EXHIBIT 4.3
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"AGREEMENT") is made September 13, 1996 (the "EFFECTIVE DATE"), by and between
WEBTV NETWORKS, INC., a California corporation (the "COMPANY"), and the
purchasers listed on Schedule 1 hereto (each, a "PURCHASER," and collectively
the "PURCHASERS").
R E C I T A L S
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A. The Company desires to sell to the Purchasers and the Purchasers desire
to purchase from the Company shares of the Company's Series C Convertible
Preferred Stock.
B. Capitalized terms used herein without definition shall have the
meanings given them in Section 6.1 of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein, and subject to the terms and conditions hereinafter set forth, the
parties hereby agree as follows:
ARTICLE 1
PURCHASE, SALE AND TERMS OF SHARES
1.1 THE SERIES C CONVERTIBLE PREFERRED STOCK. The Company agrees to
issue and sell to each Purchaser, and each Purchaser agrees to purchase,
severally, that number of shares of the Company's Series C Convertible Preferred
Stock, without par value (the "SERIES C PREFERRED"), set forth opposite such
Purchaser's name on Schedule 1 hereto at a price of $7.1130 per share, for an
aggregate purchase price set forth on Schedule 1 hereto (the shares of Series C
Preferred sold hereunder are sometimes referred to as the "SHARES"). The
designation, rights, preferences and other terms and conditions relating to the
Series C Preferred shall be as set forth in Exhibit A hereto. Any shares of
Common Stock issuable upon conversion of the Series C Preferred are herein
referred to as the "CONVERSION SHARES."
1.2 RESERVATION OF SHARES. The Company will prior to the Closing (as
defined below) authorize and reserve and covenant to continue to reserve a
sufficient number of its previously authorized but unissued shares of Common
Stock to satisfy the rights of conversion of the holders of the Series C
Preferred.
1.3 THE CLOSING. The closing of the purchase and sale of the Shares
hereunder (the "CLOSING") shall be held at the offices of the Company, 305
Lytton Avenue, Palo Alto, California, on September 13, 1996, at 3:00 p.m., or on
such other date and at such time as may be mutually
agreed upon (the date of such Closing being referred to as the "CLOSING DATE").
At the Closing, the Company will issue and deliver stock certificates evidencing
the Shares sold at the Closing to the Purchasers, against payment of the
purchase price for the Shares by certified bank check or wire transfer of
immediately available funds to the account of the Company.
1.4 REPRESENTATIONS BY THE PURCHASERS.
(a) INVESTMENT. Each Purchaser represents that:
(i) Such Purchaser has been advised that the Shares have not been
registered under the Securities Act nor qualified under any state securities
laws on the grounds that no distribution or public offering of the Shares is
to be effected, and that in this connection the Company is relying in part on
the representations of such Purchaser set forth herein.
(ii) It is such Purchaser's intention to acquire the Shares for its own
account and that the Shares are being and will be acquired for the purpose of
investment and not with a view to distribution or resale thereof.
(iii) Such Purchaser is able to bear the economic risk of an investment
in the Shares acquired by such Purchaser pursuant to this Agreement and can
afford to sustain a total loss on such investment.
(iv) Such Purchaser is an experienced and sophisticated investor, able
to fend for itself in the transactions contemplated by this Agreement, and has
such knowledge and experience in financial and business matters that such
Purchaser is capable of evaluating the risks and merits of acquiring the
Shares. Such Purchaser has not been formed or organized for the specific
purpose of acquiring the Shares. Such Purchaser has had, during the course of
this transaction and prior to such Purchaser's purchase of the Shares, the
opportunity to ask questions of, and receive answers from, the Company and its
management concerning the Company and the terms and conditions of this
Agreement. Such Purchaser hereby acknowledges that such Purchaser or its
representatives has received all such information as such Purchaser considers
necessary for evaluating the risks and merits of acquiring the Shares and for
verifying the accuracy of any information furnished to such Purchaser or to
which such Purchaser had access. Such Purchaser represents and warrants that
the nature and amount of the Shares being purchased is consistent with such
Purchaser's investment objectives, abilities and resources.
(v) Notwithstanding any other provision contained in this Agreement,
such Purchaser understands that there is no public market for the Shares and
that there may never be such a public market, and that even if such a public
market develops such Purchaser may never be able to sell or dispose of the
Shares and may thus have to bear the risk of such Purchaser's investment for a
substantial period of time, or forever. Such Purchaser is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the
availability of certain current public information about the issuer, the
resale occurring not less than two (2) years after a party has purchased and
paid for the security to be sold, the sale being effected through a "broker's
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transaction" or in transactions directly with a "market maker" and the number
of shares being sold during any three (3) month period not exceeding specified
limitations.
(vi) Such Purchaser, by reason of its business or financial experience,
has the capacity to protect its own interests in connection with the purchase
of the Shares.
(vii) Such Purchaser acknowledges that the stock certificate
representing the Shares, when issued, shall contain a legend in substantially
the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND ANY SALE,
TRANSFER, PLEDGE OR OTHER DISPOSITION THEREOF MAY BE MADE ONLY IN A
TRANSACTION REGISTERED UNDER SAID ACT AND SUCH STATE SECURITIES LAWS OR IN
A TRANSACTION FOR WHICH AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND
SUCH LAWS IS AVAILABLE AND THE CORPORATION HAS RECEIVED AN OPINION OF
COUNSEL TO SUCH EFFECT REASONABLY SATISFACTORY TO IT.
(viii) Such Purchaser represents that it is an "accredited investor," as
that term is defined in Rule 501 of Regulation D under the Securities Act.
(b) AUTHORIZATION. Such Purchaser further represents that:
(i) Such Purchaser has duly authorized, executed and delivered this
Agreement and all other agreements and instruments executed in connection
herewith.
(ii) This Agreement and such other agreements and instruments constitute
the valid and binding obligations of such Purchaser, enforceable against it in
accordance with its respective terms;
(iii) No consent or approval of any Person is required in connection
with the execution, delivery and performance of this Agreement and such other
agreements and instruments by such Purchaser which has not heretofore been
obtained.
(c) BROKER'S OR FINDER'S FEES. Such Purchaser represents that no Person
has or will have, as a result of the transactions contemplated by this
Agreement, any right, interest or valid claim upon or against the Company for
any commission, fee or other compensation as a finder or broker because of any
act or omission by it, and such Purchaser agrees to indemnify and hold the
Company harmless against any such commissions, fees or other compensation.
ARTICLE 2
CONDITIONS TO PURCHASE AND SALE OBLIGATIONS
2.1 CONDITIONS TO PURCHASERS' OBLIGATIONS. The obligation of each
Purchaser to purchase and pay for the Shares at the Closing is subject to the
following conditions:
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(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Company set forth in Article 3 hereof shall be true and
correct when made, and shall be true and correct on the Closing Date.
(b) CONSENTS, WAIVERS ETC. Prior to the Closing Date, the Company shall
have obtained all consents or waivers including those from the holders of the
Series A Preferred Stock and Series B Preferred Stock and the Founders with
respect to their respective rights of first refusal to participate in future
offerings, among others, necessary to execute and deliver this Agreement, issue
the Series C Preferred and to carry out the transactions contemplated hereby and
thereby, and all such consents and waivers shall be in full force and effect.
All corporate and other action and governmental filings necessary to approve and
effectuate the terms of this Agreement, the Series C Preferred and other
agreements and instruments executed and delivered by the Company in connection
herewith, including without limitation approval of this Agreement by the
Company's Board of Directors, shall have been made, obtained or taken, except
for any post-sale filing that may be required under applicable federal and state
securities laws which will be made within the applicable time period permitted
thereunder.
(c) COVENANTS. All covenants, agreements and conditions contained in this
Agreement to be performed by the Company on or prior to the applicable Closing
Date shall have been performed or complied with.
