EXHIBIT 10.2
COMPOSITE COPY
FREEDOM OF INFORMATION, INC.
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STOCK PURCHASE
AND SHAREHOLDERS AGREEMENT
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As of August 28, 1998
FREEDOM OF INFORMATION, INC.
Stock Purchase
and Shareholders Agreement
As of August 28, 1998
Page
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SECTION 1. TERMS OF PURCHASE 2
1.1 Description of Securities ................................... 2
1.2 Sale and Purchase ........................................... 2
1.3 Delivery of Warrants ........................................ 2
1.4 Redemption Transaction; Use of Proceeds ..................... 3
1.5 Closing ..................................................... 3
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND REDEEMING STOCKHOLDERS 3
2.1 Organization and Corporate Power ............................ 3
2.2 Authorization and Non-Contravention ......................... 4
2.3 Capitalization .............................................. 4
2.4 Subsidiaries; Investments ................................... 6
2.5 Financial Statements and Matters ............................ 6
2.6 Absence of Undisclosed Liabilities .......................... 6
2.7 Absence of Certain Developments ............................. 6
2.8 Ordinary Course ............................................. 7
2.9 Title to Properties ......................................... 7
2.10 Tax Matters ................................................. 8
2.11 Certain Contracts and Arrangements .......................... 8
2.12 Intellectual Property Rights; Employee Restrictions ......... 10
2.13 Litigation ................................................. 11
2.14 Employee Benefit Plans ...................................... 11
2.15 Labor Laws .................................................. 12
2.16 List of Certain Employees and Suppliers ..................... 12
2.17 Hazardous Waste, Etc. ....................................... 12
2.18 Business; Compliance with Laws .............................. 12
2.19 Investment Banking; Brokerage ............................... 12
2.20 Insurance ................................................... 13
2.21 Transactions with Affiliates ................................ 13
2.22 Disclosure .................................................. 13
2.23 Sole Representations and Warranties ......................... 13
SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS ................... 13
SECTION 3. CONDITIONS OF PURCHASE ............................................ 14
3.1 Satisfaction of Conditions .................................. 15
(i)
3.2 Director Election ........................................... 15
3.3 Opinion of Counsel .......................................... 15
3.4 Authorization ............................................... 15
3.5 All Proceedings Satisfactory ................................ 15
3.6 Investors' Fees ............................................. 15
3.7 No Violation or Injunction .................................. 16
3.8 Consents and Waivers ........................................ 16
3.9 Non-Disclosure and Non-Competition Agreements ............... 16
3.10 Founder Employment Agreements ............................... 16
3.11 Pro Forma Combined Balance Sheet ............................ 16
SECTION 3A CONDITIONS OF SALE ............................................... 16
(a) Satisfaction of Conditions .................................. 17
(b) Payment of Purchase Price ................................... 17
(c) Director of Election ........................................ 17
(d) All Proceedings Satisfactory ................................ 17
(e) No Violation or Injunction .................................. 17
SECTION 4. COVENANTS ........................................................ 17
4.1 Financial Statement and Budgetary Information; Inspection ... 17
4.2 Indemnification ............................................. 18
4.3 Board of Directors .......................................... 18
4.4 Key Person Insurance ........................................ 18
4.5 Stock Awards ................................................ 18
4.6 Non-Disclosure and Non-Competition Agreements ............... 18
SECTION 5. RIGHTS TO PURCHASE ............................................... 19
5.1 Right to Participate in Certain Sales of Additional
Securities .................................................. 19
5.2 Right of First Refusal ...................................... 20
5.3 Co-Sale Rights .............................................. 23
5.4 Company Repurchase Option ................................... 24
5.5 Legends ..................................................... 24
SECTION 6. REGISTRATION RIGHTS .............................................. 24
6.1 Optional Registrations ...................................... 24
6.2 Required Registrations ...................................... 25
6.3 Registrable Securities ...................................... 28
6.4 Further Obligations of the Company .......................... 28
6.5 Indemnification; Contribution ............................... 30
6.6 Rule 144 and Rule 144A Requirements ......................... 33
6.7 Transfer of Registration Rights ............................. 33
SECTION 7. ELECTION OF DIRECTORS ............................................ 34
7.1 Board Composition ........................................... 34
(ii)
SECTION 8. GENERAL 34
8.1 Release from Guarantees ..................................... 34
8.2 Compliance with Registration Requirements
of the Securities Act ....................................... 35
8.3 Amendments, Waivers and Consents ............................ 35
8.4 Survival of Representations; Warranties and Covenants;
Assignability of Rights ..................................... 35
8.5 Legend on Securities ........................................ 36
8.6 Governing Law ............................................... 37
8.7 Section Headings and Gender ................................. 37
8.8 Counterparts ................................................ 37
8.9 Notices and Demands ......................................... 37
8.10 Remedies; Severability ...................................... 38
8.11 Integration ................................................. 39
EXHIBITS
A. Redeeming Stockholders
B. Investors
C. Preferred Stock Terms
D. Form of Warrant Agreement
E. Form of Contribution Agreement
F. Form of Redemption Note
G. Form of Director Indemnification Agreement
H. Opinion of Counsel
I.1. Form of Employee Confidential Information, Inventions and Writings
Agreement
I.2. Form of Employer Confidential Information, Inventions and Writings and
Non-Competition Agreement
J. Form of Employment Agreement
(iii)
STOCK PURCHASE
AND SHAREHOLDERS AGREEMENT
STOCK PURCHASE AND SHAREHOLDERS AGREEMENT (this "Agreement") made as of
this 28th day of August, 1998, by and among Freedom of Information, Inc., a
corporation duly organized and existing under the laws of the State of Delaware
("FOI" or the "Company"), Samuel P. Gerace, Jr. and Thomas A. Gerace
collectively the "Founders" and each individually a "Founder"), those
individuals (including the Founders) and the partnership identified as Redeeming
Stockholders in Exhibit A hereto (each individually a "Redeeming Stockholder"
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and collectively the "Redeeming Stockholders"), Gordon B. Hoffstein and the
investment partnerships named in Exhibit B hereto (collectively and with any
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successor or successors in interest the "Investors," and each individually an
"Investor" and collectively with the Redeeming Stockholders, the
"Participants").
WHEREAS, on August 28, 1998, the shareholders of Be Free, Inc., a Delaware
corporation ("Be Free") and PCX Information Systems, Inc., a Pennsylvania
corporation ("PCXIS"), contributed all of the common shares of the respective
entities held by such shareholders to FOI (the "Contribution Transaction") in
consideration of the issuance of shares of common stock, $.01 par value per
share of FOI (the "Common Stock") in the amounts set out in Exhibit A hereto,
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and promissory notes (the "Redemption Notes") of FOI in the amounts set out in
Exhibit A;
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WHEREAS, as a result of the Contribution Transaction, each of Be Free, Inc.
and PCXIS is now a wholly-owned subsidiary of FOI (Be Free and PCXIS are
collectively referred to as the "Subsidiaries" and each individually a
"Subsidiary.");
WHEREAS, the Company has authorized the issuance and sale to the Investors
of an aggregate of 10,500,000 shares of Series A Convertible Participating
Preferred Stock, par value $.01 per share ("Convertible Preferred Stock"),
having the rights and preferences set forth in Exhibit C;
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WHEREAS, the Company intends to use a portion of the proceeds from the sale
of the Convertible Preferred Stock to pay the amounts outstanding under the
Redemption Notes;
WHEREAS, each of the Founders has agreed to grant to the Company a right to
repurchase the Common Stock held by such Founder under certain circumstances;
WHEREAS, each of the Redeeming Stockholders has agreed to make the
representations and warranties and furnish the indemnification provided for
herein;
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WHEREAS, the Investors have agreed to purchase an aggregate of 10,500,000
shares of Convertible Preferred Stock at the Closing;
WHEREAS, the Company has agreed to deliver to the Investors warrants to
purchase an aggregate of 3,465,000 shares of Common Stock with an exercise price
of $1.50 per share (the "Warrants") in connection with the purchase of the
Convertible Preferred Stock hereunder; and
WHEREAS, the parties hereto desire to set forth the terms of their ongoing
relationship in connection with the Company.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
SECTION 1. TERMS OF PURCHASE
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1.1 Description of Securities. The Convertible Preferred Stock shall have
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the rights, preferences and other terms set forth in Exhibit C. For purposes of
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this Agreement, the shares of Convertible Preferred Stock to be acquired by the
Investors from the Company hereunder are referred to as the "Convertible
Preferred Shares," and the shares of Common Stock issuable on conversion thereof
are referred to as the "Conversion Shares" (and such term, when used in
reference to a number or percentage of shares of Convertible Preferred Shares
shall mean such shares held on the date hereof).
1.2 Sale and Purchase. Upon the terms and subject to the conditions
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herein, and in reliance on the representations and warranties set forth in
Section 2, each Investor hereby purchases from the Company, and the Company
hereby issues and sells to each of the Investors, at the Closing (as defined in
Section 1.3), (i) the number of shares of Convertible Preferred Stock set forth
opposite the name of such Investor in Exhibit C for the purchase price of $1.00
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per share, or an aggregate of 10,500,000 shares of Convertible Preferred Stock
for an aggregate purchase price of $10,500,000, and the Company hereby grants
the Investors the rights set forth herein. Payments hereunder shall be made by
wire transfer.
1.3 Delivery of Warrants. On the terms and subject to the conditions
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herein set forth, the Company hereby agrees to deliver to each Investor, at the
Closing, simultaneously with the delivery of the Convertible Preferred Stock,
warrant agreements (the "Warrant Agreements") to purchase the number of shares
of Common Stock set forth opposite the name of such Investor on Exhibit B in the
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form and subject to the terms and conditions contained in Exhibit D hereto.
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1.4 Redemption Transactions: Use of Proceeds. Prior to the date hereof,
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the Company has issued the Redemption Notes in exchange for certain shares of
common stock in the Subsidiaries held by the Redeeming Stockholders pursuant to
the contribution agreement substantially in the form of Exhibit E hereto (the
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"Contribution Agreement" and each individually a "Contribution Agreement") in
exchange for the Redemption Notes in the aggregate amount of $6,176,881
substantially in the form of Exhibit F hereto. The Company will use a portion of
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the proceeds from the sale of the Convertible Preferred Stock at the Closing (as
defined below) to prepay the principal amount of, and all accrued interest on
the Redemption Notes. The Company will use $1,250,905 million of the proceeds to
pay the outstanding principal amount of, and any accrued and unpaid interest of
the promissory notes listed on Schedule 1.4. The remainder of the proceeds from
the Closing will be used to fund the Company's working capital needs.
1.5 Closing. The closing of the purchases and sales of Convertible
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Preferred Shares contemplated by Section 1.2 (the "Closing") shall take place on
the date hereof (the "Closing Date"). At the Closing, the Company shall deliver
or cause to be delivered stock certificates representing the Convertible
Preferred Shares to the respective Investors, free and clear of all liens
created by the Company other than as set forth herein, and bearing the legends
set forth herein, against payment of the purchase price therefor and the Warrant
Agreements representing the Warrants.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND REDEEMING
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STOCKHOLDERS
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In order to induce the Investors to enter into this Agreement, (a) the
Company and each of the Founders severally to the extent set forth in Section
8.4 represent and warrant to each of the Investors the following Sections 2.1
through 2.22 (other than Sections 2.3, 2.4(a), 2.12(a) and 2.12(b)) and (b) the
Company and the Redeeming Stockholders severally to the extent set forth in
Section 8.4 represent and warrant to each of the Investors Sections 2.3, 2.4(a),
2.12(a) and 2.12(b), subject to the matters set forth in the schedule of
exceptions attached hereto (the "Disclosure Schedule").
