1
EXHIBIT 4.2
BUILDNET, INC.
-----------------------------------
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
----------------------------------
May 21, 1999
2
BUILDNET, INC.
-------------------------------
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
-------------------------------
Table of Contents
Page
SECTION 1. RESTRICTIONS ON TRANSFER.....................................................................................2
1.1 RESTRICTIVE LEGEND..............................................................................................2
SECTION 2. REGISTRATION RIGHTS..........................................................................................3
2.1 CERTAIN DEFINITIONS.............................................................................................3
2.2 DEMAND REGISTRATION.............................................................................................4
2.2(a) Demand for Registration.................................................................................4
2.2(b) Underwriting............................................................................................5
2.3 PIGGYBACK REGISTRATION..........................................................................................6
2.3(a) Company Registration....................................................................................6
2.3(b) Underwriting............................................................................................6
2.3(c) Right to Terminate Registration.........................................................................7
2.4 EXPENSES OF REGISTRATION........................................................................................7
2.5 OBLIGATIONS OF THE COMPANY......................................................................................8
2.6 INDEMNIFICATION................................................................................................10
2.7 INFORMATION BY HOLDER..........................................................................................12
2.8 TRANSFER OF REGISTRATION RIGHTS................................................................................12
2.9 FORM S-3.......................................................................................................13
2.10 DELAY OF REGISTRATION..........................................................................................13
2.11 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS..................................................................13
2.12 RULE 144 REPORTING.............................................................................................14
2.13 "MARKET STAND-OFF" AGREEMENT...................................................................................14
2.14 AMENDMENT OF REGISTRATION RIGHTS...............................................................................15
2.15 AIRCRAFT CARRIER RELEASE.......................................................................................15
2.16 TERMINATION OF REGISTRATION RIGHTS.............................................................................15
SECTION 3. RIGHTS OF FIRST REFUSAL.....................................................................................15
3.1 PRO RATA RIGHT.................................................................................................15
3.2 NEW SECURITIES.................................................................................................16
3.3 REQUIRED NOTICES...............................................................................................16
3.4 COMPANY'S RIGHT TO SELL........................................................................................16
3.5 EXPIRATION OF RIGHT............................................................................................17
3.6 ASSIGNMENT.....................................................................................................17
SECTION 4. COMPANY COVENANTS...........................................................................................17
4.1 AFFIRMATIVE COVENANTS..........................................................................................17
4.1(a) Financial Statements and Information...................................................................17
4.1(b) Inspection.............................................................................................19
4.1(c) Budget.................................................................................................19
i
3
4.1(d) Prompt Payment of Taxes................................................................................19
4.1(e) Observation Rights.....................................................................................20
4.1(f) Maintenance of Insurance...............................................................................20
4.1(g) Material Changes and Other Notices.....................................................................20
4.1(h) Compliance with Applicable Laws........................................................................20
4.1(i) Key Man Insurance......................................................................................20
4.1(j) Use of Proceeds........................................................................................20
4.1(k) Directors' and Officers' Insurance Policy..............................................................20
4.2 NEGATIVE COVENANTS.............................................................................................21
4.2(a) Employment Agreements..................................................................................21
4.2(b) Declaration of Bankruptcy..............................................................................21
4.2(c) Limit on Indebtedness..................................................................................21
4.2(d) Limitation on Liens....................................................................................21
4.2(e) Issuances, Offerings and Dividends.....................................................................22
4.2(f) Merger; Change in Control; Acquisition of Assets.......................................................22
4.2(g) Sale of Assets.........................................................................................22
4.2(h) Executive Compensation.................................................................................22
4.2(i) Related Party Transactions.............................................................................22
4.2(j) Business Purpose.......................................................................................22
4.2(k) Series B Preferred Stock Voting Rights.................................................................22
4.3 ADJUSTMENT OF SERIES B MULTIPLE UPON BREACH OF NEGATIVE COVENANTS..............................................23
4.3(a) Notice of Breach.......................................................................................23
4.3(b) Dispute of Breach Notice...............................................................................23
4.3(c) Determination of Breach................................................................................23
4.4 EXPIRATION OF COVENANTS........................................................................................24
SECTION 5. MISCELLANEOUS...............................................................................................24
5.1 GOVERNING LAW..................................................................................................24
5.2 JURISDICTION...................................................................................................24
5.3 WAIVER OF JURY TRIAL...........................................................................................24
5.4 SUCCESSORS AND ASSIGNS.........................................................................................24
5.5 ENTIRE AGREEMENT...............................................................................................24
5.6 SEVERABILITY...................................................................................................24
5.7 AMENDMENT AND WAIVER...........................................................................................25
5.8 DELAYS OR OMISSIONS............................................................................................25
5.9 NOTICES, ETC...................................................................................................26
5.10 TITLES AND SUBTITLES...........................................................................................26
5.11 COUNTERPARTS...................................................................................................26
EXHIBITS
A Schedule of Investors
SCHEDULES
4.1(j) Use of Proceeds
4.2(j) Business Purpose
ii
4
BUILDNET, INC.
--------------------------------
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
--------------------------------
This Amended and Restated Investor Rights Agreement (the
"Agreement") is entered into as of May 21, 1999, by and among Buildnet, Inc., a
North Carolina corporation (the "Company"), with its principal office at 4813
Emperor Blvd., Suite 130, Durham, NC, 27703, the holders of the Company's
Series A Preferred Stock (the "Series A Stock"), the holders of certain
warrants to purchase shares of the Company's Common Stock issued pursuant to
that Loan and Security Agreement dated October 8, 1997, among the Company and
certain of the Investors (as defined below), and that Loan and Security
Agreement dated April 24, 1998, between the Company and Piedmont Venture
Partners Limited Partnership (collectively, the "Warrants"), and the holders of
the Company's Series B Preferred Stock (the "Series B Stock," collectively with
the Series A Stock, the "Preferred Stock"), each as listed on Exhibit A
attached hereto. The holders of Series A Stock are referred to herein as the
"Series A Investors," the holders of Warrants are referred to herein as the
"Warrant Investors," the holders of Series B Stock are referred to herein as
the "Series B Investors," and the Series A Investors, the Warrant Investors,
and the Series B Investors, are referred to herein collectively as the
"Investors" and each individually as an "Investor."
WHEREAS, in connection with the issuance and sale of Series B Stock
to the Series B Investors pursuant to that certain Series B Preferred Stock
Purchase Agreement, dated as of the date hereof, by and among the Company and
the Series B Investors (the "Series B Agreement") the Company desires to
provide the Series B Investors certain rights with respect to registration of
the shares of stock held by them and certain other rights with respect to such
shares as an inducement to the Series B Investors to purchase shares of the
Series B Stock; and
WHEREAS, the Series A Investors and certain Warrant Investors are
parties to a certain Amended and Restated Investor Rights Agreement dated as of
October 8, 1997 (the "Prior Rights Agreement"), which provided such Investors
with certain rights with respect to registration of the shares of stock held by
them; and
WHEREAS, Section 5.5 of the Prior Rights Agreement provides that it
may be amended by the Company and Investors holding at least two thirds of the
shares of Registerable Securities, and the parties to this Agreement hold at
least two thirds of the Registerable Securities outstanding as of the date
hereof; and
WHEREAS, the Company, the Series A Investors and Warrant Investors
desire to amend and restate the Prior Rights Agreement in its entirety, and to
waive any rights of first refusal they may have pursuant to Section 3 thereof
in connection with the Company's sale of Series B Stock pursuant to the Series
B Agreement;
5
NOW, THEREFORE, in consideration of the mutual agreements, covenants
and conditions contained herein, the Company and each of the Investors hereby
agree to amend and restate the Original Rights Agreement (which shall no longer
have any force or effect) as follows.
Section 1.
RESTRICTIONS ON TRANSFER
1.1 Restrictive Legend. Each certificate representing (a) the
Preferred Stock, (b) the Company's Common Stock issued upon conversion of the
Preferred Stock or upon exercise of the Warrants, and (c) any other securities
issued in respect of the Preferred Stock or Common Stock issued upon conversion
of the Preferred Stock or upon exercise of the Warrants upon any stock split,
stock dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted by the provisions of Section 1.2 below) be stamped
or otherwise imprinted with a legend in substantially the following form (in
addition to any legend required under applicable state securities laws).
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE
SECURITIES LAWS, OR THE AVAILABILITY OF AN EXEMPTION FROM THE
REGISTRATION PROVISIONS OF THE SECURITIES ACT OF 1933, AS AMENDED,
AND APPLICABLE STATE SECURITIES LAWS. COPIES OF THE STOCK PURCHASE
AGREEMENT, INVESTOR RIGHTS AGREEMENT AND BYLAWS, AS AMENDED,
PROVIDING FOR RESTRICTIONS ON TRANSFER OF THESE SECURITIES MAY BE
OBTAINED UPON WRITTEN REQUEST BY THE HOLDER OF RECORD OF THIS
CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE CORPORATION.
Each Holder (as defined below) consents to the Company making a
notation on its records and giving instructions to any transfer agent of the
Preferred Stock or the Common Stock in order to implement the restrictions on
transfer established in this Section 1. The requirement that the above
securities legend be placed upon certificates evidencing shares of Stock shall
cease and terminate upon the earliest of the following events: (i) when such
shares are transferred in an underwritten public offering, (ii) when such
shares are transferred pursuant to Rule 144 under the Securities Act or (iii)
when such shares are transferred in any other transaction if the seller
delivers to the Company an opinion of its counsel, which counsel and opinion
shall be reasonably satisfactory to the Company, to the effect that such legend
is no longer necessary in order to protect the Company against a violation by
it of the Securities Act
2
6
upon any sale or other disposition of such shares without registration
thereunder. Upon the consummation of any event requiring the removal of a
legend hereunder, the Company, upon the surrender of certificates containing
such legend, shall, at its own expense, deliver to the holder of any such
shares as to which the requirement for such legend shall have terminated, one
or more new certificates evidencing such shares not bearing such legend.
Section 2.
