EXHIBIT 4.2
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SERIES B CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
between
ADOLOR CORPORATION
and
THE PURCHASERS NAMED IN SCHEDULE I
Dated as of March 1, 1996
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TABLE OF CONTENTS
Page
ARTICLE I........................................................................ 1
SECTION 1.01 Issuance, Sale and Delivery of the Preferred Shares............ 1
SECTION 1.02 Initial Closing................................................ 1
SECTION 1.03 Additional Closing............................................. 1
ARTICLE II....................................................................... 2
SECTION 2.01 Organization, Qualifications and Corporate Power............... 2
SECTION 2.02 Authorization of Agreements, Etc............................... 3
SECTION 2.03 Validity....................................................... 4
SECTION 2.04 Authorized Capital Stock....................................... 4
SECTION 2.05 Financial Statements........................................... 5
SECTION 2.06 Events Subsequent to the Date of the Balance Sheet............. 5
SECTION 2.07 Litigation; Compliance with Law................................ 5
SECTION 2.08 Proprietary Information of Third Parties....................... 6
SECTION 2.09 Patents, Trademarks, Etc....................................... 6
SECTION 2.10 Title to Properties............................................ 7
SECTION 2.11 Leasehold Interests............................................ 7
SECTION 2.12 Insurance...................................................... 8
SECTION 2.13 Taxes.......................................................... 8
SECTION 2.14 Other Agreements............................................... 8
SECTION 2.15 Loans and Advances............................................. 10
SECTION 2.16 Assumptions, Guaranties, Etc of Indebtedness of Other Persons.. 10
SECTION 2.17 Significant Customers and Suppliers............................ 10
SECTION 2.18 Governmental Approvals......................................... 10
SECTION 2.19 Disclosure..................................................... 11
SECTION 2.20 Offering of the Preferred Shares............................... 11
SECTION 2.21 Brokers........................................................ 11
SECTION 2.22 Officers....................................................... 11
SECTION 2.23 Transactions With Affiliates................................... 12
SECTION 2.24 Employees...................................................... 12
SECTION 2.25 6901, et seq................................................... 13
SECTION 2.26 ERISA.......................................................... 13
ARTICLE III...................................................................... 14
ARTICLE IV....................................................................... 15
ARTICLE V........................................................................ 17
SECTION 5.01 Financial Statements, Reports, Etc............................. 17
SECTION 5.02 Right of First Refusal......................................... 18
SECTION 5.03 Reserve for Conversion Shares.................................. ▇▇
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▇▇▇▇▇▇▇ ▇.▇▇ ▇▇▇▇▇▇▇▇▇ Existence............................................ 19
SECTION 5.05 Properties, Business, Insurance................................ 20
SECTION 5.06 Inspection, Consultation and Advice............................ 20
SECTION 5.07 Restrictive Agreements Prohibited.............................. 20
SECTION 5.08 Transactions with Affiliates................................... 20
SECTION 5.09 Expenses of Directors.......................................... 20
SECTION 5.10 Use of Proceeds................................................ 20
SECTION 5.11 Board of Directors Meetings.................................... 21
SECTION 5.12 By-laws........................................................ 21
SECTION 5.14 Vesting of Reserved Employee Shares............................ 21
SECTION 5.15 Employee Nondisclosure and Developments Agreements............. 21
SECTION 5.16 Compliance with Laws........................................... 21
SECTION 5.17 Keeping of Records and Books of Account........................ 21
SECTION 5.18 Change in Nature of Business................................... 21
SECTION 5.19 Rule 144A Information.......................................... 22
ARTICLE VI....................................................................... 22
SECTION 6.01 Expenses....................................................... 22
SECTION 6.02 Survival of Agreements......................................... 22
SECTION 6.04 Parties in Interest............................................ 23
SECTION 6.05 Notices........................................................ 23
SECTION 6.06 Governing Law.................................................. 23
SECTION 6.07 Entire Agreement............................................... 23
SECTION 6.08 Counterparts................................................... 23
SECTION 6.09 Amendments..................................................... 23
SECTION 6.10 Severability................................................... 23
SECTION 6.11 Titles and Subtitles........................................... 23
SECTION 6.12 Certain Defined Terms.......................................... 24
SECTION 6.13 Prior Agreements............................................... 24
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INDEX TO SCHEDULES
SCHEDULE I Purchasers
SCHEDULE II Disclosure Schedule
SCHEDULE III Security Holders
SCHEDULE IV(A)
AND IV(B) Agreements
INDEX TO EXHIBITS
EXHIBIT A Form of Amendment No. 1 to Registration Rights Agreement
EXHIBIT B Form of Management Rights Agreement
EXHIBIT C Charter and All Amendments Thereto
EXHIBIT D Form of Employee Nondisclosure and Developments Agreement
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SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT dated as of March
1, 1996 between Adolor Corporation, a Delaware corporation (the "Company'), and
the several purchasers named in the attached Schedule I (individually a
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"Purchaser" and collectively the "Purchasers").
WHEREAS, the Company wishes to issue and sell to the Purchasers up to an
aggregate of 23,809,524 shares (the "Preferred Shares") of the authorized but
unissued Series B Convertible Preferred Stock, $.01 par value, of the Company
(the "Series B Convertible Preferred Stock"); and
WHEREAS, the Purchasers, severally, wish to purchase the Preferred Shares
on the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties agree as follows:
ARTICLE I
THE PREFERRED SHARES
SECTION 1.01 Issuance, Sale and Delivery of the Preferred Shares. The
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Company agrees to issue and sell to each Purchaser, and each Purchaser hereby
agrees to purchase from the Company, the number of Preferred Shares set forth
opposite the name of such Purchaser under the heading "Number of Preferred
Shares to be Purchased" on Schedule I, at the aggregate purchase price set forth
opposite the name of such Purchaser under the heading "Aggregate Purchase Price
for Preferred Shares" on Schedule I.
SECTION 1.02 Initial Closing. The initial closing shall take place at
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the offices of ▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, High Street Tower, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at 10:00 am., Boston time, on February 27, 1996, or
at such other location, date and time as may be agreed upon between the
Purchasers and the Company (such closing being called the "Closing" and such
date and time being called the "Closing Date"). At the Closing, the Company
shall issue and deliver to each Purchaser a stock certificate or certificates in
definitive form, registered in the name of such Purchaser, representing the
Preferred Shares being purchased by it at the Closing. As payment in full for
the Preferred Shares being purchased by it under this Agreement, and against
delivery of the stock certificate or certificates therefor as aforesaid, on the
Closing Date each Purchaser shall (i) deliver to the Company a check payable to
the order of the Company, in the amount set forth opposite the name of such
Purchaser under the heading "Aggregate Purchase Price for Preferred Shares" on
Schedule I, (ii) transfer such sum to the account of the Company by wire
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transfer, (iii) deliver to the Company for cancellation promissory notes issued
by the Company in the amount of such sum, or (iii) deliver or transfer such sum
to the Company by any combination of such methods of payments.