2.1 Organization and Corporate Power. The Company is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
Delaware, and is qualified to do business as a foreign corporation in each of
the Commonwealth of Massachusetts and the State of Pennsylvania. The Company has
all required corporate power and authority to carry on its business as presently
conducted, to enter into and perform this Agreement and the agreements
contemplated hereby to which it is a party and to carry out the transactions
contemplated hereby and thereby, including the issuance of the Convertible
Preferred Shares. The copies of (i) the Certificate of Incorporation and By-laws
of FOI, (ii) the Certificate of Incorporation and By-laws of Be Free, and (iii)
the Articles of Incorporation and By-laws of PCXIS, as
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amended to date, which have been furnished to the Investors by the Company, are
correct and complete at the date hereof (collectively, the "Certificates of
Incorporation" and the "By-laws," respectively). Neither the Company nor any of
the Subsidiaries is in violation of any material term of its Certificate of
Incorporation or By-laws.
2.2 Authorization and Non-Contravention. The execution, delivery and
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performance by the Company of this Agreement and all other agreements, documents
and instruments to be executed and delivered by the Company as contemplated
hereby and the issuance and delivery of (i) the Convertible Preferred Shares,
(ii) upon the conversion of the Convertible Preferred Shares, the Conversion
Shares, and (iii) the Warrants have been duly authorized by all necessary
corporate and other action of the Company. This Agreement and all documents
executed by the Company pursuant hereto are valid and binding obligations of the
Company, enforceable in accordance with their terms. Except as set forth on the
Disclosure Schedule, the execution, delivery and performance by the Company of
this Agreement and all other agreements, documents and instruments to be
executed and delivered by the Company as contemplated hereby and the issuance
and delivery of (i) the Convertible Preferred Shares, (ii) upon the conversion
of the Convertible Preferred Shares, the Conversion Shares, and (iii) the
Warrants do not and will not, in such a way as to result in a material adverse
effect on the Company's assets, liabilities, condition (financial or otherwise),
business or results of operations, on a consolidated basis (a "Material Adverse
Effect"): (A) violate, conflict with or result in a default (whether after the
giving of notice, lapse of time or both) under any contract or obligation to
which the Company is a party or by which it or its assets are bound or cause the
creation of any encumbrance upon any of the assets of the Company; (B) violate
or result in a violation of, or constitute a default under, any provision of any
law regulation or rule, or any order of, or any restriction imposed by, any
court or governmental agency applicable to the Company; or (C) accelerate any
obligation under, or give rise to a right of termination of, any agreement,
permit, license or authorization to which the Company is a party or by which the
Company is bound. The execution, delivery and performance by the Company of this
Agreement and all other agreements, documents and instruments to be executed and
delivered by the Company as contemplated hereby and the issuance and delivery of
(i) the Convertible Preferred Shares, (ii) upon the conversion of the
Convertible Preferred Shares, the Conversion Shares and (iii) the Warrants, do
not and will not: (A) violate, conflict with or result in a default (whether
after the giving of notice, lapse of time or both) of any provision of the
Certificates of Incorporation or By-laws of the Company or (B) except as set
forth on the Disclosure Schedule, require from the Company any notice to,
declaration or filing with, or consent or approval of any governmental authority
or third party.
2.3 Capitalization. As of the Closing and after giving effect to the
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transactions contemplated hereby, the authorized capital stock of the Company
will consist of 45,000,000 shares of Common Stock, of which 13,323,119 shares
will be issued and outstanding (after giving effect to the transaction
contemplated by section 1.4), 15,000,000
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shares of Preferred Stock, of which 10,600,000 shares will be designated as
Series A Convertible Participating Preferred Stock, of which 10,500,000 shares
will be issued and outstanding, and 4,400,000 shares of Preferred Stock will be
undesignated. In addition, the Company has authorized and reserved for issuance
upon conversion of the Convertible Preferred Shares, 10,500,000 shares of Common
Stock (subject to adjustment for stock splits, stock dividends and the like).
Except for the Company's agreement to issue the Conversion Shares, upon exercise
of the Warrants, 3,465,000 shares of Common Stock (subject to adjustment for
stock splits, stock dividends and the like), up to 733,000 shares of Common
Stock issuable pursuant to warrants proposed to be granted to lenders of the
Company and 7,739,251 shares of Common Stock reserved for issuance under the
Company's 1998 Incentive Stock Plan (subject to adjustment for stock splits,
stock dividends and the like, less any shares already issued under such plan)
(referred to herein as the "Stock Option Pool") and except as disclosed in the
Disclosure Schedule, the Company has not issued or agreed to issue and is not
obligated to issue any outstanding warrants, options or other rights to purchase
or acquire any shares of its capital stock, nor any outstanding securities
convertible into such shares or any warrants, options or other rights to acquire
any such convertible securities. As of the Closing, and after giving effect to
the transactions contemplated hereby and assuming the accuracy of the Investors'
representations and warranties set forth in Section 2A hereof, all of the
outstanding shares of capital stock of the Company (including without limitation
the Convertible Preferred Shares) will have been duly and validly authorized and
issued and will be fully paid and nonassessable and will have been offered,
issued, sold and delivered in compliance with applicable federal and state
securities laws and not subject to any preemptive rights. Assuming the accuracy
of the Investors' representations and warranties set forth in Section 2A hereof,
the Conversion Shares issuable upon conversion of the Convertible Preferred
Shares and the shares of Common Stock issuable upon exercise of the Warrants,
assuming payment of the exercise price therefor in accordance with the terms of
the Warrant Agreement, will upon issuance be duly and validly authorized and
issued, fully paid and nonassessable and not subject to any preemptive rights
and will be issued in compliance with federal and state securities laws. The
relative rights, preferences and other provisions relating to the Convertible
Preferred Shares are as set forth in Exhibit C hereto. There are no preemptive
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rights, rights of first refusal, put or call rights or obligations or anti-
dilution rights with respect to the issuance, sale or redemption of the
Company's capital stock, other than as described in the Disclosure Schedule and
rights to which the Investors are entitled as set forth in this Agreement and
the Company's Certificate of Incorporation. Except as set forth herein or in the
Disclosure Schedule, there are no rights to have the Company's capital stock
registered for sale to the public under the laws of any jurisdiction, no
agreements relating to the voting of the Company's voting securities, and no
restrictions on the transfer of the Company's capital stock. After giving effect
to the transactions contemplated hereby, the outstanding shares of the Company's
capital stock are held beneficially and of record by the persons identified in
Schedule 2.3 in the amounts indicated thereon.
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2.4 Subsidiaries; Investments.
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(a) Subsidiaries. A complete and current list of all of the
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Subsidiaries of FOI, the outstanding equity interests of each Subsidiary and the
stockholders, members or partners of each Subsidiary are set forth in Section
2.4 of the Disclosure Schedule. All of the outstanding equity interests of each
Subsidiary are duly authorized, validly issued, fully paid and nonassessable.
(b) Investments. Except as set forth in Section 2.4 of the Disclosure
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Schedule, none of FOI or any of the Subsidiaries owns nor has any direct or
indirect interest in or control over any corporation, partnership, joint venture
or other entity of any kind, except for passive investments of less than 2% in
publicly-traded companies. The term "control" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
2.5 Financial Statements and Matters. FOI has previously furnished to the
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Holders copies of unaudited financial statements of each of its Subsidiaries for
the fiscal year ended December 31, 1997 together with copies of its unaudited
financial statements for June 30, 1998. Such financial statements referred to in
this Section 2.5 were prepared in conformity with generally accepted accounting
principles applied on a consistent basis, in all material respects are complete,
correct and consistent with the books and records of such Subsidiaries and
fairly present, in all material respects, the financial position of each such
Subsidiary as of the dates thereof and the results of operations and cash flows
of each such Subsidiary for the periods shown therein (subject to the absence of
footnotes and normal year-end adjustments).
2.6 Absence of Undisclosed Liabilities. Except as and to the extent
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reflected or reserved against in the unaudited pro forma combined balance sheet
of the Company at July 31, 1998 furnished at or prior to the Closing pursuant to
Section 3.12 (the "Base Balance Sheet"), disclosed in the Disclosure Schedule or
as incurred in the ordinary course of business since the date of the Base
Balance Sheet, the Company does not have and is not subject to any material
liability or obligation of any nature, whether accrued, absolute, contingent or
otherwise, other than liabilities incurred in connection with this Agreement and
the transactions contemplated hereby that would be required to be described on
such Base Balance Sheet or the notes thereto if it was an audited pro forma
balance sheet.
2.7 Absence of Certain Developments. Since the date of the Base Balance
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Sheet, except as set forth in the Disclosure Schedule, there has not been any:
(i) material adverse change in the financial condition of the Company or in the
assets, liabilities, condition (financial or other), business or results of
operations of the Company, (ii) declaration, setting aside or payment of any
dividend or other distribution with respect to, or any direct or indirect
redemption or acquisition of, any of the capital stock of the
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Company, (iii) waiver of any valuable right of the Company or cancellation of
any debt or claim held by the Company in excess of $100,000 in the aggregate,
(iv) loss, destruction or damage to any property which is material to the
assets, liabilities, condition (financial or other), properties, business,
results of operations or prospects of the Company, whether or not insured, (v)
acquisition or disposition of any material assets or other material transaction
by the Company other than in the ordinary course of business, (vi) material
transaction or agreement involving the Company and any officer, director,
employee or shareholder of the Company, (vii) material increase, direct or
indirect, in the compensation paid or payable to any officer, director, employee
or agent of the Company or any establishment or creation of any employment or
severance agreement or employee benefit plan, (viii) material loss of personnel
of the Company, material change in the terms and conditions of the employment of
the Company's key personnel or any labor trouble involving the Company, (ix)
termination of the employment of any senior executive personnel, (x) material
arrangements relating to any royalty, dividend or similar payment based on the
sales volume of the Company, whether as part of the terms of the Company's
capital stock or by any separate agreement, (xi) material agreement with respect
to the endorsement of the Company's products, (xii) loss or any development that
would result in a loss of any significant customer, account or employee of the
Company, (xiii) incurrence of indebtedness in excess of $100,000 in the
aggregate or any material lien, (xiv) material transaction not occurring in the
ordinary course of business, or (xv) any agreement with respect to any of the
foregoing actions.
2.8 Ordinary Course. Since the date of the Base Balance Sheet, except for
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transactions contemplated hereby and by the Contribution Transaction, the
Company has conducted its business only in the ordinary course.
2.9 Title to Properties. Section 2.9 of the Disclosure Schedule sets forth
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the addresses and uses of all real property that the Company owns, leases or
subleases. The Company has good, valid and (if applicable) marketable title to
all of its assets (other than leased assets) free and clear of all liens, claims
or encumbrances of any nature except, with respect to all such properties and
assets, (a) mortgages or security interests shown on the Base Balance Sheet as
securing specified liabilities or obligations, with respect to which no default
(or event that, with notice or lapse of time or both, would constitute a
default) exists, (b) mortgages or security interests incurred in connection with
the purchase of property of assets after the date of the Base Balance Sheet
(such mortgages and security interests being limited to the property or assets
so acquired and with written consent of each of the Investors), with respect to
which no default (or event that, with notice of lapse of time or both, would
constitute a default) exists, (c) liens for current taxes not yet due, (d)
liens, claims or encumbrances disclosed on the Disclosure Schedule and (e) with
respect to real property, (i) minor imperfections of title, if any, none of
which is substantial in amount, materially detracts from the value or impairs
the use of the property subject thereto, or impairs the operations of the
Company, and (ii) zoning laws and other land use restrictions that do not impair
the present or anticipated
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use of the property subject thereto. All equipment included in such properties
which is necessary to the business of the Company is in good condition and
repair (ordinary wear and tear excepted) and all leases of real or personal
property to which the Company is a party are fully effective and afford the
Company peaceful and undisturbed possession of the subject matter of the lease.
The Company is not in violation of any zoning, building or safety ordinance,
regulation or requirement or other law or regulation applicable to the operation
of its owned or leased properties, which violation would have a Material Adverse
Effect, nor has it received any notice of any such violation. There are no
defaults by the Company or to the knowledge of the Company, by any other party,
which might curtail in any material respect the present use of the Company's
property. Except as otherwise disclosed on Schedule 2.9, the performance by the
Company of this Agreement will not result in the termination of, or in any
material increase of any amounts payable under, any of its leases.