(d) OPINION OF COMPANY'S COUNSEL. The Purchasers shall have received
from Venture Law Group, A Professional Corporation, counsel to the Company, an
opinion addressed to them, dated the Closing Date, in substantially the form of
Exhibit B.
(e) COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Purchasers, a certificate executed by the President of the Company, dated the
Closing Date, and certifying to the fulfillment of the conditions specified in
this Section 2.1.
(f) AMENDED ARTICLES. The Certificate of Amendment to the Company's
Articles defining the rights of the Series C Preferred (in the form attached
hereto as Exhibit A) shall have been filed with the Secretary of State of the
State of California.
2.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS. The obligations of the
Company to issue and sell the Shares to each Purchaser at the Closing is subject
to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of such Purchaser set forth in Section 1.4 hereof shall be true and
correct when made, and shall be true and correct on the Closing Date.
(b) CONSENTS, WAIVERS, ETC. Prior to the Closing Date, the Company shall
have obtained all consents or waivers including those from the holders of the
Series A Preferred Stock and Series B Preferred Stock and the Founders with
respect to their respective rights of first refusal to participate in future
offerings, among others, necessary to execute and deliver this Agreement, issue
the Series C Preferred and to carry out the transactions contemplated hereby and
thereby, and all such consents and waivers shall be in full force and effect.
All corporate and other action and governmental filings necessary to approve and
effectuate the terms of this Agreement, the Series C Preferred and other
agreements and instruments executed and delivered by the Company in connection
herewith,
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including without limitation approval of this Agreement by the Company's Board
of Directors, shall have been made, obtained or taken, except for any post-sale
filing that may be required under applicable federal and state securities laws
which will be made within the applicable time period permitted thereunder.
(c) AMENDED ARTICLES. The Certificate of Amendment to the Company's
articles defining the rights of the Series C Preferred (in the form attached
hereto as Exhibit A) shall have been filed with the Secretary of State of the
State of California.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth otherwise in the Schedule of Exceptions attached hereto
as Exhibit C, the Company represents and warrants to the Purchasers that:
3.1 ORGANIZATION AND STANDING OF THE COMPANY. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the State of California and has all requisite corporate power and authority for
the ownership and operation of its properties and for the carrying on of its
business as now conducted and as proposed to be conducted. The Company is duly
licensed or qualified and in good standing as a foreign corporation authorized
to do business in all jurisdictions in which the failure to be so qualified
would have a material adverse effect upon the business as now conducted.
3.2 CORPORATE ACTION. The Company has the corporate power and will,
prior to the Closing Date, have taken all necessary corporate action required to
authorize, execute, deliver and perform this Agreement and any other agreements
and instruments executed in connection herewith, and to issue, sell and deliver
the Shares and the Conversion Shares. When executed and delivered by the
Company, this Agreement and any other agreements and instruments executed in
connection herewith will constitute the valid and binding obligations of the
Company, enforceable in accordance with their terms except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, (b) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (c) to the extent the indemnification
provisions contained in Article 5 hereof may be limited by applicable federal or
state securities laws.
3.3 GOVERNMENTAL APPROVALS. Except for the filings to be made, if any,
to comply with exemptions from registration or qualification under federal and
state securities laws, no authorization, consent, approval, license, exemption
of or filing or registration with any court or governmental agency or
instrumentality is necessary for the offer, issuance, sale, execution or
delivery by the Company, or for the performance by it of its obligations under,
this Agreement, any other agreements or instruments executed in connection
herewith, or the Shares.
3.4 LITIGATION. There is no litigation or governmental proceeding or
investigation pending, or, to the Company's knowledge, threatened against the
Company affecting any of its properties or assets, or, to the Company's
knowledge, against any officer, director or principal shareholder of the Company
that might result in any material adverse change in the business,
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operations, affairs or conditions of the Company or that might call into
question the validity of this Agreement or the Shares, or that might result in
any change in equity ownership of the Company.
3.5 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is in compliance in
all respects with the terms and provisions of its Articles of Incorporation,
bylaws and in all material respects with the terms and provisions of each
mortgage, indenture, lease, agreement and other instrument relating to
obligations of the Company in excess of $100,000, and of any judgments, decrees,
governmental orders, statutes, rules or regulations by which it is bound or to
which its properties or assets are subject. Neither the execution and delivery
of this Agreement or the Shares, nor the consummation of any transaction
contemplated hereby or thereby, has constituted or resulted in a default or
violation of any term or provision in any of the foregoing documents or
instruments; and there is no such violation or default or event which, with the
passage of time or giving of notice or both, would constitute a violation or
default which materially and adversely affects the business of the Company or
any of its properties or assets.
3.6 REGISTRATION RIGHTS. Except for the holders of the Company's Series
A Preferred Stock, Series B Preferred Stock and each of the Founders and as set
forth in Article 5 hereof, no Person has demand or other rights to cause the
Company to file any registration statement under the Securities Act relating to
any securities of the Company or any right to participate in an offering of
shares under any such registration statement. All registration rights of the
Founders are subordinate to those of the Purchasers hereunder.
3.7 SECURITIES ACT OF 1933. Subject in part to the truth and accuracy of
each Purchaser's representations set forth in Section 1.4 of this Agreement, the
offer, sale and issuance of the Series C Preferred as contemplated by this
Agreement are exempt from the registration requirements of the Securities Act.
3.8 NO BROKERS OR FINDERS. The Company owes no commission, fee or other
compensation to any Person as a finder or broker as a result of the transactions
contemplated by this Agreement.
3.9 CAPITALIZATION; STATUS OF CAPITAL STOCK. The Company represents and
warrants that immediately prior to the Closing Date the Company will have a
total authorized capitalization consisting of (i) 100,000,000 shares of Common
Stock, without par value, of which 18,808,748 shares are issued and outstanding,
and (ii) 20,000,000 of Preferred Stock, of which 1,510,533 shares of Series A
Convertible Preferred Stock are issued and outstanding and of which 6,316,706
shares of Series B Convertible Preferred Stock are issued and outstanding. The
Company has reserved 5,000,000 shares of Common Stock for issuance under the
Company's 1996 Stock Incentive Plan (the "PLAN"), under which options to
purchase 4,152,848 shares have been granted, stock grants for 5,775 shares have
been made, and 841,377 shares remain available for future grant. Optionees
under the Plan are currently in the process of exercising their options for
shares of restricted stock that will be subject to repurchase by the Company.
The Company has issued warrants to purchase 53,000 shares of Common Stock to
certain individuals and has agreed to issue warrants to purchase 86,000 shares
of Series B Preferred Stock to an equipment lessor. All of the outstanding
shares of capital stock of the Company have been duly authorized, are validly
issued and are fully paid and nonassessable and all shares issuable upon
exercise of outstanding options and warrants have been duly authorized and, when
issued in accordance with the terms of such options and warrants, will be
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validly issued, fully paid and nonassessable. The Company has reserved
sufficient shares of Common Stock for issuance upon conversion of the Series C
Convertible Preferred. The Conversion Shares when issued and delivered upon
conversion of the Series C Preferred, will be duly authorized, validly issued
and fully paid and nonassessable. Except as set forth in this Agreement and the
Exhibits and Schedules attached hereto, there are no options, warrants or rights
to purchase shares of capital stock or other securities authorized, issued or
outstanding, nor is the Company obligated in any manner to issue shares of its
capital stock or other securities. Except as set forth in this Agreement and
the Exhibits and Schedules hereto, no holder of any security of the Company is
entitled to preemptive or similar statutory or contractual rights, either
arising pursuant to any agreement or instrument to which the Company is a party
or that are otherwise binding upon the Company. The offer and sale of all
shares of capital stock or other securities of the Company issued before the
Closing complied with or were exempt from registration or qualification under
all federal and state securities laws.
