 (before deducting underwriting discounts and commissions and
offering expenses) at a price per share of at least $131.24 (as appropriately
adjusted for any stock dividend, stock split or similar recapitalization
event).
(c) Until the completion of an Initial Public Offering, as soon
as available but in no case later than 30 days prior to the start of each
fiscal year (except fiscal year 1997, for which such information shall be
delivered by February 1, 1997), the Company shall deliver to each Qualifying
Investor consolidated capital and operating expense budgets (including such
information, and variations from budget, with respect to the prior fiscal
year), cash flow projections and income and loss projections and a business
plan for the Company and its subsidiaries in respect of such fiscal year which
have been approved by the Company's Board of Directors, all itemized in
reasonable detail and prepared on a monthly basis, and, promptly after
preparation, any major revisions to any of the foregoing.
(d) Until the completion of an Initial Public Offering, the
Company shall furnish to each Qualifying Investor:
(i) promptly upon sending, making available or filing the
same, all press releases, reports and financial statements that the Company
sends or makes available to its stockholders or files with the SEC; and
(ii) promptly, from time to time, such other information
regarding the business, prospects, financial condition, operations, property or
affairs of the Company and its subsidiaries as such Qualifying Investor
reasonably may request.
All such financial statements, reports or other information (other
than publicly available information) provided to any Investor pursuant to this
Section 3.1 shall be deemed to be confidential information of the Company. Each
Investor agrees to use reasonable efforts to prevent the disclosure of such
confidential informa-
26
tion to any other person (excluding its and its subsidiaries' and affiliates'
officers, employees, agents or counsel) except (i) as may be necessary or
desirable in connection with a request by a governmental agency, regulatory or
supervisory authority or court having or claiming jurisdiction over such
Investor including, without limitation, the National Association of Insurance
Commissioners, or as otherwise required by applicable law, (ii) information
obtained from a third party which is not subject to the provisions of any
confidentiality agreement in favor of the Company, (iii) in connection with the
enforcement of such Investor's rights hereunder or under the Certificate of
Incorporation and (iv) disclosure to other Investors.
Section 3.2 Properties, Business, Insurance. The Company shall
maintain and cause each of its subsidiaries to maintain as to their respective
properties and businesses, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies similarly situated, which insurance
shall be deemed by the Company to be sufficient. The Company shall also
maintain in effect "key person" life insurance policies, payable to the
Company, on the lives of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ (so
long as each, respectively, remains an employee of the Company), in the amount
of $2,250,000 each, with the Company as beneficiary. The Company shall not
cause or permit any assignment or change in beneficiary and shall not borrow
against any such policy. If requested by Investors holding at least a majority
of the outstanding Shares the Company will add one designee of such Investors
as a notice party for each such policy and shall request that the issuer of
each policy provide such designee with ten (10) days' notice before such policy
is terminated (for failure to pay premiums or otherwise) or assigned or before
any change is made in the beneficiary thereof.
Section 3.3 Inspection, Consultation and Advice. Until the completion
of an Initial Public Offering, the Company shall permit and cause its
subsidiaries to permit each Qualifying Investor and such persons as it may
designate and reasonably acceptable to the Company, at such Qualifying
Investor's expense, to visit and inspect any of the properties of the Company
and its subsidiaries, examine their books and make copies and extracts
therefrom, discuss the affairs, finances and accounts of the Company and its
subsidiaries with their executive officers, key employees and public
accountants
27
(and the Company hereby authorizes said accountants to discuss with such
Qualifying Investor and such designees such affairs, finances and accounts),
all at reasonable times and upon reasonable notice, and with due regard for the
Company's ongoing operations; provided, that the Investors shall have no right
to receive any confidential information from any customer of the Company or its
Subsidiaries; provided, further, that no information shall be supplied
hereunder to the extent that such information is subject to confidentiality
provisions in a given customer's contract with the Company. Any information or
documentation (other than publicly available information) provided to any such
Qualifying Investor or any such designee pursuant to this Section 3.3 shall be
deemed to be confidential information of the Company. Each Qualifying Investor
agrees to use reasonable efforts to prevent the disclosure of such confidential
information to any other person (excluding its and its subsidiaries' and
affiliates' officers, employees, agents or counsel) except (i) as may be
necessary or desirable in connection with a request by a governmental agency,
regulatory or supervisory authority or court having or claiming jurisdiction
over such Qualifying Investor including, without limitation, the National
Association of Insurance Commissioners, or as otherwise required by applicable
law, (ii) information obtained from a third party which is not subject to the
provisions of any confidentiality agreement in favor of the Company, (iii) in
connection with the enforcement of such Qualifying Investor's rights hereunder
or under the Certificate of Incorporation and (iv) disclosure to other
Qualifying Investors.
Section 3.4 Restrictive Agreements Prohibited. Neither the Company nor
its subsidiaries shall become a party to any agreement which by its terms
restricts the Company's performance of this Agreement or the Certificate of
Incorporation.
Section 3.5 Transactions with Affiliates. Except for the arrangements
between the Company and TTSL, and the transactions contemplated by this
Agreement or as otherwise approved by the Board of Directors, neither the
Company nor any of its subsidiaries shall enter into any transaction with any
director, officer, employee or holder of more than 5% of the outstanding
capital stock of any class or series of capital stock of the Company or any of
its subsidiaries, member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or member of the
family of any such person, is a director, officer, trustee,
28
partner or holder of more than 5% of the outstanding capital stock thereof,
except for transactions on customary terms related to such person's employment.
Section 3.6 Expenses of Directors. The Company shall promptly
reimburse in full each director of the Company if he or she is not an employee
of the Company for all of his or her reasonable out-of-pocket expenses incurred
in attending each meeting of the Board of Directors of the Company or any
Committee thereof.
Section 3.7 Board of Directors Meetings. The Company shall use its
best efforts to ensure that meetings of its Board of Directors are held at
least four times each year and at least once each quarter. The Company shall
provide to each Qualifying Investor copies of all notices, reports (including
all materials distributed at the meeting and in the board books), minutes and
consents at the time and in the manner as they are provided to the Board of
Directors or committee, except for information reasonably designated as
proprietary information by the Board of Directors. Any information or
documentation (other than publicly available information) provided to any such
Qualifying Investor pursuant to this Section 3.7 shall be deemed to be
confidential information of the Company. Each Qualifying Investor agrees to use
reasonable efforts to prevent the disclosure of such confidential information
to any other person (excluding its and its subsidiaries' and affiliates'
officers, employees, agents or counsel) except (i) as may be necessary or
desirable in connection with a request by a governmental agency, regulatory or
supervisory authority or court having or claiming jurisdiction over such
Qualifying Investor including, without limitation, the National Association of
Insurance Commissioners, or as otherwise required by applicable law, (ii)
information obtained from a third party which is not subject to the provisions
of any confidentiality agreement in favor of the Company, (iii) in connection
with the enforcement of such Qualifying Investor's rights hereunder or under
the Certificate of Incorporation and (iv) disclosure to other Qualifying
Investors.
Section 3.8 By-laws. The Company shall at all times cause its By-laws
to provide that the number of directors fixed in accordance therewith shall in
no event conflict with any of the terms or provisions of the Series A Preferred
Stock as set forth in the Certificate of Incorporation. The Company shall at
all times maintain provisions in its By-laws and/or Certificate of
29
Incorporation indemnifying all directors against liability and absolving all
directors from liability to the Company and its stockholders to the maximum
extent permitted under the laws of the State of Delaware.