REGISTRATION RIGHTS
The Company hereby grants to each of the Holders (as defined below)
the registration rights set forth in this Section 2, with respect to the
Registrable Securities (as defined below) owned by such Holders. The Company
and the Holders agree that the registration rights provided herein set forth
the sole and entire agreement, and supersede any prior agreement, between the
Company and the Holders with respect to registration rights for the Company's
securities.
2.1 Certain Definitions. As used in this Section 2:
(a) The term "Affiliate" means, with respect to any individual,
partnership or entity, any individual, partnership or entity that directly or
indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, such individual, partnership or entity.
(b) The terms "register," "registered" and "registration" refer
to a registration effected by filing with the SEC a registration statement (the
"Registration Statement") in compliance with the 1933 Act, and the declaration
or ordering by the SEC of the effectiveness of such Registration Statement.
(c) The term "Registrable Securities" means (i) shares of Common
Stock of the Company (the "Common Stock") issued or issuable pursuant to
exercise of the Warrants held by Warrant Investors, or upon conversion of the
shares of Preferred Stock (x) held by Investors as set forth on Exhibit A or
any transferee in a Permitted Transfer (as defined in Section 2.8 below), or
(y) issued or issuable pursuant to exercise of the warrant issued to GE Capital
Equity Investments, Inc. and (ii) any shares of Common Stock issued as (or
issuable upon the conversion or exercise of any warrant, right or other
security that is issued as) a dividend or other distribution with respect to,
or in exchange or in replacement of, such Registrable Securities; provided,
however, that shares of Common Stock or other securities shall only be treated
as Registrable Securities if and so long as (A) they have not been sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, (B) they have not been sold in a transaction exempt
from the registration and prospectus delivery requirements of the 1933 Act
under Section 4(1) thereof so that all transfer restrictions and restrictive
legends with respect thereto are removed upon the consummation of such sale,
and (C) the registration rights associated with such securities have not been
terminated pursuant to Section 2.15 hereof.
3
7
(d) The term "Holder" (collectively, "Holders") means any
Investor (and any transferee as permitted by Section 2.8 hereof) holding
Registrable Securities, securities exercisable or convertible into Registrable
Securities or securities exercisable for securities convertible into
Registrable Securities.
(e) The term "Initiating Preferred Holders" means any Series A
or Series B Investor(s) holding at least fifteen percent (15%) of the
Registrable Securities then held by all Series A and Series B Investors and not
registered at the time of any request for registration made pursuant to Section
2.2 of this Agreement.
(f) The term "Initiating Warrant Holders" means any Warrant
Holder(s) holding at least a majority of the Registrable Securities then held
by all Warrant Holders and not registered at the time of any request for
registration made pursuant to Section 2.2 of this Agreement.
(g) The term "Initiating Holders" shall refer to the Initiating
Preferred Holders or the Initiating Warrant Holders, as the case may be, with
respect to any particular request for registration.
2.2 Demand Registration.
(a) Demand for Registration. If the Company shall receive from
Initiating Preferred Holders or Initiating Warrant Holders a written demand
that the Company effect any registration (a "Demand Registration") of the
Registrable Securities (other than a registration on Form S-3 or any related
form of registration statement, such a request being provided for under Section
2.9 hereof) having an anticipated net aggregate offering price (after deduction
of underwriter commissions and offering expenses) of at least $5,000,000, the
Company will:
(i) promptly (but in any event within 10 days) give written
notice of the proposed registration to all other Holders; and
(ii) use its best efforts to effect such registration as
soon as practicable and as will permit or facilitate the sale and distribution
of all or such portion of such Initiating Holders' Registrable Securities as
are specified in such demand, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in such demand as are
specified in a written demand received by the Company within 15 days after such
written notice is given, provided that the Company shall not be obligated to
take any action to effect any such registration, pursuant to this Section 2.2:
(A) with respect to any demand for registration by
Initiating Preferred Holders, after the Company has effected four (4) such
registrations initiated by Initiating Preferred Holders pursuant to this
Section 2.2; provided, however, that a registration requested pursuant to
Section 2.2 shall not be deemed to be a demand for registration by Initiating
Preferred Holders unless a Registration Statement covering at least eighty
percent (80%) of the Registrable Securities specified in the notices from the
Initiating Preferred Holders has become effective and all shares registered
thereunder have been sold;
4
8
(B) with respect to any demand for registration by
Initiating Warrant Holders, after the Company has effected one (1) such
registration initiated by Initiating Warrant Holders pursuant to this Section
2.2 and the sales of the shares of Common Stock under such registrations have
closed;
(C) if the Company shall furnish to such Holders a
certificate signed by the President of the Company, stating that in the good
faith judgment of the Board of Directors of the Company it would be seriously
detrimental to the Company and its shareholders for such Registration Statement
to be filed at the date filing would be required, in which case the Company
shall have an additional period of not more than sixty (60) days within which
to file such Registration Statement; provided, however, that the Company shall
not use this right more than once in any 12-month period; or
(D) prior to the earlier of (a) the date three (3)
years from the date of this Agreement or (b) the date the initial, firmly
underwritten public offering of the Company's securities is declared effective
by the SEC.
(b) Underwriting. If the Initiating Holders intend to distribute
the Registrable Securities covered by their demand by means of an underwriting,
they shall so advise the Company as part of their demand made pursuant to this
Section 2.2; and the Company shall include such information in the written
notice referred to in Section 2.2(a)(i). In such event, the right of any Holder
to registration pursuant to this Section 2.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein.
The Company shall, together with all holders of capital stock of the
Company proposing to distribute their securities through such underwriting,
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected by a majority-in-interest of the Initiating Holders and
reasonably satisfactory to the Company. Notwithstanding any other provision of
this Section 2.2, if the underwriter shall advise the Company that marketing
factors (including, without limitation, an adverse effect on the per share
offering price) require a limitation of the number of shares to be
underwritten, then the Company shall so advise all Holders of Registrable
Securities that have requested to participate in such offering, and the number
of shares of Registrable Securities that may be included in the registration
and underwriting shall be allocated pro rata among such Holders thereof in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the Registration
Statement. No Registrable Securities excluded from the underwriting by reason
of the underwriter's marketing limitation shall be included in such
registration.
If any Holder disapproves of the terms of the underwriting, such
Holder may elect to withdraw therefrom by written notice to the Company, the
underwriter and the Initiating Holders. The Registrable Securities so withdrawn
shall also be withdrawn from registration.
If the underwriter has not limited the number of Registrable
Securities to be underwritten, the Company may include securities for its own
account (or for the account of other
5
9
shareholders) in such registration if the underwriter so agrees and if the
number of Registrable Securities would not thereby be limited.
2.3 Piggyback Registration.
(a) Company Registration. If at any time or from time to time
the Company shall determine to register any of its securities, either for its
own account or for the account of security holders, other than a registration
relating solely to employee benefit plans, a registration on Form S-4 relating
solely to an SEC Rule 145 transaction or a registration pursuant to Section 2.2
or 2.9 hereof, the Company will:
(i) promptly (but in any event within 10 days) give to each
Holder written notice thereof; and
(ii) include in such registration (and any related
qualification under state securities laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within fifteen (15) days after receipt of
such written notice from the Company, by any Holder or Holders, except as set
forth in Section 2.3(b) below.
Such Registrable Securities shall only be included to the extent
that inclusion will not diminish the number of securities included by the
Company.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 2.3(a)(i). In such event the right of any Holder to
registration pursuant to this Section 2.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein.
All Holders proposing to distribute their Registrable Securities
through such underwriting shall, together with the Company and the other
parties distributing their securities through such underwriting, enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section 2.3, if the underwriter determines that marketing
factors require a limitation of the number of shares to be underwritten, the
underwriter may limit the number of Registrable Securities to be included in
the registration and underwriting, or may exclude Registrable Securities
entirely from such registration and underwriting subject to the terms of this
Section 2.3. The Company shall so advise all holders of the Company's
securities that would otherwise be registered and underwritten pursuant hereto,
and the number of shares of such securities, including Registrable Securities,
that may be included in the registration and underwriting shall be allocated in
the following manner: shares, other than Registrable Securities and other
securities that have contractual rights with respect to registration similar to
those provided for in this Section 2.3 (provided that the holders of
Registrable Securities shall have consented to the granting of such
registration rights pursuant to Section 2.11 hereof), requested to be included
in such registration by shareholders shall be excluded, and if a limitation on
the
6
10
number of shares is still required, the number of Registrable Securities
and other securities that have contractual rights with respect to registration
that may be included shall be allocated among the holders thereof in
proportion, as nearly as practicable, to the amounts of Registrable Securities
and such other securities held by each such holder at the time of filing the
Registration Statement. For purposes of any such underwriter cutback, all
Registrable Securities and other securities held by any holder that is a
partnership or corporation, shall also include any Registrable Securities held
by the partners, retired partners, shareholders or affiliated entities of such
holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons, and
such holder and other persons shall be deemed to be a single "selling holder,"
and any pro rata reduction with respect to such "selling holder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling holder," as defined in this
sentence. No securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration.
Nothing in this Section 2.3(b) is intended to diminish the number of securities
to be included by the Company in the underwriting.
If any Holder disapproves of the terms of the underwriting, it may
elect to withdraw therefrom by written notice to the Company and the
underwriter. The Registrable Securities so withdrawn shall also be withdrawn
from registration.