2.10 Tax Matters. The Company has filed all federal, state, local and
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foreign income, excise and franchise tax returns, real estate and personal
property tax returns, sales and use tax returns and other tax returns required
to be filed by it where the failure to file such returns would have a Material
Adverse Effect and has paid all taxes owing by it, except taxes which have not
yet accrued or otherwise become due, for which adequate provision has been made
in the pertinent financial statements referred to in Section 2.5 above or which
will not have a Material Adverse Effect. All taxes and other assessments and
levies which the Company is required to withhold or collect have been withheld
and collected and have been paid over to the proper governmental authorities
except where the failure to withhold or collect and pay over would not have a
Material Adverse Effect. With regard to the federal income tax returns of the
Company, the Company has never received notice of any audit or of any proposed
deficiencies from the Internal Revenue Service. There are in effect no waivers
of applicable statutes of limitations with respect to any taxes owed by the
Company for any year. Neither the Internal Revenue Service nor any other taxing
authority is now asserting or, to the knowledge of the Company, threatening to
assert against the Company any deficiency or claim for additional taxes or
interest thereon or penalties in connection therewith.
2.11 Certain Contracts and Arrangements. Except as set forth in the
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Disclosure Schedule (with true and correct copies made available to legal
counsel to the Investors), the Company is not a party or subject to or bound by:
(a) any plan or contract providing for collective bargaining or the
like, or any contract or agreement with any labor union;
(b) any contract containing covenants directly or explicitly limiting
the freedom of the Company to compete in any line of business or with any person
or entity;
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(c) any license agreement (i) in which the Company is the licensor
that provides for the license or escrow of the Company's source code or (ii) in
which the Company is a licensee that applies to software not commercially
available;
(d) any contract or agreement (other than license agreements)
obligating the Company to sell or purchase assets or services with a sale or
purchase price in excess of $50,000 in the aggregate;
(e) any material joint venture, partnership, manufacturing,
development or supply agreement;
(f) any endorsement or any other advertising, promotional or marketing
agreement providing for payments by the Company in excess of $50,000 in the
aggregate which cannot be terminated on 90 days' or less notice without the
payment of penalties;
(g) any employment or severance contracts with officers, directors or
employees of the Company or agreements with shareholders of the Company or
persons or organizations related to or affiliated with any such shareholders;
(h) any stock redemption or purchase agreements or other agreements
affecting or relating to the capital stock of the Company, including without
limitation any agreement with any shareholder of the Company which includes
without limitation, anti-dilution rights, registration rights, voting
arrangements, operating covenants or similar provisions;
(i) any pension, profit sharing, retirement or stock options plans;
(j) any royalty, dividend or similar arrangement based on the sales
volume of the Company;
(k) any acquisition, merger or similar agreement;
(l) any contract with a governmental body under which the Company may
have an obligation for renegotiation; or
(m) any agreement with any shareholder of the Company or any affiliate
of any shareholder.
All of the Company's contracts and commitments are in full force and effect
and neither the Company, nor, to the knowledge of the Company, any other party
is in default thereunder (nor, to the knowledge of the Company, has any event
occurred which with notice, lapse of time or both would constitute a default
thereunder), except to the extent that any such failure to be in full force and
effect or default would not have a Material Adverse Effect, and the Company has
not received notice of any alleged
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default under any such contract, agreement, understanding or commitment which
has not been cured.
2.12 Intellectual Property Rights; Employee Restrictions. Except as set
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forth in Schedule 2.12:
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(a) The Company owns, or has the right to use all Intellectual
Property Rights (as hereinafter defined) material to the conduct of its business
as presently conducted, including, without limitation, the trade names "Be
Free," and the exclusive right to the domain name "befree.com."
(b) The business of the Company as presently conducted does not
violate any agreements which the Company has with any third party or, to the
knowledge of the Company, materially infringe any trademark, copyright, trade
secret or patent or other Intellectual Property Rights of any third party.
(c) No claim is pending or, to the knowledge of the Company,
threatened against the Company nor has the Company received any notice or claim
from any person asserting that any of the Company's present or contemplated
activities infringe or may infringe any Intellectual Property Rights of such
person, and the Company is not aware of any infringement by any other person of
any rights of the Company under any Intellectual Property Rights that would have
a Material Adverse Effect.
(d) The Company has taken all commercially reasonable steps required
to establish and preserve its ownership of all of the Intellectual Property
Rights, except where the failure to do so would not have a Material Adverse
Effect; each current and former employee of the Company, and each of the
Company's consultants and independent contractors involved in development of any
of the Intellectual Property Rights, has executed an agreement regarding
confidentiality, proprietary information and assignment of inventions and
copyrights to the Company, and, to the knowledge of the Company, none of such
employees, consultants or independent contractors is in violation of any
agreement or in breach of any agreement or arrangement with former or present
employers relating to proprietary information or assignment of inventions.
As used herein, the term "Intellectual Property Rights" shall mean all
intellectual property rights, including, without limitation, all of the
registered rights set forth on Section 2.12 of the Disclosure Schedule and all
patents, patent applications, patent rights, trademarks, trademark applications,
trade names, service marks, service mark applications, copyrights, copyright
applications, computer programs, domain names and other computer software,
inventions, designs, samples, specifications, schematics, know-how, trade
secrets, proprietary processes and formulae, including production technology and
processes, all source and object code, algorithms, promotional materials,
customer lists, supplier and dealer lists and marketing research, and all
documentation
10
and media constituting, describing or relating to the foregoing, including
without limitation, manuals, memoranda and records. Section 2.12 of the
Disclosure Schedule contains a list of all Intellectual Property Rights
registered in the name of the Company and Section 2.12 of the Disclosure
Schedule sets forth certain Intellectual Property Rights of which the Company is
the licensor or a licensee, excluding any commercially or freely available
software of which the Company is the licensee.
2.13 Litigation. There is no litigation or governmental proceeding or
----------
investigation pending or, to the knowledge of the Company, threatened against
(i) the Company or affecting any of its properties or assets or (ii) any
officer, director or key employee of the Company in his or her capacity as an
officer, director or employee of the Company, in each case, which litigation,
proceeding or investigation is reasonably likely to have a Material Adverse
Effect, or which may call into question the validity or hinder the
enforceability of this Agreement or any other agreements or transactions
contemplated hereby; nor to the knowledge of the Company has there occurred any
event nor does there exist any condition on the basis of which any such
litigation, proceeding or investigation might be properly instituted or
commenced.
2.14 Employee Benefit Plans. The Company does not maintain or contribute
----------------------
to any employee benefit plan, stock option, bonus or incentive plan, severance
pay policy or agreement, deferred compensation agreement, or any similar plan or
agreement (an "Employee Benefit Plan") other than the Employee Benefit Plans in
the Disclosure Schedule. The terms and operation of each Employee Benefit Plan
maintained by the Company comply in all material respects with all applicable
laws and regulations relating to such Employee Benefit Plans. There are no
material unfunded obligations of the Company under any retirement, pension,
profit-sharing, deferred compensation plan or similar program. The Company is
not required to make any payments or contributions to any Employee Benefit Plan
pursuant to any collective bargaining agreement or, to the knowledge of the
Company, any applicable labor relations law. The Company has never maintained or
contributed to any Employee Benefit Plan providing or promising any health or
other nonpension benefits to terminated employees.
2.15 Labor Laws. The Company employs 14 employees and generally enjoys
----------
good employer-employee relationships. The Company is not delinquent in payments
to any of its employees for any wages, salaries, commissions, bonuses or other
direct compensation for any services performed for it as of the date hereof or
amounts required to be reimbursed to such employees. Except as disclosed in the
Disclosure Schedule, the Company is in compliance in all material respects with
all applicable laws and regulations respecting labor, employment, fair
employment practices, terms and conditions of employment, and wages and hours.
There are no charges of employment discrimination or unfair labor practices or
strikes, slowdowns, stoppages of work or any other concerted interference with
normal operations existing, pending or, to the knowledge of the Company,
threatened against or involving the Company.
11
2.16 List of Certain Employees and Suppliers. Section 2.16 of the
---------------------------------------
Disclosure Schedule contains a list of all managers, employees and consultants
of the Company who, individually, have received compensation from the Company
for the calendar year ended December 31, 1997 in excess of $75,000. In each case
such Schedule includes the current job title and aggregate annual compensation
of each such individual. To the knowledge of the Company, no key employee of the
Company has announced or made known publicly any plan or intention to terminate
his employment with the Company and no supplier has notified the Company that it
has any plan or intention to terminate or reduce its business with the Company
or to materially and adversely modify its relationship with the Company.
2.17 Hazardous Waste, Etc. No hazardous wastes, substances or materials or
--------------------
oil or petroleum products have been generated, transported, used, disposed,
stored or treated by the Company and to the knowledge of the Company no
hazardous wastes, substances or materials, or oil or petroleum products have
been released, discharged, disposed, transported, placed or otherwise caused to
enter the soil or water in, under or upon any real property owned, leased or
operated by the Company, in each case in violation of applicable environmental
laws and which would have a Material Adverse Effect.
2.18 Business; Compliance with Laws. The Company has all necessary
------------------------------
franchises, permits, licenses and other rights and privileges necessary to
permit it to own its property and to conduct its business as it is presently
conducted except where the failure to have would not have a Material Adverse
Effect. To the Company's knowledge, the Company is currently and has heretofore
been in compliance in all material respects with all federal, state and local
laws and regulations.
2.19 Investment Banking: Brokerage. There are no claims for investment
-----------------------------
banking fees, brokerage commissions, finder's fees or similar compensation
(exclusive of professional fees to lawyers and accountants) in connection with
the transactions contemplated by this Agreement payable by the Company or based
on any arrangement or agreement made by or on behalf of the Company.
2.20 Insurance. The Company maintains insurance policies of such types
---------
and in such amounts with respect to its business and properties as are disclosed
on the Disclosure Schedule. There is no material default or event which could
give rise to a material default under any such policy.
2.21 Transactions with Affiliates. Except as disclosed on the Disclosure
----------------------------
Schedule, effective as of the Closing Date there will be no loans, leases,
contracts or other transactions between the Company and any officer, director or
five percent (5%) shareholder of the Company or any family member or affiliate
of the foregoing persons.
12
2.22 Disclosure. The representations and warranties made or contained in
----------
this Agreement and the schedules hereto when taken together, do not and shall
not contain any untrue statement of a material fact and do not and shall not
omit to state a material fact required to be stated therein or necessary in
order to make such representations and warranties not misleading in light of the
circumstances in which they were made or delivered.
2.23 Sole Representations and Warranties. The representations and
-----------------------------------
warranties set forth in this Section 2 constitute the only representations and
warranties of the Company and the Redeeming Stockholders made in connection with
this Agreement.
SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
-----------------------------------------------
(a) Each Investor represents to the Company that it has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of the investment contemplated by this Agreement
and making an informed investment decision with respect thereto. Each Investor
represents that it is an "accredited investor" as such term is defined in Rule
501 under the Securities Act of 1933, as amended (the "Securities Act"). Each
Investor represents to the Company that it is purchasing the Convertible
Preferred Shares and the Warrants for its own account, for investment only and
not with a view to, or any present intention of, effecting a distribution of
such securities or any part thereof or any securities issued upon conversion
thereof except pursuant to a registration or an available exemption under
applicable law. Such Investor acknowledges and agrees that its respective
Convertible Preferred Shares, Conversion Shares, the Warrants and the Shares of
Common Stock issuable upon exercise of the Warrants have not been registered
under the Securities Act or the securities laws of any state or other
jurisdiction and cannot be disposed of unless they are subsequently registered
under the Securities Act and any applicable state laws or exemption from such
registration is available.