3.10 FINANCIAL STATEMENTS. The Company has furnished to the Purchasers,
or will furnish to the Purchasers prior to the Closing, the audited balance
sheet of the Company as of March 31, 1996 and the audited statements of
operations and cash flows for the eleven month period then ended. The Company
has also furnished to the Purchasers, or will furnish to the Purchasers prior to
the Closing, the unaudited balance sheet of the Company as of June 30, 1996 and
the unaudited statement of operations for the quarter then ended (all of such
financial statements are referred to collectively herein as the "FINANCIAL
STATEMENTS"). The Financial Statements were prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied
throughout the period involved, and fairly present the financial position and
results of operations of the Company at the date specified and reflect all
liabilities, contingent or otherwise, at the date thereof.
3.11 ABSENCE OF CHANGES. Since June 30, 1996, no event has occurred or
failed to occur that would be required to be disclosed in the footnotes of the
Financial Statements for such statements to be prepared in accordance with
generally accepted accounting principles, and there has been no material adverse
change in the business, affairs, operations, properties, assets or condition of
the Company.
3.12 GOOD AND MARKETABLE TITLE. The Company has good and marketable
title to all of its properties and assets which it owns, and a valid leasehold
interest in the premises which it currently occupies, free and clear of all
liens, claims, security interests, charges and encumbrances, and has the right
to use all the assets it presently uses in the operation of its business. The
properties and assets of the Company are in all material respects in good
operating condition and repair, normal wear and tear excepted.
3.13 SUBSIDIARIES. The Company does not own, control, directly or
indirectly, any other corporation, association, partnership or other business
entity or own any shares of capital stock or other securities of any other
Person.
3.14 TAX MATTERS. The Company is in the process of preparing its initial
tax return. The provision for taxes of the Company as shown in the Financial
Statements is adequate for taxes due or accrued as of the date thereof.
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3.15 INSURANCE. The Company has in full force and effect fire and
casualty insurance policies, sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties or assets that might
be damaged or destroyed that are material to the present conduct of its
business.
3.16 CERTAIN TRANSACTIONS. Other than the interest arising from a
Person's stock ownership of the Company or for compensation as an employee or
director of the Company, there currently are no material transactions between
the Company, on the one hand, and its officers, directors or shareholders, or
their immediate family members, on the other hand, and no such person is an
interested party to any material contract of the Company or holds a direct or
indirect ownership interest in any business or corporation which competes with
the Company.
3.17 MATERIAL CONTRACTS AND COMMITMENTS. Except as set forth in this
Agreement and the Exhibits and Schedules attached hereto, there are no
contracts, agreements or instruments to which the Company is a party or by which
it is bound that may involve (a) obligations (contingent or otherwise) of, or
payments to the Company in excess of $100,000, or (b) the license of any patent,
trademark, service mark, trade name, copyright, trade secret or other
proprietary right to or from the Company (other than licenses which are
immaterial or could be readily replaced), or (c) provisions restricting the
development or distribution of the Company's products or services. All such
contracts, agreements and instruments are, to the Company's knowledge valid,
binding and in full force and effect in all material respects, subject to (a)
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, and
(b) laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies. The Company has not received any notice of
default of, and to the Company's knowledge there is no default of, any third
party under any material contract, agreement or instrument to which the Company
is a party.
3.18 PATENTS, COPYRIGHTS AND TRADEMARKS.
To the Company's knowledge, the Company owns or has the right to use, all
Intellectual Property used in or necessary for its business as presently
conducted and as proposed to be conducted based on the Business Plan (except as
to Intellectual Property the Company believes it will be able to acquire from
third parties in the ordinary course of business on reasonable terms),
including, without limitation, all Intellectual Property assigned or licensed to
the Company by the Founders. To the Company's knowledge, the Company has not
violated, and is not violating, any Intellectual Property Rights of any other
Person or entity and has not received any communications to that effect. The
Company is not aware of any Person who is infringing upon or violating any of
the Intellectual Property Rights of the Company. Except as set forth in this
Agreement and the Exhibits and Schedules attached hereto, the Company has not
granted any license or option or entered into any material agreement of any kind
with respect to the use of its Intellectual Property. To the Company's
knowledge, none of the Company's employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of such employee's best efforts to
promote the interests of the Company or that would conflict with the Company's
business as proposed to be conducted. Neither the execution nor delivery of
this Agreement, nor the carrying on of the Company's business by the employees
of the Company, nor the conduct of the Company's business as now conducted or as
proposed to be conducted, will, to
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the Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to utilize any inventions of
any of its employees (or people it currently intends to hire) made prior to
their employment by the Company other than technology rights and the like
previously assigned and/or licensed to the Company by Steven G. Perlman and
Phillip Goldman, which assignments and/or licenses, as the case may be,
transferred to the Company such rights in the Intellectual Property used in or
necessary for the Company's business as presently conducted and as proposed to
be conducted based on the Business Plan dated February, 1996.
3.19 ENVIRONMENTAL MATTERS. The Company has not, contrary to applicable
statutes and regulations, stored or disposed of, on, under or about their
premises hazardous materials, and to the Company's knowledge, during the time
period any prior owners owned or leased such premises, such prior owners or
lessees or third parties did not so store or dispose of on, under or about such
premises or transfer to or from the premises any hazardous materials. As used
in this Agreement, the term "hazardous materials" shall mean substances defined
as "hazardous substances" or "hazardous materials" or "toxic substances" in the
Comprehensive Environmental Response and Compensation Liability Act of 1980, as
amended, 42 U.S.C., Section 9601, et seq.; The Hazardous Materials
Transportation Act, 49 U.S.C., Section 1801, et seq.; The Resource Conservation
Recovery Act, 42 U.S.C., Section 6901, et seq.
3.20 EMPLOYEES AND EMPLOYEE BENEFIT PLANS. To the Company's knowledge, no
employee of the Company is in violation of any term of any employment contract,
patent disclosure agreement or any other contract or agreement relating to the
relationship of any such employee with the Company or any other party. The
Company does not have any collective bargaining agreements covering any of its
employees.
3.21 DISCLOSURE. No representation, warranty or statement by the
Company in this Agreement or in any written statement or certificate required by
this Agreement to be furnished to the Purchasers or their counsel pursuant to
this Agreement contains or will contain any untrue statement of material fact or
omits to state a material fact necessary to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE 4
COVENANTS OF THE COMPANY AND THE PURCHASERS
4.1 AFFIRMATIVE COVENANTS OF THE COMPANY. Without limiting any other
covenants and provisions hereof, the Company covenants and agrees that, until
the earlier of (i) such time as the Purchasers no longer hold at least 5% of
TVP, or (ii) the closing of a Qualified Public Offering, it will perform and
observe the following covenants and provisions and will not, without approval of
a majority of holders of the Series C Preferred, amend or revise any terms of
this Section 4.1:
(a) REPORTING REQUIREMENTS. The Company shall furnish to each Purchaser
holding at least 700,000 shares of the Company's capital stock (i) on an annual
basis, within 75 days after the end of each fiscal year, a balance sheet,
related statements of operations and cash flows presented in accordance with
GAAP, with any required notes thereto, audited by a nationally recognized public
accounting firm, and at least 35 days prior to the end of such fiscal year, a
Board-approved plan and
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budget for the next fiscal year; (ii) on a quarterly basis, within 30 days after
the end of each calendar quarter, an unaudited balance sheet and related
statements of operations and cash flows; (iii) on a monthly basis, within 30
days after the end of each month, a monthly unaudited balance sheet and related
statements of operations and cash flows; and (iv) such other information about
the Company's affairs as may be reasonably requested by the Purchasers. Such
annual, quarterly and monthly results shall be prepared in a form which permits
comparison to the budget for the corresponding period and, in the case of the
annual and quarterly results, comparison to the prior year's results.