(c) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
2.4 Expenses of Registration. All Registration Expenses (as defined
below) incurred in connection with all registrations effected pursuant to
Sections 2.2, 2.3 and 2.9, shall be borne by the Company; provided, however,
that the Company shall not be required to pay stock transfer taxes or
underwriters' discounts or selling commissions relating to Registrable
Securities. "Registration Expenses" means any and all expenses incident to
performance of or compliance with this Agreement, including without limitation,
(i) all registration and filing fees of the Commission, a stock exchange or the
National Association of Securities Dealers, Inc., (ii) all fees and expenses of
complying with securities or blue sky laws (including fees and disbursements of
counsel for the underwriters in connection with blue sky qualifications of the
Registrable Securities) unless paid by the underwriters, (iii) all printing,
messenger and delivery expenses, (iv) all fees and expenses incurred in
connection with the listing of the Registrable Securities on any securities
exchange, (v) the fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special audits
and/or "cold comfort" letters required by or incident to such performance and
compliance (vi) the reasonable fees and disbursements of one counsel selected
by the Holders of a majority of the Registrable Securities being registered to
represent all Holders of the Registrable Securities being registered in
connection with each such registration, (vii) any fees and disbursements of
underwriters customarily paid by the issuers or sellers of securities,
including fees and disbursements of underwriters customarily paid by the
issuers or sellers of securities, including fees and disbursements of counsel
for the underwriters, but excluding underwriting discounts and commissions,
(viii) liability insurance if the Company so desires or if the underwriters so
require,
7
11
and (ix) the reasonable fees and expenses of any special experts
retained by the Company in connection with the requested registration.
Notwithstanding anything to the contrary above, the Company shall not be
required to pay for any Registration Expenses of any registration proceeding
under Section 2.2 and the Holders shall retain their rights pursuant to Section
2.2 if the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to have been registered,
provided, however, that in the event that Holders holding at least a majority
of the Registrable Securities held by the Series A and Series B Investors or
Warrant Investors (as applicable, depending upon which group of Investors
requested such registration) agree to forfeit their right to one demand
registration pursuant to Section 2.2 (in which event such right shall be
forfeited by all of either the Series A and Series B Investors or Warrant
Investors (as applicable, depending upon which group of Investors requested
such registration), then the Company shall be required to pay the expenses of
such withdrawn registration. In the absence of such an agreement to forfeit,
the Holders of Registrable Securities to have been registered shall bear all
such expenses pro rata on the basis of the Registrable Securities to have been
registered. Notwithstanding the preceding sentence, however, if at the time of
the withdrawal, the Holders have learned of a materially adverse change in the
condition, business or prospects of the Company from that known to the Holders
at the time of their request, then the Holders shall not be required to pay any
of said expenses and shall retain their rights pursuant to Section 2.2.
2.5 Obligations of the Company. Whenever required under this Section
2 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) use its best efforts to prepare and file, within forty-five
(45) days after the period within which a request for registration may be given
to the Company, with the SEC a Registration Statement with respect to such
Registrable Securities and use its best efforts to cause such Registration
Statement to become effective, and keep such Registration Statement effective
for the lesser of 120 days or until the Holder or Holders have completed the
distribution relating thereto.
(b) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in
connection with such Registration Statement as may be necessary to keep such
Registration Statement effective and to comply with the provisions of the 1933
Act with respect to the disposition of all securities covered by such
registration statement in accordance with the intended methods of disposition
by the seller or sellers thereof set forth in such Registration Statement;
provided that before filing a Registration Statement or prospectus, or any
amendments or supplements thereto, the Company will furnish to one counsel
selected by the Holders of a majority of the Registrable Securities covered by
such Registration Statement to represent all Holders of Registrable Securities
covered by such Registration Statement, copies of all documents proposed to be
filed, which documents will be subject to the review of such counsel.
(c) furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other
8
12
documents as they may reasonably request in order to facilitate the disposition
of Registrable Securities owned by them.
(d) use its best efforts to register or otherwise qualify the
securities covered by such Registration Statement under such other securities
laws of such states and other jurisdictions as shall be reasonably requested by
the Holders or the managing underwriter, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions where, but for the requirements of this paragraph (d), it
would not be obligated to be so qualified.
(e) in the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) notify each Holder of Registrable Securities covered by such
Registration Statement, at any time when a prospectus relating thereto is
required to be delivered under the 1933 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 a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing and at
the request of any such seller, prepare and furnish to such seller a reasonable
number of copies of an amended or supplemental prospectus as may be necessary
so that, as thereafter delivered to the sellers of such Registrable Securities,
such prospectus shall not included an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
(g) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable (but not more than 18 months) after
the effective date of the Registration Statement, an earnings statement that
shall satisfy the provisions of Section 11(a) of the Securities Act and the
rules and regulations promulgated thereunder.
(h) obtain a "cold comfort" letter or letters from the Company's
independent public accountants in customary form and covering matters of the
type customarily covered by "cold comfort" letters as the seller or sellers of
a majority of such Registrable Securities shall reasonably request.
(i) obtain an opinion of counsel for the Company in customary
form and covering matters of the type customarily covered in opinions of
issuer's counsel as the sellers shall reasonably request.
(j) use its best efforts to list the Registrable Securities
covered by such Registration Statement with any securities exchange on which
the Common Stock is then listed.
9
13
(k) make available for inspection by each Holder including
Registrable Securities in such registration, any underwriter participating in
any distribution pursuant to such registration, and any attorney, accountant or
other agent retained by such Holder or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, as such
parties may reasonably request, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such Holder,
underwriter, attorney, accountant or agent in connection with such Registration
Statement.
(l) cooperate with Holders including Registrable Securities in
such registration and the managing underwriters, if any, to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold, such certificates to be in such denominations and
registered in such names as such Holders or the managing underwriters may
request at least two business days prior to any sale of Registrable Securities.
(m) permit any Holder which Holder, in the sole and exclusive
judgment, exercised in good faith, of such Holder, might be deemed to be a
controlling person of the Company, to participate in good faith in the
preparation of such Registration Statement and to require the insertion therein
of material, furnished to the Company in writing, that in the reasonable
judgment of such Holder and its counsel should be included.
2.6 Indemnification.
(a) The Company will, and does hereby undertake to, indemnify
and hold harmless each Holder of Registrable Securities, each of such Holder's
officers, directors, partners and agents, and each person controlling such
Holder, with respect to any registration, qualification or compliance effected
pursuant to this Section 2, and each underwriter, if any, and each person who
controls any underwriter, of the Registrable Securities held by or issuable to
such Holder, against all claims, losses, damages and liabilities (or actions in
respect thereto) to which they may become subject under the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or other federal
or state law arising out of or based on (i) any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other similar document (including any related Registration
Statement, notification, or the like) incident to any such registration,
qualification or compliance, or based on 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 in light of the circumstances in
which they were made, (ii) any violation or alleged violation by the Company of
any federal, state or common law rule or regulation applicable to the Company
in connection with any such registration, qualification or compliance, or (iii)
any failure to register or qualify Registrable Securities in any state where
the Company or its agents have affirmatively undertaken or agreed in writing
that the Company (the undertaking of any underwriter chosen by the Company
being attributed to the Company) will undertake such registration or
qualification on behalf of the Holders of such Registrable Securities (provided
that in such instance the Company shall not be so liable if it has undertaken
its best efforts to so register or qualify such Registrable Securities) and
will reimburse, as incurred, each such Holder, each such underwriter and each
such director, officer, partner, agent and controlling person, for any legal
and any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action;
10
14
provided that the Company will not be liable in any such case to the extent
that any such claim, loss, damage, liability or expense arises out of or is
based on any untrue statement or omission made in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder or underwriter and stated to be specifically for use therein.
(b) Each Holder will, and if Registrable Securities held by or
issuable to such Holder are included in such registration, qualification or
compliance pursuant to this Section 2, does hereby undertake to indemnify and
hold harmless the Company, each of its directors and officers, and each person
controlling the Company, each underwriter, if any, and each person who controls
any underwriter, of the Company's securities covered by such a Registration
Statement, and each other Holder, each of such other Holder's officers,
partners, directors and agents and each person controlling such other Holder,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such Registration Statement,
prospectus, offering circular or other document, 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 in light of the
circumstances in which they were made, and will reimburse, as incurred, the
Company, each such underwriter, each such other Holder, and each such director,
officer, partner and controlling person of the foregoing, for any legal or any
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) was made in such
Registration Statement, prospectus, offering circular or other document, in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder and stated to be
specifically for use therein; provided, however, that the liability of each
Holder hereunder shall be limited to the proportion of any such claim, loss,
damage or liability that is equal to the proportion that the public offering
price of the shares sold by such Holder under such Registration Statement bears
to the total public offering price of all securities sold thereunder, but in
any event not to exceed the net proceeds received by such Holder from the sale
of securities under such Registration Statement. It is understood and agreed
that the indemnification obligations of each Holder pursuant to any
underwriting agreement entered into in connection with any Registration
Statement shall be limited to the obligations contained in this subsection
2.6(b).
(c) Each party entitled to indemnification under this Section
2.6 (the "Indemnified Party") shall give notice to the party required to
provide such indemnification (the "Indemnifying Party") of any claim as to
which indemnification may be sought promptly after such Indemnified Party has
actual knowledge thereof, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom; provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or litigation, shall be subject to approval by the Indemnified Party (whose
approval shall not be unreasonably withheld) and the Indemnified Party may
participate in such defense at the Indemnifying Party's expense if
representation of such Indemnified Party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding; and provided further that
the failure of any Indemnified Party to give notice as provided herein shall
not relieve the Indemnifying Party of its obligations under
11
15
this Section 2, except to the extent that such failure to give notice shall
materially adversely affect the Indemnifying Party in the defense of any such
claim or any such litigation. An Indemnifying Party, in the defense of any such
claim or litigation, may, without the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that includes as
an unconditional term thereof the giving by the claimant or plaintiff therein,
to such Indemnified Party, of a release from all liability with respect to such
claim or litigation.
(d) In order to provide for just and equitable contribution to
joint liability under the 1933 Act in any case in which either (i) any Holder
exercising rights under this Agreement, or any controlling person of any such
Holder, makes a claim for indemnification pursuant to this Section 2.6 but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 2.6 provides for
indemnification in such case, or (ii) contribution under the 1933 Act may be
required on the part of any such Holder or any such controlling person in
circumstances for which indemnification is provided under this Section 2.6;
then, and in each such case, the Company and such Holder will contribute to the
aggregate claims, losses, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that such Holder is
responsible for the portion represented by the percentage that the public
offering price of the securities offered by such Holder pursuant to the
Registration Statement bears to the public offering price of all securities
offered by such Registration Statement, and the Company will be responsible for
the remaining portion; provided, however, that, in any case, (A) no such Holder
will be required to contribute any amount in excess of the public offering
price of all securities offered by it pursuant to such Registration Statement,
after deduction of underwriting discounts and commissions; and (B) no person or
entity guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
(e) The indemnities provided in this Section 2.6 shall survive
the transfer of any Registrable Securities by such Holder.