(b) Each Investor has full right, authority and power under its
governing partnership agreement to enter into this Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of such
Investor pursuant to or as contemplated by this Agreement and to carry out the
transactions contemplated hereby and thereby, and the execution, delivery and
performance by such Investor of this Agreement and each such other agreement,
document and instrument have been duly authorized by all necessary action under
such Investor's governing partnership agreement or otherwise. This Agreement and
each agreement, document and instrument executed and delivered by each Investor
pursuant to or as contemplated by this Agreement constitute, or when executed
and delivered will constitute, valid and binding obligations of each of the
Investors enforceable in accordance with their respective terms. The execution,
delivery and performance by each Investor of this Agreement and each such other
agreement, document and instrument, and the performance of the
13
transactions contemplated hereby and thereby do not and will not: (A) violate,
conflict with or result in a default (whether after the giving of notice, lapse
of time or both) under its partnership agreement or any contract or obligation
to which any Investor is a party or by which it or its assets are bound, or
cause the creation of any encumbrance upon any of the assets of any Investor;
(B) violate or result in a violation of, or constitute a default under, any
provision of any law, regulation or rule, or any order of, or any restriction
imposed by, any court or other governmental agency applicable to such Investor;
(C) require from such Investor any notice to, declaration or filing with, or
consent or approval of any governmental authority or other third party; or (D)
accelerate any obligation under, or give rise to a right of termination of, any
agreement, permit, license or authorization to which any Investor is a party or
by which such Investor is bound.
(c) Each Investor represents that there are no claims for investment
banking fees, brokerage commissions, finder's fees or similar compensation
(exclusive of professional fees to lawyers and accountants) in connection with
the transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of such Investor.
(d) Each Investor represents that it has had during the course of the
transaction and prior to its purchase of the Convertible Preferred Shares, the
opportunity to request information from and ask questions of the Company and its
officers, employees and agents, concerning the Company, its assets, business and
operations and to receive information and answers to such requests and
questions.
SECTION 3. CONDITIONS OF PURCHASE
----------------------
Each Investor's obligation to purchase and pay for the Convertible
Preferred Shares to be purchased by it shall be subject to compliance by the
Company with its agreements herein contained and to the fulfillment to the
Investors' satisfaction, or the waiver by the Investors, on or before and at the
Closing Date of the following conditions:
3.1 Satisfaction of Conditions. The representations and warranties of the
--------------------------
Company and the Redeeming Stockholders contained in this Agreement shall be true
and correct on and as of the Closing Date; each of the conditions specified in
this Section 3 shall have been satisfied or waived in writing by the Investors;
and, on the Closing Date, certificates to such effect executed by each of the
Redeeming Stockholders, personally and by the Company shall have been delivered
to the Investors.
3.2 Director Election. Michael Humphreys and Ted Dintersmith as the
-----------------
nominees of the Investors, shall have been elected as directors of the Company
in accordance with the provisions of Section 7 hereof (together with any
subsequent
14
nominees of the Investors, the "Investors' Nominees") and the Company
shall have entered into a Director Indemnification Agreement with each of the
Investors' Nominees in the form attached hereto as Exhibit G.
---------
3.3 Opinion of Counsel. The Investors shall have received from Ropes &
------------------
Gray an opinion dated as of the Closing Date substantially in the form attached
hereto as Exhibit H.
3.4 Authorization. The Board of Directors of FOI shall have duly adopted
-------------
resolutions in the form reasonably satisfactory to the Investors and shall have
taken all action necessary for the purpose of authorizing the Company to
consummate the transactions contemplated hereby in accordance with the terms
hereof and to cause the Certificate of Incorporation establishing the
Convertible Preferred Shares substantially in the form attached hereto as
Exhibit C to become effective; and the Investors shall have received a
- ---------
certificate of the Secretary of the Company setting forth a copy of the
resolutions authorizing the foregoing and the Certificate of Incorporation and
By-laws of FOI and such other matters as may be reasonably requested by the
Investors.
3.5 All Proceedings Satisfactory. All corporate and other proceedings
----------------------------
taken by the Company prior to or at the Closing in connection with the
transactions contemplated by this Agreement, and all documents and evidences
incident thereto, shall be reasonably satisfactory in form and substance to the
Investors.
3.6 Investors' Fees. The Company shall have paid on behalf of the
---------------
Investors all reasonable legal fees and related expenses incurred by the
Investors in connection with the transactions contemplated by this Agreement for
the Closing Date not to exceed $25,000.
3.7 No Violation or Injunction. The consummation of the transactions
--------------------------
contemplated by this Agreement shall not be in violation of any law or
regulation, and shall not be subject to any injunction, stay or restraining
order.
3.8 Consents and Waivers. The Company shall have obtained all consents or
--------------------
waivers necessary to execute this Agreement and the other agreements and
documents contemplated herein and to carry out the transactions contemplated
hereby and thereby and shall have delivered evidence thereof to the Investors.
All corporate and other action and governmental filings necessary to effectuate
the terms of this Agreement and other agreements and instruments executed and
delivered by the Company in connection herewith shall have been made or taken.
3.9 Non-Disclosure and Non-Competition Agreements. The Company's employees
---------------------------------------------
listed in Section 3.9 of the Disclosure Schedule shall have entered into
Employee Confidential Information, Inventions and Writings and Non-Competition
Agreements substantially in the form attached as Exhibit I.2 hereto.
-----------
15
3.10 Founder Employment Agreements. Each of the Founders shall have
-----------------------------
executed and delivered an Employment Agreement in substantially the form
attached hereto as Exhibit J.
---------
3.11 Pro Forma Combined Balance Sheet. The Company shall have furnished to
--------------------------------
the Investors Base Balance Sheet, which shall be reasonably satisfactory in form
and substance to the Investors.
SECTION 3A CONDITIONS OF SALE
------------------
The Company's obligation to issue the Convertible Preferred Shares and the
Warrants to the Investors shall be subject to compliance by each of the
Investors with its agreements herein contained and to the fulfillment to the
Company's satisfaction, or the waiver by the Company, on or before and at the
Closing Date of the following conditions:
(a) Satisfaction of Conditions. The representations and warranties of
--------------------------
the Investors contained in this Agreement shall be true and correct on and as of
the Closing Date; each of the conditions specified in this Section 3A shall have
been satisfied or waived in writing by the Company; and, on the Closing Date,
certificates to such effect executed by each of the Investors shall have been
delivered to the Company.
(b) Payment of Purchase Price. The aggregate purchase price shall have
-------------------------
been paid by the Investors to the Company, in accordance with Section 1.2.
(c) Director Election. Samuel P. Gerace, Jr. as the nominee of the
-----------------
Founders shall have been elected as a director of the Company in accordance with
the provisions of Section 7 hereof.
(d) All Proceedings Satisfactory. All corporate and other proceedings
----------------------------
taken by the Investors prior to or at the Closing in connection with the
transactions contemplated by this Agreement, and all documents and evidences
incident thereto, shall be reasonably satisfactory in form and substance to the
Company.
(e) No Violation or Injunction. The consummation of the transactions
--------------------------
contemplated by this Agreement shall not be in violation of any law or
regulation, and shall not be subject to any injunction, stay or restraining
order.
SECTION 4. COVENANTS
---------
The Company agrees for the benefit of the Investors that it shall comply,
except as may be waived to in writing by two-thirds in interest of the holders
of the Convertible
16
Preferred Stock (other than with respect to the right of the Redeeming
Stockholders to nominate members of the Board of Directors), with the following
covenants, provided that the covenants set forth in Section 4 (other than in
Section 4.2) shall terminate at the earlier of (i) as of the closing of the
Company's first Qualified Public Offering and (ii) such earlier date as may be
agreed to in writing by two-thirds in interest of the holders of Convertible
Preferred Stock. A "Qualified Public Offering" shall have the meaning provided
in the Terms of Preferred Stock attached hereto as Exhibit C.
---------
4.1 Financial Statement and Budgetary Information; Inspection. So long as
---------------------------------------------------------
the Investors hold an aggregate number of Convertible Preferred Shares and
Conversion Shares equal to at least 20% of the number of Convertible Preferred
Shares (subject to adjustments for stock splits, stock dividends and the like),
the Investors shall have the rights, and the Company shall have the obligations,
set forth in this Section 4.1. The Company will deliver to each of the Investors
and any person acquiring Convertible Preferred Shares from an Investor which
holds an aggregate number of shares of Convertible Preferred Stock and
Conversion Shares equal to at least 5% of the number of Convertible Preferred
Stock Shares (subject to adjustments for stock splits, stock dividends and the
like), internally prepared unaudited summary monthly financial statements,
quarterly financial statements for the first three fiscal quarters of the fiscal
year and audited annual financial statements, as well as annual budgets and
operating plans. The summary monthly and quarterly financial information, (in
the case of quarterly financial information) set forth in comparative form to
the corresponding budget and operating plan, will be provided within 30 days
after the end of each month and 45 days after each of the first three fiscal
quarters, respectively. The annual budget and operating plan will be presented
at a Board of Directors' meeting at least one month prior to the end of the
fiscal year of the Company preceding the year covered. An annual audit by an
accounting firm of national recognition selected by the Board of Directors will
be provided within 90 days after each fiscal year-end of the Company. The
Company will provide annual financial information set forth in comparative form
to the corresponding annual budget and operating plan within 90 days after each
fiscal year-end of the Company.
4.2 Indemnification. For so long as any of the Convertible Preferred
---------------
Shares remain outstanding, the Certificate of Incorporation or By-laws of the
Company will at all times during which any nominee of any of the Investors
serves as director of the Company provide for indemnification of the directors
and limitations on the liability of the directors to the fullest extent
permitted under applicable state law.
4.3 Board of Directors. As of the Closing, the Board of Directors of the
------------------
Company shall consist of up to six members (collectively the "Board of
Directors" or the "Directors" and each individually a "Director") including
Samuel P. Gerace, Jr., Ted. R. Dintersmith and W. Michael Humphreys. The Company
shall cause meetings of its Board of Directors to be held at such times during
each year as decided by the CEO or Board of Directors. The Company shall pay all
reasonable out-of-pocket expenses
17
incurred by the Investors' Nominees in connection with attending meetings or
other functions of the Company's Board of Directors or any committees thereof
and shall pay the Investors' Nominees fees in an amount equal to any cash fees
that are paid to the other non-management Directors of the Company.
4.4 Key Person Insurance. Within 120 days after the date hereof, the
--------------------
Company will use commercially reasonable efforts to purchase and maintain in its
or any subsidiary's name "key person" term life insurance policies of one
million dollars ($1,000,000) each on the lives of each of the Founders, with the
Company named as beneficiary. The Company hereby agrees that such policy shall
not be assigned, borrowed against or pledged.
4.5 Stock Awards. The Company will establish a pool for stock options,
------------
stock grants or other equity participation such that there will be a total of
7,739,251 shares of Common Stock available to employees of the Company subject
to increase with approval of each of the Founders and each of the Investors (the
"Stock Option Pool"). All securities granted pursuant to or under the Stock
Option Pool will vest over a four (4) year period.
4.6 Non-Disclosure and Non-Competition Agreements. On the date of hire of
---------------------------------------------
any future employee or upon any future grant to an existing employee under the
Plan, the Company and such employee will enter into (i) an Employee Confidential
Information, Inventions and Writings Agreement substantially in the form of
Exhibit I.1. hereto if such employee is a non- clerical employee (other than an
- -----------
engineering or executive employee) or (ii) an Employee Confidential Information,
Inventions and Writings and Non-Competition Agreement substantially in the form
of Exhibit I.2. hereto if such employee is an engineering or executive employee,
-----------
unless in each case such employee is already a party to such agreement.
SECTION 5. RIGHTS TO PURCHASE
------------------
Notwithstanding anything herein to the contrary, the following provisions
of this Section 5 shall terminate immediately prior to the closing of a
Qualified Public Offering and shall not apply with respect to any Qualified
Public Offering.