(b) INSURANCE. The Company shall maintain insurance in such amounts, with
such deductibles and against such risks and losses as are reasonable for the
business and assets of the Company, and the Company shall maintain such other
insurance as may be required by law, and maintain in effect until the
consummation of a Qualified Public Offering term life insurance insuring each of
the lives of the Founders for $3,000,000 and naming the Company as beneficiary.
(c) PROPRIETARY INFORMATION AGREEMENTS. The Company agrees to obtain from
each person employed by the Company having access to confidential information of
the Company and/or any party with whom the Company conducts business a
Proprietary Information Agreement substantially in the form furnished to the
Purchasers and their counsel.
4.2 CONFIDENTIALITY. Each Purchaser severally represents and warrants
that any confidential information obtained from this Agreement shall be treated
as confidential and shall not be disclosed to a third party without the consent
of the Company or used for any purpose other than allowing such Purchaser to
exercise its rights under this Agreement.
ARTICLE 5
REGISTRATION RIGHTS
5.1 DEMAND REGISTRATIONS. The provisions of this Section 5.1 shall
commence on the date of the First Commercial Shipment and terminate at such time
as all Holders are permitted to resell the Registrable Securities held by them
in a single three month period without restriction pursuant to Rule 144
promulgated under the Securities Act.
(a) NOTICE AND REGISTRATION. Upon a Registration Notice from one or more
Holders to the Company requesting that the Company effect the registration under
the Securities Act of at least 40% of the Registrable Securities or any lesser
percentage so long as the anticipated proceeds from such offering exceed
$20,000,000, which Registration Notice shall specify the intended method or
methods of disposition of such Registrable Securities, the Company shall use its
best efforts to effect (at the earliest possible date) the registration under
the Securities Act of such Registrable Securities for disposition in accordance
with the intended method or methods of disposition stated in such Registration
Notice (including, but not limited to, an offering on a delayed or continuous
basis pursuant to Rule 415, or any successor rule to similar effect, promulgated
under the Securities Act; provided that:
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(i) except as provided otherwise in Section 5.1(a)(iii), a Holder
shall have the right to deliver Registration Notices to effect three (3) demand
registrations pursuant to this Section 5.1 (each, a "DEMAND") and no more;
(ii) a Holder may not deliver a Registration Notice prior to six
months following the effective date of the initial registration statement used
for a Qualified Public Offering or during any Registration Process; and
(iii) if available, a Demand shall be effected by the Company on such
Form S-3. In addition to the Demand rights set forth in Section 5.1(a)(i) above,
a Holder who holds 5% or more of the Registrable Securities may request the
Company to effect a registration on Form S-3, if available; provided that the
number of such registrations is limited to two (2) per twelve month period and
that the anticipated proceeds from such offering are at least $1,000,000.
(b) DESIGNATION OF INVESTMENT BANK. In the event that any registration
pursuant to this Section 5.1 shall involve, in whole or in part, an underwritten
offering, the Company shall have the right to designate one or more nationally
recognized investment banking firms, reasonably acceptable to the requesting
Holder, as the lead underwriter(s) of such underwritten offering.
(c) WITHDRAWAL OF REGISTRATION NOTICE. A Holder shall have the right to
withdraw any Registration Notice or, subject to Section 5.1(a) hereof, to change
the number of Registrable Securities covered thereby at any time and for any
reason.
(d) EFFECT OF DEMAND. A registration requested by a Holder pursuant to
this Section 5.1 shall not be deemed to have been effected for purposes of
Section 5.1(a)(i): (i) unless such registration statement has become effective
and been maintained effective in accordance with Section 5.4 hereof, (ii) if
after it has become effective such registration is interfered with by any stop
order, injunction or other order or requirement of the SEC or other governmental
agency or court for any reason other than a material misrepresentation or a
material omission by the Holder specified in the Registration Notice or (iii) if
the conditions to closing specified in the purchase agreement or underwriting
agreement entered into in connection with such registration are not satisfied
other than by reason of some act or omission by any of such persons.
(e) DELAY OF REGISTRATION. Notwithstanding anything in this Section 5.1
to the contrary, the Company shall not be obligated to take any action to effect
a Demand pursuant to this Section 5.1 if the Company shall furnish to the
requesting Holder, within ten (10) days after the delivery of the Registration
Notice relating thereto, a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors it would be
seriously detrimental to the Company or its stockholders for a registration
statement to be filed in the near future. If the Company has delivered such a
certificate to the requesting Holder, then the Company's obligation to effect
such Demand under this Section 5.1 shall be deferred for a period not to exceed
one hundred twenty (120) days from the date of receipt of the Holder's
Registration Notice; provided, however, that the Company may not utilize this
right more than once during any twelve month period.
5.2 PIGGYBACK REGISTRATION. If the Company at any time proposes to
register any of its Common Stock or any equity securities exercisable for,
convertible into or exchangeable for
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Common Stock under the Securities Act, whether or not for sale for its own
account (the "COMPANY SECURITIES"), in a manner which would permit registration
of Registrable Securities for sale to the public under the Securities Act, each
such time it will promptly deliver a Registration Notice to each Holder, which
Registration Notice will describe the rights of each Holder under this Section
5.2, at least 20 days prior to the anticipated filing date of the registration
statement relating to such registration. Such notice shall offer each Holder the
opportunity to include in such registration statement such number of Registrable
Securities held by such Holder as such Holder may request. Upon the written
request of the Holders requesting Registrable Securities to be registered
pursuant to such registration statement (collectively, the "PIGGYBACK
SECURITIES"), made within 10 days after the receipt of the Company's
Registration Notice, which request shall specify the number of Piggyback
Securities intended to be disposed of, the Company will use its best efforts to
effect, in connection with the registration of the Company Securities, the
registration under the Securities Act of all Piggyback Securities, to the extent
required to permit the disposition (in accordance with such intended methods
thereof) of the Piggyback Securities, provided that:
(a) RELIEF FROM COMPANY OBLIGATION. If, at any time after giving such
written notice of its intention to register any Company Securities and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register the
Company Securities, the Company may, at its election, give written notice of
such determination to the Holder and thereupon the Company shall be relieved of
its obligation to register the Piggyback Securities in connection with the
registration of such Company Securities (but not from its obligation to pay
Registration Expenses to the extent incurred in connection therewith as provided
in Section 5.3 hereof), without prejudice, however, to the right of the Holder
immediately to request that such registration be effected as a registration
under Section 5.1 hereof to the extent permitted thereby.
(b) REDUCTION IN PIGGYBACK SECURITIES. If the registration referred to in
the first sentence of this Section 5.2 is to be an underwritten primary
registration on behalf of the Company, and the managing underwriter(s) advise
the Company in writing that, in their good faith opinion, inclusion of all the
Piggyback Securities together with all other securities of the Company that are
entitled to "piggyback" registration rights in such offering would materially
and adversely affect the offering and sale of the Company Securities, including
the per share price thereby obtainable, the Company shall only include in such
registration: (i) first, all the Company Securities being registered for sale
for the Company's own account, with such priorities among them as the Company
may determine, (ii) second, up to the full number of securities of the Company
having "piggyback" registration rights which, in the good faith opinion of such
underwriter(s) can be so sold without materially and adversely affecting such
offering (and, if less than the full number of such "piggyback" securities,
allocated pro rata among the Holders and the other holders of securities of the
Company that are entitled to "piggyback" registration rights other than the
Founders (the "OTHER NON-FOUNDER HOLDERS") on the basis of the number of
securities requested to be included therein by each such Holder and Other Non-
Founder Holder) and (iii) finally, up to the full number of securities of the
Company that are entitled to "piggyback" registration rights held by the
Founders which, in the good faith opinion of such underwriter(s) can be so sold
without materially and adversely affecting such offering (and, if less than the
full number of such securities, allocated pro rata among the Founders on the
basis of the number of securities requested to be included therein by each such
Founder).