Section 3.9 Performance of Contracts. The Company shall not amend,
modify, terminate, waive or otherwise alter, in whole or in part, any of the
Employee Agreements (as defined in Section 3.10 hereof) without the affirmative
vote of both of the Series A Board Members.
Section 3.10 Employee Agreements. The Company shall obtain, and shall
cause its Subsidiaries to obtain, an Employee Agreement in substantially the
form of Exhibit B or Exhibit C hereto, as applicable, from all future executive
officers and key employees of the Company or any of its Subsidiaries upon their
employment by the Company or any of such subsidiaries (the executive officer
and key employee Employee Agreements shall be collectively referred to herein
as the "Employee Agreements").
Section 3.11 Compliance with Laws. The Company shall comply, and use
its best efforts to cause each Subsidiary to comply, with all applicable laws,
rules, regulations and orders, noncompliance with which could materially
adversely affect its business or condition, financial or otherwise.
Section 3.12 Keeping of Records and Books of Account. The Company
shall keep, and use its best efforts to cause its subsidiaries to keep,
adequate records and books of account, in which complete entries will be made
in accordance with generally accepted accounting principles consistently
applied, reflecting all financial transactions of the Company and such
subsidiary.
Section 3.13 Compensation and Audit Committees. The Company shall, by
amending its By-laws or otherwise, establish and maintain a Compensation
Committee and an Audit Committee of the Board of Directors, each of which shall
consist of three directors, two of whom (on each Committee) may be directors
elected solely by the holders of Common Stock or appointed by the members of
the Board of Directors (provided that one of such two committee members is not
an employee or Founder (as hereinafter defined) of the Company) and one of whom
(on each Committee) shall be a Series A Board Member. No additional employee
stock option plan, or employee stock purchase plan, employee restricted stock
plan or other
30
employee stock plan shall be established without the approval of the
Compensation Committee. The Audit Committee shall select (subject to the
approval of the Board of Directors) and provide instructions to the Company's
auditors.
Section 3.14 Corporate Existence. The Company shall maintain its
corporate existence, rights and franchises in full force and effect.
Section 3.15 Limitations of Certain Rights. For purposes of
determining the number of Shares or Conversion Shares held by any Investor
under this Agreement, all affiliated holders of Shares or Conversion Shares
shall be treated as if such affiliated holders were a single Investor;
provided, that each such group of affiliated holders of Shares or Conversion
Shares shall designate a single representative who shall be granted authority
to (i) receive all notices and other information required to be provided to
such Investors, and (ii) exercise all rights of an Investor (or Qualifying
Investor, as applicable) on behalf of such group of affiliated holders. For the
purposes of this Section 3.15, "affiliates" shall include all mutual funds or
other pooled investment vehicles or entities under the control or management of
any Investor (including, without limiting the foregoing, the affiliated
investment vehicles of Tudor or its affiliates).
Section 3.16 Survival. Except for Sections 3.1, 3.18, 3.20, 3.22 and
3.23 hereof, the covenants set forth in Article III of this Agreement, to the
extent applicable to an Investor, shall survive with respect to each Investor
until the date such Investor no longer holds securities of the Company with an
aggregate liquidation preference (if applicable) or a fair market value of at
least $500,000.
Section 3.17 Use of Proceeds. The proceeds of the sale of the Offering
shall be used for the purposes stated in the Memorandum including, without
limitation, marketing, expansion, product development, acquisitions and general
operations.
Section 3.18 Preemptive Rights. Subject to the terms and conditions
specified in this Section 3.18, each time the Company proposes to offer any
shares of, or securities convertible into, or exchangeable or exercisable for
any shares of, its capital stock (whether newly issued or treasury stock), the
Company shall make an
31
offering of such securities to each Investor in accordance with the following
provisions:
(a) The Company shall deliver a notice ("Notice") to each
Investor stating (i) its bona fide intention to offer such securities, (ii) the
number of such securities to be offered, and (iii) the price and terms, if any,
upon which it proposes to offer such securities.
(b) By written notification received by the Company, within
twenty (20) calendar days after giving of the Notice, each Investor (including
its affiliates) may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to that portion of such securities which equals the
proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion of the Shares then held, by such Investor bears to the
total number of shares of Common Stock of the Company then outstanding
(assuming full conversion of all convertible securities and the exercise of all
outstanding options, warrants or rights to purchase Common Stock or other
securities convertible into or exercisable for shares of Common Stock
exercisable as of the date of such Notice) ("Pro Rata Share"). The Company
shall promptly, in writing, inform each Investor and holder of Units (a "Unit
Holder") that purchases all of such securities available to it (a
"Fully-Exercising Investor") of any other Investor's or Unit Holder's failure
to do likewise. During the ten-day period following delivery of such
information, each Fully-Exercising Investor shall be entitled to purchase that
portion of such securities for which Investors or Unit Holders were entitled to
subscribe but which were not subscribed by the Investors or Unit Holders which
is equal to the proportion that the number of shares of Common Stock issued and
held, or issuable upon conversion of the Shares then held, by such
Fully-Exercising Investor bears to the total number of shares of Common Stock
then outstanding (assuming full conversion of all convertible securities
(including the Warrants) and the exercise of all options, warrants or rights to
purchase Common Stock or other securities convertible into or exercisable for
shares of Common Stock) then held by all Fully-Exercising Investors and Unit
Holders ("Proportional Share"). If any Investor or Unit Holder fails to
purchase its Pro Rata Share or Proportional Share, any affiliate of such
Investor may purchase the shares available to, but not purchased by, such
Investor.
32
(c) If all securities referred to in the Notice which Investors
are entitled to obtain pursuant to Section 3.18(b) are not elected to be
obtained as provided in Section 3.18(b) hereof, the Company may, during the
sixty (60) day period following the expiration of the last notice provision
provided in Section 3.18(b) hereof, offer the remaining unsubscribed portion of
such securities to any person or persons at a price not less than, and upon
terms no more favorable to the offeree than those specified in the Notice. If
the Company does not enter into an agreement for the sale of such securities
within such period, or if such agreement is not consummated within sixty (60)
days of the execution thereof, the right provided hereunder shall be deemed to
be revived and such securities shall not be offered unless first re-offered to
the Investors in accordance herewith.
(d) The preemptive right in this Section 3.18 shall not be
applicable to:
(i) Shares of Common Stock issuable or issued to employees,
advisors, consultants or outside directors of the Company directly or pursuant
to a stock option plan or restricted stock plan approved by the Board of
Directors of the Company, the total number of such shares not to exceed 130,200
(appropriately adjusted for stock splits, stock dividends or similar
recapitalizations);
(ii) Common Stock, or securities convertible into, or
exchangeable or exercisable for shares of Common Stock, issued or issuable in
connection with bona fide research, licensing or corporate partnering
relationships, in connection with equipment lease financing, or in connection
with non-convertible debt financing with institutional lenders, in each case
approved by a majority of the Board of Directors of the Company including both
of the Series A Board Members; provided, that such issuances of Common Stock
are for other than primarily equity financing purposes;
(iii) Common Stock issued or issuable upon conversion of
the Shares or the Warrants issued pursuant to the Unit Purchase Agreement;
(iv) Common Stock issued or issuable in connection with a
merger or consolidation as a result of which the holders of the Company's
outstanding securities immediately prior to the consummation of such
transaction hold voting securities in excess of fifty percent
33
(50%) of the voting power of the surviving or resulting entity; or
(v) Common Stock issued in an Initial Public Offering.
(e) No holder shall be entitled to exercise any preemptive right
provided for in this Section 3.18 after the effective date of the registration
statement filed with respect to the Company's Initial Public Offering.