SECTION 1.03 Additional Closing. After the Closing Date and on or prior
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to March 15, 1996 the Company may hold one or more additional closings (each an
"Additional Closing"; and collectively the "Additional Closings") at which the
Company may issue and sell
up to the number of Preferred Shares equal to the difference between 19,964,286
and the aggregate number of Preferred Shares previously sold on the Closing Date
and, as applicable, on the date of any prior Additional Closing. The sale of
Preferred Shares pursuant to this Section 1.03 shall be on the same terms and
conditions (including price) as the sale of the Preferred Shares pursuant to
Section 1.02 hereof and shall be effected by the execution by any investor of a
counterpart signature page to this Agreement. Upon such execution: (i) each such
investor shall be deemed to be a Purchaser for all purposes of this Agreement
and Schedule I shall be amended to include such Purchaser; and (ii) each such
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Additional Closing shall be deemed to be a Closing hereunder and the date of
each such Additional Closing shall be a "Closing Date" hereunder. If necessary,
the Company will provide an updated Disclosure Schedule to Purchasers purchasing
in any Additional Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser that, as of each
Closing Date on which such Purchaser purchases Preferred Shares hereunder,
except as set forth in the Disclosure Schedule attached as Schedule II, as may
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be updated in writing prior to any Additional Closing hereunder, (which
Disclosure Schedule, (as updated, if applicable), makes explicit reference to
the particular representation or warranty as to which exception is taken, which
in each case shall constitute the sole representation and warranty as to which
such exception shall apply):
SECTION 2.01 Organization, Qualifications and Corporate Power.
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(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and is duly
licensed or qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification. The Company has the corporate power
and corporate authority to own and hold its properties and to carry on its
business as now conducted and as proposed to be conducted, to execute, deliver
and perform this Agreement, Amendment No. 1 to that certain Registration Rights
Agreement by and among the Company and the purchasers named therein dated as of
November 7, 1994, (the "Original Registration Rights Agreement") in the form
attached as Exhibit A (the "Registration Rights Agreement Amendment"), and the
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Management Rights letter agreement(s) between the Company and certain of the
Purchasers, if any, in the form attached as Exhibit C (the "Management Rights
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Agreements"), to issue, sell and deliver the Preferred Shares and to issue and
deliver the shares of Common Stock, $.0001 par value, of the Company ("Common
Stock") issuable upon conversion of the Preferred Shares (the "Conversion
Shares"). The Original Registration Rights Agreement as amended by the
Registration Rights Agreement Amendment is sometimes referred to herein as the
"Registration Rights Agreement."
(b) Schedule II contains a list of all subsidiaries of the Company.
Except for such subsidiaries, the Company does not (i) own of record or
beneficially, directly or
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indirectly, (A) any shares of capital stock or securities convertible into
capital stock of any other corporation or (B) any participating interest in any
partnership, joint venture or other non-corporate business enterprise or (ii)
control, directly or indirectly, any other entity. Each of the subsidiaries is a
corporation duly incorporated, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation and is duly licensed or
qualified to transact business as a foreign corporation and is in good standing
in each jurisdiction in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such licensing or
qualification. Each of the subsidiaries has the corporate power and corporate
authority to own and hold its properties and to carry on its business as now
conducted and as proposed to be conducted. All of the outstanding shares of
capital stock of each of the subsidiaries are owned beneficially and of record
by the Company, one of its other subsidiaries, or any combination of the Company
and/or one or more of its other subsidiaries, in each case free and clear of any
liens, charges, restrictions, claims or encumbrances of any nature whatsoever;
and there are no outstanding subscriptions, warrants, options, convertible
securities, or other rights (contingent or other) pursuant to which any of the
subsidiaries is or may become obligated to issue any shares of its capital stock
to any person other than the Company or one of the other subsidiaries. As used
in Sections 2.06 through 2.09, 2.11 through 2.17, 2.21 and 2.23 through 2.28
inclusive, the term "Company" shall mean the Company and each of the
subsidiaries.
SECTION 2.02 Authorization of Agreements, Etc.
--------------------------------
(a) The execution and delivery by the Company of this Agreement, the
Registration Rights Agreement Amendment and the Management Rights Agreements,
the performance by the Company of its obligations hereunder and thereunder, the
issuance, sale and delivery of the Preferred Shares and the issuance and
delivery of the Conversion Shares have been duly authorized by all requisite
corporate action and will not violate any provision of law, any order of any
court or other agency of government, the Certificate of Incorporation of the
Company, as amended (the "Charter") or the By-laws of the Company, as amended,
or any provision of any indenture, agreement or other instrument to which the
Company, any of its subsidiaries or any of their respective properties or assets
is bound, or conflict with, result in a breach of or constitute (with due notice
or lapse of time or both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien, charge,
restriction, claim or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company or any of its subsidiaries.
(b) The Preferred Shares have been duly authorized and, when issued
in accordance with this Agreement, will be validly issued, fully paid and
nonassessable shares of Series B Convertible Preferred Stock with no personal
liability attaching to the ownership thereof and will be free and clear of all
liens, charges, restrictions, claims and encumbrances imposed by or through the
Company except as set forth in the Registration Rights Agreement. The Conversion
Shares have been duly reserved for issuance upon conversion of the Preferred
Shares and, when so issued, will be duly authorized, validly issued, fully paid
and nonassessable shares of Common Stock with no personal liability attaching to
the ownership thereof and will be free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the Company except
as set forth in the Registration Rights Agreement.
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Neither the issuance, sale or delivery of the Preferred Shares nor the issuance
or delivery of the Conversion Shares is subject to any preemptive right of
stockholders of the Company or to any right of first refusal or other right in
favor of any person.
SECTION 2.03 Validity. This Agreement has been duly executed and
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delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms. The Registration
Rights Agreement Amendment and the Management Rights Agreements, when executed
and delivered in accordance with this Agreement, will constitute the legal,
valid and binding obligations of the Company, enforceable in accordance with
their respective terms.
SECTION 2.04 Authorized Capital Stock. The authorized capital stock of
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the Company consists of (i) 29,809,524 shares of Preferred Stock, $.01 par value
(the "Preferred Stock"), of which 6,000,000 shares have been designated Series A
Convertible Preferred Stock and 23,809,524 have been designated Series B
Convertible Preferred Stock, and (ii) 33,000,000 shares of Common Stock.
Immediately prior to the Closing, 3,507,877 shares of Common Stock, 6,000,000
shares of Series A Convertible Preferred Stock will be validly issued and
outstanding, fully paid and nonassessable with no personal liability attaching
to the ownership thereof and no shares of Preferred Stock will have been issued.
The stockholders of record and holders of subscriptions, warrants, options,
convertible securities, and other rights (contingent or other) to purchase or
otherwise acquire equity securities of the Company, and the number of shares of
Common Stock and the number of such subscriptions, warrants, options,
convertible securities, and other such rights held by each, are as set forth in
the attached Schedule III. The designations, powers, preferences, rights,
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qualifications, limitations and restrictions in respect of each class and series
of authorized capital stock of the Company are as set forth in the Charter, a
copy of which is attached as Exhibit C, and all such designations, powers,
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preferences, rights, qualifications, limitations and restrictions are valid,
binding and enforceable and in accordance with all applicable laws. Except as
set forth in the attached Schedule III, (i) no person owns of record or is known
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to the Company to own beneficially any share of Common Stock, (ii) no
subscription, warrant, option, convertible security, or other right (contingent
or other) to purchase or otherwise acquire equity securities of the Company is
authorized or outstanding and (iii) there is no commitment by the Company to
issue shares, subscriptions, warrants, options, convertible securities, or other
such rights or to distribute to holders of any of its equity securities any
evidence of indebtedness or asset. Except as provided for in the Charter or as
set forth in the attached Schedule III, the Company has no obligation
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(contingent or other) to purchase, redeem or otherwise acquire any of its equity
securities or any interest therein or to pay any dividend or make any other
distribution in respect thereof Except for those certain Stock Restriction
Agreements by and among the Company, the purchasers named therein and each of
Dr. ▇▇▇▇ ▇▇▇▇▇▇, Dr. ▇▇▇▇▇▇▇ ▇▇▇▇▇ and ARCH Development Corporation dated as of
November 7, 1994 (the "1994 Stock Restriction Agreements") and the Management
Rights Agreements, to the best of the Company's knowledge there are no voting
trusts or agreements, stockholders' agreements, pledge agreements, buy-sell
agreements, rights of first refusal, preemptive rights or proxies relating to
any securities of the Company or any of its subsidiaries (whether or not the
Company or any of its subsidiaries is a party thereto). All of the outstanding
securities of the Company were issued in compliance with all applicable Federal
and state securities laws.