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(c) EXCEPTIONS. The Company shall not be required to effect any
registration of Registrable Securities held by any Holder under this Section 5.2
incidental to the registration of any of its securities in connection with
mergers, acquisitions, exchange offers, subscription offers, dividend
reinvestment plans or stock option or other employee benefit plans.
(d) NO EFFECT ON DEMAND RIGHTS. No registration of Registrable Securities
effected under this Section 5.2 shall relieve the Company of its obligation to
effect a registration of other Registrable Securities pursuant to Section 5.1
hereof.
(e) WITHDRAWAL OF PIGGYBACK SECURITIES. A Holder may withdraw all or any
part of the Holder's Piggyback Securities from the proposed registration at any
time prior to the later of (i) the registration statement being declared
effective by the SEC and (ii) the execution of any underwriting agreement.
(f) SAME TERMS AND CONDITIONS. The Company may require that any Piggyback
Securities be included in the offering proposed by the Company on the same terms
and conditions as the Company Securities are included therein.
5.3 EXPENSES. The Company will pay all Registration Expenses in
connection with (i) each Demand and (ii) all registrations of Holders'
Registrable Securities pursuant to Section 5.2. In the event the requesting
Holder withdraws a Registration Notice, abandons a registration statement or
following an effected Demand does not sell Registrable Securities, then all
Registration Expenses in respect of such Registration Notice shall be borne, at
the requesting Holder's option, either by the requesting Holder or by the
Company (in which case, if borne by the Company and subject to Section 5.1(d)
hereof, such withdrawn Registration Notice shall be deemed to be an effected
Demand for purposes of Section 5.1 hereof).
5.4 REGISTRATION AND QUALIFICATION. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Sections 5.1 or 5.2 hereof,
the Company will as promptly as is practicable:
(a) prepare and file with the SEC, as soon as possible, and use its best
efforts to cause to become effective, a registration statement under the
Securities Act relating to the Registrable Securities to be offered on such form
as the requesting Holder, or if not filed pursuant to a Demand, the Company,
determines and for which the Company then qualifies;
(b) prepare and file with the SEC such amendments (including post-
effective amendments) and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
until the later of such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition set forth in
such registration statement or the expiration of one hundred twenty (120) days
after such registration statement becomes effective;
(c) furnish to the Holder and to any underwriter of Registrable Securities
such number of conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits), such
number of copies of the prospectus included in such registration statement
(including each preliminary prospectus and any summary prospectus), in
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conformity with the requirements of the Securities Act, such documents
incorporated by reference in such registration statement or prospectus, and such
other documents, as the Holder or such underwriter may reasonably request, and,
if requested, a copy of any and all transmittal letters or other correspondence
to, or received from, the SEC or any other governmental agency or regulatory
body or other body having jurisdiction (including any domestic or foreign
securities exchange) relating to such offering;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of such registration statement at the earliest
possible moment;
(e) use its best efforts to register or qualify all Registrable Securities
covered by such registration statement under the securities or blue sky laws of
any domestic jurisdiction, and to list or qualify for such securities exchanges
and other trading markets, as the requesting Holder or any underwriter of such
Registrable Securities shall request, and use its best efforts to obtain all
necessary registrations, permits and consents required in connection therewith,
and do any and all other acts and things which are reasonably requested to
enable the Holder or any such underwriter to consummate the disposition in such
jurisdictions of the Registrable Securities covered by such registration
statement, except that the Company shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified, or to subject itself to taxation in any such
jurisdiction, or to consent to general service of process in any such
jurisdiction;
(f) if requested by a requesting Holder, (i) furnish to each Holder an
opinion of counsel for the Company addressed to each Holder and dated the date
of the closing under the underwriting agreement (if any) (or if such offering is
not underwritten, dated the effective date of the registration statement), and
(ii) use its best efforts to furnish to each Holder a "comfort" or "special
procedures" letter addressed to each Holder and signed by the independent public
accountants who have audited the Company's financial statements included in such
registration statement, in each such case covering substantially the same
matters with respect to such registration statement (and the prospectus included
therein) as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public offerings
of securities and such other matters as the Holder may reasonably request and,
in the case of such accountants' letter, with respect to events subsequent to
the date of such financial statements;
(g) immediately notify the Holders in writing (i) at any time when a
prospectus relating to a registration pursuant to Section 5.1 or 5.2 hereof is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits 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, and (ii) of any request by the SEC or any other regulatory body
or other body having jurisdiction for any amendment of or supplement to any
registration statement or other document relating to such offering, and in
either such case (i) or (ii) at the request of a Holder prepare and furnish to
such Holders a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or
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necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading;
(h) use its best efforts to list all such Registrable Securities covered
by such registration statement on each securities exchange and inter-dealer
quotation system on which a class of common equity securities of the Company is
then listed, and to pay all fees and expenses in connection therewith; and
(i) upon the transfer by a Holder in connection with a registration
pursuant to Section 5.1 or 5.2 furnish unlegended certificates representing
ownership of the Registrable Securities being sold in such denominations as
shall be requested by the Holders or the underwriters.
5.5 UNDERWRITING; DUE DILIGENCE, ETC.
(a) UNDERWRITING AGREEMENT. If requested by the underwriters for any
underwritten offering of Registrable Securities pursuant to a registration
requested under this Agreement, the Company will enter into an underwriting
agreement with such underwriters for such offering, which, in the case of a
Demand, shall be in form reasonably acceptable to the requesting Holder and
which, in the case of a Company Registration Process, shall be in form
reasonably acceptable to the Company, any such agreement to contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including indemnities and contribution (provided,
any indemnities and contribution shall, unless the requesting Holder and the
Company agree otherwise, be to the effect and only to the extent provided in
Section 5.9 hereof) and the provision of opinions of counsel and accountants'
letters to the effect and to the extent provided in Section 5.4(f) hereof;
provided, however, the Company may negotiate and agree to differing
indemnification obligations with respect to the underwriters, provided such (i)
do not adversely affect the Holders with respect to their rights and obligations
hereunder and (ii) shall not excuse the Company from entering into (or delaying
the execution of) an underwriting agreement on the terms as provided herein.
The Holder on whose behalf the Registrable Securities are to be distributed by
such underwriters shall be parties to any such underwriting agreement, and the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters, shall also be made to and
for the benefit of the Holder. The Company shall use reasonable efforts to
prevent any Holder from being required to make any representation or warranty,
other than as to its ownership of the Registrable Securities and as to the due
authorization, execution and enforceability, with respect to it, of the
underwriting agreement. Such underwriter shall be instructed to use its
reasonable best efforts to affect a wide distribution of the Registrable
Securities being distributed so long as doing so shall not, in any manner,
adversely affect the marketing (including timing) or price of such shares. The
Company, if requested by the Requesting Holder or the underwriters, will enter
into an agreement with the Independent Underwriter on customary terms.
(b) SAME TERMS. In the event that any registration pursuant to Sections
5.1 or 5.2 shall involve, in whole or in part, an underwritten offering, the
Company may require the Registrable Securities requested to be registered
pursuant to Sections 5.1 or 5.2 to be included in such underwriting on the same
terms and conditions as shall be applicable to the other securities being sold
through underwriters under such registration. The representations and
warranties in such underwriting agreement by, and the other agreements on the
part of, the Company to and for the
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benefit of such underwriters, shall also be made to and for the benefit of the
Holders. The Company shall use reasonable efforts to prevent any Holder from
being required to make any representation or warranty, other than as to its or
his ownership of the Registrable Securities and as to the due authorization,
execution and enforceability, with respect to it or him, of the underwriting
agreement. In the event a Holder enters into any underwriting agreement with
underwriters in connection with a registration which contains representation and
warranties more extensive than those contained in this Section 5.5 above, such
an agreement shall not constitute a breach of this Agreement by the Company.