(f) The preemptive rights set forth in this Section 3.18 may be
assigned or transferred by an Investor to a transferee or assignee of any of
its shares of capital stock of the Company, provided such transferee or
assignee agrees in writing to be bound by and subject to the terms and
conditions of this Agreement.
Section 3.19 Reservation of Shares. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, sufficient numbers of such duly authorized securities for the purpose of
effecting the exercise of the conversion of the Shares and otherwise complying
with the terms of this Agreement. If at any time the number of authorized but
unissued shares of such securities shall not be sufficient to effect the
exercise of the conversion of the Shares or otherwise to comply with the terms
of this Agreement, the Company will forthwith take such corporate action as may
be necessary to increase its authorized but unissued shares of such securities
to such number of shares as shall be sufficient for such purposes. The Company
will obtain any authorization, consent, approval or other action by or make any
filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock upon conversion of the Shares.
Section 3.20 Co-Sale Rights. The ▇▇▇▇▇▇▇▇▇ Group, L.L.C., ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall be referred to as the "Founders." If any
Founder (a "Selling Founder") shall offer to sell any of the shares of Common
Stock held by it as of the date hereof or subsequently acquired to any third
party:
(a) Such Selling Founder shall deliver a notice (a "Sale Notice")
to each Investor stating (i) its bona fide intention to offer such Common
Stock, (ii) the number of shares of Common Stock to be offered, and (iii)
34
the price and terms, if any, upon which it proposes to offer such Common Stock.
(b) By written notification received by the Selling Founder
within twenty (20) calendar days after giving of the Sale Notice, each Investor
(including its affiliates) may elect to sell, at the price and on the terms
specified in the Sale Notice, up to that portion of such Common Stock which
equals the proportion that the number of shares of Common Stock issued and held
or issuable upon conversion of the Shares then held by such Investor bears to
the total number of shares of Common Stock issued and held, or issuable upon
conversion of the Shares or Warrants then held by the Selling Founder and all
other Investors and any Unit Holders electing to participate in such sale.
The Selling Founders shall promptly, in writing, inform each Investor
and each Unit Holder that sells all of such securities available to it (a
"Fully-Selling Investor") of any other Investor's or Unit Holder's failure to
do likewise. During the ten-day period following delivery of such information,
each Fully-Selling Investor shall be entitled to sell that portion of such
securities which Investors or Unit Holders were entitled to sell but which were
not sold by the Investors or Unit Holders which is equal to the proportion that
the number of shares of Common Stock issued and held, or issuable upon
conversion of the Shares then held, by such Fully-Selling Investor bears to the
total number of shares of Common Stock then outstanding (assuming full
conversion of all convertible securities (including the Warrants) and the
exercise of all options, warrants or rights to purchase Common Stock or other
securities convertible into or exercisable for shares of Common Stock) then
held by all Fully-Selling Investors ("Co-Sale Proportional Share"). If any
Investor fails to sell its Co-sale Proportional Share, any affiliate of such
Investor may sell the shares available to, but not sold by, such Investor.
(c) Each Investor electing to participate shall effect its
participation in the sale by promptly delivering to the Selling Founder for
transfer to the prospective investor one or more certificates, properly
endorsed for transfer, which represent the number of shares of Common Stock of
the Company which such Investor elects to sell.
(d) The stock certificate or certificates that the Investor
delivers to the Selling Founder shall
35
be transferred to the prospective purchaser in consummation of the sale of the
Common Stock, pursuant to the terms and conditions specified in the Sale
Notice, and the Selling Founder shall concurrently therewith remit to such
Investor that portion of the sale proceeds to which such Investor is entitled
by reason of its participation in such sale. To the extent that any prospective
purchaser or transferee prohibits such assignment or otherwise refuses to
purchase shares or other securities from an Investor exercising its rights of
co-sale hereunder, the Selling Founders shall not sell to such prospective
purchaser or purchasers any Common Stock unless and until, simultaneously with
such sale, the Selling Founder shall purchase an equivalent number of such
shares or other securities from such Investor.
(e) After the expiration of the notice period provided in
paragraph (b) hereof, the Selling Founder may, not later than sixty (60) days
following the expiration of the notice period provided in paragraph (b) hereof,
enter into an agreement providing for the closing of the sale or transfer of
the Common Stock (including shares of Common Stock of Investors or Unit Holders
electing to participate in such sale) covered by the Sale Notice within thirty
(30) days of such agreement on terms and conditions not more favorable to the
Selling Founder than those described in the Sale Notice. Any proposed transfer
on terms and conditions more favorable to the Selling Founder than those
described in the Sale Notice, as well as any subsequent proposed transfer of
any of the Common Stock by the Selling Founder, shall again be subject to the
Co-Sale Rights of the Investors and shall require compliance by the Selling
Founder with the procedures described in this Section 3.20.
(f) In the event any Founder should sell any Common Stock in
contravention of the participation rights of the Investors under this Agreement
(a "Prohibited Transfer"), the Investors, in addition to such other remedies as
may be available at law, in equity or hereunder, shall have the put option
provided in Section 3.20(f)(i) below, and such Founder shall be bound by the
applicable provisions of such put option.
(i) In the event of a Prohibited Transfer, each Investor shall
have the right to sell to such Founder, and such Founder shall have the
obligation to purchase, a number of shares of Common Stock equal to the number
of shares that such Investor would have been entitled to transfer to the
purchaser in the Prohibited
36
Transfer pursuant to the terms hereof. Such sale shall be made on the following
terms and conditions:
(A) The price per share at which the shares are to be sold to
such Founder shall be equal to the price per share paid by the
purchaser to such Founder in the Prohibited Transfer. Such Founder
shall also reimburse each Investor for reasonable fees and expenses,
including legal fees and expenses, incurred pursuant to the exercise
or the attempted exercise of the Investor's rights under this Section
3.20.
(B) Within a period of thirty (30) days after the later of the
dates on which any Investor (i) receives notice from a Founder of the
Prohibited Transfer or (ii) otherwise becomes aware of the Prohibited
Transfer, that Investor shall, if exercising the put option created
hereby, deliver to such Founder the certificate or certificates
representing shares to be sold, each certificate to be properly
endorsed for transfer.
(C) Such Founder shall, immediately upon receipt of the
certificate or certificates for the shares to be sold by a Investor
pursuant to Section 3.20 (f)(i)(B), pay to the order of that Investor
the aggregate purchase price therefor and the reasonable amount of any
fees and expenses reimbursable under Section 3.20(f)(i)(A) (each in
immediately available funds).
(D) Notwithstanding the foregoing, any attempt to transfer shares
of the Company in violation of Section 3.20 hereof shall be void, and
the Company agrees it will not effect such a transfer nor will it
treat any alleged transferee as the holder of such shares without the
written consent of Investors having the right to amend this Agreement
as provided below.
(g) Notwithstanding the foregoing, the provisions of this Section
3.20 shall not apply to (i) a sale or sales, or other transfer or transfers, in
one or more transactions, by a Founder of up to an aggregate of five percent
(5%) of the shares of Common Stock held on the date hereof, or issuable upon
the exercise of any options held on the date hereof, by such Founder, and (ii)
the sale by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ of 56,189 shares of Common Stock to the Company on
the date hereof.
37
(h) The Co-Sale Rights set forth in this Section 3.20 may be
assigned and transferred by an Investor to a transferee or assignee of any of
its shares of capital stock of the Company, provided such transferee or
assignee agrees in writing to be bound by and subject to the terms and
conditions of this Agreement.