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SECTION 2.05 Financial Statements. The Company has furnished to the
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Purchasers the unaudited consolidated balance sheet of the Company and its
subsidiaries as of December 31, 1995, (the "Balance Sheet") and the related
unaudited consolidated statements of income and cash flows of the Company and
its subsidiaries for the year ended December 31, 1995. 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 in all material
respects the consolidated financial position of the Company and its subsidiaries
as of December 31, 1995, and the consolidated results of their operations and
cash flows for the year ended December 31, 1995. Since the date of the Balance
Sheet, (i) there has been no change in the assets, liabilities or financial
condition of the Company and its subsidiaries (on a consolidated basis) from
that reflected in the Balance Sheet except for changes in the ordinary course of
business which in the aggregate have not been materially adverse and (ii) none
of the business, prospects, financial condition, operations, property or affairs
of the Company and its subsidiaries (on a consolidated basis) has been
materially adversely affected by any occurrence or development, individually or
in the aggregate, whether or not insured against.
SECTION 2.06 Events Subsequent to the Date of the Balance Sheet. Since
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the date of the Balance Sheet, the Company has not (i) issued any stock, bond or
other corporate security, except pursuant to the exercise of stock options
outstanding as of the date of the Balance Sheet, (ii) borrowed any amount or
incurred or become subject to any liability (absolute, accrued or contingent),
except current liabilities incurred and liabilities under contracts entered into
in the ordinary course of business, (iii) discharged or satisfied any lien or
encumbrance or incurred or paid any obligation or liability (absolute, accrued
or contingent) other than current liabilities shown on the Balance Sheet and
current liabilities incurred since the date of the Balance Sheet in the ordinary
course of business, (iv) declared or made any payment or distribution to
stockholders or purchased or redeemed any share of its capital stock or other
security, (v) mortgaged, pledged, encumbered or subjected to lien any of its
assets, tangible or intangible, other than liens of current real property taxes
not yet due and payable, (vi) sold, assigned or transferred any of its tangible
assets except in the ordinary course of business, or canceled any debt or claim,
(vii) sold, assigned, transferred or granted any exclusive license with respect
to any patent, trademark, trade name, service ▇▇▇▇, copyright, trade secret or
other intangible asset, (viii) suffered any loss of property or waived any right
of substantial value whether or not in the ordinary course of business, (ix)
made any change in officer compensation except in the ordinary course of
business and consistent with past practice, (x) made any material change in the
manner of business or operations of the Company, (xi) entered into any
transaction except in the ordinary course of business or as otherwise
contemplated hereby or (xii) entered into any commitment (contingent or
otherwise) to do any of the foregoing.
SECTION 2.07 Litigation; Compliance with Law. There is no (i) action,
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suit, claim, proceeding or investigation pending or, to the best of the
Company's knowledge, threatened against or affecting the Company, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) arbitration proceeding relating to the Company pending under
collective bargaining agreements or otherwise or (iii) governmental inquiry
-5-
pending or, to the best of the Company's knowledge, threatened against or
affecting the Company (including without limitation any inquiry as to the
qualification of the Company to hold or receive any license or permit). The
Company is not in default with respect to any order, writ, injunction or decree
known to or served upon the Company of any court or of any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. There is no action or suit by the Company
pending or threatened against others. The Company has complied with all laws,
rules, regulations and orders applicable to its business, operations,
properties, assets, products and services, the Company has all necessary
permits, licenses and other authorizations required to conduct its business as
conducted and as proposed to be conducted, and the Company has been operating
its business pursuant to and in compliance with the terms of all such permits,
licenses and other authorizations except where any instance of instances of
noncompliance do not, individually or in the aggregate, have a material adverse
effect on the Company's business, prospects, financial condition, operations,
property or affairs. There is no existing law, rule, regulation or order, and
the Company after due inquiry is not aware of any proposed law, rule, regulation
or order, whether Federal, state, county or local, which would prohibit or
restrict the Company from, or otherwise materially adversely affect the Company
in, conducting its business in any jurisdiction in which it is now conducting
business or in which it proposes to conduct business.
SECTION 2.08 Proprietary Information of Third Parties. To the best of
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the Company's knowledge, no third party has claimed or has reason to claim that
any person employed by or affiliated with the Company has (a) violated or may be
violating any of the terms or conditions of his employment, non-competition or
non-disclosure agreement with such third party, (b) disclosed or may be
disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party or (c) interfered or may be
interfering in the employment relationship between such third party and any of
its present or former employees. No third party has requested information from
the Company which suggests that such a claim might be contemplated. To the best
of the Company's knowledge, no person employed by or affiliated with the Company
has employed or proposes to employ any trade secret or any information or
documentation proprietary to any former employer, and to the best of the
Company's knowledge, no person employed by or affiliated with the Company has
violated any confidential relationship which such person may have had with any
third party, in connection with the development, manufacture or sale of any
product or proposed product or the development or sale of any service or
proposed service of the Company, and the Company has no reason to believe there
will be any such employment or violation. To the best of the Company's
knowledge, none of the execution or delivery of this Agreement, or the carrying
on of the business of the Company as officers, employees or agents by any
officer, director or key employee of the Company, or the conduct or proposed
conduct of the business of the Company, will conflict with or result in a breach
of the terms, conditions or provisions of or constitute a default under any
contract, covenant or instrument under which any such person is obligated.
SECTION 2.09 Patents, Trademarks, Etc. Set forth in Schedule II is a
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list and brief description of all domestic and foreign patents, patent rights,
patent applications, trademarks, trademark applications, service marks, service
▇▇▇▇ applications, trade names and copyrights,
-6-
and all applications for such which are in the process of being prepared, owned
by or registered in the name of the Company, or of which the Company is a
licensor or licensee or in which the Company has any right, and in each case a
brief description of the nature of such right. The Company owns or possesses
adequate licenses or other rights to use all patents, patent applications,
trademarks, trademark applications, service marks, service ▇▇▇▇ applications,
trade names, copyrights, manufacturing processes, formulae, trade secrets,
customer lists and know how (collectively, "Intellectual Property") necessary to
the conduct of its business as conducted and as proposed to be conducted, and no
claim is pending or, to the best of the Company's knowledge, threatened to the
effect that the operations of the Company infringe upon or conflict with the
asserted rights of any other person under any Intellectual Property, and the
Company reasonably believes that there is no basis for any such claim (whether
or not pending or threatened). No claim is pending or threatened to the effect
that any such Intellectual Property owned or licensed by the Company, or which
the Company otherwise has the right to use, is invalid or unenforceable by the
Company, and there is no basis for any such claim (whether or not pending or
threatened). All prior art known to the Company which may be or may have been
pertinent to the examination of any United States patent or patent application
listed in Schedule II has been cited to the United States Patent and Trademark
-----------
Office. To the best of the Company's knowledge, all technical information
developed by and belonging to the Company which has not been patented has been
kept confidential. The Company has not granted or assigned to any other person
or entity any right to manufacture, have manufactured, assemble or sell the
products or proposed products or to provide the services or proposed services of
the Company.