5.1 Right to Participate in Certain Sales of Additional Securities. With
--------------------------------------------------------------
respect to the Investors, so long as the Investors continue to hold an aggregate
number of Convertible Preferred Shares and Conversion Shares equal to at least
50% of the Convertible Preferred Shares (subject to adjustments for stock
splits, stock dividends and the like), and with respect to the Redeeming
Stockholders, so long as such Redeeming Stockholders continue to hold in the
aggregate at least 50% of the Common Stock held at the date hereof (subject to
adjustments for stock splits, stock dividends and the like) the Company agrees
that it will not sell or issue any shares of capital stock of the Company, or
other securities convertible into or exchangeable for capital stock of the
Company, or options, warrants or rights carrying any rights to purchase capital
stock of the Company
18
unless the Company first submits a written offer to each of the Investors and
each Redeeming Stockholder identifying the terms of the proposed sale (including
price, number or aggregate principal amount of securities and all other material
terms) (the "Offer"), and offers to each such Investor and each Redeeming
Stockholder the opportunity to purchase its Pro Rata Share (as hereinafter
defined) of such securities (subject to increase for over-allotment if some
Investors or Redeeming Stockholder do not fully exercise their rights) on terms
and conditions, including price, not less favorable to the Investors and the
Redeeming Stockholders than those on which the Company proposes to sell such
securities to a third party or parties. For the purposes of this Agreement, each
Investor's or Redeeming Stockholder's "Pro Rata Share" of such securities shall
be based upon the ratio which (A) the number of shares of Common Stock (which
shall include shares of Common Stock issuable upon exercise or conversion of
securities then outstanding) owned by it or him, as the case may be, bears to
(B) the total of all the issued and outstanding shares of Common Stock (which
shall include shares of Common Stock issuable upon exercise or conversion of
securities then outstanding). The Company's offer shall remain open and
irrevocable for a period of 7 days, and Investors and Redeeming Stockholders who
elect to purchase, by written notice to the Company, within such period shall
have the first right to take up and purchase any shares or other securities
which other Investors and Redeeming Stockholders do not elect to purchase, based
on the relative holdings of the electing purchasers. The closing of any such
Offer shall occur no sooner than 30 days after the delivery of such Offer. Any
securities so offered which are not purchased pursuant to such offer may be sold
by the Company but only on the terms and conditions set forth in the initial
offer to the Investors and Redeeming Stockholders, at any time within 120 days
following the termination of the above-referenced 30-day period but may not be
sold to any other person or on terms and conditions, including price, that are
more favorable to the purchaser than those set forth in such offer or after such
120-day period without renewed compliance with this Section 5.1.
Notwithstanding the foregoing, the Company may (i) issue shares of Common
Stock pursuant to the Warrant Agreements and pursuant to Warrants and stock
options existing on the date hereof as set forth in Section 5.1 of the
Disclosure Schedule; (ii) issue shares of Common Stock and options (and the
Common Stock to be issued upon exercise thereof) included in the Stock Option
Pool or otherwise approved by the Board of Directors of the Company; (iii) issue
warrants to purchase up to 733,000 shares of Common Stock pursuant to warrants
to be issued in connection with the placement by the Company of subordinated
indebtedness and the shares of Common Stock issued upon exercise of such
warrants; (iv) up to 100,000 shares of Convertible Preferred Stock to be issued
in connection with the placement by the Company of subordinated indebtedness and
shares of Common Stock issuable upon conversion thereof; and (v) issue
Conversion Shares upon the conversion of the Convertible Preferred Shares, and
the other provisions of this Section 5.1 shall not apply with respect to such
issuances.
19
5.2 Right of First Refusal. In the event that any Participant proposes to
----------------------
Transfer (as defined below) all or any portion of its or his shares of capital
stock of the Company or any security convertible into capital stock of the
Company to any proposed Transferee (other than to a Permitted Transferee (as
defined below)), such Participant may Transfer such shares only pursuant to and
in accordance with the following provisions of this Section 5.2:
(a) Transfer Notice. A Participant shall not make or suffer any
---------------
Transfer of all or any of its or his shares of capital stock of the Company or
any security convertible into capital stock of the Company, whether now owned or
hereafter acquired, except in accordance with the terms of this Agreement, and
any purported Transfer not made in compliance with this Agreement shall be void
and of no force and effect. If any Participant, including any of its Transferees
permitted pursuant to this Section 5.2, proposes to make or suffers any Transfer
of all or any portion of its shares of capital stock of the Company or any
security convertible into capital stock of the Company pursuant to a bona fide
third party offer, such Participant shall so inform the Company by notice in
writing (the "Transfer Notice") stating the number or amount of shares that are
the subject of such proposed Transfer (the "Offered Securities"), the name and
address of the proposed Transferee and all other terms and conditions of such
proposed Transfer, including any consideration proposed to be received for the
Offered Securities, the terms of any financing in relation to the Transfer, and,
if the proposed Transfer is to be wholly or partly for consideration other than
cash or an indebtedness of any person, the amount of the cash consideration, if
any, and a description of all non-monetary consideration. By giving the Transfer
Notice, the Participant shall be deemed to have granted to the Company an option
to purchase the Offered Securities if such Transfer is pursuant to a bona fide
third party offer, at the same consideration and on the same payment terms as
are set forth in the Transfer Notice (except that any portion of the
consideration set forth in the Transfer Notice which is not cash or indebtedness
of the Transferee shall be payable in cash in an amount equivalent to the fair
market value of such consideration).
(b) Manner of Exercise. The Company shall give notice of exercise or
------------------
nonexercise to the Participant within 15 days following the receipt of a
Transfer Notice given by such Participant pursuant to Section 5.2(a). The
failure of the Company to submit any such notice within the applicable period
shall constitute an election on its part not to purchase any of the Offered
Securities to which the Transfer Notice pertained.
(c) Requirement to Purchase All Offered Securities. Notwithstanding
----------------------------------------------
any other provision of this Section 5.2, in no event shall any Participant be
required to sell any of the Offered Securities to the Company unless, within the
period provided, the Participant has been notified that all the Offered
Securities will be purchased by the Company. If the Company does not elect to
purchase all the Offered Securities, then the
20
Company shall not have any right or obligation to purchase any of the Offered
Securities.
(d) Closing. The Closing (herein so called) of the purchase and sale
-------
of shares of Common Stock that are being purchased and sold under this Section
5.2 shall take place at the Company's principal executive offices on the 10th
day following the date of delivery of the notice of acceptance by the Company
pursuant to Section 5.2(b) herein (or if such date is a Saturday, Sunday or
legal holiday in the state where such offices are located, the first day
thereafter that is not a Saturday, Sunday or legal holiday) at 10:00 a.m., local
time. At the Closing, the parties shall take all action necessary to convey such
shares of Common Stock to be Transferred (as herein defined) in accordance with
this Agreement, free of all liens and encumbrances, all as reasonably determined
by the Company.
(e) Failure to Exercise. If the Company does not elect to purchase all
-------------------
of the Offered Securities within the period provided, then all of such Offered
Securities may be disposed of by the Participant to the prospective Transferee
named in the Transfer Notice, for the price and on the terms and conditions set
forth in the Transfer Notice, at any time within 120 days after the expiration
of the period provided for in the notice of the Company to be delivered pursuant
to Section 5.2(d) herein, provided that each Transferee shall, prior to the
Transfer of the Offered Securities to such Transferee, execute and deliver to
the Company a valid and binding agreement, satisfactory to the Company, to
become a Participant subject to the provisions of this Section 5.2 on the same
terms as the Participant from whom he acquired the Offered Securities. Each
party hereto who becomes a Participant agrees to grant to the Company full
access to all relevant records of such Participant to determine to its
reasonable satisfaction the terms of any Transfer pursuant to this Section 5.2
to any Transferee named in the Transfer Notice. Any shares of Common Stock not
so disposed of within such 120 day period shall remain subject to all of the
provisions of this Agreement.
(f) Definition of "Transfer". For purposes of this Section 5.2,
------------------------
"Transfer" means any direct or indirect offer, transfer, donation, sale,
assignment, conveyance, encumbrance, mortgage, gift, pledge, hypothecation or
other disposal or attempted disposal of all or any portion of a security or of
any rights connected thereto or interests therein, whether voluntary or
involuntary, and, including but not limited to, any Transfer by operation of
law, by court order, by judicial process or by foreclosure, levy or attachment;
"Transferred" means the accomplishment of a Transfer; and "Transferee" means the
recipient of a Transfer.
(g) Permitted Transferees. Notwithstanding the foregoing, a
---------------------
Participant may Transfer all or any of its or his shares of Common Stock without
complying with this Section 5.2; (i) in the case of Redeeming Stockholder by way
of gift or distribution to his parents, spouse or domestic partner or to the
siblings or lineal descendants or ancestors of such Redeeming Stockholder or his
spouse or domestic partner, or to any
21
trust for the exclusive benefit of, or any entity whose beneficial owners are
exclusively, any one or more of the foregoing; provided that any such Transferee
shall agree in writing with the Company and the Investors as a condition to such
Transfer, to be bound by the provisions of Sections 5.2, 5.5, 6 and 7.1 of this
Agreement to the same extent as if such Transferee were the Redeeming
Stockholder and in the case of such a Transfer by a Founder, by the provisions
of Section 5.3, (ii) in the case of a Redeeming Stockholder by will or the laws
of descent and distribution; provided that such shares of Common Stock shall
thereafter remain subject to the provisions of Sections 5.2, 5.5, and 6 and 7.1
of this Agreement to the same extent they would be if held by the Redeeming
Stockholder; (iii) in the case of any Participant, by any Transfer, disposition,
assignment, sale or hypothecation of shares of Common Stock pursuant to a merger
or consolidation of the Company with any other entity in which all of the
shareholders of the Company are participating on ratable basis (based upon the
number and class of shares held); or (iv) in the case of any Participant, to any
entity or entities the principal business of which is investing, reinvesting or
trading in securities or to a series of accounts or entities with respect to
which the decision to purchase has been made by one or more entities registered
under the Investment Advisors Act of 1940 or which would have been required to
be so registered but for an exemption thereunder, (any person who acquires
shares of Common Stock in a Transfer permitted by this Section 5(i), (ii), (iii)
or (iv) is referred to as a "Permitted Transferee") who agrees to be bound by
the provisions of this Section 5.2, Section 7.1, or (v) to the Company pursuant
to Section 5.4.
5.3 Co-Sale Rights.
--------------
(a) No Founder shall sell, assign, transfer or otherwise dispose of
any or all of the Shares owned by him to a third party (other than a Founder)
unless Founder shall first give written notice (the "Notice of Proposed
Transfer") of such sale, assignment, transfer or other disposition (the "Sale
Transaction") to each of the Investors; provided, however, that the foregoing
shall not apply to (i) any transfer to a Permitted Transferee, (ii) any transfer
to the Company pursuant to Section 5.4 or (iii) any transfer to the Company
pursuant to Section 5.2 or to any other stockholder of the Company pursuant to
any contractual rights of first refusal similar to those rights in favor of the
Company in Section 5.2. The Notice of Proposed Transfer shall describe in
reasonable detail the proposed Sale Transaction including without limitation,
the identity of the proposed transferee (the "Purchaser") if known to the
Founder, the number of shares of Common Stock to be sold, assigned, transferred
or otherwise disposed, the nature of such Sale Transaction and the consideration
to be paid and shall offer (the "Offer") to the Investors the opportunity to
participate pro rata in such transaction. Accordingly each Investor shall have
the right of co-sale to require, as a condition to such sale or disposition,
that the Purchaser purchase from such Investor at the same price per share and
on the same terms and conditions as involved in such sale or disposition by the
Founder the same percentage of Convertible Preferred Shares and Conversion
Shares owned (and deemed to be owned hereunder) by such Investor as such
proposed sale or
22
disposition of the shares of Common Stock represents with respect to all the
shares of Common Stock then owned by the Founder.