(c) ACCESS TO BOOKS AND RECORDS. In connection with the preparation and
filing of each registration statement registering Registrable Securities under
the Securities Act, the Company will give the Holders of Registrable Securities
and the underwriters, if any, and their respective counsel and accountants, such
reasonable and customary access to its books and records and such opportunities
to discuss the business of the Company with its officers and the independent
public accountants who have certified the Company's financial statements as
shall be necessary, in the reasonable opinion of such Holders and such
underwriters or their respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act. The Holders and the underwriters, if
any, and their respective counsel and accountants, shall use their reasonable
best efforts to coordinate and time their review so as to not unreasonably
interfere with the business and operations of the Company.
(d) OFFERING NOT UNDERWRITTEN. In the event an offering pursuant to this
Agreement is not underwritten, the Company, at the request of the requesting
Holder, will enter into such agreements with any selling agents or similar
persons as are customary; such agreements shall contain terms and provisions
analogous to those described herein and, to the extent not so described,
customary terms and provisions.
5.6 RESTRICTIONS ON PUBLIC SALE; INCONSISTENT AGREEMENTS.
(a) LOCK-UP. If required by an underwriter of Common Stock in connection
with (i) the initial Qualified Public Offering or (ii) any registration of
Registrable Securities pursuant to Sections 5.1 or 5.2, which registration is
effected in an underwritten public offering, then, in each such case, the
Holders agree not to effect any sale or distribution, including any sale
pursuant to Rule 144 (except as part of such registration), of any of the
Company's common equity securities or of any security convertible into or
exchangeable or exercisable for any equity security of the Company (x) with
respect to clause (i), for a period of time following the effective date of the
registration statement relating thereto customary in underwritten initial public
offerings, which period shall not exceed one hundred eighty (180) days, or (y)
with respect to clause (ii) only for a period of time following the effective
date of the registration statement relating thereto reasonably acceptable to the
Holders, which period shall not exceed ninety (90) days and only if the Founders
have agreed to a substantially similar provision. Such agreement shall be in
writing in the form satisfactory to the Company and such underwriter. The
Company may impose a stop-transfer instruction with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.
(b) NO DISTRIBUTION. The Company agrees (i) without the written consent
of the managing underwriters, not to effect any public or private sale or
distribution of the Company's common equity securities or any security
convertible into or exchangeable or exercisable for any
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equity security of the Company, including a sale pursuant to Regulation D under
the Securities Act, during the requesting Holder's Registration Process (except
(A) as part of such underwritten registration or pursuant to registrations on
Form S-8 or any successor form or (B) equity securities issued pursuant to the
conversion or exchange of any securities convertible into or exchangeable for
the Company's common equity securities and which were outstanding prior to the
commencement of such Registration Process), and (ii) to use its reasonable
efforts to cause each holder of its privately placed securities purchased from
the Company at any time on or after the date of this Agreement to agree not to
effect any public sale or distribution of any such securities during such
period, including a sale pursuant to Rule 144 (except as part of such
underwritten registration, if permitted).
5.7 RULE 144. The Company hereby covenants that after the Company shall
have filed a registration statement pursuant to the requirements of Section 12
of the Exchange Act or a registration statement pursuant to the requirements of
the Securities Act and such registration statement shall have become effective,
the Company will file in a timely manner all reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder (or, if the Company is not required to file such
reports, it will, upon the request of any Holder of Registrable Securities, make
publicly available other information so long as necessary to permit sales under
Rule 144), and it will take such further action as any Holder of Registrable
Securities, all to the extent required from time to time to enable such Holders
to sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144. Upon the request
of any Holder of Registrable Securities, the Company will deliver to such Holder
a written statement as to whether it has complied with such requirements. In
addition, the Company hereby agrees that for a period of eighteen months
following the date on which a registration statement filed pursuant to Section
5.1 or 5.2 hereof shall have become effective, the Company shall not deregister
such securities under Section 12 of the Exchange Act (even if then permitted to
do so pursuant to the Exchange Act and the rules and regulations promulgated
thereunder).
5.8 TRANSFERABILITY. A Holder of registration rights may transfer the
rights to any transferee who holds, subsequent to such transfer, at least
500,000 shares of Series C Preferred or Common Stock; provided (i) such
transferee is reasonably acceptable to the Company, (ii) the Company must first
be given written notice of the transfer and (iii) such transferee shall have
agreed in writing, in form and substance reasonably satisfactory to the Company,
to be bound by the terms of this Article 5 to the same extent and in the same
manner as the transferor of such shares or securities.
5.9 INDEMNIFICATION AND CONTRIBUTION. With respect only to the offering
of Registrable Securities contemplated by this Agreement, and in no way limiting
or modifying the other provisions of this Agreement, the following indemnity and
contribution provisions shall apply:
(a) INDEMNIFICATION BY COMPANY. In the case of each offering of
Registrable Securities made pursuant to this Agreement, the Company agrees to
indemnify and hold harmless each Holder of Registrable Securities, each
underwriter of Registrable Securities so offered, each person, if any, who
controls any of the foregoing persons within the meaning of the Securities Act,
and the officers and directors of any of the foregoing from and against any and
all claims, liabilities, losses, damages, expenses and judgments, joint or
several, to which they or any of them may become subject, under the Securities
Act or otherwise, including any amount paid in settlement of any litigation
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commenced or threatened, and shall promptly reimburse them, as and when
incurred, for any legal or other expenses incurred by them in connection with
investigating any claims and defending any actions, insofar as such losses,
claims, damages, liabilities or actions shall arise out of, or shall be based
upon, any untrue statement or alleged untrue statement of a material fact
contained in the registration statement (or in any preliminary or final
prospectus included therein) or in any offering memorandum or other offering
document relating to the offering and sale of such Registrable Securities, or
any amendment thereof or supplement thereto, or in any document incorporated by
reference therein, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or shall arise out of or be based upon any violation or
alleged violation by the Company of the Securities Act, any blue sky laws,
securities laws or other applicable laws of any state or country in which the
Registrable Securities are offered and relating to action or inaction required
of the Company in connection with such offering; provided, however, that the
Company shall not be liable to a particular Holder of Registrable Securities in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement, or any omission or alleged omission, (i) if such statement or
omission shall have been made in reliance upon and in conformity with
information relating to such Holder furnished to the Company in writing by or on
behalf of such Holder expressly for use in the preparation of the registration
statement (or in any preliminary or final prospectus included therein), offering
memorandum or other offering document, or any amendment thereof or supplement
thereto or a document incorporated by reference in any of the foregoing or (ii)
if such statement or omission was corrected in a prospectus delivered to such
Holders of Registrable Securities prior to the consummation of the sale in which
such loss, claim, damage, liability or action arises out of or is based upon and
such corrected prospectus shall not have been delivered or sent to the purchaser
within the time required by the Securities Act, provided that the Company
delivered the corrected prospectus to such Holders in requisite quantity on a
timely basis to permit such delivery or sending. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of a
Holder of Registrable Securities and shall survive the transfer of such
securities. The foregoing indemnity agreement is in addition to any liability
which the Company may otherwise have to each Holder of Registrable Securities,
underwriters of the Registrable Securities, any controlling person of any of the
foregoing or any officer or director of any of the foregoing.