SECTION 2.10 Title to Properties. The Company and its subsidiaries have
-------------------
good, clear and marketable title to their respective properties and assets
reflected on the Balance Sheet or acquired by them since the date of the Balance
Sheet (other than properties and assets disposed of in the ordinary course of
business since the date of the Balance Sheet), and all such properties and
assets are free and clear of mortgages, pledges, security interests, liens,
charges, claims, restrictions and other encumbrances (including without
limitation, easements and licenses), except for liens for or current taxes not
yet due and payable and minor imperfections of title, if any, not material in
nature or amount and not materially detracting from the value or impairing the
use of the property subject thereto or impairing the operations or proposed
operations of the Company and its subsidiaries, including without limitation,
the ability of the Company and its subsidiaries to secure financing using such
properties and assets as collateral. To the best of the Company's knowledge
after due inquiry, there are no condemnation, environmental, zoning or other
land use regulation proceedings, either instituted or planned to be instituted,
which would adversely affect the use or operation of the Company's and its
subsidiaries' properties and assets for their respective intended uses and
purposes, or the value of such properties, and neither the Company nor any
subsidiary has received notice of any special assessment proceedings which would
affect such properties and assets.
SECTION 2.11 Leasehold Interests. Each lease or agreement to which the
-------------------
Company is a party under which it is a lessee of any property, real or personal,
is a valid and subsisting agreement, duly authorized and entered into, without
any default of the Company thereunder and, to the best of the Company's
knowledge, without any default thereunder of any other party thereto. No event
has occurred and is continuing which, with due notice or lapse of
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time or both, would constitute a default or event of default by the Company
under any such lease or agreement or, to the best of the Company's knowledge, by
any other party thereto. The Company's possession of such property has not been
disturbed and, to the best of the Company's knowledge after due inquiry, no
claim has been asserted against the Company adverse to its rights in such
leasehold interests.
SECTION 2.12 Insurance. The Company holds valid policies covering all of
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the insurance required to be maintained by it under Section 5.05.
SECTION 2.13 Taxes. The Company has filed all tax returns, Federal,
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state, county and local, required to be filed by it, and the Company has paid
all taxes shown to be due by such returns as well as all other taxes,
assessments and governmental charges which have become due or payable, including
without limitation all taxes which the Company is obligated to withhold from
amounts owing to employees, creditors and third parties. The Company has
established adequate reserves for all taxes accrued but not yet payable. The
Federal income tax returns of the Company have never been audited by the
Internal Revenue Service. No deficiency assessment with respect to or proposed
adjustment of the Company's Federal, state, county or local taxes is pending or,
to the best of the Company's knowledge, threatened. There is no tax lien,
whether imposed by any Federal, state, county or local taxing authority,
outstanding against the assets, properties or business of the Company. Neither
the Company nor any of its present or former stockholders has ever filed an
election pursuant to Section 1362 of the Internal Revenue Code of 1986, as
amended (the "Code"), that the Company be taxed as an S corporation.
SECTION 2.14 Other Agreements. Except as set forth in the attached
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Schedule IV(A), (which Schedule IV(A) may be updated in writing prior to any
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Additional Closing hereunder) as of each Closing Date hereunder, the Company
reasonably believes after due investigation that it is not a party to or
otherwise bound by any written or oral agreement, instrument, commitment or
restriction which individually or in the aggregate could materially adversely
affect the business, prospects, financial condition, operations, property or
affairs of the Company. Except as set forth in the attached Schedule IV(B), the
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Company is not a party to or otherwise bound by any written or oral:
(a) distributor, dealer, manufacturer's representative or sales
agency agreement which is not terminable on less than ninety (90) days' notice
without cost or other liability to the Company (except for agreements which, in
the aggregate, are not material to the business of the Company);
(b) sales agreement which entitles any customer to a rebate or right
of set-off, to return any product to the Company after acceptance thereof or to
delay the acceptance thereof, or which varies in any material respect from the
Company's standard form agreements;
(c) agreement with any labor union (and, to the knowledge of the
Company, no organizational effort is being made with respect to any of its
employees);
(d) agreement with any supplier containing any provision permitting
any party other than the Company to renegotiate the price or other terms, or
containing any pay-
-8-
back or other similar provision, upon the occurrence of a failure by the Company
to meet its obligations under the agreement when due or the occurrence of any
other event;
(e) agreement for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of its normal
operating requirements;
(f) agreement for the employment of any officer, employee or other
person on a full-time or consulting basis which is not terminable by the Company
at will without liability to the Company, except pursuant to severance and
accrued vacation pay policies applicable to all employees of the Company;
(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 (other than group insurance plans applicable to employees generally);
(h) agreement relating to the borrowing of money or to the mortgaging
or pledging of, or otherwise placing a lien or security interest on, any asset
of the Company;
(i) guaranty of any obligation for borrowed money or otherwise;
(j) voting trust or agreement, stockholders' agreement, pledge
agreement, buy-sell agreement or first refusal or preemptive rights agreement
relating to any securities of the Company (other than this Agreement, the
Registration Rights Agreement Amendment, the 1994 Stock Restriction Agreements
and the Management Rights Agreements);
(k) agreement, or group of related agreements with the same party or
any group of affiliated parties, under which the Company has advanced or agreed
to advance money or has agreed to lease any property as lessee or lessor;
(l) agreement or obligation (contingent or otherwise) to issue, sell
or otherwise distribute or to repurchase or otherwise acquire or retire any
share of its capital stock or any of its other equity securities other than
pursuant to its Charter as in effect on any Closing Date hereunder;
(m) assignment, license or other agreement with respect to any form
of intangible property;
(n) agreement under which it has granted any person any registration
rights, other than the Registration Rights Agreement;
(o) agreement under which it has limited or restricted its right to
compete with any person in any respect; and
(p) other agreement or group of related agreements with the same
party involving more than $10,000 or continuing over a period of more than six
months from the date or dates thereof (including renewals or extensions optional
with another party), which
-9-
agreement or group of agreements is not terminable by the Company without
penalty upon notice of thirty (30) days or less, but excluding any agreement or
group of agreements with a customer of the Company for the sale, lease or rental
of the Company's products or services if such agreement or group of agreements
was entered into by the Company in the ordinary course of business.
The Company, and to the best of the Company's knowledge after due inquiry, each
other party thereto have in all material respects performed all the obligations
required to be performed by them to date (or each non-performing party has
received a valid, enforceable and irrevocable written waiver with respect to its
non-performance), have received no notice of default and are not in default
(with due notice or lapse of time or both) under any agreement, instrument,
commitment, plan or arrangement to which the Company is a party or by which it
or its property may be bound. The Company has no present expectation or
intention of not fully performing all its obligations under each such agreement,
instrument, commitment, plan or arrangement, and the Company has no knowledge of
any breach or anticipated breach by the other party to any agreement,
instrument, commitment, plan or arrangement to which the Company is a party.
The Company is in full compliance with all of the terms and provisions of its
Charter and By-laws, as amended.