(b) Each Investor wishing to participate in any such sale or
disposition shall notify the Company and the Founder wishing to dispose of his
shares of Common Stock of such intention as soon as practicable after receipt of
the Offer contained in the Notice of Proposed Transfer and in any event within
30 days of receipt of said Offer. In the event that an Investor elects to
participate in such sale or disposition, such Investor shall individually
communicate such election to the Company and the Founder wishing to dispose of
his Shares of Common Stock, which communication shall be irrevocable and
delivered by hand or mailed to the Company and the Founder at the address set
forth in, or furnished in accordance with, Section 8.8 hereof. In the event that
none of the Investors exercise their right of participation in accordance with
this Section 5.3, the Founder may sell his shares of Common Stock on the terms
set forth in the Notice of Proposed Transfer during the 120 day period
commencing 30 days after the date on which the Notice of Proposed transfer was
given by such Founder. If such shares of Common Stock are not sold within such
120 day period, the Founder shall send a Notice of Proposed Transfer to the
Investors in accordance with this Section 5.3 with respect to any proposed
transfer whether to the same or a different Purchaser.
5.4 Company Repurchase Option.
-------------------------
(a) Voluntary Termination by a Founder. Each Founder agrees and
----------------------------------
covenants with the Company that if, prior to August 28, 1999 there has been a
voluntary termination by such Founder of his employment with the Company other
than by death or disability or for "Good Reason" as defined in such Founder's
Employment Agreement with the Company dated as of August 27, 1998, then the
Company may elect, upon written notice to such Founder given within 30 days
following such event setting forth, a date (the "Option Exercise Date") no more
than thirty days following the date of such notice, to purchase from the
terminating Founder 250,000 shares of Common Stock (as adjusted for stock
splits, stock dividends and the like) with respect to each such Founder for an
aggregate purchase price of $ 1.00.
5.5 Legends. Each Founder agrees that he will furnish to the Company
-------
certificates representing all shares of Common Stock owned by him and agrees
that the Company will imprint on such certificates the following legend:
ANY DESCRIPTION OF ANY INTEREST IN THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO RESTRICTIONS, AND THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A CERTAIN AGREEMENT BETWEEN
THE RECORDHOLDER HEREOF AND THE CORPORATION, A COPY OF WHICH WILL BE MAILED
TO ANY HOLDER OF THIS CERTIFICATE WITHIN 5 BUSINESS DAYS OF RECEIPT BY THE
CORPORATION OF A WRITTEN REQUEST THEREFOR.
23
Each Founder shall be entitled to receive from the Company, upon request
and without expense, new certificates not bearing the legend set forth in this
Section 5.5 at such time as the provisions of such legend are no longer
applicable.
SECTION 6. REGISTRATION RIGHTS
-------------------
6.1 Optional Registrations. If at any time or times after the date hereof,
----------------------
the Company shall seek to register any shares of its capital stock or securities
convertible into capital stock under the Securities Act to be sold for cash
(whether in connection with a public offering of securities by the Company (a
"primary offering"), a public offering of securities by shareholders of the
Company (a "secondary offering"), or both), the Company will promptly give
written notice thereof to each Participant (the Participants are referred to in
this Section 6 as the "Piggy Back Holders") holding Registrable Securities as
hereinafter defined in Section 6.3 below. If within 30 days after their receipt
of such notice one or more Piggy Back Holders request the inclusion of some or
all of the Registrable Securities owned by them in such registration, the
Company will use its best efforts to effect the registration under the
Securities Act of all Registrable Securities which such Piggy Back Holders may
request in a writing delivered to the Company within 30 days after their receipt
of the notice given by the Company. In the case of the registration of shares of
capital stock by the Company in connection with any underwritten public offering
(or in connection with a registration of shares pursuant to Section 6.2(a)), if
the Company is advised in writing in good faith by the underwriter(s) that the
amount to be sold by holders other than the Company (or by holders requesting
registration pursuant to Section 6.2(a)) is greater than the amount which can be
offered without adversely affecting the offering, the Company shall not be
required to register Registrable Securities of the Piggy Back Holders in excess
of the amount, if any, of shares of the capital stock which the principal
underwriter of such underwritten offering shall reasonably and in good faith
agree to include in such offering in excess of any amount to be registered for
the Company, or any amount to be registered for an investor with respect to
which a demand has been made pursuant to 6.2(a). If any limitation of the number
of shares of Registrable Securities to be registered by the Piggy Back Holders
is required pursuant to this Section 6.1, the Company may reduce the amount
offered for the accounts of such holders (including Piggy Back Holders of
Registrable Securities) pursuant to a contractual, incidental "piggy back" right
to include such securities in a registration statement to a number deemed
satisfactory by the principal underwriter provided that no reduction shall be
made in the amount of Registrable Securities offered for the accounts of the
Piggy Back Holders of Registrable Securities unless such reduction is imposed
pro rata with respect to all securities whose holders have a contractual,
incidental "piggy back" right to include such securities in the registration
statement as to which inclusion has been requested pursuant to such right;
provided, however, that there is first excluded from such registration statement
- -------- -------
all shares of Common Stock sought to be included therein by any holder not
having any such contractual, incidental registration rights. The provisions of
this Section will not apply to a registration effected solely to implement (x)
an employee benefit plan, or (y) a
24
transaction to which Rule 145 or any other similar rule of the Securities and
Exchange Commission (the "SEC"or the "Commission") under the Securities Act is
applicable.
6.2 Required Registrations.
----------------------
(a) Demand Registration on Form S-1. At any time after the earlier of
-------------------------------
June 30, 2001 or 180 days after the effective date of the Company's first
registration statement under the Securities Act for an offering with proceeds of
at least two million, five hundred thousand dollars ($2,500,000), an Investor,
or Investors (the Investors are referred to in this Section 6 as "Holders")
holding at least 33% of the Registrable Securities held by the Holders may
request that the Company register under the Securities Act not less than 33% of
the Registrable Securities held by the Holders on Form S-1 (or any successor
form).
(b) Form S-3. After the first public offering of its securities
--------
registered under the Securities Act, the Company shall use its reasonable best
efforts to qualify and remain qualified to register securities on Form S-3 (or
any successor form) under the Securities Act. Any Holder or Holders shall have
the right to request registrations for an offering with proceeds of at least one
million dollars ($1,000,000) on Form S-3 (or any successor form) for the
Registrable Securities held by such requesting Holder, including registrations
for the sale of such Registrable Securities on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act (a "Shelf Registration
Statement"). Such requests shall be in writing and shall state the number of
shares of Registrable Securities to be disposed of and the intended method of
disposition of such shares by such Holder or Holders.
(c) Registration Requirements. Following a request pursuant to Section
-------------------------
6.2(a) or (b) above, the Company will notify all of the Piggy Back Holder and
Holders who would be entitled to notice of a proposed registration under Section
6.1 above of its receipt of such notification from such Holder or Holders. Upon
the written request of any such Piggy Back Holder or Holder delivered to the
Company within 20 days after receipt from the Company of such notification, the
Company will either (i) elect to make a primary offering, in which case the
rights of such Piggy Back Holders shall be as set forth in Section 6.1 above (in
which case the registration shall not count as one of the Holders' permitted
demand registrations under Section 6.2(e)), or (ii) use its reasonable best
efforts to cause registration of such of the Registrable Securities as may be
requested by any Holders.
(d) The Company may require each Piggy Back Holder and Holder of
Registrable Securities to be sold under such registration statement, at the
Company's expense, to furnish the Company with such information and undertakings
as it may reasonably request regarding such Holder and the distribution of such
securities as the Company may from time to time reasonably request in writing.
If any Registrable Securities are to be distributed by means of any
underwriting, all Holders and Piggy
25
Back Holders proposing to distribute their securities through such underwriting
shall enter into an underwriting agreement in customary form with the
underwriters for such underwriting.
(e) Number of Required Registrations. The Company will not be
--------------------------------
obligated pursuant to demands by Holders under this Section 6.2 to effect more
than two registration statements on Forms S-1, S-2, or S-3.
(f) Postponement. The Company may postpone the filing of any
------------
registration statement required hereunder for a reasonable period of time, not
to exceed 120 days during any twelve-month period (not more than 60 of such days
to be consecutive), if the Company has been advised by legal counsel that such
filing would require a special audit or the disclosure of a material impending
transaction or other matter and the Company's Board of Directors determines
reasonably and in good faith that such disclosure would have a Material Adverse
Effect. The Company shall not be required to cause a registration statement
requested pursuant to this Section 6.2 to become effective prior to 180 days
following the effective date of a registration statement initiated by the
Company, if the request for registration has been received by the Company
subsequent to the giving of written notice by the Company, made in good faith,
to the Holders that the Company is commencing to prepare a Company-initiated
registration statement (other than a registration effected solely to implement
an employee benefit plan or a transaction to which Rule 145 or any other similar
rule of the SEC under the Securities Act is applicable); provided, however, that
the Company shall use its reasonable best efforts to achieve such effectiveness
promptly.
(g) Suspension. In the case of a registration for the sale of
----------
Registrable Securities pursuant to a Shelf Registration Statement, upon receipt
of any notice (a "Suspension Notice") from the Company of the happening of any
event which makes any statement made in the Shelf Registration Statement or
related prospectus untrue or which requires the making of any changes in such
Shelf Registration Statement or prospectus so that they will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein in light of the
circumstances under which they were made not misleading, each holder of
Registrable Securities registered under such Shelf Registration Statement shall
forthwith discontinue disposition of such Registrable Securities pursuant to
such Shelf Registration Statement until such holder's receipt of the copies of
the supplemented or amended prospectus or until it is advised in writing (the
"Advice") by the Company that the use of the prospectus may be resumed, and has
received copies of any additional or supplemental filings which are incorporated
by reference in the prospectus; provided, however, that the Company shall not
-------- -------
give a Suspension Notice until after the Shelf Registration Statement has been
declared effective. In the event that the Company shall give any Suspension
Notice, the Company shall use its best efforts and take such actions as are
reasonably necessary to render the Advice and end the Suspension Period (as
hereinafter defined) as promptly as practicable. For purposes of
26
this Section 6.2, the "Suspension Period" shall be defined as the period from
the date on which any holder receives a Suspension Notice to the date on which
any holder receives either the Advice or copies of the supplemented or amended
prospectus.
(h) Each Participant agrees, if so reasonably required by the managing
underwriter in an initial public offering of the Company's Common Stock or in a
registration pursuant to this Section 6, not to effect any public sale or
distribution of Registrable Securities or sales of such Registrable Securities
pursuant to Rule 144 or Rule 144A under the Securities Act, during the seven (7)
days prior to and the 180 days after any firm commitment underwritten
registration in an initial public offering or a registration pursuant to this
Section 6 has become effective (except as part of such underwritten
registration) or, if the managing underwriter advises the Company that, in its
opinion, no such public sale or distribution should be effected for a period of
not more than 180 days or such shorter period as may be agreed to by such
managing underwriter) after such underwritten registration and the Company gives
notice to such effect to the Participants of such advice, each such Participant
shall not effect any public sale or distribution of Registrable Securities or
sales of such Registrable Securities pursuant to Rule 144 or Rule 144A under the
Securities Act during such period after such underwritten registration, except
as part of such underwritten registration, whether or not such Participant
participates in such registration.
6.3 Registrable Securities. For the purposes of this Section 6, the term
----------------------
"Registrable Securities" shall mean (a) with respect to the Holders, the
Conversion Shares and any shares of Common Stock issuable upon exercise of the
Warrants, including any shares issued by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization; provided, however, that if a Holder owns
-------- -------
Convertible Preferred Shares, the Holder may exercise its registration rights
hereunder by converting the shares to be sold publicly into Common Stock as of
the closing of the relevant offering and shall not be required to cause such
Convertible Preferred Shares to be converted to Common Stock until and unless
such Closing occurs, it being understood that the Company shall at the request
of the relevant Holder effect the reconversion of Common Stock to Convertible
Preferred Stock if such a conversion occurs notwithstanding the foregoing and a
public offering does not close and (b) with respect to the Piggy Back Holders
other than the Holders, shares of Common Stock held by them, including any
shares issued by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization; and provided, however, that for purposes of clauses (a) and (b)
-------- -------
any Common Stock that is sold in a registered sale pursuant to an effective
registration statement under the Securities Act or pursuant to Rule 144
thereunder, or that may be sold without restriction as to volume or otherwise
pursuant to Rule 144 under the Securities Act (as confirmed by an unqualified
opinion of legal counsel to the Company), shall not be deemed Registrable
Securities.