2.7 Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may reasonably request in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in this Section 2.
2.8 Transfer of Registration Rights.
(a) The rights, contained in Sections 2.2, 2.3 and 2.9 hereof,
to cause the Company to register the Registrable Securities, may be assigned or
otherwise conveyed to a transferee or assignee of Registrable Securities, who
shall be considered a "Holder" for purposes of this Section 2, provided that
(i) any such transfer by a Series A or Series B Investor is effected in
compliance with Section 1.2 hereof, or by a Warrant Investor is effected in
compliance with the Warrants; and (ii) such transfer is a "Permitted Transfer"
as defined herein.
12
16
(b) For purposes of this Agreement, a "Permitted Transfer" shall
mean: (i) a transaction not involving a change in beneficial ownership; (ii)
transactions involving distribution without consideration by a shareholder that
is a partnership to any of its partners, retired partners, or to the estate of
any of its partners; (iii) transactions involving distribution without
consideration by a shareholder that is a corporation or limited liability
company to any of its shareholders or members, as applicable; (iv) transfers by
any shareholder who is an individual to a trust for the benefit of such
shareholder or his family; (v) a transfer in which the transferee acquires at
least 5,000 shares of Registrable Securities, or Securities convertible into or
exercisable for such number of shares, subject to adjustment for combinations,
consolidations, recapitalizations, stock splits, stock dividends and the like;
or (vi) transfers by gift, will or intestate succession to the spouse, lineal
descendants or ancestors of any shareholder or spouse of a shareholder, or
(vii) transfer by any Holder to any of its Affiliates.
2.9 Form S-3. If the Company's stock becomes publicly traded, the
Company shall use its best efforts to qualify for registration on Form S-3 and
to that end the Company shall register the Common Stock under the 1934 Act
within twelve (12) months following the effective date of the first
registration of any securities of the Company on Form S-1. After the Company
has qualified for the use of Form S-3, the Holders of Registrable Securities
shall have the right to request registrations on Form S-3 thereafter under this
Section 2.9. The Company shall give notice to all Holders of Registrable
Securities of the receipt of a request for registration pursuant to this
Section 2.9 and shall provide a reasonable opportunity for other Holders to
participate in the registration. Subject to the foregoing, the Company will use
its best efforts to effect as soon as practicable the registration of all
shares of Registrable Securities on Form S-3, as the case may be, to the extent
requested by the Holder or Holders thereof for purposes of disposition;
provided, however, that the Company shall not be obligated to effect any such
registration if (a) the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose
to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than $500,000, or (b) the Company shall
have already made two registrations on Form S-3 within the 12-month period
immediately preceding the request. Notwithstanding the foregoing, nothing
herein shall restrict, prohibit, or limit in any way a Holder's ability to
exercise its registration rights under Sections 2.2 or 2.3 hereof. The Company
shall have no obligation to take any action to effect any registration pursuant
to this Section 2.9 for any of the reasons set forth in Section 2.2(a)(ii)(A)
or (D) (which shall be deemed to apply to the obligations under this Section
2.9 with equal force). In addition, any registration pursuant to this Section
2.9 shall be subject to the provisions of Section 2.2(b), which shall be deemed
to apply to the obligations under this Section 2.9 with equal force, except
that any reference therein to Section 2.2 or a subsection thereof shall, for
these purposes only, be deemed to be a reference to this Section 2.9.
2.10 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration
as the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.11 Limitations on Subsequent Registration Rights. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the Registrable Securities then
outstanding and not registered, enter into any agreement with
13
17
any holder or prospective holder of any securities of the Company that would
allow such holder or prospective holder to (a) require the Company to effect a
registration or (b) include any securities in any registration filed under
Section 2.2, 2.3 or 2.9 hereof, unless, under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of such securities will not
diminish the amount of Registrable Securities that are included in such
registration.
2.12 Rule 144 Reporting. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC that may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to:
(a) make and keep current public information available, within
the meaning of SEC Rule 144 or any similar or analogous rule promulgated under
the 1933 Act, at all times after it has become subject to the reporting
requirements of the 1934 Act;
(b) file with the SEC, in a timely manner, all reports and other
documents required of the Company under the 1933 Act and 1934 Act (after it has
become subject to such reporting requirements);
(c) so long as a Holder owns any Registrable Securities, furnish
to such Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
commencing 90 days after the effective date of the first registration filed by
the Company for an offering of its securities to the general public), the 1933
Act and the 1934 Act (at any time after it has become subject to such reporting
requirements); a copy of the most recent annual or quarterly report of the
Company; and such other reports and documents as a Holder may reasonably
request in availing itself of any rule or regulation of the SEC allowing it to
sell any such securities without registration.
2.13 "Market Stand-Off" Agreement. Each Holder that is a "One
Percent Shareholder," as defined below, hereby agrees that during a period, not
to exceed 180 days, following the effective date of a registration statement of
the Company filed under the 1933 Act, it shall not, to the extent requested by
the Company and any underwriter, sell, pledge, transfer, make any short sale
of, loan, grant any option for the purchase of, or otherwise transfer or
dispose of (other than to donees who agree to be similarly bound) any Common
Stock held by it at any time during such period except Common Stock included in
such registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company that covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(b) all other "One Percent Shareholders" with registration
rights (whether or not pursuant to this Agreement) and all officers and
directors of the Company enter into similar agreements.
14
18
For purposes of this Section 2.13, the term "One Percent
Shareholder" shall mean a shareholder of the Company who holds at least one
percent of the outstanding Common Stock of the Company (assuming conversion of
all outstanding Preferred Stock of the Company and full exercise of all
Warrants).
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
2.14 Amendment of Registration Rights. Any provision of this Section
2 may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the Holders of at least a majority of
the Registrable Securities then outstanding and not registered; except that any
amendment or waiver affecting the rights or privileges of the Series B
Investors shall require the written consent of the holders of a majority of the
shares of Series B Preferred Stock then outstanding, and Section 2.2(a)(ii)(B)
may not be amended without the consent of Warrant Holders holding at least a
majority of the Registrable Securities then held by all Warrant Holders. Any
amendment or waiver effected in accordance with this Section shall be binding
upon each Holder, each future Holder of Registrable Securities and the Company.
2.15 Aircraft Carrier Release. The parties agree that if Release No.
33-7606A, or a similar release, is adopted by the SEC, the parties shall make
amendments to this Agreement necessary to preserve the intent of this
Agreement. All references to SEC forms in this Agreement include successor
forms thereto.
2.16 Termination of Registration Rights. The rights of any
particular Holder to cause the Company to register securities under Sections
2.2, 2.3 or 2.9 hereof shall terminate as to any Holder on the date such Holder
is able to dispose of all of its Registrable Securities in any 90-day period
pursuant to SEC Rule 144 (or any similar or analogous rule promulgated under
the 1933 Act), provided, however that such rights shall not terminate with
respect to any Holder owning more than one-half percent (1/2%) of the Company's
outstanding Common Stock of the Company until such time as such Holder owns
less than one-half percent (1/2%) of the outstanding Common Stock of the
Company.
Section 3.
RIGHTS OF FIRST REFUSAL
3.1 Pro Rata Right. The Company hereby grants to each Investor,
subject to the terms and conditions specified in this Section 3, the right of
first refusal to purchase up to its pro rata share of all New Securities (as
defined in Section 3.2 hereof) that the Company may, from time to time, propose
to sell and issue. An Investor's pro rata share, for purposes of this right of
first refusal, is the ratio (a) the numerator of which is the number of shares
of Common Stock issued or issuable to such Investor upon exercise of the
Warrants held by such Investor, and/or the number of shares of Common Stock
issued or issuable to such Investor upon the conversion of shares of Preferred
Stock held by such Investor on the date of the Company's written notice
15
19
pursuant to Section 3.3 hereof, and (b) the denominator of which is the number
of shares of Common Stock outstanding, assuming for this purpose conversion or
exercise of all securities convertible into or exercisable for Common Stock of
the Company.
3.2 New Securities. "New Securities" shall mean any capital stock of
the Company, whether now authorized or not, and rights, options or warrants to
purchase capital stock, and securities of any type whatsoever that are, or may
become, convertible into capital stock; provided that the term "New Securities"
does not include (i) the Preferred Stock; (ii) securities issuable upon
conversion of or with respect to Preferred Stock; (iii) the Warrants; (iv) the
securities issuable upon exercise of the Warrants; (v) securities issued
pursuant to the acquisition of another corporation by the Company by merger,
purchase of substantially all the assets or other reorganization whereby the
Company owns more than 50% of the voting power of such corporation; (vi)
capital stock or securities exercisable for or convertible into such capital
stock issued in connection with any borrowings, direct or indirect, from
financial or other institutions regularly engaged in the business of lending of
money if such issuance is approved by the Board of Directors of the Company;
(vii) shares of Common Stock, and options, warrants or rights convertible into
such Common Stock, issued to employees, consultants or directors of the Company
pursuant to any incentive agreement or arrangement approved by the Board of
Directors of the Company; (viii) shares of Common Stock issued upon exercise of
options or warrants outstanding on the date hereof; or (ix) securities issued
pursuant to any stock dividend, stock split, combination or other
reclassification by the Company of any of its capital stock.
3.3 Required Notices. In the event the Company proposes to undertake
an issuance of New Securities, it shall give each Investor written notice of
its intention, describing the type of New Securities, the price and the general
terms upon which the Company proposes to issue the same. Each Investor shall
have fifteen (15) days from the date of any such notice to agree to purchase
the Investor's pro rata share of such New Securities for the price and upon the
general terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased. After such
initial 15-day period, for an additional period of fifteen (15) days, each
Investor may also exercise its right of overallotment such that if any Investor
fails to exercise its right hereunder to purchase its pro rata portion of the
New Securities proposed to be sold by the Company, each other Investor may, by
notifying the Company of such Investor's desire to acquire more that its pro
rata share as part of its exercise notice pursuant to this Section 3.3,
purchase the nonpurchasing Investor's portion on a pro rata basis.