(b) INDEMNIFICATION BY HOLDER. In the case of each offering of
Registrable Securities made pursuant to this Agreement, each Holder of
Registrable Securities included in such offering, by exercising its registration
rights hereunder, agrees to indemnify and hold harmless the Company, each
person, if any, who controls the Company within the meaning of the Securities
Act, and if requested by the underwriters, each underwriter who participates in
the offering and each person, who controls any such underwriter within the
meaning of the Securities Act, and the officers and directors of any of the
foregoing from and against any and all claims, liabilities, losses, damages,
expenses and judgments, joint or several, to which they or any of them may
become subject, under the Securities Act or otherwise, including any amount paid
in settlement of any litigation commenced or threatened, and shall promptly
reimburse them, as and when incurred, for any legal or other expenses incurred
by them in connection with investigating any claims and defending any actions,
insofar as any such losses, claims, damages, liabilities or actions shall arise
out of, or shall be based upon, any untrue statement or alleged untrue statement
of a material fact contained in the registration statement (or in any
preliminary or final prospectus included therein) or in any offering memorandum
or other offering document relating to the offering and sale of such Registrable
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Securities, or any amendment thereof or supplement thereto, or in any document
incorporated by reference therein, or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that such untrue
statement of a material fact is contained in, or such material fact is omitted
from, information relating to such Holder furnished in writing to the Company by
or on behalf of such Holder expressly for use in the preparation of such
registration statement (or in any preliminary or final prospectus included
therein), offering memorandum or other offering document or a document
incorporated by reference in any of the foregoing. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf of
the Company and shall survive the transfer of such securities. The foregoing
indemnity is in addition to any liability which such Holder may otherwise have
the Company, or any of its directors, officers or controlling persons.
Notwithstanding the foregoing, in no event shall the liability of a Holder
hereunder be greater in amount than the dollar amount of the net proceeds
received by it upon the sale of the Registrable Securities pursuant to such
offering.
(c) PROCEDURE FOR INDEMNIFICATION. Each party indemnified under this
Section 5.9 shall, promptly after receipt of notice of any claim or the
commencement of any action against such indemnified party in respect of which
indemnity may be sought, notify the indemnifying party in writing of the claim
or the commencement thereof; provided that the failure of the indemnified party
to notify the indemnifying party shall not relieve the indemnifying party from
any liability which it may have to an indemnified party on account of the
indemnity agreements contained in this Section 5.9, unless the indemnifying
party was materially prejudiced by such failure, and in no event shall relieve
the indemnifying party from any other liability which it may have to such
indemnified party. If any such claim or action shall be brought against an
indemnified party, it shall notify the indemnifying party thereof and the
indemnifying party shall be entitled to participate therein and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel satisfactory to the indemnified party.
After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the indemnifying party
shall not be liable (except to the extent the proviso to this sentence is
applicable, in which event it will be so liable) to the indemnified party under
this Section 5.9 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided that each indemnified party shall have the
right to employ separate counsel to represent it and assume its defense (in
which case, the indemnifying party shall not represent it) if, in the reasonable
judgment of such indemnified party, (i) upon the advice of counsel, the
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them, or (ii) in the event the
indemnifying party has not assumed the defense thereof within 10 days of receipt
of notice of such claim or commencement of action, and in which case the fees
and expenses of one such separate counsel shall be paid by the indemnifying
party. If any indemnified party employs such separate counsel it will not enter
into any settlement agreement which is not approved by the indemnifying party,
such approval not to be unreasonably withheld. If the indemnifying party so
assumes the defense thereof, it may not agree to any settlement of any such
claim or action as the result of which any remedy or relief, other than monetary
damages for which the indemnifying party shall be responsible hereunder, shall
be applied to or against the indemnified party, without the prior written
consent of the indemnified party. In any action hereunder as to which the
indemnifying party has assumed the defense thereof with counsel satisfactory to
the indemnified party, the indemnified party shall continue to be entitled to
participate in the defense thereof, with counsel of its own choice, but,
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except as set forth above, the indemnifying party shall not be obligated
hereunder to reimburse the indemnified party for the costs thereof.
If the indemnification provided for in this Section 5.9 shall for any
reason be unavailable to an indemnified party in respect of any loss, claim,
damages or liability, or any action in respect thereof, referred to therein,
then each indemnifying party shall, in lieu of indemnifying such indemnified
party, contribute to the amount paid or payable by such indemnified party as a
result of such loss, claim, damage or liability, or action in respect thereof,
in such proportion as shall be appropriate to reflect the relative fault of the
indemnifying party on the one hand and the indemnified party on the other with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to whether the untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact relates to information supplied by
the indemnifying party on the one hand or the indemnified party on the other,
the intent of the parties and their relative knowledge, access to information
and opportunity to correct or prevent such statement or omission, but not by
reference to any indemnified party's stock ownership in the Company. In no
event, however, shall a Holder of Registrable Securities be required to
contribute in excess of the amount of the net proceeds received by such Holder
in connection with the sale of Registrable Securities in the offering which is
the subject of such loss, claim, damages or liability. The amount paid or
payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this paragraph
shall be deemed to include, for purposes of this paragraph, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 12(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
ARTICLE 6
DEFINITIONS AND ACCOUNTING TERMS
6.1 CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"COMMON STOCK" includes (a) the Company's Common Stock, without par value,
as authorized on the date of this Agreement, (b) any other capital stock of any
class or classes (however designated) of the Company, authorized on or after the
date hereof (including the Conversion Shares), the holders of which shall have
the right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies, be entitled
to vote for the election of directors of the Company (even though the right so
to vote has been suspended by the happening of such a contingency), and (c) any
other securities into which or for which any of the securities described in (a)
or (b) may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
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"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any similar federal statute, and the rules and regulations of the SEC (or of any
other federal agency then administering the Exchange Act) thereunder, all as the
same shall be in effect at the time.
"FIRST COMMERCIAL SHIPMENT" means the first commercial shipment of product
by the Company to ultimate end-users located in a standard metropolitan
statistical area with an aggregate population of at least 1,000,000 persons.
"FORM S-3" means the Form S-3 form for registration of securities under the
Securities Act, or any successor or substitute form.
"FOUNDERS" means each of Stephen G. Perlman, Bruce A. Leak and Phillip Y.
Goldman.
"HOLDER" means a Purchaser or any purchaser or transferee therefrom holding
at least 250,000 shares of the Series C Preferred.
"INTELLECTUAL PROPERTY" means intellectual property, including licenses,
software (including all source code and object code, development documentation,
programming tools, drawings, specifications and data), rights in designs,
technology, inventions, discoveries and improvements, know-how, proprietary
rights, formulae, processes, technical information, confidential and proprietary
information, and all Intellectual Property Rights associated or related to any
of the foregoing or useful in connection therewith.
"INTELLECTUAL PROPERTY RIGHTS" means patents, patent applications, patent
rights, trademarks, trademark registrations, trademark applications, service
marks, business marks, brand names, trade names, all other names and slogans
embodying business or product goodwill (or both), copyright registrations, mask
works, copyrights (including copyrights in computer programs), trade secrets and
all other intellectual property rights.
"PERSON" means an individual, corporation, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
"QUALIFIED PUBLIC OFFERING" means and includes the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act, covering the offer and sale of Common Stock for the
account of the Company from which the aggregate gross proceeds to the Company
(net of underwriting discounts and commissions) exceed $10,000,000 and at a
price that reflects a total enterprise value of at least $50,000,000.
"REGISTRABLE SECURITIES" means any shares of Common Stock issuable upon
conversion of the Series C Preferred held by any Holder.