SECTION 2.15 Loans and Advances. The Company does not have any
------------------
outstanding loans or advances to any person and is not obligated to make any
such loans or advances, except, in each case, for advances to employees of the
Company in respect of reimbursable business expenses anticipated to be incurred
by them in connection with their performance of services for the Company.
SECTION 2.16 Assumptions, Guaranties, Etc of Indebtedness of Other
-----------------------------------------------------
Persons. The Company has not assumed, guaranteed, endorsed or otherwise become
-------
directly or contingently liable on any indebtedness of any other person
(including, without limitation, liability by way of agreement, contingent or
otherwise, to purchase, to provide funds for payment, to supply funds to or
otherwise invest in the debtor, or otherwise to assure the creditor against
loss), except for guaranties by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business.
SECTION 2.17 Significant Customers and Suppliers. No customer or
-----------------------------------
supplier, or group of two or more thereof (whether or not affiliated) which was
material to the Company, individually or in the aggregate, during the period
covered by the financial statements referred to in Section 2.05 or which has
been material to the Company thereafter, has terminated, materially reduced or
threatened to terminate or materially reduce its or their purchases from or
provision of products or services to the Company, as the case may be.
SECTION 2.18 Governmental Approvals. Subject to the accuracy of the
----------------------
representations and warranties of the Purchasers set forth in Article III, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement, the Registration Rights Agreement Amendment or the Management
Rights Agreements, the issuance, sale and delivery of the
-10-
Preferred Shares or, upon conversion thereof, the issuance and delivery of the
Conversion Shares, other than (i) filings pursuant to state securities laws (all
of which filings have been made by the Company, other than those which are
required to be made after the Closing and which will be duly made on a timely
basis) in connection with the sale of the Preferred Shares and (ii) with respect
to the Registration Rights Agreement, the registration of the shares covered
thereby with the Commission and filings pursuant to state securities laws.
SECTION 2.19 Disclosure. Neither this Agreement, nor any Schedule or
----------
Exhibit to this Agreement, nor the Business Plan of the Company dated August 16,
1995 (the "Business Plan"), contains an untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein or
therein not misleading. None of the statements, documents, certificates or
other items prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not misleading.
The financial projections and other estimates contained in the Business Plan
were prepared by the Company based on the Company's experience in the industry
and on assumptions of fact and opinion as to future events which the Company, at
the date of the issuance of the Business Plan, believed to be reasonable, but
which the Company cannot and does not assure or guarantee the attainment of in
any manner. As of the date hereof no facts have come to the attention of the
Company which would, in its opinion, require the Company to revise or amplify
the assumptions underlying such projections and other estimates or the
conclusions derived therefrom.
SECTION 2.20 Offering of the Preferred Shares. Neither the Company nor
--------------------------------
any person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering or sale of the Preferred Shares or any
security of the Company similar to the Preferred Shares has offered the
Preferred Shares or any such similar security for sale to, or solicited any
offer to buy the Preferred Shares or any such similar security from, or
otherwise approached or negotiated with respect thereto with, any person or
persons, and neither the Company nor any person acting on its behalf has taken
or will take any other action (including, without limitation, any offer,
issuance or sale of any security of the Company under circumstances which might
require the integration of such security with Preferred Shares under the
Securities Act or the rules and regulations of the Commission thereunder), in
either case so as to subject the offering, issuance or sale of the Preferred
Shares to the registration provisions of the Securities Act.
SECTION 2.21 Brokers. The Company has no contract, arrangement or
-------
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 2.22 Officers. Set forth in Schedule II is a list of the names
--------
of the officers of the Company, together with the title or job classification of
each such person and the total compensation anticipated to be paid to each such
person by the Company and its subsidiaries in 1995.
-11-
SECTION 2.23 Transactions With Affiliates. Other than purchases of
----------------------------
Preferred Shares hereunder, no director, officer, employee or stockholder of the
Company, or member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or any member of
the family of any such person, has a substantial interest or is an officer,
director, trustee, partner or holder of more than 5% of the outstanding capital
stock thereof, is a party to any transaction with the Company, including any
contract, agreement or other arrangement providing for the employment of,
furnishing of services by, rental of real or personal property from or otherwise
requiring payments to any such person or firm, other than employment-at-will
arrangements in the ordinary course of business.
SECTION 2.24 Employees. Each of the officers of the Company, each key
---------
employee and each other employee now employed by the Company who has access to
confidential information of the Company has executed an Employee Nondisclosure
and Developments Agreement substantially in the form previously delivered to the
Purchasers and such agreements are in full force and effect. No officer or key
employee of the Company has advised the Company (orally or in writing) that he
intends to terminate employment with the Company. The Company has complied in
all material respects with all applicable laws relating to the employment of
labor, including provisions relating to wages, hours, equal opportunity,
collective bargaining and the payment of Social Security and other taxes, and
with the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
SECTION 2.25 Environmental Protection. The Company has not caused or
------------------------
allowed, or 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, the
operation of its business, and any real property that the Company owns, 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 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 is not aware of
any basis therefor. The Company 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
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 best of the Company'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 or local law or 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
-12-
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.
SECTION 2.26 ERISA.
-----
(a) Schedule II lists each Employee Plan that covers any employee of
-----------
the Company, copies or descriptions of all of which have previously been made
available or furnished to the Purchasers. With respect to each Employee Plan,
the Company has provided the most recently filed Form 5500 and an accurate
summary description of such plan. The Company has provided the Purchasers with
complete age, salary, service and related data as of the most recent practicable
date for employees of the Company.
(b) Schedule II also includes a list of each Benefit Arrangement of
-----------
the Company, copies or descriptions of all of which have been made available or
furnished previously to the Purchasers.
(c) No Employee Plan is a Multiemployer Plan and no Employee Plan is
subject to Title IV of ERISA. The Company and its Affiliates have not incurred
any liability under Title IV of ERISA arising in connection with the termination
of any plan covered or previously covered by Title IV of ERISA.
(d) None of the Employee Plans or other arrangements listed on
Schedule II covers any non-United States employee or former employee of the
-----------
Company.
(e) No "prohibited transaction," as defined in Section 406 of ERISA or
Section 4975 of the Code, has occurred with respect to any Employee Plan.
(f) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is exempt from
tax pursuant to Section 501(a) of the Code. The Company has furnished to the
Purchasers copies of the most recent Internal Revenue Service determination
letters with respect to each such plan. Each Employee Plan has been maintained
in compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, which are applicable to such plan.
(g) Each Employee Plan and each Benefit Arrangement has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Employee Plan and Benefit Arrangement.
(h) All contributions and payments accrued under each Employee Plan
and Benefit Arrangement, determined in accordance with prior funding and accrual
practices, as adjusted to include proportional accruals for the period ending on
the Closing Date, will be discharged and paid on or prior to the Closing Date
except to the extent reflected on the Balance Sheet. Except as disclosed in
writing to the Purchasers prior to the date hereof, there
-13-
has been no amendment to, written interpretation of or announcement (whether or
not written) by the Company or any of its ERISA Affiliates relating to, or
change in employee participation or coverage under, any Employee Plan or Benefit
Arrangement that would increase materially the expense of maintaining such
Employee Plan or Benefit Arrangement above the level of the expense incurred in
respect thereof for the fiscal year ended prior to the date hereof.
(i) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Company that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to the terms of Section 280G of the Code.
(j) No tax under Section 4980B of the Code has been incurred in
respect of any Employee Plan that is a group health plan, as defined in Section
5000(b)(l) of the Code.