3.4 Company's Right to Sell. In the event the Investors fail to
exercise their rights of first refusal as to all New Securities offered within
said 15-day period, the Company shall have ninety (90) days thereafter to sell
all such New Securities respecting which the Investors' rights of first refusal
hereunder were not exercised, at a price and upon general terms no more
favorable in any material respect to the purchasers thereof than specified in
the Company's notice. In the event the Company has not sold all such New
Securities within said 90-day period, the Company shall not thereafter issue or
sell any New Securities, without first offering such securities to the
Investors in the manner provided herein.
16
20
3.5 Expiration of Right. The rights of first refusal granted under
this Section 3 shall not apply to, and shall expire upon, the effectiveness of
the Company's initial registration statement for the sale of its shares of
Common Stock in a firm commitment underwritten public offering registered under
the 1933 Act (other than a registration relating solely to employee benefit
plans or to a transaction under Rule 145 under the 1933 Act or any successor
rule thereto) (a "Qualified Public Offering").
3.6 Assignment. The rights of first refusal set forth in this
Section 3 are nonassignable, except that (a) such right is assignable by each
Investor to any wholly owned subsidiary or parent of, or to any corporation,
entity or other person that is, within the meaning of the 1933 Act,
controlling, controlled by or under common control with, such Investor, and (b)
such right is assignable in any Permitted Transfer (as defined in Section
2.8(b)) by an Investor.
Section 4.
COMPANY COVENANTS
The Company hereby covenants and agrees as follows.
4.1 Affirmative Covenants.
(a) Financial Statements and Information. The Company will keep
books of account and prepare financial statements and will take the following
actions with respect to such information (all of the foregoing and following to
be kept and prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis).
(i) As soon as practicable, but in any event within ninety
(90) days after the end of each fiscal year of the Company, beginning with the
fiscal year ended December 31, 1999, the Company will furnish to each Investor
and each other Holder (1) a copy of the financial statements of the Company for
such fiscal year containing a consolidated and consolidating balance sheet,
statement of income, statement of shareholders' equity, and statement of cash
flows, each as at the end of such fiscal year and for the period then ended and
in each case setting forth in comparative form the figures for the preceding
fiscal year, all in reasonable detail and audited and certified by independent
public accountants of recognized standing selected by the Company's Board of
Directors, and containing an opinion that such financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a basis consistent with prior years (except as otherwise specified in such
report) and (2) a statement from the principal financial or accounting officer
of the Company (or, upon the request of the holders of a majority of the Common
Stock issued or issuable upon conversion of the Preferred Stock or exercise of
the Warrants, a statement from the auditors of the Company) discussing whether
the Company is in material compliance with this Agreement and all its other
material agreements. In addition to the foregoing, upon the request of any
Investor who holds no less than 100,000 shares of Common Stock issued or
issuable upon conversion of the Preferred Stock or exercise of the Warrants,
subject to adjustment for stock splits, stock dividends and the like, the
Company shall use its best efforts to cause the auditors of the Company to meet
with such Investor for purposes of reviewing the Company's financial statements
and condition.
17
21
(ii) As soon as practicable after the end of each of the
first three quarters of the fiscal year, but in any event within thirty (30)
days after the end of each such quarter, the Company will furnish to each
Investor and each other Holder the unaudited consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such quarter, and its
unaudited consolidated statements of income and losses, shareholders' equity
and cash flows for such quarter, setting forth in each case in comparative form
the figures for the corresponding period of the preceding fiscal year, all in
reasonable detail and prepared in accordance with generally accepted accounting
principles, except that such financial statements may not contain notes and
will be subject to year-end adjustment, and certified by the principal
financial or accounting officer of the Company. Such quarterly report shall
include a narrative, summary description of the Company's operations for such
quarter from the Chief Executive or Operating Officer, indicating whether the
Company is materially in compliance with this Agreement and other material
agreements and discussing any material variances from the Company's operating
plan, accompanied by an updated forecast of financial performance for the next
four (4) quarters and notice of any material events during such quarter,
including without limitation acquisitions and new product developments.
(iii) As soon as practicable after the end of each month,
but in any event within fifteen (15) business days thereafter, the Company will
furnish to each Investor and each other Holder the unaudited consolidated
balance sheet of the Company and its subsidiaries, if any, as of the end of
such month and its unaudited statement of income and losses, shareholders'
equity and cash flows for such month, indicating actual results versus the
Company's plan for such month, setting forth in each case in comparative form
the figures for the corresponding period of the preceding fiscal year and a
summary discussion of the Company's principal functional areas (provided, that
in alternate months the Company shall have the right to provide an interim
letter regarding significant developments in lieu of such summary discussion),
all in reasonable detail and prepared in accordance with generally accepted
accounting principles, except that such financial statements may not contain
notes and will be subject to year end adjustment, and certified by the
principal financial or accounting officer of the Company.
(iv) As soon as practicable after the end of each quarter
of the fiscal year, the Company will furnish to each Investor and each other
Holder a copy of each (1) financial statement, report, notice, or proxy
statement sent by the Company to its shareholders generally; (2) regular,
periodic, or special report, registration statement, or prospectus filed by the
Company with any securities exchange, state securities regulator, or the
Securities and Exchange Commission; (3) press release or other statement made
available by the Company or its officers to the public generally concerning
material developments in the business of the Company; (4) material report
prepared for the Company by an outside consultant; and (5) agreement, letter of
intent or proposal from or with any entity proposing to acquire the Company or
form any potentially material strategic relationship.
(v) Concurrently with the furnishing of the reports
pursuant to Section 4.1(a), the Company shall furnish to each member of the
Board a certificate of the Chief Executive Officer, the Chief Operating Officer
or the Chief Financial Officer of the Company stating that to such officer's
knowledge the Company is not materially in default (with or without notice or
lapse of time or both) under, and has not materially breached any material
agreements or obligations, including, without limitation this Agreement or if
any such material
18
22
default or breach exists, specifying in detail the nature and period of
existence thereof and what actions the Company has taken and proposes to take
with respect thereto. The Company covenants that promptly after the occurrence
of any material default (with or without notice or lapse of time or both)
under, or material breach of, this Agreement or any other material agreement or
obligation, it shall deliver to each member of the Board a certificate of an
officer of the Company specifying in detail the nature and period of existence
thereof and what actions the Company has taken and proposes to take with
respect thereto. The Investors shall be entitled to participate in any
discussions with the Company's lenders regarding any such default.
(vi) With reasonable promptness, the Company will furnish
to each Investor and each other Holder such other information regarding the
business, properties, condition and affairs, financial or other, of the Company
or any subsidiary as any Holder may from time to time reasonably request.
(b) Inspection. The Company shall permit each Investor and each
transferee in a Permitted Transfer (as defined in Section 2.8(b) hereof), its
attorney or its other representative to visit and inspect the Company's
properties, to examine the Company's books of account and other records and
agreements, to make copies or extracts therefrom and to discuss the Company's
affairs, finances and accounts with its officers, management employees and
independent auditors all at such reasonable times and as often as such Investor
or transferee may reasonably request; provided, however, that such Investor
shall bear any costs or expenses of such investigations or inquiries; provided,
further, that the Company shall not be obligated pursuant to this Section
4.2(b) to provide trade secrets or confidential information or to provide
information to any person whom the Company reasonably believes is a competitor
of the Company unless (i) such person or its affiliates purchased its shares of
capital stock directly from the Company, and (ii) such person enters into a
reasonable and customary confidentiality agreement with the Company concerning
such trade secrets or confidential information and agrees to use such
information solely for purposes directly related to such person's investment in
the Company.
(c) Budget. The Company will prepare and submit to the Board of
Directors and Investors an operating budget (the "Budget") for each fiscal year
at least thirty (30) days prior to the beginning of such fiscal year of the
Company, and such Budget will contain forecasts for the next three (3) fiscal
years projected on a quarterly basis and include balance sheets, income
statements, and statements of cash flow. The Budget will be accepted as the
Budget for such fiscal year when it has been approved by a majority of the
Board of Directors, including at least three of the five directors designated
by the Series B Investors. The Budget shall be reviewed by the Company
periodically, and in any event not less frequently than every six months after
the adoption thereof, and all changes therein and all material deviations
therefrom shall be resubmitted to the Board of Directors for approval by a
majority thereof, including at least three of the five directors designated by
the Series B Investors. Within ten (10) days of approval of revisions by the
Board of Directors, the Company will submit the revised Budget to the Investors
with explanation of any deviations from the previous Budget.
(d) Prompt Payment of Taxes. The Company and its subsidiaries,
if any, will timely pay and discharge, or cause to be paid and discharged, all
lawful taxes, assessments and governmental charges or levies imposed upon any
of their income, profits, properties or
19
23
businesses; provided, however, that any such tax, assessment, charge or levy
need not be paid if the validity thereof shall currently be contested in good
faith by appropriate proceedings; and provided, further, that the Company and
its subsidiaries will pay all such taxes, assessments, charges or levies
forthwith upon the commencement of proceedings to foreclose any tax lien that
may have attached as security therefor or with respect thereto.
(e) Observation Rights. Each Investor and each transferee in a
Permitted Transfer (as defined in Section 2.8(b) hereof) who holds no less than
100,000 shares of Common Stock issued or issuable upon conversion of Preferred
Stock and exercise of the Warrants, subject to adjustment for stock splits,
stock dividends and the like, shall have the right to receive notice of all
meetings of the Board of Directors and to attend any such meeting as a
nonvoting observer.
(f) Maintenance of Insurance. The Company shall maintain, and
cause each subsidiary to maintain, insurance (including directors and officers
insurance) with responsible and reputable insurance companies or associations
in such amounts and covering such risks as is customarily carried by companies
engaged in similar businesses and owning similar properties in the same general
areas in which the Company or such subsidiary operates.