27
6.4 Further Obligations of the Company. Whenever the Company is required
----------------------------------
hereunder to register any Registrable Securities, it agrees that it shall also
do the following:
(a) Pay all expenses of such registrations and offerings (exclusive of
underwriting discounts and commissions) and the reasonable fees and expenses of
not more than one independent counsel for the Holders or Piggy Back Holders, as
the case may be, satisfactory to the Holders or Piggy Back Holders, as the case
may be, in connection with any registrations pursuant to Section 6.2, up to two
registrations on Form S-1 or Form S-3 in the aggregate, provided that the
Investors shall pay all such expenses in connection with any other demand
registrations; provided, however, that the Company shall not be required to pay
-------- -------
more than $10,000 in fees and expenses of counsel to the Holders or Piggy Back
Holders in connection with any single registration pursuant to this Section 6.
(b) Use its reasonable best efforts (with due regard to management of
the ongoing business of the Company and the allocation of managerial resources)
diligently to prepare and file with the SEC a registration statement and such
amendments and supplements to said registration statement and the prospectus
used in connection therewith as may be necessary to keep said registration
statement effective for at least 120 days or such earlier date as the
distribution of the Securities covered thereby has been completed, and to comply
with the provisions of the Securities Act with respect to the sale of securities
covered by said registration statement for the period necessary to complete the
proposed public offering;
(c) Furnish to each selling Holder such copies of each preliminary and
final prospectus and such other documents as such Holder may reasonably request
to facilitate the public offering of its Registrable Securities;
(d) Enter into any reasonable underwriting agreement required by the
proposed underwriter (which underwriter shall be selected by the selling Holders
with the consent of the Company in connection with any registration requested
pursuant to Section 6.2(b)), if any, in such form and containing such terms as
are customary;
(e) Use its reasonable best efforts (with due regard to management of
the ongoing business of the Company and the allocation of managerial resources)
to register or qualify the securities covered by said registration statement
under the securities or "blue sky" laws of such jurisdictions as any selling
Holder may reasonably request, provided that the Company shall not be required
to register or qualify the securities in any jurisdictions which require it to
qualify to do business therein;
(f) Immediately notify each selling Holder, at any time when a
prospectus relating to his Registrable Securities is required to be delivered
under the Securities Act, of the happening of any event as a result of which
such prospectus
28
contains an untrue statement of a material fact or omits any
material fact necessary to make the statements therein not misleading, and, at
the request of any such selling Holder, prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(g) Cause all such Registrable Securities to be listed on each
securities exchange or quotation system on which similar securities issued by
the Company are then listed or quoted;
(h) Otherwise use its best efforts to comply with the securities laws
of the United States and other applicable jurisdictions and all applicable rules
and regulations of the SEC and comparable governmental agencies in other
applicable jurisdictions and make generally available to its holders, in each
case as soon as practicable, but not later than 45 days after the close of the
period covered thereby, an earnings statement of the Company which will satisfy
the provisions of Section 11(a) of the Securities Act;
(i) Use its reasonable efforts to obtain and furnish to each selling
Holder, immediately prior to the effectiveness of the registration statement
(and, in the case of an underwritten offering, at the time of delivery of any
Registrable Securities sold pursuant thereto), a cold comfort letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by cold comfort letters as the Holders
of a majority of the Registrable Securities being sold may reasonably request;
and
(j) Otherwise cooperate with the underwriter or underwriters, the
Commission and other regulatory agencies and take all actions and execute and
deliver or cause to be executed and delivered all documents necessary to effect
the registration of any Registrable Securities under this Section 6.
6.5 Indemnification: Contribution.
-----------------------------
(a) Incident to any registration statement referred to in this Section
6, the Company (in such capacity, an "Indemnifying Party") will indemnify and
hold harmless each underwriter, each Holder and, each Piggy Back Holder who
offers or sells any such Registrable Securities in connection with such
registration statement (including its partners (including partners of partners
and stockholders of any such partners), and directors, officers, employees and
agents of any of them (a "Selling Holder"), and each person who controls any of
them within the meaning of Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934 (the "Exchange Act") (a "Controlling Person"))
(each in such capacity, an "Indemnified Party"), from and against any and all
losses, claims, damages, expenses and liabilities, joint or several (including
any
29
reasonable investigation, legal and other expenses incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted, as the same are incurred, to which they, or any of them, may
become subject under the Securities Act, the Exchange Act or other federal or
state statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities arise out of or are based on (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement (including any related preliminary or definitive
prospectus, or any amendment or supplement to such registration statement or
prospectus), (ii) any omission or alleged omission to state in such document a
material fact required to be stated in it or necessary to make the statements in
it not misleading, or (iii) any violation by the Company of the Securities Act,
any state securities or "blue sky" laws or any rule or regulation thereunder in
connection with such registration; provided, however, that (i) the Company shall
-------- -------
not be liable in respect of any settlement effected without its consent (which
consent shall not be unreasonably withheld) and (ii) the Company will not be
liable to the extent that such loss, claim, damage, expense or liability arises
from and is based on (i) an untrue statement or omission or alleged untrue
statement or omission made in reliance on and in conformity with information
furnished in writing to the Company by such underwriter, Selling Holder or
Controlling Person expressly for use in such registration statement, or (ii)
such Selling Holder or Controlling Person being subject to an obligation to
deliver a definitive prospectus and fails to do so. With respect to such untrue
statement or omission or alleged untrue statement or omission in the information
furnished in writing to the Company by such Selling Holder expressly for use in
such registration statement, such Selling Holder (each such Selling Holder in
such capacity, an "Indemnifying Party") will indemnify and hold harmless each
underwriter, the Company (including its directors, officers, employees and
agents), each other Selling Holder (including its partners (including partners
of partners and stockholders of such partners) and directors, officers,
employees and agents of any of them, and each person who controls any of them
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) (each in such capacity, an "Indemnifying Party"), from and against
any and all losses, claims, damages, expenses and liabilities, joint or several,
to which they, or any of them, may become subject under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, at common
law or otherwise to the same extent provided in the immediately preceding
sentence. In no event, however, shall the liability of a Selling Holder for
indemnification under this Section 6.5(a) exceed the lesser of (i) that
proportion of the total of such losses, claims, damages or liabilities
indemnified against equal to the proportion of the total securities sold under
such registration statement which is being sold by such Selling Holder or (ii)
the proceeds received by such Selling Holder from its sale of Registrable
Securities under such registration statement.
(b) If the indemnification provided for in Section 6.5(a) above for
any reason is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party in respect of any losses, claims, damages, expenses or
liabilities referred to therein, then each indemnifying party under this Section
6.5, in lieu of indemnifying such
30
Indemnified Party thereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages, expenses or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, the other Selling Holders and the underwriters
from the offering of the Registrable Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company, the other
Selling Holders and the underwriters in connection with the statements or
omissions which resulted in such losses, claims, damages, expenses or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company, the Selling Holders and the
underwriters shall be deemed to be in the same respective proportions that the
net proceeds from the offering (before deducting expenses) received by the
Company and the Selling Holders and the underwriting discount received by the
underwriters, in each case as set forth in the table on the cover page of the
applicable prospectus, bear to the aggregate public offering price of the
Registrable Securities. The relative fault of the Company, the Selling Holders
and the underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, the Selling Holders or the underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Selling Holders agree that it would not be just and
equitable if contribution pursuant to this Section 6.5(b) were determined by pro
rata or per capita allocation or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. In no event, however, shall a Selling Holder be required to
contribute any amount under this Section 6.5(b) in excess of the lesser of (i)
that proportion of the total of such losses, claims, damages or liabilities
indemnified against equal to the proportion of the total Registrable Securities
sold under such registration statement which are being sold by such Selling
Holder or (ii) the proceeds received by such Selling Holder from its sale of
Registrable Securities under such registration statement. No person found guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
found guilty of such fraudulent misrepresentation.
(c) The amount paid by an Indemnifying Party or payable to an
Indemnified Party as a result of the losses, claims, damages and liabilities
referred to in this Section 6 shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim, payable as the same are incurred. The indemnification and
contribution provided for in this Section 6.5 will remain in full force and
effect regardless of any investigation made by or on behalf of
31
the indemnified parties or any officer, director, employee, agent or controlling
person of the Indemnified Parties.
(d) Promptly after receipt by an Indemnified Party of notice of the
commencement of any action or proceeding involving a claim referred to in this
Section 6.5, such Indemnified Party will, if a claim in respect thereof is to be
made against an Indemnifying Party, give written notice to the latter of the
commencement of such action, provided, however, that the failure of any
-------- -------
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligation under the preceding subdivisions of this
Section 6.5, except to the extent that the Indemnifying Party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an Indemnified Party, provided the Indemnifying Party provides the
Indemnified Party reasonable assurances that the Indemnifying Party has the
ability to satisfy any judgment which may be entered against the Indemnified
Party, and unless in such Indemnified Party's reasonable judgment a conflict of
interest between such Indemnified Party and Indemnifying Party may exist in
respect of such action; the Indemnifying Party shall be entitled to participate
in and to assume the defense thereof, jointly with any other Indemnifying Party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such Indemnified Party, and after notice from the Indemnifying
Party to such Indemnified Party of its election so to assume the defense
thereof, the Indemnifying Party shall not be liable to such Indemnified Party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No Indemnifying Party shall consent to any settlement without the
consent of the Indemnified Party which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability that could have been brought against it in such
action.
6.6 Rule 144 and Rule 144A Requirements. In the event that the Company
-----------------------------------
becomes subject to Section 13 or Section 15(d) of the Exchange Act, the Company
shall use its best efforts to take all action as may be required as a condition
to the availability of Rule 144 or Rule 144A under the Securities Act (or any
successor or similar exemptive rules hereafter in effect). The Company shall
furnish to any Holder, within 15 days of a written request, a written statement
executed by the Company as to the steps it has taken to comply with the current
public information requirement of Rule 144 or Rule 144A or such successor rules.
6.7 Transfer of Registration Rights. The registration rights and related
-------------------------------
obligations under this Section 6 of the Holders and Piggy Back Holders with
respect to their Registrable Securities may be assigned in connection with any
transaction or series of related transactions involving the Transfer to one or
more transferees of at least 500,000 shares of capital stock of the Company,
other than pursuant to an effective registration statement under the Securities
Act or pursuant to Rule 144 thereunder (subject to adjustments for stock splits,
stock dividends and the like and aggregating all
32
contemporaneous transfers by Holders and Piggy Back Holder), and upon any such
transfer such transferee shall be deemed to be included within the definition of
a "Holder" in the case of a transferee of any Participant or a transferee
thereof and "Piggy Back Holder" in the case of any Participant or transferee
thereof for purposes of this Section 6 with the rights set forth herein, subject
to such transferee agreeing to be bound by the provisions hereof. The relevant
Holder or Piggy Back Holder as the case may be, shall notify the Company at the
time of such transfer.