(k) With respect to the employees and former employees of the Company,
there are no employee post-retirement medical or health plans in effect, except
as required by Section 4980B of the Code.
(l) No employee of the Company will become entitled to any bonus,
retirement, severance or similar benefit or enhanced benefit solely as a result
of the transactions contemplated hereby.
(m) The Company does not have, nor is it reasonably expected to have,
any liability under Title IV of ERISA.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser severally represents and warrants to the Company that:
(a) it is an "accredited investor" within the meaning of Rule 501
under the Securities Act and was not organized for the specific purpose of
acquiring the Preferred Shares;
(b) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of development
so as to be able to evaluate the risks and merits of its investment in the
Company and it is able financially to bear the risks thereof;
(c) it has had an opportunity to discuss the Company's proposed
business, management and financial affairs with the Company's management;
(d) the Preferred Shares being purchased by it are being acquired for
its own account for the purpose of investment and not with a view to or for sale
in connection with any distribution thereof;
-14-
(e) it understands that (i) the Preferred Shares and the Conversion
Shares have not been registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated
under the Securities Act, (ii) the Preferred Shares and, upon conversion
thereof, the Conversion Shares must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration, (iii) the Preferred Shares and the Conversion Shares will
bear a legend to such effect and (iv) the Company will make a notation on its
transfer books to such effect; and
(f) if it sells any Conversion Shares pursuant to Rule 144A
promulgated under the Securities Act, it will take all necessary steps in order
to perfect the exemption from registration provided thereby, including (i)
obtaining on behalf of the Company information to enable the Company to
establish a reasonable belief that the purchaser is a qualified institutional
buyer and (ii) advising such purchaser that Rule 144A is being relied upon with
respect to such resale.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASERS
The obligation of each Purchaser to purchase and pay for the Preferred
Shares being purchased by it on the Closing Date is, at its option, subject to
the satisfaction, on or before the Closing Date, of the following conditions:
(a) Representations and Warranties to be True and Correct. The
-----------------------------------------------------
representations and warranties contained in Article II shall be true, complete
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and the
President and Treasurer of the Company shall have certified to such effect to
the Purchasers in writing.
(b) Performance. The Company shall have performed and complied with
-----------
all agreements contained herein required to be performed or complied with by it
prior to or at the Closing Date.
(c) All Proceedings to be Satisfactory. All corporate and other
----------------------------------
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Purchasers and their counsel, and the Purchasers and
their counsel shall have received all such counterpart originals or certified or
other copies of such documents as they reasonably may request.
(d) Supporting Documents. The Purchasers and their counsel shall have
--------------------
received copies of the following documents:
(i) the Charter, certified as of a recent date by the Secretary
of State of the State of Delaware; and
-15-
(ii) (A) a complete copy of the By-laws of the Company as in
effect on the Closing Date; and (B) a complete copy of all resolutions
adopted by the Board of Directors and the stockholders of the Company
authorizing the execution, delivery and performance of this Agreement,
the Registration Rights Agreement Amendment and the Management Rights
Agreements, the issuance, sale and delivery of the Preferred Shares
and the reservation, issuance and delivery of the Conversion Shares,
and that all such resolutions are in full force and effect and are all
the resolutions adopted in connection with the transactions
contemplated by this Agreement, the Registration Rights Agreement
Amendment and the Management Rights Agreements.
(e) Registration Rights Agreement Amendment. The Company shall have
---------------------------------------
executed and delivered the Registration Rights Agreement Amendment.
(f) Management Rights Agreements. The Company shall have executed and
----------------------------
delivered the Management Rights Agreements to those Purchasers who have made a
request to the Company therefor and are subject in any manner with respect to
their investment in the Company to ERISA.
(g) Charter. The Charter shall read in its entirety as set forth in
-------
Exhibit C.
---------
(h) Employee Agreements. Copies of the Employee Nondisclosure and
-------------------
Developments Agreements shall have been delivered to counsel for the Purchasers.
(i) Series B Directors. In the event of an Additional Closing,
------------------
provision shall be made upon the mutual agreement of the Company, the Purchasers
purchasing on the date hereof and the Purchasers purchasing in such Additional
Closing regarding a director or directors (any such director a "Series B
Director") to be elected solely by the holders of Series B Convertible Preferred
Stock, such provision to include any necessary amendment to the Company's
Charter, By-laws or this Agreement, or the entering by the Company and the
Purchasers into any voting agreement necessary to implement the agreement
reached. Any such Series B director shall be elected as of such Additional
Closing, such director to be designated in accordance with the agreement reached
among the Company, the prior Purchasers and the Purchasers purchasing in such
Additional Closing.
(j) Opinion of Counsel. Purchasers participating in such Additional
------------------
Closing shall have received an opinion of Dechert, Price & ▇▇▇▇▇▇, dated the
date of such Additional Closing, satisfactory in form and substance to such
Purchasers and Purchasers' counsel.
(k) Fees of Purchasers' Counsel. The Company shall have paid in
---------------------------
accordance with Section 6.01 the fees and disbursements of Purchasers' counsel
invoiced at the Closing or any Additional Closing.
All such documents shall be satisfactory in form and substance to the Purchasers
and their counsel.
-16-
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the Purchasers that:
SECTION 5.01 Financial Statements, Reports, Etc. The Company shall furnish
----------------------------------
to each Purchaser:
(a) within ninety (90) days after the end of each fiscal year of the
Company a consolidated balance sheet of the Company and its subsidiaries as of
the end of such fiscal year and the related consolidated statements of income,
stockholders' equity and cash flows for the fiscal year then ended, prepared in
accordance with generally accepted accounting principles and certified by a firm
of independent public accountants of recognized national standing selected by
the Board of Directors of the Company;
(b) within thirty (30) days after the end of each month in each fiscal
year (other than the last month 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 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 5.01(b) shall terminate upon the
completion of a firm commitment underwritten public offering of the Company's
securities;
(c) at the time of delivery of each annual financial statement
pursuant to Section 5.01(a), a certificate executed by the Chief Financial
Officer of the Company stating that such officer has caused this Agreement and
the Series B Convertible Preferred Stock to be reviewed and has no knowledge of
any default by the Company in the performance or observance of any of the
provisions of this Agreement or the Series B Convertible Preferred Stock or, if
such officer has such knowledge, specifying such default and the nature thereof;
(d) at the time of delivery of each monthly statement pursuant to
Section 5.01(b), a management narrative report explaining all significant
variances from forecasts and all significant current developments in staffing,
marketing, sales and operations;
(e) no later than sixty (60) days prior to the start of each fiscal
year, consolidated capital and operating expense budgets, cash flow projections
and income and loss projections for the Company and its subsidiaries in respect
of such fiscal year, all itemized in reasonable detail and prepared on a monthly
basis, and, promptly after preparation, any revisions to any of the foregoing;
(f) promptly following receipt by the Company, each audit response
letter, accountant's management letter and other written report submitted to the
Company by its
-17-
independent public accountants in connection with an annual or interim audit of
the books of the Company or any of its subsidiaries;
(g) promptly after the commencement thereof, notice of all actions,
suits, claims, proceedings, investigations and inquiries of the type described
in Section 2.07 that could materially adversely affect the Company or any of its
subsidiaries;
(h) promptly upon sending, making available or filing the same, all
press releases, reports and financial statements that the Company sends or makes
available to its stockholders or directors or files with the Commission; and
(i) promptly, from time to time, such other information regarding the
business, prospects, financial condition, operations, property or affairs of the
Company and its subsidiaries as such Purchaser reasonably may request.