(g) Material Changes and Other Notices. The Company shall
promptly notify each member of the Board of (a) any materially adverse changes
in the assets, properties, financial condition, operating results, prospects or
business of the Company and its subsidiaries, and (b) any lawsuit, claim,
proceeding or investigation pending or, to the knowledge of the Company,
threatened, or any judgment, order or decree involving the Company or its
subsidiaries that would have a materially adverse effect on the Company's
business, condition or results of operations.
(h) Compliance with Applicable Laws. The Company shall comply in
all material respect with all applicable statutes, laws, ordinances, rules and
regulations of any governmental authority (whether now in effect or hereinafter
enacted) and any filing requirements relating thereto including without
limitation, the U.S. Foreign Corrupt Practices Act and environmental laws and
regulations. The Company shall do all things necessary to preserve, renew and
keep in full force and effect and in good standing its corporate existence and
authority necessary to continue its business.
(i) Key Man Insurance. The Company shall maintain a policy of
"key man" insurance on the lives of Nathan Morton, Mike Atwood, Keith Brown and
Chuck Cosby with minimum coverage of $1,000,000, unless otherwise directed by
the Board of Directors. The proceeds from such policies shall be payable to the
Company.
(j) Use of Proceeds. The Company shall expend the proceeds from
the sale of the Series B Preferred Stock substantially in accordance with the
Schedule 4.1(j) attached hereto.
(k) Directors' and Officers' Insurance Policy. Within ninety
(90) days of the Closing, the Company shall obtain and maintain a valid policy
of Directors' and Officers' insurance covering each member of the Board with a
financially sound and reputable insurer in
20
24
the amount of $3,000,000 per occurrence. The Articles of Incorporation, Bylaws
and other organizational documents of the Company and each of its subsidiaries
shall at all times to the fullest extent permitted by law, provide for
indemnification or, advancement of expenses to, and limitation of the personal
liability of, the members of the Board and the members of the boards of
directors or other similar managing bodies of each of the Company's
subsidiaries. Any Board observer shall be entitled to indemnification from the
Company to the maximum extent permitted by law as though he or she were a
director of the Company and any of its Subsidiaries. Such provisions may not be
amended, repealed or otherwise modified in any manner materially adverse to any
member of the Board or any member of the boards of directors or other similar
managing bodies of any of the Company's subsidiaries, until at least six years
following the date on which none of the Investors are entitled to nominate a
designee to the Board. Each of the members of the Board (including the
Investors' designees and each Board observer is intended to be a third-party
beneficiary of the obligations of the Company pursuant to this Section 4.1(k)
and the obligations of the Company pursuant to this Section 4.1(k) shall be
enforceable by each such individual.
(l) Covenant Regarding Financial Controls. The Company shall
require that (i) any payment or other transfer of funds by it in excess of
$100,000 (individually or in a series of related transactions) will require the
written signature of at least two Senior Officers of the Company (as defined in
Section 4.2(l) hereof, and (ii) any payment or other transfer of funds by it in
excess of $1 million (individually or in a series of related transactions) will
require the written signature of a nonemployee member of the Board of Directors
(who initially shall be the member of the Board of Directors designated by
Southeast Interactive Technology Fund LLP), and the Company shall provide
appropriate instructions to its depositaries to implement such restrictions.
4.2 Negative Covenants. Without the prior written consent of at
least three of the five directors designated by the Series B Investors, the
Company covenants and agrees as follows.
(a) Employment Agreements. The Company shall not enter into any
employment, severance, option or any other agreements or awards with any
holders of more than one percent (1%) of the Company's capital stock or any
officer or director of the Company.
(b) Declaration of Bankruptcy. The Company shall not voluntarily
declare bankruptcy.
(c) Limit on Indebtedness. The Company and its subsidiaries
shall not, directly or indirectly, create, incur, assume or be or remain liable
with respect to, any indebtedness or obligations in excess of $250,000 in the
aggregate, other than borrowings (i) outstanding on the date hereof; (ii)
incurred for inventory financing; or (iii) arising in the ordinary course of
the Company's business that are approved by the Company's Board of Directors.
(d) Limitation on Liens. The Company and its subsidiaries shall
not create, incur, permit to exist or suffer to be created or incurred any lien
upon any of its property, whether now owned or hereafter acquired, other that
liens (i) outstanding on the date hereof; (ii) incurred for inventory
financing; or (iii) arising in the ordinary course of the Company's business
that are approved by the Company's Board of Directors.
21
25
(e) Issuances, Offerings and Dividends. Except as otherwise
permitted in the Articles of Incorporation of the Company, as amended from time
to time, or this Agreement, the Company shall not (i) issue, offer or sell any
securities of the Company or (ii) declare or make any dividends or
distributions of its cash, stock, property or assets, unless approved in
writing by at least three of the five directors designated by the Series B
Investors.
(f) Merger; Change in Control; Acquisition of Assets. The
Company will not (a) sell, lease or otherwise dispose of (whether in one
transaction or a series of related transactions) all or substantially all of
its assets, (b) merge with or into or consolidate with another entity (except
into or with a wholly-owned subsidiary of the Company with the requisite
shareholder approval) in which the shareholders of the Company immediately
prior to such merger or consolidation possess a minority of the acquiring
entity immediately following such merger or consolidation, (c) voluntarily
liquidate or wind up its operations, or (d) acquire assets of another entity
(not including acquisitions from vendors in the ordinary course of business)
with an aggregate value greater than $250,000.
(g) Sale of Assets. The Company shall not effect any sale,
lease, assignment, transfer, or other conveyance of any material portion of the
assets or operations or the revenue or income generating capacity of the
Company with an aggregate value greater than $250,000 (other than inventory in
the ordinary course of business and other assets reasonably and in good faith
determined by the Company to be obsolete or no longer necessary to the business
of the Company), or to take any such action that has the effect of any of the
foregoing.
(h) Executive Compensation. The Company shall not increase the
compensation paid to its executive officers by more than five percent (5%) of
their current compensation amounts, whether by means of salary, bonus, profit
sharing, options, dividends or any other means whatsoever.
(i) Related Party Transactions. The Company shall not enter into
any material agreement, transaction or relationship with any person that
controls, is controlled by, or is under common control with, the Company or
with any officer, director, shareholder or employee of the Company, including
any member of any of their immediate families, unless such agreement,
transaction or relationship is substantially on terms that would be offered by
an unaffiliated party.
(j) Business Purpose. The Company shall not engage in any
business other than businesses of the type and nature in which the Company is
currently engaged and described on Schedule 4.2(j) and extensions thereof
reasonably related thereto.
(k) Series B Preferred Stock Voting Rights. The Company shall
not take any corporate action in violation of the voting rights of the holders
of Series B Preferred Stock of the Company contained in Article IV(H) of the
Articles of Incorporation of the Company, as amended from time to time.
(l) Liquidation. The Company shall not approve any liquidation,
dissolution or winding up of the Company (either voluntary or involuntary), or
any sale, transfer or other
22
26
disposition of all or substantially all of the Company's assets, or any merger
or consolidation of the Company with or into any other person.
4.3 Adjustment of Series B Multiple Upon Breach of Covenants. If it
is determined in accordance with the procedure outlined in this Section 4.3
that the Company has breached any of the covenants contained in Section 4.1 or
4.2 herein, the Series B Multiple (as defined in the Articles) shall be
increased as provided therein, it being understood, however, that such increase
shall not be the sole or exclusive remedy of the Series B Investors and that
the Series B Investors shall be entitled to pursue remedies at law, including
injunctive relief or other equitable remedies, in the event of any such breach;
it is further understood that no remedy is exclusive of any other remedy and
that all available remedies are cumulative to the extent permitted by law. A
"Breach Occurrence" shall refer to a breach by the Company that has been
determined as follows.
(a) Notice of Breach. The Series B Investors shall give written
notice to the President of the Company, with a copy to the Secretary of the
Company, of any claim of breach of any covenant contained in Section 4.1 or 4.2
herein, including in such notice a brief description of the facts upon which
such breach is based (the "Breach Notice") within a reasonable period of time
following the date on which the Series B Investors obtain knowledge thereof.
the Company will have the right to make such investigation of the Series B
Investors' claim as the Company may deem necessary or desirable. The Company
shall have thirty (30) days from the date of receipt of the Breach Notice to
cure such breach or obtain a waiver thereof in accordance with the provisions
hereto.
(b) Dispute of Breach Notice. If the Company disputes the breach
described in the Breach Notice, within thirty (30) days after receipt of the
Breach Notice it shall give written notice to the Series B Investors setting
forth with reasonable specificity the reasons for objecting thereto, whereupon
the Company and Series B Investors shall promptly and in good faith attempt to
resolve such dispute. If no such resolution can be reached after good faith
negotiation, either party may demand arbitration of the matter, and in any such
event the matter shall be settled by arbitration conducted by three
arbitrators. The Company and Series B Investors shall each select one
arbitrator, and the two arbitrators so selected shall select a third
arbitrator. The decision of the arbitrators so selected as to the validity of
any breach in such Breach Notice shall be binding and conclusive upon the
parties to this Agreement, and the parties shall act promptly in accordance
with such decision. Any such arbitration shall be held in New York City, New
York. Any such arbitration shall be conducted under the rules then in effect of
the American Arbitration Association.
(c) Determination of Breach. Any such breach shall be deemed to
be a Breach Occurrence triggering adjustment of the Series B Multiple if (i)
the Company fails to cure such breach, obtain a waiver thereof or invoke the
dispute resolution procedures of Section 4.3(b) within thirty (30) days after
the date of receipt of the Breach Notice or (ii) the arbitrators fail to make a
final determination in accordance with Section 4.3(b) that such breach has not
occurred.
23
27
4.4 Expiration of Covenants. The covenants set forth in this Section
4 shall expire and be of no further force or effect upon the closing of a
Qualified Public Offering (as defined in Section 3.5 hereof). After such time,
the Investors shall be entitled to receive such annual and quarterly reports as
the Company shall distribute to its shareholders generally.
Section 5.
MISCELLANEOUS
5.1 Governing Law. This Agreement shall be governed by, and
construed and interpreted in accordance with the laws of the State of New York
as applied to agreements among New York residents made and to be performed
entirely within the State of New York.