(i) The Co-Sale Rights set forth in this Section 3.20 shall
terminate upon the closing of an Initial Public Offering.
(j) Notwithstanding the provisions of this Section 3.20, ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ shall be permitted to sell up to 6,381 shares of Common Stock without
complying with this Section 3.20.
Section 3.21 Increase in Expenses. The approval of a majority of the
non-employee directors of the Company will be necessary for any increase in the
level of operating expenses to be made by the Company in excess of ten percent
(10%) of the aggregate operating expenses set forth in the budgets provided to
Qualifying Investors pursuant to Section 3.1(c) hereof.
Section 3.22 Use of Name and Management Responsibility. The Company
shall not use or reference the name of any Investor in any publicly available
document or communication, including but not limited to any press release,
without the prior written approval of such Investor. The Company acknowledges
that each Investor has no responsibility for managing the Company.
Section 3.23 Right of First Offer From Founders. Subject to the terms
and conditions specified in this Section 3.23, each Founder hereby grants to
each Investor a right of first offer with respect to future sales or transfers
by such Founder of his Additional Shares (as hereinafter defined).
Each time a Founder proposes to sell or transfer any shares of his
capital stock of the Company ("Additional Shares"), such Founder (a
"Transferring Founder") shall first make an offering of such Additional Shares
to each Investor in accordance with the following provisions:
(a) The Transferring Founder shall deliver a written notice (an
"ROF Notice") to the Investors stating (i) his bona fide intention to sell or
transfer such Additional Shares, (ii) the number of such Addition-
38
al Shares to be sold or transferred, and (iii) the price and terms, if any,
upon which he proposes to sell or transfer such Additional Shares.
(b) Within 20 calendar days after receipt of the ROF Notice, each
Investor may elect to purchase or obtain, at the price and on the terms
specified in the ROF Notice, up to that portion of such Additional Shares which
equals the proportion that the number of shares of Common Stock issued and
held, or issuable upon conversion of the Shares then held, by such Investor
bears to the total number of shares of Common Stock of the Company then held by
all Investors and Unit Holders (assuming full conversion of all convertible
securities and exercise of all exercisable securities). The Transferring
Founder shall promptly, in writing, inform each Investor and Unit Holder that
purchases all of such shares available to it (a "Fully-Participating Investor")
of any other Investor's or Unit Holder's failure to do likewise. During the
ten-day period following delivery of such information, each Fully-Participating
Investor shall be entitled to purchase that portion of such Additional Shares
for which Investors or Unit Holders were entitled to subscribe but which were
not subscribed by the Investors or Unit Holders which is equal to the
proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion of the Shares then held, by such Fully-Participating
Investor bears to the total number of shares of Common Stock then outstanding
(assuming full conversion of all convertible securities (including the
Warrants) and the exercise of all options, warrants or rights to purchase
Common Stock or other securities convertible into or exercisable for shares of
Common Stock) then held by all Fully-Participating Investors.
(c) If all Additional Shares which Investors are entitled to
obtain pursuant to subsection 3.23(b) are not elected to be obtained as
provided in subsection 3.23(b) hereof, the Transferring Founder may, during the
60-day period following the expiration of the period provided in subsection
3.23(b) hereof, offer the remaining unsubscribed portion of such Additional
Shares to any person or persons at a price not less than, and upon terms no
more favorable to the offeree or transferee than those specified in the ROF
Notice. If the Transferring Founder does not enter into an agreement for the
sale of the Additional Shares within such period, or if such agreement is not
consummated within 60 days of the execution thereof, the right provided
hereunder shall be
39
deemed to be revived and such Additional Shares shall not be sold or
transferred unless first reoffered to the Investors in accordance herewith.
(d) No Founder may sell or transfer any of his capital stock of
the Company without first complying with the right of first offer provisions of
this Section 3.23.
(e) The right of first offer in this Section 3.23 shall expire
upon an Initial Public Offering.
(f) The right of first offer set forth in this Section 3.23 may
be assigned or transferred by an Investor to a transferee or assignee of any of
its shares of capital stock of the Company, provided such transferee or
assignee agrees in writing to be bound by and subject to the terms and
conditions of this Agreement.
(g) Notwithstanding the provisions of this Section 3.23, ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ shall be permitted to sell up to 6,381 shares of Common Stock without
complying with this Section 3.23.
Section 3.24 Board Size. The Company hereby covenants and agrees that
the number of directors which shall comprise the Company's Board of Directors
shall not exceed nine (9) directors.
ARTICLE IV
Representations, Warranties and Covenants
of the Investors
Each of the following representations, warranties and covenants is
made by each Investor severally (as to itself) and not jointly.
Section 4.1 Authorization. Each Investor represents and warrants that
this Agreement when executed shall constitute its valid and legally binding
obligation, enforceable in accordance with its terms except as enforceability
thereof may be limited by bankruptcy, insolvency, reorganization or moratorium
or other similar laws relating to the enforcement of creditors' rights
generally and by general equitable principles.
Section 4.2 Purchase Entirely for Own Account. This Agreement is made
with each Investor in reliance
40
upon such Investor's representation to the Company, which by such Investor's
execution of this Agreement such Investor hereby confirms, that the Shares and
any Conversion Shares to be received by such Investor hereunder (collectively,
the "Securities"), 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 selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, each Investor 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 Securities. Each Investor
represents that it has full power and authority to enter into this Agreement.
Section 4.3 Disclosure of Information. Each Investor further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the sale of the Shares.
Section 4.4 Restricted Securities. Each Investor understands that the
Shares are characterized as "restricted securities" under the federal
securities laws inasmuch as such securities are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act, only in certain limited circumstances.
Section 4.5 Further Limitations on Disposition. Without in any way
limiting the representations set forth in Section 4.4 above, each Investor
further agrees not to make any disposition of all or any portion of the Shares
being purchased hereunder (or any Securities issuable upon the exercise and/or
conversion thereof) unless:
(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 and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition,
41
(ii) if reasonably requested by the Company, such Investor shall have furnished
the Company with a satisfactory opinion of counsel (which counsel may be
in-house counsel to the Investor), that such disposition will not require
registration of the Securities under the Securities Act (iii) the transferee
has agreed in writing for the benefit of the Company to be bound by this
Section 4.5, provided and to the extent such section is then applicable and
(iv) such Investor shall have complied with Section 4.10 hereof.
Notwithstanding the foregoing, the requirements of this paragraph (b) shall not
be applicable to sales of Shares or Securities made pursuant to Rule 144 under
the Securities Act.
(c) Notwithstanding the provisions of paragraphs (a) and (b)
above, no such registration statement, notice to the Company or opinion of
counsel shall be necessary for (i) a transfer by an Investor which is a
partnership to an affiliate or partner of such partnership or a retired partner
of such partnership who retires after the date hereof, or to the estate of any
such partner or retired partner or the transfer by gift, will or intestate
succession of any partner to his spouse or to the siblings, lineal descendants
or ancestors of such partner or his spouse, or (ii) a transfer by an Investor
which is a corporation to any corporate entities who are controlling,
controlled by or under common control with such Investor, or (iii) a transfer
by an Investor which is trust to a grantor of such trust or a nominee thereof,
or (iv) a transfer by an Investor to any entity which is included with in the
definition of "Investor" hereunder; provided, in any such case, that the
transferee agrees in writing to be subject to the terms hereof to the same
extent as if he were an original Investor hereunder.
Section 4.6 Legends. It is understood that the certificates evidencing
the Securities may bear a legend substantially similar to the following:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 PROMULGATED
UNDER SUCH ACT. ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO APPLICABLE STATE
SECURITIES LAWS."