SECTION 5.02 Right of First Refusal. The Company shall, prior to any
----------------------
issuance by the Company of any of its securities (other than debt securities
with no equity feature), offer to each Purchaser by written notice the right,
for a period of twenty (20) days, to purchase all of such securities for cash at
an amount equal to the price or other consideration for which such securities
are to be issued; provided, however, that the first refusal rights of the
Purchasers pursuant to this Section 5.02 shall not apply to securities issued
(A) upon conversion of any of the Preferred Shares, (B) as a stock dividend or
upon any subdivision of shares of Common Stock, provided that the securities
issued pursuant to such stock dividend or subdivision are limited to additional
shares of Common Stock, (C) pursuant to subscriptions, warrants, options,
convertible securities, or other rights which are listed in Schedule III as
------------
being outstanding on the date of this Agreement, (D) solely in consideration for
the acquisition (whether by merger or otherwise) by the Company or any of its
subsidiaries of all or substantially all of the stock or assets of any other
entity, (E) pursuant to a firm commitment underwritten public offering, (F)
pursuant to the exercise of options to purchase Common Stock granted to
directors, officers, employees or consultants of the Company in connection with
their service to the Company or pursuant to the exercise of options to purchase
Common Stock granted to or Common Stock issued to licensors or transferors of
technology to the Company, not to exceed in the aggregate 2,135,945 shares
(appropriately adjusted to reflect stock splits, stock dividends, combinations
of shares and the like with respect to the Common Stock) (the shares exempted by
this clause (F) being hereinafter referred to as the "Reserved Employee and
Technology Shares"), and (G) upon the exercise of any right which was not itself
in violation of the terms of this Section 5.02. The Company's written notice to
the Purchasers shall describe the securities proposed to be issued by the
Company and specify the number, price and payment terms. Each Purchaser may
accept the Company's offer as to the full number of securities offered to it or
any lesser number, by written notice thereof given by it to the Company prior to
the expiration of the aforesaid twenty (20) day period, in which event the
Company shall promptly sell and such Purchaser shall buy, upon the terms
specified, the number of securities agreed to be purchased by such Purchaser.
Notwithstanding the foregoing, if the Purchasers agree, in the aggregate, to
purchase more than the full number of securities offered by the Company, then
each Purchaser accepting the Company's offer shall first be allocated the lesser
of (i) the number of securities which such Purchaser agreed to
-18-
purchase and (ii) the number of securities as is equal to the full number of
securities offered by the Company multiplied by a fraction, the numerator of
which shall be the number of shares of Common Stock held by such Purchaser as of
the date of the Company's notice of offer (treating such Purchaser, for the
purpose of such calculation, as the holder of the number of shares of Common
Stock which would be issuable to such Purchaser upon conversion, exercise or
exchange of all securities (including but not limited to the Preferred Shares)
held by such Purchaser on the date such offer is made, that are convertible,
exercisable or exchangeable into or for (whether directly or indirectly) shares
of Common Stock) and the denominator of which shall be the aggregate number of
shares of Common Stock (calculated as aforesaid) held on such date by all
Purchasers who accepted the Company's offer, and the balance of the securities
(if any) offered by the Company shall be allocated among the Purchasers
accepting the Company's offer in proportion to their relative equity ownership
interests in the Company (calculated as aforesaid), provided that no Purchaser
shall be allocated more than the number of securities which such Purchaser
agreed to purchase and provided further that in cases covered by this sentence
all Purchasers shall be allocated among them the full number of securities
offered by the Company. The Company shall be free at any time prior to ninety
(90) days after the date of its notice of offer to the Purchasers, to offer and
sell to any third party or parties the number of such securities not agreed by
the Purchasers to be purchased by them, at a price and on payment terms no less
favorable to the Company than those specified in such notice of offer to the
Purchasers. However, if such third party sale or sales are not consummated
within such ninety (90) day period, the Company shall not sell such securities
as shall not have been purchased within such period without again complying with
this Section 5.02. For purposes of this Section 5.02, (x) the term "Purchasers"
shall include the Series A Purchasers (as defined in Section 6.13 hereof) and
(y) the term "Preferred Shares" shall include the shares of Series A Convertible
Preferred Stock purchased pursuant to the Series A Agreement (as defined in
Section 6.13).
SECTION 5.03 Reserve for Conversion Shares. The Company shall at all
-----------------------------
times reserve and keep available out of its authorized but unissued shares of
Common Stock, for the purpose of effecting the conversion of the Preferred
Shares and otherwise complying with the terms of this Agreement, such number of
its duly authorized shares of Common Stock as shall he sufficient to effect the
conversion of the Preferred Shares from time to time outstanding or otherwise to
comply with the terms of this Agreement. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of the Preferred Shares or otherwise to comply with the terms of
this Agreement, the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes. The Company will
obtain any authorization, consent, approval or other action by or make any
filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock upon conversion of the Preferred Shares.
SECTION 5.04 Corporate Existence. The Company shall maintain corporate
-------------------
existence, rights and franchises in full force and effect.
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SECTION 5.05 Properties, Business, Insurance. The Company shall maintain
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its properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies similarly situated, which insurance
shall be deemed by the Company to be sufficient. The Company shall not cause or
permit any assignment or change in beneficiary and shall not borrow against any
such policy. If requested by Purchasers holding at least sixty percent (60%) of
the outstanding Preferred Shares, the Company will add one designee of such
Purchasers 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 5.06 Inspection, Consultation and Advice. The Company shall
-----------------------------------
permit each Purchaser holding in excess of 10% of the Series B Convertible
Preferred Stock and such persons as it may designate, at such Purchaser's
expense, to visit and inspect any of the properties of the Company and its
subsidiaries, examine their books and take copies and extracts therefrom,
discuss the affairs, finances and accounts of the Company and its subsidiaries
with their officers, employees and public accountants (and the Company hereby
authorizes said accountants to discuss with such Purchaser and such designees
such affairs, finances and accounts), and consult with and advise the management
of the Company and its subsidiaries as to their affairs, finances and accounts,
all at reasonable times and upon reasonable notice.
SECTION 5.07 Restrictive Agreements Prohibited. The Company shall not
---------------------------------
become a party to any agreement which by its terms restricts the Company's
performance of this Agreement, the Registration Rights Agreement, the Management
Rights Agreements or the Charter.
SECTION 5.08 Transactions with Affiliates. Except for transactions
----------------------------
contemplated by this Agreement or as otherwise approved by the Board of
Directors, the Company shall not enter into any material 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, 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 5.09 Expenses of Directors. The Company shall promptly reimburse
----------- ---------
in full, each director of the Company who is not an employee of the Company and
who is elected as a director solely or in part by the holders of Series B
Convertible Preferred Stock, for all of his reasonable out-of-pocket expenses
incurred in attending each meeting of the Board of Directors of the Company or
any Committee thereof.
SECTION 5.10 Use of Proceeds. The Company shall use the cash proceeds
---------------
from the sale of the Preferred Shares solely for working capital and other
general corporate purposes.
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SECTION 5.11 Board of Directors Meetings. The Company shall use its best
---------------------------
efforts to ensure that meetings of its Board of Directors are held at least five
times each year and at least once each quarter.