SECTION 7. ELECTION OF DIRECTORS
---------------------
7.1 Board Composition. From the date hereof until the earliest of (i) the
-----------------
closing of a Qualified Public Offering, (ii) the date on which no shares of
Convertible Preferred Stock are outstanding, (iii) the date which is ten (10)
years after the date hereof, (iv) the date on which the Investors cease to own
in the aggregate at least 1,050,000 Convertible Preferred Shares and/or
Conversion Shares (subject to adjustment for stock splits, stock dividends and
the like) as to the Investors' rights hereunder or (v) until the date on which
the Redeeming Stockholders cease to own in the aggregate at least 1,050,000
shares of Common Stock as to the rights of the Redeeming Stockholders hereunder,
each Investor and each Redeeming Stockholder agree to vote his or her shares of
the Company's capital stock having voting power (and any other shares over which
it exercises voting control) and to take such other actions as are necessary so
as to cause the Board of Directors of the Company to include and consist of (i)
the CEO or any successor chief executive officer, (ii) one nominee selected by
Matrix Partners, (iii) one nominee selected by Charles River Ventures, (iv)
Samuel P. Gerace, Jr. or his successor as selected by agreement among Redeeming
Stockholders (or their successors in interest), (v) two members unaffiliated
with the Company, with relevant business experience, and from outside the
Company's general area of business (one nominated by the Redeeming Stockholders
and one nominated by the Company's management team, both of who are reasonably
acceptable to the Investors) and (vi) one nominee selected by Highland Capital
Partners so long as Highland Capital Partners or its affiliates own at least
507,019 shares of Common Stock (or securities of the Company convertible into
such number of shares of Common Stock) (subject to adjustment for stock splits,
stock dividends and the like). Further, each Investor and Redeeming Stockholder
agrees to vote all shares of the Company's capital stock having voting power
(and any other shares over which it exercises voting control) in such manner as
shall be necessary or appropriate to ensure that any vacancy on the Board of
Directors of the Company with respect to the directors subject to nomination as
provided herein shall be filled in accordance with the provisions of this
Section 7. No director may be removed from the Board of Directors except by the
entity or group which nominated such Director.
SECTION 8. GENERAL
-------
8.1 Release from Guarantees. After the Closing, the Company shall use its
-----------------------
reasonable best efforts to have the persons listed on Schedule 8.1 released from
the
33
personal guarantees specified on Schedule 8.1 of indebtedness of the Company. In
the event that the Company cannot obtain a release for any such guarantee within
the 30 day period following the Closing, the Company shall pay off or otherwise
refinance or retire the indebtedness related to such guarantee within 30 days
following the expiration of such 30 day period.
8.2 Compliance with Registration Requirements of the Securities Act. The
---------------------------------------------------------------
Investors agree not to transfer, offer, sell or otherwise dispose of any of the
Convertible Preferred Stock, the Conversion Shares, the Warrants, and the shares
of Common Stock issuable upon exercise of the Warrants held by them, except
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act in compliance with applicable
state securities laws. In addition, if the Investors transfer any of the
Convertible Preferred Stock, the Conversion Shares, the Warrants, or the shares
of Common Stock issuable upon exercise of the Warrants in an exempt transaction,
the Investors agree to require, as a condition to such transfer, that such
transferee agree, in writing, to be bound to this Section 8.1 as if such
transferee were the transferring Investor.
8.3 Amendments. Waivers and Consents. For the purposes of this Agreement
--------------------------------
and all agreements executed pursuant hereto, no course of dealing between or
among any of the parties hereto and no delay on the part of any party hereto in
exercising any rights hereunder or thereunder shall operate as a waiver of the
rights hereof and thereof. No provision hereof may be waived otherwise than by a
written instrument signed by the party or parties so waiving such covenant or
other provision. No amendment to this Agreement may be made without the written
consent of the Company and a majority in interest of the holders of the then
outstanding shares of Convertible Preferred Stock; provided that no provision
binding upon any Redeeming Stockholder (or his or its transferee) shall be
amended without the consent of such Redeeming Stockholder (or such transferee).
Any actions required to be taken or consents, approvals, votes or waivers
required or contemplated to be given by the Investors shall require a vote of
two-thirds in interest of the holders of the then outstanding shares of
Convertible Preferred Stock and shall bind all parties as applicable.
8.4 Survival of Representations: Warranties and Covenants: Assignability
--------------------------------------------------------------------
of Rights.
- ---------
(a) All covenants, agreements, representations and warranties of the
Company, each of the Founders and each of the Redeeming Stockholders and the
Investors made herein and in the schedules hereto (i) are material, shall be
deemed to have been relied upon by the party or parties to whom they are made
and shall subject to Sections 8.4(b), 8.4(c), 8.4(d) and 8.4(e) survive the
Closing regardless of any investigation or knowledge on the part of such party
or its representatives and (ii) shall bind the parties' successors and assigns
(including without limitation any successor to
34
the Company by way of acquisition, merger or otherwise but, except as otherwise
expressly provided in this agreement, excluding any transferee of shares of
capital stock), whether so expressed or not, and, except as otherwise provided
in this Agreement and (iii) in the case of such covenants and agreements shall
inure to the benefit of the parties' successors and assigns and to their
transferees of Securities, whether so expressed or not, subject to the
provisions of Sections 5.2 and 6.7;
(b) No claim may be made or suit instituted in respect of (i) any
breach of any representation or warranty set forth in Section 2 (other than
Sections 2.3, 2.4(a), 2.12(a), 2.12(b)) after February 28, 1999, (ii) any breach
of any representation or warranty set forth in Section 2.12(a) and 2.12(b) after
August 28, 1999 , and (iii) any breach of any representation or warranty set
forth in Section 2.3 or 2.4(a) after the initial public offering of the Common
Stock or the sale of the Company or August 28, 2003.
(c) Neither the Company nor any Redeeming Stockholder shall have any
liability to any Investors with respect to a breach of any representation or
warranty set forth in Section 2 until the cumulative total of all losses
incurred for breaches of representations and warranties of Section 2 by the
Investors exceed $50,000, whereupon the Investors shall be entitled to recovery
only to the extent such losses exceed $50,000.
(d) The aggregate liability of any Redeeming Stockholder for breaches
of representations and warranties set forth in Sections 2.3, 2.4(a), 2.12(a) and
2.12(b) shall not exceed the proceeds received by such Redeeming Stockholder
from the payment of its or his Redemption Note (less, all other amounts paid in
respect of breaches of representations and warranties of other provisions of
Section 2) and shall be pro rata (based on the respective amounts of proceeds
received from the payment of its or his Redemption Notes). The aggregate
liability of any Redeeming Stockholder for breaches of representations and
warranties set forth in Section 2 (other than Sections 2.3, 2.4(a), 2.12(a) and
2.12(b)) shall not exceed 20% of the proceeds received by such Redeeming
Stockholder pursuant to its or his Redemption Note and shall be pro rata (based
on the respective amounts of proceeds received from the payment of its or his
Redemption Notes).
The Investors sole and exclusive remedy with respect to any and all claims
relating to breaches of representations and warranties shall be pursuant to
Section 8.4. In furtherance of the foregoing, the Investors hereby waives to the
fullest extent permitted under applicable law, and agrees not to assert in any
action or proceeding of any kind, any and all rights, claims and causes of
action it may now or hereafter have against any Redeeming Stockholder for
breaches of representations and warranties set forth in Section 2 other than
claims for asserted as permitted by and in accordance with the provisions set
forth in this Section 8.4 (including, without limitation, any such rights,
claims or causes of action arising under or based upon common law); provided
however, that nothing herein shall limit any right the Investors may have with
respect to claims based on fraud.
35
8.5 Legend on Securities. The Company and the Investors acknowledge and
--------------------
agree that the following legend shall be typed on each certificate evidencing
any of the securities issued hereunder held at any time by an Investor:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE
SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH
SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY
LAWS.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF A STOCK
PURCHASE AND SHAREHOLDERS AGREEMENT DATED AS OF AUGUST 28, 1998. A COMPLETE AND
CORRECT COPY OF THIS AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL
OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT
CHARGE.
8.6 Governing Law. This Agreement shall be deemed to be a contract made
-------------
under, and shall be construed in accordance with, the laws of The Commonwealth
of Massachusetts, without giving effect to conflict of laws principles thereof.
8.7 Section Headings and Gender. The descriptive headings in this
---------------------------
Agreement have been inserted for convenience only and shall not be deemed to
limit or otherwise affect the construction of any provision thereof or hereof.
The use in this Agreement of the masculine pronoun in reference to a party
hereto shall be deemed to include the feminine or neuter, and vice versa, as the
context may require.
8.8 Counterparts. This Agreement may be executed simultaneously in any
------------
number of counterparts, each of which when so executed and delivered shall be
taken to be an original; but such counterparts shall together constitute but one
and the same document.
8.9 Notices and Demands. Any notice or demand which is required or
-------------------
provided to be given under this Agreement shall be deemed to have been
sufficiently given and received for all purposes when delivered by hand,
telecopy, telex or other method of facsimile, or five days after being sent by
certified or registered mail, postage and charges prepaid, return receipt
requested, or two days after being sent by overnight delivery providing receipt
of delivery, to the following addresses:
36
(i) If to the Company, to:
Freedom of Information, Inc.
124 Mt. Auburn Street
Suite 200N
Cambridge, MA 02138
with a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: Ann L. Milner, Esq.
(ii) If to the Founders:
Thomas A. Gerace
248 Franklin Street
Unit 1
Cambridge, MA 02139
Samuel P. Gerace, Jr.
210 Grant Street
Suite 200
Pittsburgh, PA 15219-2105
(iii) If to an Investor at its mailing address as shown on Exhibit B hereto
---------
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attention: Richard E. Floor, Esquire
Facsimile:(617) 570-8150
or to such other address as may have been furnished in the same manner by any
party to the others.
8.10 Remedies; Severability. It is specifically understood and agreed that
----------------------
any breach of the provisions of this Agreement by any person subject hereto will
result in irreparable injury to the other parties hereto, that the remedy at law
alone will be an inadequate remedy for such breach, and that, in addition to any
other remedies which they may have, such other parties may enforce their
respective rights by actions for
37
specific performance (to the extent permitted by law). The Company may refuse to
recognize any unauthorized transferee as one of its shareholders for any
purpose, including, without limitation, for purposes of dividend and voting
rights, until the relevant party or parties have complied with all applicable
provisions of this Agreement. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
8.11 Integration. This Agreement, including the exhibits, documents and
-----------
instruments referred to herein or therein, constitutes the entire agreement, and
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, including, without
limitation, the letter of intent between the parties hereto in respect of the
transactions contemplated herein.
[Remainder of page intentionally left blank]
38
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
COMPANY:
-------
FREEDOM OF INFORMATION, INC.
By: /s/ Thomas A. Gerace
----------------------------
Name: Thomas A. Gerace
Title: President
FOUNDERS:
--------
/s/ Samuel P. Gerace, Jr.
-------------------------
Samuel P. Gerace, Jr.
/s/ Thomas A. Gerace
-------------------------
Thomas A. Gerace
REDEEMING STOCKHOLDERS
/s/ Samuel P. Gerace, Sr.
-------------------------
Samuel P. Gerace, Sr.
/s/ Paul F. Jacobson
--------------------
Paul F. Jacobson
/s/ Josh M. Holden
------------------
Josh M. Holden
/s/ Kevin Ingram
----------------
Kevin Ingram
/s/ Thomas J. Paul
-----------------------
Thomas J. Paul
THE GERACE FAMILY LIMITED
PARTNERSHIP
By: /s/ Samuel P. Gerace, Sr.
-------------------------
a General Partner
Name: Samuel P. Gerace, Sr.
INVESTORS:
---------
MATRIX PARTNERS V, L.P.
By: Matrix V Management Co., L.L.C.,
its General Partner
By: /s/ W. Michael Humphreys
------------------------
W. Michael Humphreys
Managing Member
CHARLES RIVER PARTNERSHIP VIII,
A LIMITED PARTNERSHIP
By: Charles River VIII GP Limited
Partnership, its General Partner
By: /s/ Ted R. Dintersmith
-----------------------
Ted R. Dintersmith
General Partner
CHARLES RIVER VIII-A LLC
By: Charles River Friends VII, Inc.,
its Manager
By: /s/ Ted R. Dintersmith
----------------------
Ted R. Dintersmith
Vice President
/s/ Gordon B. Hoffstein
-----------------------
Gordon B. Hoffstein