42
Section 4.7 Accredited Investor. Each Investor is an Accredited
Investor within the definition set forth in Rule 501(a) under the Securities
Act.
Section 4.8 [RESERVED]
Section 4.9 No Sales to Competitors. Prior to an Initial Public
Offering, each Investor covenants not to sell any Shares or Conversion Shares
or other securities of the Company to any competitor of the Company; provided,
that no bank, investment bank, insurance company, mutual fund or other pooled
investment vehicle shall be considered a competitor of the Company hereunder.
Section 4.10 Notification of Investor Sales of Securities. Prior to an
Initial Public Offering, if any Investor shall offer to sell any of the
Securities held by it to any third party, each such Investor agrees to notify
the Company before any such sale and to inform the Company of the identity of
the proposed purchaser of such Securities.
ARTICLE V
Conditions of Each Investor's
Obligations at Closing
The obligations of each Investor under Section 1.1 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:
Section 5.1 Representations and Warranties. The representations and
warranties made by the Company in Article II hereof shall be true and correct
in all material respects when made and shall be true and correct in all
material respects on the date of the Closing, except that the number of issued
and outstanding shares of the Company's capital stock may be affected pursuant
to (A) sales of Shares pursuant to this Agreement or shares of Common Stock
pursuant to the Unit Purchase Agreement or (B) any conversions of the Shares or
Warrants.
Section 5.2 Compliance Certificate. The Chief Executive Officer of the
Company shall deliver to each Investor at the Closing a certificate certifying
that the conditions specified in Section 5.1 have been fulfilled and that there
has been no material adverse change in the
43
business, affairs, prospects, operations, properties, assets, or financial
condition of the Company and its Subsidiaries taken as a whole since the date
of the audited Financial Statements.
Section 5.3 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Investors and their counsel and such counsel shall have
received all such counterpart original and certified or other copies of such
documents as the Investors may reasonably request, including but not limited to
a copy of this Agreement executed by the Company.
Section 5.4 Opinion of Company Counsel. Each Investor shall have
received from Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇, counsel for the Company, an
opinion, dated as of the Closing, in form and substance satisfactory to the
Investors in substantially the form of Exhibit D attached hereto.
Section 5.5 Performance. The Company shall have performed and complied
with all agreements contained herein required to be performed or complied with
by it prior to or at the Closing, and the Chief Executive Officer of the
Company shall have certified to the Investors in writing to such effect and to
the further effect that all of the conditions set forth in this Article V have
been satisfied.
Section 5.6 Purchase by Other Investors. Each Investor shall have
purchased and paid for the Shares being purchased by it on the date of the
Closing.
Section 5.7 Supporting Documents. The Investors and their counsel
shall have received copies of the following documents at or prior to the
Closing:
(i) (A) the Certificate of Incorporation and Certificate of
Amendment, certified as of a recent date by the Secretary of State of the State
of Delaware and (B) a certificate of said Secretary dated as of a recent date
as to the due incorporation and good standing of the Company, the payment of
all excise taxes by the Company;
(ii) a certificate of the Secretary or an Assistant Secretary of
the Company dated the date of the
44
Closing and certifying: (A) that attached thereto is a true and complete copy
of the By-laws of the Company as in effect on the date of such certification;
(B) that attached thereto is a true and complete copy of all resolutions
adopted by the Board of Directors or the stockholders of the Company
authorizing the execution, delivery and performance of this Agreement, the
issuance, sale and delivery of the Shares, the reservation of the Conversion
Shares, the issuance and delivery of the Conversion Shares upon conversion of
the Shares and the Certificate of Amendment, and that all such resolutions are
in full force and effect and are all the resolutions adopted in connection with
the transactions contemplated by this Agreement; (C) that the Certificate of
Incorporation has not been amended since the date of the last amendment
referred to in the certificate delivered pursuant to clause (i)(B) above; and
(D) to the incumbency and specimen signature of each officer of the Company
executing this Agreement, the stock certificates representing the Shares and
any certificate or instrument furnished pursuant hereto, and a certification by
another officer of the Company as to the incumbency and signature of the
officer signing the certificate referred to in this clause (ii); and
(iii) such additional supporting documents and other
information with respect to the operations and affairs of the Company as the
Investors or their counsel reasonably may request.
Section 5.8 Certificate of Incorporation. The Certificate of
Incorporation, which shall include the Certificate of Amendment, shall read in
its entirety as set forth in Exhibit A.
Section 5.9 Employee Agreements. Copies of the Employee Agreements
shall have been delivered to counsel for the Investors.
Section 5.10 By-Laws. The By-Laws of the Company shall have been
amended as described in Section 2.2(e) hereof.
Section 5.11 Fees of Investors' Counsel. The Company shall have paid,
or shall have made provision to pay, in accordance with Section 8.8 the
reasonable fees and disbursements of counsel for The Travelers Insurance
Company invoiced at the Closing.
45
ARTICLE VI
Conditions of the Company's Obligations at Closing
The obligations of the Company to each Investor under this Agreement
are subject to the delivery on or before the Closing of the purchase price to
be paid by such Investor specified in Section 1.1.
ARTICLE VII
Registration Rights
Section 7.1 Definitions. For purposes of this Article VII:
(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 "Registered Securities" means any Registrable
Securities which have been included in an effective Registration Statement
pursuant to the terms hereof;
(c) The term "Registrable Securities" means the Common Stock (i)
held by the Founders and Management as of the Closing, (ii) issued pursuant to
the Unit Purchase Agreement (iii) into which any Shares or Warrants shall have
been (or can be) converted, (iv) for which any warrants or options issued (or
issuable) by the Company to Founders, Management or Investors have been or can
be exercised and (v) acquired by an Investor or Unit Holder through any other
means after the date hereof; provided, that, Registrable Securities shall not
include any Registrable Securities, securities convertible into Registrable
Securities or securities exercisable for securities convertible into
Registrable Securities sold by a person in a transaction in which his rights
under this Agreement are not assigned and the purchaser thereof has not assumed
the obligations of an Investor hereunder in accordance with Section 7.13
hereof; provided, however, that as to any particular security or securities
that are contained in Registrable Securities, such securities shall cease to be
Registrable Securities when (i) a registration statement with respect to the
sale of such
46
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement or (ii) such securities shall have been sold to the public pursuant
to Rule 144;
(d) The number of shares of "Registrable Securities Then
Outstanding" shall be equal to the total of (i) the number of shares of Common
Stock which has been issued, or which shall be issued, pursuant to the Unit
Purchase Agreement to Unit Holders, and (ii) the number of shares of Common
Stock issued (or issuable) upon conversion of any Shares or Warrants; provided,
however, that in each case such shares are Registrable Securities (or would be
if issued);
(e) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 7.13 hereof; and
(f) The term "Form S-3" means such form under the Securities Act
as in effect on the date hereof or any registration form under the Securities
Act subsequently adopted by the Securities and Exchange Commission ("SEC")
which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
(g) The term "Management" means the individuals set forth on
Schedule 2.23 hereof.
Section 7.2 Demand for Registration.