5.2 Jurisdiction. Each party hereto hereby irrevocably and
unconditionally submits to the exclusive jurisdiction of the state and federal
courts located in the State of New York, County of New York, for any actions,
suits, or proceedings arising out of or relating to this agreement and the
transactions contemplated hereby. Each party hereto agrees not to commence any
action, suit or proceeding relating thereto except in such courts. Each of the
parties hereto hereby irrevocably and unconditionally waives any objection to
the laying of venue of any action, suit or proceeding arising out of this
agreement or the transactions contemplated hereby, in such state or federal
courts as aforesaid and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such action, suit
or proceeding brought in any such court has been brought in an inconvenient
forum.
5.3 Waiver of Jury Trial. The parties hereby waive trial by jury in
any judicial proceeding to which they are parties involving, directly or
indirectly, any matter in any way arising out of, related to or connected with
this Agreement.
5.4 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
5.5 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement among the parties with regard to the subjects
hereof. Without limiting the generality of the foregoing, this Agreement
expressly supersedes the Original Rights Agreement and the parties hereto waive
any rights they have under Section 3 of the Original Rights Agreement. Nothing
in this Agreement, express or implied, is intended to confer upon any party,
other than the parties hereto and their successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided herein.
5.6 Severability. Any invalidity, illegality or limitation of the
enforceability with respect to any Investor of any one or more of the
provisions of this Agreement, or any part thereof, whether arising by reason of
the law of any such person's domicile or otherwise, shall in no way affect or
impair the validity, legality or enforceability of this Agreement with respect
to other Investors. In case any provision of this Agreement shall be invalid,
illegal or
24
28
unenforceable, it shall to the extent practicable, be modified so as to make it
valid, legal and enforceable and to retain as nearly as practicable the intent
of the parties, and the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
5.7 Amendment and Waiver. Except as otherwise expressly provided
herein, any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance, either retroactively or prospectively and either for a specified
period of time or indefinitely) with the written consent of the Company and
Investors (or their transferees) holding at least a majority of the shares of
Registrable Securities, voting together as a single group (treating Preferred
Stock as if converted at the conversion rate then in effect and treating
Warrants as if exercised for all underlying shares of Common Stock, and
including, for such purposes, shares of Common Stock into which any shares of
Preferred Stock shall have been converted and for which any Warrant shall have
been exercised that are held by a Holder); provided, however, that no such
amendment or waiver shall reduce the aforesaid percentage of Registrable
Securities, the holders of which are required to consent to any waiver or
supplemental agreement, without the consent of the holders of all of such
Registrable Securities; provided, further, that any amendment or waiver
adversely affecting the rights, preferences or privileges of Series B Investors
(in any manner differently than the effect on all Investors, and including,
without limitation, any amendment or waiver to any provision of Sections 4.2 or
4.3, shall require the consent of the holders of a majority of the Registrable
Securities held by the Series B Investors; provided further that Section
2.2(a)(ii)(B) may not be amended without the consent of Warrant Holders holding
at least a majority of the Registrable Securities then held by all Warrant
Holders. Any amendment or waiver effected in accordance with this Section 5.5
shall be binding upon each Investor and each transferee of the Registrable
Securities. Upon the effectuation of each such amendment or waiver, the Company
shall promptly give written notice thereof to the Investors who have not
previously consented thereto in writing. Notwithstanding anything to the
contrary in this Section 5.5, the Company shall be entitled to include
additional purchasers of its Series B Preferred Stock pursuant to the Series B
Agreement as parties to this Agreement, and to treat such purchasers as
"Investors" and "Holders" hereunder, by amending Exhibit A attached hereto and
providing such Exhibit A, as amended, to the other parties to this Agreement.
5.8 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to the Company, any Investor, or any transferees upon
any breach, default or noncompliance of any Investor or any transferee or the
Company under this Agreement, shall impair any such right, power or remedy, nor
shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of any similar breach, default
or noncompliance thereafter occurring. It is further agreed that any waiver,
permit, consent or approval of any kind or character on the part of the Company
or the Investors of any breach, default or noncompliance under this Agreement
or any waiver on the Company's or the Investors' part of any provisions or
conditions of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing and that all remedies, either
under this Agreement, by law, or otherwise afforded to the Company and the
Investors, shall be cumulative and not alternative.
25
29
5.9 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or upon confirmed delivery by facsimile or telecopy, or
on the fifth day (or the tenth day if to a party with an address outside of the
United States) following mailing by registered or certified mail, return
receipt requested, postage prepaid, addressed: (a) if to an Investor, at such
Investor's address as set forth on the schedule attached hereto, or at such
other address as such Investor shall have furnished to the Company in writing,
or (b) if to the Company, at its address first above written, or at such other
address as the Company shall have furnished to the Investors in writing.
5.10 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
5.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
26
30
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the parties as of the date first above written.
THE COMPANY: BUILDNET, INC.
By: /s/ Keith T. Brown
Name: Keith T. Brown
Title: Chief Executive Officer
INVESTORS: /s/ Investors listed in Exhibit A hereto
(Printed or Typed Name)
By: Investors listed in Exhibit A hereto
Name:
---------------------------------------
Title:
--------------------------------------
27
31
EXHIBIT A
SCHEDULE OF INVESTORS
NAME AND ADDRESS SERIES A WARRANT SERIES B
SHARES SHARES SHARES
(FIRST (1999 (2000
CLOSING) CLOSING) CLOSING)
- -------------------------------------------------------------------------------------------------------------------------
BancBoston Ventures 77,826 50,176 64,916
Inc.
175 Federal Street
Boston, MA 02110
Attn: John Doggett
The CIT Group/Equity 38,913 25,088 32,458
Investments, Inc.
650 CIT Drive
Livingston, NJ 07039
Attn: Ken Walters
Covestco-Seteura, LLC 77,826 50,176 64,916
c/o Jura Trust
Mitteldorf 1
Vaduz, Liechtenstein,
FL-9490
Attn: Alein Johann
Deerwood Enterprises, 120,574 - -
Ltd.
5177 Richmond
Suite 1166
Houston, TX 77056
Attn: Frank M.K. Liu
GE Capital Equity 466,958 301,061 389,498
Investments, Inc.
120 Long Ridge Road
Stamford, CT 06927
Attn: James Brown
Michael A. Garcia 5,618
12204 Dumfries Road
Manassas, VA
20112-3541
William H. and Vonna 1,448
K. Graves
325 Sun Forest Way
Chapel Hill, NC 27515
Grove Capital 9,645 - -
Partners, LLC
3347 Divisadero Street
San Francisco, CA
94123
Attn: George Lula
28
32
Halifax Buildnet 77,826 50,176 64,916
Investors, L.P.
702 Oberlin Road,
Suite 150
Raleigh, NC 27605
Attn: James D. Lumsden
Eric J.E. Higgs 1,890 6,764 - -
881 Innes Avenue
San Francisco, CA
94124
Mayflower Venture 11,588
Capital, LLC
2626 Glenwood Avenue,
Suite 200
Raleigh, NC 27608
Attn: Kimberly Barnes
Petra Capital, LLC 67,740
172 2nd Avenue North,
Suite 112
Nashville, TN 37201
Attn: Casey West
Piedmont Venture 67,157 258,405 - -
Partners
Limited Partnership
One Morrocroft Center,
Suite 380
6805 Morrison Boulevard
Charlotte, NC 28211
Attn: William H.
Neal, III
SGC Partners II LLC 291,848 188,163 243,436
1221 Avenue of the
Americas
13th Floor
New York, NY 10020
Attn: Justin
Hall-Tipping
John P. Siracuse 810 2,899 - -
BancBoston Robertson
Stephens, Inc.
One International
Place, 30th Floor
Boston, MA 02110
Southeast Interactive 28,587 8,686 - -
Technology
Fund I, LLC
2525 Meridian Parkway,
Suite 300-A
Durham, NC 27713
Attn: Norvell Miller
29
33
Southeast Interactive 5,842 72,528 145,333 106,834 138,216
Technology
Fund II, LLC
2525 Meridian Parkway,
Suite 300-A
Durham, NC 27713
Attn: Norvell Miller
John Stein 13,500 37,267 - -
3605 Saratoga Drive
Nashville, TN 37205
Stein Family Partners, 13,500 60,796 - -
L.P.
3605 Saratoga Drive
Nashville, TN 37205
Attn: John Stein
------ ------- --------- ------- -------
TOTALS 53,083 237,125 1,681,566 771,674 998,356
====== ======= ========= ======= =======
30
34
SCHEDULE 4.1(J)
USE OF PROCEEDS
INITIAL CLOSING
ACQUISITIONS
McCosker 3,000,000
Lloyds* 625,000
Maxwell* 1,000,000
---------
4,625,000
NOTE REPAYMENT
Homeland 350,000
Francis Pinto 304,218
Keith Brown 60,000
714,218
New development 6,660,782
---------
TOTAL $12,000,000
1999 SUBSEQUENT CLOSING
Acquisitions
New development 6,000,000
Repayment of Petra Debt 2,000,000
---------
TOTAL $8,000,000
2000 SUBSEQUENT CLOSING
ACQUISITIONS
McCosker 1,500,000
Lloyds* 283,333
Maxwell* 500,000
-------
2,283,333
New development 6,016,667
---------
TOTAL $8,300,000
*It is agreed that in the event that Lloyds or Maxwell is not
consummated, such funds may be used for other acquisitions.
35
SCHEDULE 4.2(J)
BUSINESS PURPOSE
The Company is engaged in the business of providing software and
electronic commerce solutions for the homebuilding industry and related
industries.
36
BUILDNET, INC.
AMENDMENT TO
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
THIS AMENDMENT TO THE AMENDED AND RESTATED INVESTOR RICHTS AGREEMENT
(the "Amendment") is entered into this 29th day of October 1999, by and among
Buildnet, Inc., a North Carolina corporation (the "Company"), and the
undersigned holders of certain warrants to purchase Common Stock and holders of
Preferred Stock of the Company.