SECTION 5.12 By-laws. The Company shall at all times cause its By-laws
-------
to provide that, (a) unless otherwise required by the laws of the State of
Delaware, (i) any two directors and (ii) any holder or holders of at least 25%
of the outstanding shares of Series B Convertible Preferred Stock, shall have
the right to call a meeting of the Board of Directors or stockholders and (b)
the number of directors fixed in accordance therewith shall in no event conflict
with any of the terms or provisions of the Series B Convertible Preferred Stock
as set forth in the Charter. The Company shall at all times maintain provisions
in its By-laws and/or Charter indemnifying all directors against liability and
absolving all directors from liability to the Company and its stockholders to
the maximum extent permitted under the laws of the State of Delaware.
SECTION 5.13 Performance of Contracts. The Company shall not materially
------------------------
amend, modify, terminate, waive or otherwise alter, in whole or in part, any of
the Employee Nondisclosure and Developments Agreements without the consent of
the Company's Board of Directors.
SECTION 5.14 Vesting of Reserved Employee Shares. The Company shall not
-----------------------------------
grant to any of its employees options to purchase Reserved Employee Shares which
will become exercisable at a rate in excess of 25% per annum from the date of
such grant without the unanimous written consent of those members of the
Company's Board of Directors elected solely by the holders of Series B
Convertible Preferred Stock.
SECTION 5.15 Employee Nondisclosure and Developments Agreements. The
-------- -----------------------------------------
Company shall use its best efforts to obtain, and shall cause its subsidiaries
to use their best efforts to obtain, an Employee Nondisclosure and Developments
Agreement in substantially the form of Exhibit D, or in such other form as is
---------
approved by the Board of Directors, from all future officers, key employees and
other employees who will have access to confidential information of the Company
or any of its subsidiaries, upon their employment by the Company or any of its
subsidiaries.
SECTION 5.16 Compliance with Laws. The Company shall comply with all
--------------------
applicable laws, rules, regulations and orders, noncompliance with which could
materially adversely affect its business or condition, financial or otherwise.
SECTION 5.17 Keeping of Records and Books of Account. The Company shall
---------------------------------------
keep, and cause each subsidiary to keep, adequate records and books of account,
in which complete entries will be made in accordance with generally accepted
accounting principles consistently applied, reflecting all financial
transactions of the Company and such subsidiary, and in which, for each fiscal
year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
SECTION 5.18 Change in Nature of Business. The Company shall not make
----------------------------
any material change in the nature of its business as set forth in the Business
Plan.
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SECTION 5.19 Rule 144A Information. The Company shall, at all times
---------------------
during which it is neither subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange
Act, provide in writing, upon the written request of any Purchaser or a
prospective buyer of Preferred Shares or Conversion Shares from any Purchaser,
all information required by Rule 144A(d)(4)(i) of the General Regulations
promulgated by the Commission under the Securities Act ("Rule 144A
Information"). The Company also shall, upon the written request of any
Purchaser, cooperate with and assist such Purchaser or any member of the
National Association of Securities Dealers, Inc. PORTAL system in applying to
designate and thereafter maintain the eligibility of the Preferred Shares or
Conversion Shares, as the case may be, for trading through PORTAL. The
Company's obligations under this Section 5.23 shall at all times be contingent
upon the relevant Purchaser's obtaining from the prospective buyer of Preferred
Shares or Conversion Shares a written agreement to take all reasonable
precautions to safeguard the Rule 144A Information from disclosure to anyone
other than a person who will assist such buyer in evaluating the purchase of any
Preferred Shares or Conversion Shares.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01 Expenses. Each party hereto will pay its own expenses in
--------
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that the Company shall pay
the reasonable fees and disbursements, not to exceed $10,000, of the Purchasers'
special counsel, ▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, in connection with such
transactions and any subsequent amendment, waiver, consent or enforcement
thereof.
SECTION 6.02 Survival of Agreements. All covenants, agreements,
----------- ----------
representations and warranties made herein or in the Registration Rights
Agreement Amendment, the Management Rights Agreements, or any certificate or
instrument delivered to the Purchasers pursuant to or in connection with this
Agreement, the Registration Rights Agreement Amendment or the Management Rights
Agreements, shall survive the execution and delivery of this Agreement, the
Registration Rights Agreement Amendment and the Management Rights Agreements,
the issuance, sale and delivery of the Preferred Shares, and the issuance and
delivery of the Conversion Shares, and all statements contained in any
certificate or other instrument delivered by the Company hereunder or thereunder
or in connection herewith or therewith shall be deemed to constitute
representations and warranties made by the Company; provided that all such
representations and warranties shall terminate two years from the date they are
made.
SECTION 6.03 Brokerage. Each party hereto will indemnify and hold
---------
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
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SECTION 6.04 Parties in Interest. All representations, covenants and
-------------------
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Without limiting the
generality of the foregoing, all representations, covenants and agreements
benefiting the Purchasers shall inure to the benefit of any and all subsequent
holders from time to time of Preferred Shares or Conversion Shares.
SECTION 6.05 Notices. All notices, requests, consents and other
-------
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, addressed as follows:
(a) if to the Company, at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇,
Attention: President, with a copy to ▇▇▇▇▇ ▇. Nassau, Esq., Dechert, Price &
▇▇▇▇▇▇, 4000 ▇▇▇▇ Atlantic Tower, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇; and
(b) if to any Purchaser, at the address of such Purchaser set forth in
Schedule I, with a copy to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq., ▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇,
----------
High Street Tower, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 6.06 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware.
SECTION 6.07 Entire Agreement. This Agreement, including the Schedules
----------------
and Exhibits hereto, constitutes the sole and entire agreement of the parties
with respect to the subject matter hereof. All Schedules and Exhibits hereto
are hereby incorporated herein by reference.
SECTION 6.08 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.
SECTION 6.09 Amendments. This Agreement may not be amended or modified,
----------
and no provisions hereof may be waived, without the written consent of the
Company and the holders of at least two-thirds (2/3) of the outstanding shares
of Common Stock issued or issuable upon conversion of the Preferred Shares.
SECTION 6.10 Severability. If any provision of this Agreement shall be
------------
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 6.11 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are for convenience only and are not to be considered in construing or
interpreting any term or provision of this Agreement.
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SECTION 6.12 Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(a) "person" shall mean an individual, corporation, trust,
partnership, joint venture, unincorporated organization, government agency or
any agency or political subdivision thereof, or other entity.
(b) "subsidiary" shall mean, as to the Company, any corporation of
which more than 50% of the outstanding stock having ordinary voting power to
elect sixty percent (60%) of the Board of Directors of such corporation
(irrespective of whether or not at the time stock of any other class or classes
of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned by the
Company, or by one or more of its subsidiaries, or by the Company and one or
more of its subsidiaries.
SECTION 6.13 Prior Agreements. By their signature below, each of the
----------------
Purchasers who are also parties to that certain Series A Convertible Preferred
Stock Purchase Agreement (the "Series A Agreement") between the Company and the
purchasers named therein dated as of November 7, 1994, (each, a "Series A
Purchaser") hereby (i) waives, except to the extent set forth on Schedule I
----------
hereto, the right to purchase shares of Series B Convertible Preferred Stock
sold pursuant to this Agreement and (ii) consents to the sale of Preferred
Shares to Drs. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ to the extent set forth on Schedule I hereto.
----------
The signature of each Series A Purchaser below shall also constitute such
party's agreement to the right of first refusal granted in Section 5.02 hereof
and the termination of Section 5.02 of the Series A Agreement.
[Signature pages follow immediately.]
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