(a) If the Company shall receive, at any time after a date six
(6) months after the effective date of a registration statement for the Initial
Public Offering, a written request from either (i) the Management of the
Company (a "Management Demand Registration"), or (ii) the Holders of
thirty-three percent (33%) of the Registrable Securities Then Outstanding (an
"Investor Demand Registration") that the Company file a registration statement
under the Securities Act covering the registration of the shares of Registrable
Securities that are the subject of such request (a "Demand Registration"), then
the Company shall, within ten (10) days of the receipt thereof, give written
notice of such request to all Holders of Registrable Securities and shall,
subject to the limitations of Sections 7.2(d) and (e), use its best efforts to
effect as soon as practicable the registration
47
under the Securities Act in accordance with Section 7.4 hereof of all
Registrable Securities which all of the Holders request be registered within
forty-five (45) days after the mailing of such notice by the Company in
accordance with Section 8.6. Management Holders shall have piggy-back
registration rights with respect to any Investor Demand Registration, and
non-Management Holders shall have piggy-back registration rights with respect
to any Management Demand Registration, in each case subject to the provisions
of paragraph (b), below.
(b) If such Holders initiating a Demand Registration (the
"Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 7.2, and the Company
shall include such information in the written notice referred to in Section
7.2(a). In such event, the right of any Holder to include his securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's securities in the underwriting
to the extent provided herein. All Holders proposing to distribute their
securities through such underwriting shall (together with the Company as
provided in Section 7.4(e)) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders. Notwithstanding any other
provision of this Section 7.2, if the underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the number of
shares to be underwritten, then the Initiating Holders shall so advise all
Holders of Registrable Securities which would otherwise be underwritten
pursuant hereto, and the number of shares of such securities that may be
included in the underwriting shall be allocated (x) first among all of the
respective Holders thereof within the class who requested the Demand
Registration, including the Initiating Holders, whose shares are to be included
in such registration by a pro rata allocation, and then (y) among any other
persons, if any, exercising piggyback rights (including Management, in the case
of an Investor Demand Registration, or non-Management Holders, in the case of a
Management Demand Registration, as the case may be) by a pro rata allocation.
(c) The Company shall be obligated to effect only two (2)
Investor Demand Registrations under this Section 7.2, and only one (1)
Management Demand
48
Registration under this Section 7.2. For the purposes of this paragraph (c),
the exercise of piggy-back registration rights by Management with respect to an
Investor Demand Registration shall not constitute a Management Demand
Registration, and the exercise of piggy-back registration rights by
non-Management Holders with respect to a Management Demand Registration shall
not constitute an Investor Demand Registration.
(d) Notwithstanding the foregoing, if the Company shall furnish
to the Initiating 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 registration statement to be filed and it is
therefore essential to defer the filing of such registration statement, the
Company shall have the right to defer such filing for a period of not more than
ninety (90) days after receipt of the request of the Initiating Holders;
provided, however, that the Company may not utilize this right with respect to
a Demand Registration more than once in any twelve (12) month period.
(e) Notwithstanding the foregoing provisions of this Section
7.2, if at the time of any request by the Initiating Holders under this Section
7.2, the Company has fixed plans to file within sixty (60) days after such
request for the sale of any of its securities in a public offering under the
Securities Act, no registration of the Initiating Holders' securities shall be
initiated under this Section 7.2 until one hundred eighty (180) days after the
effective date of such registration unless the Company is no longer proceeding
diligently to effect such registration; provided that the Company shall provide
the Holders of Registrable Securities the right to participate in such public
offering pursuant to, and subject to, Section 7.3 hereof.
(f) A registration request pursuant to this Section 7.2 may be
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities Then Outstanding to be registered thereunder, subject to
the provisions of Section 7.6 hereof.
Section 7.3 Company Registration. If at any time after the Initial
Public Offering (but without any obligation to do so), the Company proposes to
register (including for this purpose a registration effected by the Company for
stockholders other than the Holders of
49
Registrable Securities) 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 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 any Holder given within twenty (20) days after mailing of such
notice by the Company in accordance with Section 8.6, the Company shall use its
best efforts, subject to the provisions of Section 7.8, to cause to be
registered under the Securities Act all of the Registrable Securities that
such Holder has requested to be registered (a "Piggy Back Registration");
provided, that the Company shall have the right to postpone or withdraw any
registration effected pursuant to this Section 7.3 without obligation to any
Holder.
Section 7.4 Obligations of the Company. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously and 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, 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 eighty (180) days;
provided, however, that such 180-day period shall be extended for a period of
time equal to the period the Holder refrains from selling any securities
included in such registration at the request of an underwriter of the Company.
(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 of Registered Securities such numbers
of copies of a prospectus, in-
50
cluding a preliminary prospectus, 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 Registered Securities owned by them.
(d) Use its best efforts to register and qualify the Registered
Securities under such other securities or Blue Sky laws of such jurisdictions
as shall be reasonably requested by the Holders thereof, 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.
(e) In the event of any underwritten public offering, 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.
(f) Notify each Holder of Registered Securities covered by such
registration statement in the event the Company has delivered preliminary or
final prospectuses to any such Holder and, after having done so, such
prospectus is amended to comply with the requirements of the Securities Act.
Upon such notification, such Holders shall immediately cease making offers of
Registered Securities and return all prospectuses to the Company. The Company
shall promptly provide such Holders with revised prospectuses and, following
receipt of the revised prospectuses, such Holders shall be free to resume
making offers of the Registered Securities.
(g) Furnish, at the request of any Holder requesting registration
of Registrable Securities pursuant to this Agreement, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Agreement, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders
51
of such Registered Securities and (ii) a letter dated such date, from the
independent certified public accountants of the Company, in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders of such Registered Securities.
(h) Use its best efforts to list the Registrable Securities
covered by such registration statement with any securities exchange on which
the Common Stock of the Company is then listed.
(i) Provide a transfer agent and registrar for all Registrable
Securities registered hereunder and a CUSIP number for all such Registrable
Securities, in each case not later than the effective date of such
registration.
Section 7.5 Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Agreement
with respect to the Registrable Securities of any selling Holder (the "Selling
Holder") that such Selling Holder shall furnish to the Company such information
regarding itself, the Registrable Securities held by it, and the intended
method of disposition of such securities as shall be required to effect the
registration of such Selling Holder's Registrable Securities.
Section 7.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions, which discounts and commissions shall
be paid by the Selling Holders on a pro rata basis according to the amount of
Registrable Securities sold by each Selling Holder, incurred in connection with
registrations, filings or qualifications pursuant to Section 7.2, including
(without limitation) all registration, filing and qualification fees, printing
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the Selling 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 of a majority of the Registrable Securities Then
Outstanding to be registered thereunder (in which case all Initiating Holders
shall bear such expenses), unless the Holders of a majority of the Registrable
Securities Then Outstanding to be registered thereunder agree to forfeit
52
their right to one Demand Registration; provided further, however, that if at
the time of such withdrawal, such Holders have learned of a material adverse
change in the condition or business of the Company from that known to such
Holders at the time of their request and have withdrawn the request with
reasonable promptness following disclosure by the Company of such material
adverse change, then such Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to Subsection 7.2(a).
Section 7.7 Expenses of Company Registration. The Company shall bear
and pay all expenses incurred in connection with all registration, filing or
qualification of Registrable Securities with respect to all Piggy-Back
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, printing and accounting fees
relating or apportionable thereto, and the fees and disbursements of one
counsel for the Selling Holders of Registered Securities (provided that the
fees of such counsel shall not exceed $10,000), but excluding underwriting
discounts and commissions relating to Registered Securities, which shall be
paid by the Selling Holders on a pro rata basis according to the amount of
Registrable Securities sold by each Selling Holder.