WHEREAS, the Company and holders of certain warrants to purchase
Common Stock and holders of Preferred Stock of the Company listed on Exhibit A
attached hereto (the "Investors") of the Company have entered into an Amended
and Restated Investor Rights Agreement dated as of May 21, 1999 (the "Rights
Agreement"); and
WHEREAS, in connection with the Company's sale of up to 25,000,000
shares of Series C Preferred Stock at a price per share of $4.40 (the "Series C
Financing") the Company and certain holders of Series C Preferred Stock of the
Company (the "Series C Holders") will enter into an Investor Rights Agreement
(the "Series C Investor Rights Agreement"), pursuant to which the Series C
Holders will obtain certain rights with respect to registration of certain
shares held by them; and
WHEREAS, the Company and the Investors desire to amend the Rights
Agreement to clarify the relative rights of the Investors and Series C Holders
with respect to registration of their shares of Company capital stock; and
WHEREAS, Section 2.14 of the Rights Agreement requires the written
consent of holders of a majority of the Registrable Securities then outstanding
and not registered to amend the registration rights provisions of the Rights
Agreement and Section 5.7 of the Rights Agreement requires the written consent
of holders of a majority of the Registrable Securities, voting together as a
single class, to amend any provision of the Rights Agreement; provided, that,
Sections 2.14 and 5.7 require the written consent of holders of a majority of
the outstanding shares of Series B Preferred Stock for any amendment that
affects the rights or privileges of the Series B Preferred Stock set forth in
the Rights Agreement; and
WHEREAS, the undersigned Investors constitute the requisite percentage
of Investors required to amend the Rights Agreement; and
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions set forth in this Amendment, and other good and valuable
consideration, the receipt of which is hereby acknowledged, and pursuant to
Sections 2.14 and 5.7 of the Rights Agreement, the parties to this Amendment
mutually agree as follows.
1. Capitalized Terms. All capitalized terms used herein that are not
otherwise defined herein shall have the meanings assigned to them in the
Investor Rights Agreement unless the context hereof requires otherwise.
37
2. Amendments. The Investor Rights Agreement is hereby amended as
follows:
2.1 The first paragraph of the Preamble of the Rights Agreement shall be
amended by adding the following securities to the definition of
"Warrants" contained in the first sentence of such paragraph:
"certain warrants to purchase shares of Company's common stock issued
pursuant to certain Note and Warrant Purchase Agreements, dated
November 12, 1998, February 22, 1999 and April 9, 1999, by and among
the Company and certain Investors named therein."
Exhibit A of the Rights Agreement shall be amended and restated in its
entirety to read as set forth at Exhibit A attached hereto to add the
foregoing securities under the column entitled "Warrant Shares."
2.2 The second sentence of the second paragraph of Section 2.2(b) shall be
amended by adding the following phrase at the end of such second
sentence:
"provided, however, that the number of shares of Registrable
Securities to be included in such underwriting shall not be reduced
unless all other securities are first entirely excluded from the
underwriting."
2.3 The second paragraph of Section 2.3(a)ii shall be amended to add the
following phrase at the end of the only sentence in such paragraph:
"or by other holders of securities exercising a Demand Registration."
2.4 The second paragraph of Section 2.3(b) shall be amended as follows:
The second sentence of such paragraph shall be amended by deleting it
and replacing it in its entirety with the following sentence:
"Notwithstanding any other provision of this Section 2.3, if the
underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the underwriter may limit the
number of Registrable Securities to be included in the registration
and underwriting; provided, however, that the amount of Registrable
Securities and other securities that have contractual rights with
respect to registration similar to those provided in this Section 2.3
shall not be reduced below twenty-five percent (25%) of the total
number of securities in such offering, but in the case of the
Company's initial public offering, the underwriter may exclude
Registrable Securities entirely from such registration and
underwriting subject to the terms of this Section 2.3; provided,
further, that no other stockholders' securities are included
including, without limitation, those of directors, officers and
employees of the Company."
2
38
The third sentence of such paragraph shall be amended by adding the
following phrase to the end of such sentence:
"provided that no such limitation shall diminish the number of
securities to be included by any holder exercising contractual rights
with respect to a Demand Registration (whether pursuant to this or any
other agreement).
The sixth sentence of such paragraph shall be amended by adding the
following phrase after the word "Company" and before the phrase "in
the underwriting."
"or by any holder exercising contractual rights with respect to a
Demand Registration (whether pursuant to this or any other agreement)"
3. Validity. The parties agree that this Amendment is entered into in
accordance with Sections 2.14 and 5.7 of the Rights Agreement and shall be
effective only upon consummation of the Series C Financing.
4. No Other Amendment. Except as specifically amended pursuant to this
Amendment, the Rights Agreement remains in full force and effect in accordance
with its terms.
5. Governing Law. All questions concerning the construction, validity
and interpretation of this Amendment will be governed by and construed in
accordance with the internal law (and not the law of conflicts) of New York.
6. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7. Binding Effect. This Amendment shall be binding upon and shall
inure to the benefit of the parties hereto and their heirs, successors and
assigns.
[THE NEXT PAGE IS THE SIGNATURE PAGE.]
3
39
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Rights Agreement as of the date first above written.
COMPANY:
BUILDNET, INC.
By: /s/ Stephen L. Holcombe
Name: Stephen L. Holcombe
Title: Executive Vice President and CFO
INVESTORS:
GE CAPITAL EQUITY INVESTMENTS, INC. PIEDMONT VENTURE PARTNERS LIMITED
PARTNERSHIP
By: /s/ Brian S. Graff By: Piedmont Management, Inc.
Name: Brian S. Graff
Title: Senior Vice President
By: /s/ William W. Neal
SGC PARTNERS II, LLC Name: William W. Neal
Title: Managing Principal
By: /s/ Justin Hall-Tipping
Name: Justin Hall-Tipping
Title: Managing Director
SOUTHEAST INTERACTIVE TECHNOLOGY
FUND I, LLC
BANCBOSTON VENTURES, INC.
By: /s/ David C. Blivin
By: /s/ John Doggett Name: David C. Blivin
Name: John Doggett Title: Managing Director
Title: Vice President
THE CITIGROUP/EQUITY INVESTMENTS SOUTHEAST INTERACTIVE TECHNOLOGY
FUND II, LLC
By: /s/ Mark Vanderveen
Name: Mark Vanderveen By: /s/ David C. Blivin
Title: Vice President Name: David C. Blivin
Title: Managing Director
HALIFAX BUILDNET INVESTORS, L.P.
COVESTCO-SETEURA, LLC
By: /s/ James D. Lumsden By: /s/ Alein Johann
Name: James D. Lumsden Name: Alein Johann
Title: Authorized Representative Title: Director
4
40
EXHIBIT A
SCHEDULE OF INVESTORS
NAME AND ADDRESS SERIES A WARRANT SERIES B
SHARES SHARES SHARES
(FIRST (1999 (2000
CLOSING) CLOSING) CLOSING)
- ---------------------------------------------------------------------------------------------------------------------
BancBoston Ventures 77,826 50,176 64,916
Inc.
175 Federal Street
Boston, MA 02110
Attn: John Doggett
The CIT Group/Equity 38,913 25,088 32,458
Investments, Inc.
650 CIT Drive
Livingston, NJ
07039
Attn: Ken Walters
Covestco-Seteura, 77,826 50,176 64,916
LLC
c/o Jura Trust
Mitteldorf 1
Vaduz,
Liechtenstein,
FL-9490
Attn: Alein Johann
Deerwood 120,574 -- --
Enterprises, Ltd.
5177 Richmond
Suite 1166
Houston, TX 77056
Attn: Frank M.K. Liu
GE Capital Equity 466,958 301,061 389,498
Investments, Inc.
120 Long Ridge Road
Stamford, CT 06927
Attn: James Brown
Michael A. Garcia 5,618
12204 Dumfries Road
Manassas, VA
20112-3541
William H. and 1,448
Vonna K. Graves
325 Sun Forest Way
Chapel Hill, NC
27515
Grove Capital 9,645 -- --
Partners, LLC
3347 Divisadero
Street
San Francisco, CA
94123
Attn: George Lula
41
Halifax Buildnet 77,826 50,176 64,916
Investors, L.P.
702 Oberlin Road,
Suite 150
Raleigh, NC 27605
Attn: James D.
Lumsden
Eric J.E. Higgs 1,890 6,764 -- --
881 Innes Avenue
San Francisco, CA
94124
Mayflower Venture 11,588
Capital, LLC
2626 Glenwood
Avenue, Suite 200
Raleigh, NC 27608
Attn: Kimberly
Barnes
Petra Capital, LLC 67,740
172 2nd Avenue
North, Suite 112
Nashville, TN 37201
Attn: Casey West
Piedmont Venture 67,157 258,405 -- --
Partners
Limited
Partnership
One Morrocroft
Center, Suite 380
6805 Morrison
Boulevard
Charlotte, NC 28211
Attn: William H.
Neal, III
SGC Partners II LLC 291,848 188,163 243,436
1221 Avenue of the
Americas
13th Floor
New York, NY 10020
Attn: Justin
Hall-Tipping
John P. Siracuse 810 2,899 -- --
BancBoston
Robertson Stephens,
Inc.
One International
Place, 30th Floor
Boston, MA 02110
Southeast 8,686 -- --
Interactive
Technology
Fund I, LLC 28,587
2525 Meridian
Parkway, Suite 300-A
Durham, NC 27713
Attn: Norvell
Miller
6
42
Southeast 5,842 72,528 145,333 106,834 138,216
Interactive
Technology
Fund II, LLC
2525 Meridian
Parkway, Suite 300-A
Durham, NC 27713
Attn: Norvell
Miller
John Stein 13,500 37,267 -- --
3605 Saratoga Drive
Nashville, TN 37205
Stein Family 13,500 60,796 -- --
Partners, L.P.
3605 Saratoga Drive
Nashville, TN 37205
Attn: John Stein
------ ------- --------- ------- -------
TOTALS 53,083 237,125 1,681,566 771,674 998,356
====== ======= ========= ======= =======
7