"REGISTRATION EXPENSES" means all expenses incident to the Company's
performance of or compliance with its registration obligations set forth in this
Agreement, including the following: (i) the fees, disbursements and expenses of
the Company's counsel(s) (United States and, if applicable, foreign) and
accountants in connection with the registration of the Registrable Securities to
be disposed of under the Securities Act; (ii) the reasonable fees and
disbursements of one counsel (other than counsel to the Company) retained in
connection with each such registration by the requesting Holder; (iii) all
expenses incurred in connection with the preparation, printing and filing of the
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registration statement, any preliminary prospectus or final prospectus, any
other offering document and amendments and supplements thereto and the mailing
and delivering of copies thereof to any underwriters and dealers; (iv) the cost
of printing or producing any agreement(s) among underwriters, underwriting
agreement(s), and blue sky or legal investment memoranda, any selling agreements
and any other documents in connection with the offering, sale or delivery of the
Registrable Securities to be disposed of; (v) all expenses incurred in
connection with the qualification of the Registrable Securities to be disposed
of for offering and sale under state securities laws, including the reasonable
fees and disbursements of counsel for the underwriters or the Holders of
Registrable Securities in connection with such qualification and in connection
with any blue sky and legal investments surveys; (vi) the filing fees incident
to securing any required review by the NASD of the terms of the sale of the
Registrable Securities to be disposed of; (vii) transfer agents', depositories'
and registrars' fees and the fees of any other agent appointed in connection
with such offering, including the fees and expenses of any "qualified
independent underwriter," or other person acting in a similar capacity, pursuant
to the requirements of the NASD or otherwise (the "INDEPENDENT UNDERWRITER");
(viii) all security engraving and security printing expenses; and (ix) all fees
and expenses payable in connection with the listing of the Registrable
Securities on a securities exchange or inter-dealer quotation system, but
excluding any underwriting discount, selling commission or transfer tax relating
to the sale or disposition of Holders' Registrable Securities and fees and
expenses of counsel for any Holder except as set forth in clause (ii) of this
paragraph.
"REGISTRATION NOTICE" means written notice by a Holder or the Company, as
the case may be, that such party desires to begin a Registration Process in
accordance with the terms of this Agreement.
"REGISTRATION PROCESS" means the process of registering Common Stock or
Registrable Securities, as the case may be, under the Securities Act which, for
purposes of this Agreement, shall be deemed to be the period of time from the
actual delivery of the Registration Notice until the end of any applicable "hold
back" period required by the underwriters or, if there is no such period, then
30 days after the effectiveness of the Registration Statement; provided,
however, in the event that (i) a registration statement has not been filed with
the SEC within 45 days after a Registration Notice, (ii) such registration
statement has not been declared effective by the SEC within 75 days after its
filing with the SEC or (iii) the Registration Notice or the registration
statement has been abandoned or withdrawn by the requesting Holder or the
Company, as the case may be, then the Registration Process shall be deemed
concluded at such time; provided, further, with respect to an offering on a
delayed or continuous basis pursuant to Rule 415 (or any successor rule to
similar effect), a Registration Process shall end on the earlier of (x) thirty
(30) days following the last sale pursuant to such offering and (y) the end of
any "hold back" period with respect to any such offering.
"RULE 144" means Rule 144 promulgated under the Securities Act, as amended
from time to time, or any successor rule to similar effect.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the SEC (or of any
other federal agency then administering the Securities Act) thereunder, all as
the same shall be in effect at the time.
"SEC" means the U.S. Securities and Exchange Commission.
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"TRANSFER" means to sell, exchange, deliver, assign, dispose of, bequeath,
give, pledge, mortgage, hypothecate or otherwise encumber, transfer, or permit
to be transferred, whether voluntarily, involuntarily, or by operation of law
(including, without limitation, the laws of bankruptcy, insolvency, intestacy,
descent, domestic relations, and distribution and succession), any shares of the
Company's Common Stock.
"TVP" means the total number of votes that may be cast in the election of
directors (without taking into effect cumulative voting, if any) of the Company
if all securities entitled to vote generally in such election were present and
voted, assuming full conversion, exchange or exercise of all convertible
securities, rights, warrants and options of the Company that are issued or
granted and outstanding or reserved for issuance or grant by the Company.
6.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles, and all other financial data submitted pursuant to this Agreement
shall be prepared and calculated in all material respects in accordance with
such principles.
ARTICLE 7
MISCELLANEOUS
7.1 NO WAIVER: CUMULATIVE REMEDIES. No failure or delay on the part of
a Purchaser or the Company in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
7.2 ADDRESSES FOR NOTICES, ETC. All notices, requests, demands and other
communications provided for hereunder shall be in writing (including facsimile
communication) and mailed, by certified or registered mail, or faxed or
delivered to the applicable party at the addresses indicated below:
If to the Company:
WebTV Networks, Inc.
305 Lytton Avenue
Palo Alto, California 94301
Attention: Chief Financial Officer
with a copy to:
Venture Law Group
A Professional Corporation
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Joshua Pickus
If to a Purchaser: to the address set forth on the signature page hereof.
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Any party to this Agreement may change its address by a written notice to
the other party complying as to delivery with the terms of this Section. All
such notices, requests, demands and other communications shall, when mailed or
telegraphed, respectively, be effective when deposited in the mails or delivered
to the telegraph company, respectively, addressed as aforesaid.
7.3 BINDING EFFECT, ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Company and the Purchasers and their respective
successors and assigns, except that neither the Company nor a Purchaser shall
have the right to assign its rights hereunder or any interest herein without the
prior written consent of the other, provided that, the rights and interests of
the Company and/or a Purchaser (the "ASSIGNING PARTY") shall be assignable
without the consent of the other party, as the case may be, to any assignee who
controls, is controlled by or under common control with, the Assigning Party,
including control being exercised through the ownership or control, directly or
indirectly, of fifty percent (50%) or more of the voting power of the shares
entitled to vote for the election of directors or other governing authority, as
of the date of this Agreement or hereafter (an "AFFILIATE"), provided that such
person or entity shall be considered an Affiliate of the Assigning Party only
during the times such ownership or control exists. Notwithstanding the
foregoing, a Purchaser shall not assign its rights and interest in the Company
or this Agreement to any Affiliate of such Purchaser who at such time is or may
expect to become a direct competitor of the Company or an entity controlled by,
under common control with or controlling such competitor. In addition, nothing
contained in this Section 7.3 shall permit a Purchaser to assign any rights or
interests in this Agreement which are not by their terms expressly assignable,
except that a Purchaser may assign its entire right to purchase the Shares
hereunder (together with all other rights under this Agreement) to an Affiliate
who is otherwise permitted to be an assignee in the immediately preceding
sentence.
7.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made in this Agreement, the Series C Preferred, or any other
instrument or document delivered in connection herewith or therewith, shall
survive the execution and delivery hereof or thereof until the earlier to occur
of one year from the Effective Date or the closing of a Qualified Public
Offering.
7.5 PRIOR AGREEMENTS; AMENDMENT. This Agreement constitutes the entire
agreement between the parties and supersedes any prior understandings or
agreements concerning the subject matter hereof. This Agreement may only be
amended with the approval of the holders of a majority of the outstanding shares
of the Series C Preferred being purchased hereunder and the Company.
7.6 SEVERABILITY. The invalidity or unenforceability of any provision
hereto shall in no way affect the validity or enforceability of any other
provision.
7.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
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7.8 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
7.9 HEADINGS. Article, Section and Subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
7.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
7.11 FURTHER ASSURANCES. From and after the date of this Agreement, upon
the reasonable request of a Purchaser, or the Company, the other party shall
execute and deliver such instruments, documents and other writings as may be
reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement and the Series C Preferred.
[intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
WEBTV NETWORKS, INC.
By:
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PURCHASER
By:
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Its:
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Address:
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[SIGNATURE PAGE TO SERIES C CONVERTIBLE STOCK PURCHASE AGREEMENT]
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EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
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EXHIBIT B
LEGAL OPINION
OF
VENTURE LAW GROUP, A PROFESSIONAL CORPORATION
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EXHIBIT C
SCHEDULE OF EXCEPTIONS
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