Section 7.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 7.3 to include any of such Holders'
securities in such underwriting unless such Holders accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected
by it (or by other persons entitled to select the underwriters), and then only
in such quantity as the underwriters determine in their sole discretion will
not jeopardize the success of the offering by the Company. If the total amount
of securities, including Registrable Securities, requested by stockholders to
be included in such offering exceeds the amount of securities sold other than
by the Company that the underwriters determine in their sole discretion is
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 determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling stockholder or in such
53
other proportions as shall mutually be agreed to by such selling stockholders),
but in no event shall (i) the amount of Registrable Securities of the Selling
Holders included in the offering be reduced below thirty-three and one-third
percent (33 1/3%) of the total amount of the selling stockholder securities
included in such offering or (ii) notwithstanding (i) above, any shares being
sold by a stockholder exercising a demand registration right under Section 7.2
be excluded from such offering except in accordance with Section 7.2.
Section 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 controversy that might arise with respect to
the interpretation or implementation of this Agreement.
Section 7.10 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Selling Holder of Registered Securities and such Selling
Holder's officers and directors, any underwriter (as defined in the Securities
Act) for such Selling Holder and each person, if any, who controls such Selling
Holder or underwriter within the meaning of the Securities Act or the Exchange
Act (each, an "Indemnitee"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, or the Exchange Act or other federal or state law, 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"): (i) 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, (ii) 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 (iii) 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,
or the Exchange Act or any state securities law; and the Company will pay to
each such Indemnitee 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
54
agreement contained in this Section 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 consent 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 Indemnitee. Notwithstanding the above, the
foregoing indemnity agreement is subject to the condition that, insofar as it
relates to any such untrue statement, alleged untrue statement, omission or
alleged omission made in a preliminary prospectus, such indemnity agreement
shall not inure to the benefit of any Holder if a copy of the final prospectus
was not furnished to the person asserting the loss, liability, claim or damage
at or prior to the time such action is required by the Securities Act if the
final prospectus corrected the untrue statement or omission or alleged untrue
statement or omission and was (i) provided to the Holder, and (ii) such Holder
was required by applicable law to deliver such prospectus.
(b) To the extent permitted by law, each Selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Selling Holder selling securities in such registration statement and
any controlling person of any such underwriter or other Selling Holder, against
any losses, claims, damages, or liabilities (joint or several) to which any of
the foregoing persons may become subject, under the Securities Act, or 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 Selling Holder expressly for use in connection
with such registration; and each such Selling Holder will pay any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this Section 7.10(b), in connection with investigating or defending
any such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this Section 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
55
the Selling Holder, which consent shall not be unreasonably withheld; further
provided, that, in no event shall any indemnity under this Section 7.10(b)
exceed the gross proceeds (excluding underwriting discounts and commissions)
from the offering received by such Selling Holder.
(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
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate, in the reasonable judgment of the
indemnified party, due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. 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 to the extent of
such prejudice, but the omission so 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 under this Section 7.10.
(d) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 7(a) or
7(b) but it is found in a final judicial determination, not subject to further
appeal, that such indemnification may not be enforced in such case, even though
this Agreement expressly provides for indemnification in such case, or (ii) any
indemnified or indemnifying party seeks contribution under the Securities Act,
the Exchange Act, or otherwise, then the Company (including for this purpose
any contribution made by or on behalf of any officer, director, employee, agent
or counsel of the Company, or any controlling person of the Company), on the
one hand, and the Holders (including for
56
this purpose any contribution by or on behalf of an indemnified party), on the
other hand, shall contribute to the losses, liabilities, claims, damages, and
expenses to which any of them may be subject, in such proportions as are
appropriate to reflect the relative fault of the Company and the Holders in
connection with the facts which resulted in such losses, liabilities, claims,
damages, and expenses shall also be considered.
The relative fault, in the case of an untrue statement, alleged untrue
statement, omission, or alleged omission, shall be determined by, among other
things, whether such statement, alleged statement, omission, or alleged
omission relates to information supplied by the Company or by the Holders, and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement, alleged statement, omission, or alleged
omission. The Company and Holders agree that it would be unjust and inequitable
if the respective obligations of the Company and the Holders for contribution
were determined by pro rata or per capital allocation of the aggregate losses,
liabilities, claims, damages, and expenses or by any other method of allocation
that does not reflect the equitable considerations referred to in this Section
7.10(d). No person guilty of a fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. For purposes
of this Section 7.10(d), each person, if any, who controls a Holder within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act and each officer, director, stockholder, employee, agent, and counsel of
the Holders, shall have the same rights of contribution as the Holder, and each
person, if any, who controls the Company within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Exchange Act and each officer,
director, employee, agent, and counsel of the Company, shall have the same
rights to contribution as the Company, subject in each case to the provisions
of this Section 7.10(d). Anything in this Section 7.10(d) to the contrary
notwithstanding, no party shall be liable for contribution with respect to the
settlement of any claim or action effected without its written consent. This
Section 7.10(d) is intended to supersede any right to contribution under the
Securities Act, the Exchange Act, or otherwise.
(e) The obligations of the Company and Selling Holders under this
Section 7.10 shall survive the completion of any offering of Registered
Securities under this Agreement, and otherwise.
57
Section 7.11 Reports Under Securities Exchange Act of 1934. With a
view to making available to the Holders of Registrable Securities the benefits
of Rule 144 and any other rule or regulation of the SEC that may at any time
permit a Holder thereof to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in 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;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the Exchange Act, as is necessary to
enable the Holders to utilize Form S-3 for the sale of their Registrable
Securities, such action to be taken as soon as practicable after the end of the
fiscal year in which the first registration statement filed by the Company for
the offering of its securities to the general public is declared effective;
(c) 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
(d) 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 Rule 144 (at
any time after ninety (90) days after the effective date of the registration
statement filed by the Company under the Exchange Act), the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (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, and (iii) such other information
as may be reasonably requested in availing any Holder of any rule or regulation
of the SEC which permits the selling of any such securities without
registration or pursuant to such form.
Section 7.12 Form S-3 Registration. If at any time after a date twelve
(12) months after the effective date of the Initial Public Offering, the
Company shall receive a written request from the Holders of thirty-three
percent (33%) of the Registrable Securities Then Outstanding
58
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 Holders, the Company will:
(a) promptly mail written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, use its best efforts to 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 or 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 received by the Company within twenty (20) days after the
mailing of such written notice from the Company; 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 (or a similar
successor form) is not available for such offering by the requesting Holders;
(ii) if the requesting 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 an
aggregate price to the public (net of any underwriters discounts or
commissions) 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 ninety (90) 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 twelve (12)
month period; (iv) if the Company has, within the six (6) month period
preceding the date of such request, already effected one registration on Form
S-3 for Holders of Registrable Securities pursuant to this Section 7.12; (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; or (vi) if the
requesting Holder or Holders receive an opinion from counsel to the Company
that registration of
59
such Holder's or Holders' Registrable Securities is not required under the
Securities Act in order to effect the sale or other distribution contemplated
by such Holder or Holders.
(c) The Company shall be obligated to effect only three (3)
registrations pursuant to this Section 7.12.
(d) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Holders. All expenses incurred in connection with such registrations
requested pursuant to Section 7.12, including (without limitation) all
registration, filing, qualification, printing and accounting fees and the
reasonable fees and disbursements of one counsel for the Selling Holder or
Selling Holders and counsel for the Company, but excluding any underwriters'
discounts or commissions associated with Registered Securities, shall be borne
by the Company. Registrations effected pursuant to this Section 7.12 shall not
be counted as demands for registration pursuant to Section 7.2 or registrations
effected pursuant to Section 7.3.
Section 7.13 Assignment of Registration Rights. The rights to cause
the Company to register Registrable Securities pursuant to this Agreement may
be assigned (but only with all related obligations) by a Holder to a transferee
or assignee of such Registrable Securities, provided: (i) such assignment shall
not be effective until the Company is 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; (ii) 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; (iii) such transferee or assignee shall as a
condition to such transfer, deliver to the Company a written instrument by
which such transferee agrees to be bound by the obligations imposed upon
Holders of Registrable Securities pursuant to this Agreement; (iv) any such
transferee or assignee may not again transfer such rights to any other person
or entity, other than as provided in this Section 7.13; and (v) such transfer
of Registrable Securities is in compliance with applicable federal and state
securities laws.
Section 7.14 Limitations on Subsequent Registration Rights. From and
after the date of this Agreement,
60
the Company shall not, without the prior written consent of the Holders of 66%
of the Registrable Securities Then Outstanding, enter into any agreement with
any holder or prospective holder of any securities of the Company which would
allow such holder or prospective holder (a) to include such securities in any
registration filed under this Agreement, unless under the terms of such
agreement, such holder or prospective holder may include such securities in any
such registration only to the extent that the inclusion of his securities will
not reduce the amount of the Registrable Securities of the Holders which is
included, or (b) to make a demand registration which could result in such
registration statement being declared effective within one hundred twenty (120)
days of the effective date of any registration effected pursuant to Section
7.2.
Section 7.15 Amendment of Registration Rights. Any provision of this
Article VII 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
66% of the Registrable Securities Then Outstanding. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each Holder of
any Registrable Securities then outstanding, each future Holder of all such
Registrable Securities and the Company.
Section 7.16 Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 7 after seven (7)
years following the consummation of an Initial Public Offering.
ARTICLE VIII
Miscellaneous
Section 8.1 Survival of Warranties. 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.
Section 8.2 Successors and Assigns. Except as otherwise provided
herein, 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 any of the Series A Pre-
61
ferred Stock or Conversion Shares issued hereunder or upon exercise of any
options). 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.
Section 8.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of New York applicable to contracts made
and to be performed in such jurisdiction, without regard to choice of law
principles.
Section 8.4 Counterparts; Facsimile 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. This Agreement may be executed by means of facsimile transmission;
provided, that an original, manually executed copy of such facsimile
counterpart shall be promptly sent by overnight delivery to the other parties
to this Agreement.
Section 8.5 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 8.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with a reputable overnight courier or with the United States Post
Office, by registered or certified mail, postage prepaid and addressed to the
party to be notified at the address indicated for such party on the signature
page hereof, or at such other address as such party may designate by ten (10)
days advance written notice to the other parties. Copies of Notices to be given
to the Investors shall be sent to the Investors at their addresses set forth on
the signature pages hereof, or as otherwise specified by such Investor from
time to time upon notification to the Company.
Section 8.7 Finder's Fee. Each party represents that it neither is nor
will be obligated for any finder's fee or commission in connection with this
transaction, except for the obligations of the Company to ▇▇▇▇▇ ▇▇▇▇▇▇ Inc.
Each Investor agrees to severally and not jointly indemnify and to hold
harmless the Company from any liability for any commission or compensation in
the nature of a
62
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which the 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.
Section 8.8 Expenses. Irrespective of whether the Closing is effected,
the Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. In
addition, the Company shall pay the reasonable legal expenses of the counsel
for The Travelers Insurance Company in connection with the negotiation,
execution and delivery of this Agreement up to a maximum aggregate amount of
$40,000. If any action at law or in equity is necessary to enforce or interpret
the terms of this Agreement or the Certificate of Incorporation, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
Section 8.9 Amendments and Waivers. Except for the provisions of
Article VI hereof which may be waived with the written consent of the Company
only, and except as set forth in Section 7.15 hereof, 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 66% of the Common Stock issued or issuable upon conversion
of the Series A Preferred Stock; provided, however, that the provisions of this
Section 8.9 may be amended only with the written consent of the Company and all
of such Holders. Any amendment or waiver effected in accordance with this
Section 8.9 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; provided, however, that no condition set forth in Article V hereof may
be waived with respect to any Investor who does not consent thereto.
Section 8.10 Severability. If one or more provisions of this
Agreement are held to be unenforceable under
63
applicable law, such provision shall be excluded from this Agreement and the
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
Section 8.11 Entire Agreement. This Agreement, the Memorandum, and the
other documents delivered pursuant hereto and thereto constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
Section 8.12 Disclosure Required under the Laws of Certain States and
Foreign Countries. The offer and sale of the Series A Preferred Stock, unless
otherwise required, are intended to be exempt from registration under the
securities laws of certain states and foreign countries. Investors who reside
in the following jurisdictions should note the language set forth below, which
is required to be included in this Agreement by the securities laws of those
jurisdictions. Furthermore, all Investors must note that there are restrictions
on transfer of (i) the Series A Preferred Stock and (ii) the Conversion Shares,
as agreed upon in Section 4.6 of this Agreement.
FOR ALL INVESTORS:
THE SERIES A PREFERRED STOCK (AND THE COMMON STOCK INTO WHICH SUCH
SERIES A PREFERRED STOCK IS CONVERTIBLE ISSUABLE UPON CONVERSION THEREOF) ARE
SUITABLE ONLY FOR SOPHISTICATED INVESTORS FOR WHOM AN INVESTMENT IN THE SERIES
A PREFERRED STOCK DOES NOT CONSTITUTE A COMPLETE INVESTMENT PROGRAM AND WHO
FULLY UNDERSTAND AND ARE WILLING TO ASSUME THE RISKS INVOLVED IN PURCHASE OF
THE SHARES. NO OFFER TO SELL (OR SOLICITATION OF AN OFFER TO BUY) IS BEING MADE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THE SERIES A PREFERRED STOCK (AND THE COMMON STOCK INTO WHICH SUCH
SERIES A PREFERRED STOCK IS CONVERTIBLE) ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS
SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED.
64
THE SERIES A PREFERRED STOCK (AND THE COMMON STOCK INTO WHICH SUCH SERIES A
PREFERRED STOCK IS CONVERTIBLE) HAS NOT BEEN RECOMMENDED BY ANY FEDERAL OR
STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF ANY
INFORMATION PROVIDED HEREWITH. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
65
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PRT GROUP INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Chairman and Chief
Executive Officer
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
66
THE TRAVELERS INSURANCE THE PRUDENTIAL INSURANCE
COMPANY COMPANY OF AMERICA
By: /s/ JORDAN ▇. ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------------- -----------------------------
Name: Jordan ▇. ▇▇▇▇▇▇▇ Name:
Title: Vice President Title: Vice President
Address: Address:
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
TUDOR INVESTMENT CORPORATION, RHO MANAGEMENT CO., INC., on
on behalf of Raptor Global behalf of Rho Management
Fund L.P., Raptor Global Trust I
Fund, Ltd., Tudor BVI Futures,
Ltd. and Tudor Arbitrage
Partners L.P.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------- -----------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Vice President Title: Vice President
Address: Address:
▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
CAPITAL RESEARCH AND ▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
MANAGEMENT COMPANY, on behalf
of SMALLCAP World Fund, Inc.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------- -----------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Secretary
Address: Address:
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇-▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------
Address:
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
67
WITH RESPECT TO SECTIONS 3.20 AND 3.23, AND ARTICLE VII HEREOF, the
undersigned agree to be bound by the provisions of Sections 3.20 and 3.23 and
Article VII hereof.
THE ▇▇▇▇▇▇▇▇▇ GROUP, L.L.C.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Member
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
------------------------
68