EXHIBIT-10.6
SERIES A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
between
STARMEDIA NETWORK, INC.
and
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I HERETO
Dated as of July 25, 1997
TABLE OF CONTENTS
Page
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ARTICLE I. THE PREFERRED SHARES ..............................................1
Section 1.1 Issuance. Sale and Delivery of the Preferred Shares .......1
Section 1.2 Closing ...................................................1
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY ....................1
Section 2.1 Organization, Qualifications and Corporate Power ..........2
Section 2.2 Authorization of Agreements, Etc. .........................2
Section 2.3 Validity ..................................................3
Section 2.4 Authorized Capital Stock ..................................3
Section 2.5 Financial Statements ......................................3
Section 2.6 Events Subsequent to the Date of the Balance Sheet ........4
Section 2.7 Litigation; Compliance with Law ...........................4
Section 2.8 Proprietary Information ...................................5
Section 2.9 Proprietary Rights ........................................5
Section 2.10 Title to Properties ......................................6
Section 2.11 Leasehold Interests ......................................6
Section 2.12 Insurance ................................................7
Section 2.13 Taxes ....................................................7
Section 2.14 Other Agreements .........................................7
Section 2.15 Loans and Advances .......................................9
Section 2.16 Assumptions, Guaranties, Etc. of
Indebtedness of Other Persons ............................9
Section 2.17 Significant Customers and Suppliers ......................9
Section 2.18 Governmental Approvals ...................................9
Section 2.19 Disclosure ..............................................10
Section 2.20 Offering of the Preferred Shares ........................10
Section 2.21 Brokers .................................................10
Section 2.22 Officers ................................................10
Section 2.23 Transactions With Affiliates ............................10
Section 2.24 Employees ...............................................11
Section 2.25 U.S. Real Property Holding Corporation ..................11
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Section 2.26 Environmental Protection ................................11
Section 2.27 ERISA ...................................................12
Section 2.28 [RESERVED] ..............................................13
Section 2.29 Qualified Small Business ................................13
Section 2.30 Foreign Corrupt Practices Act ...........................13
Section 2.31 Federal Reserve Regulation ..............................13
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS ...............13
ARTICLE IV. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS .................14
ARTICLE V. COVENANTS OF THE COMPANY .........................................17
Section 5.1 Financial Statements, Reports, Etc .......................17
Section 5.2 [RESERVED] ...............................................18
Section 5.3 Reserve for Conversion Shares ............................18
Section 5.4 Corporate Existence ......................................18
Section 5.5 Properties, Business, Insurance ..........................18
Section 5.6 Inspection, Consultation and Advice ......................19
Section 5.7 Restrictive Agreements Prohibited ........................19
Section 5.8 Transactions with Affiliates .............................19
Section 5.9 Expenses of Directors ....................................19
Section 5.l0 Use of Proceeds .........................................19
Section 5.11 Board of Directors Meetings .............................19
Section 5.12 Compensation ............................................19
Section 5.13 By-laws .................................................19
Section 5.14 Performance of Contracts ................................20
Section 5.15 Vesting of Reserved Employee Shares .....................20
Section 5.16 Employee Nondisclosure and Developments Agreements ......20
Section 5.17 Activities of Subsidiaries ..............................20
Section 5.18 Compliance with Laws ....................................20
Section 5.19 Keeping of Records and Books of Account .................20
Section 5.20 Change in Nature of Business ............................21
Section 5.21 Rule 144A Information ...................................21
Section 5.22 Compensation and Audit Committees .......................21
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Section 5.23. Termination of Covenants ...............................21
ARTICLE VI. MISCELLANEOUS ...................................................21
Section 6.1 Expenses .................................................21
Section 6.2 Survival of Representatives; Termination of Agreements ...22
Section 6.3 Brokerage ................................................22
Section 6.4 Parties in Interest ......................................22
Section 6.5 Lock-Up Agreement ........................................22
Section 6.6 Notices ..................................................22
Section 6.7 Governing Law ............................................23
Section 6.8 Entire Agreement .........................................23
Section 6.9 Counterparts .............................................23
Section 6.10 Amendments ..............................................23
Section 6.11 Severability ............................................23
Section 6.12 Titles and Subtitles ....................................23
Section 6.13 Certain Defined Terms ...................................23
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INDEX TO SCHEDULES
SCHEDULE I Purchasers
SCHEDULE II Disclosure Schedule
INDEX TO EXHIBITS (Not included in Form S-1 Registration Statement filing)
EXHIBIT A Form of Registration Rights Agreement
EXHIBIT B Form of Stockholders' Agreement
EXHIBITS C-1 and C-2 Form of Founders Agreements
EXHIBIT D Charter and All Amendments Thereto
EXHIBIT E Form of Employee Nondisclosure and Developments Agreement
EXHIBIT F Form of Opinion of Counsel
EXHIBIT G Form of SBA Side Letter
EXHIBIT H Form of Stock Option Plan
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SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated as of July
25, 1997, between StarMedia Network, Inc., a Delaware corporation (the
"Company"), and the several purchasers named in the attached Schedule I
(individually a "Purchaser" and collectively the "Purchasers").
WHEREAS, the Company wishes to issue and sell to the Purchasers an
aggregate of 7,330,000 shares (the "Preferred Shares") of the authorized but
unissued Series A Convertible Preferred Stock, $0.001 par value, of the Company
(the "Series A Convertible Preferred Stock"); and
WHEREAS, the Purchasers, severally but not jointly, wish to purchase the
Preferred Shares on the terms and subject to the conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties agree as follows:
ARTICLE I.
THE PREFERRED SHARES
Section 1.1 Issuance, Sale and Delivery of the Preferred Shares. The
Company agrees to issue and sell to each Purchaser, and each Purchaser hereby
agrees to purchase from the Company, the number of Preferred Shares set forth
opposite the name of such Purchaser under the heading "Aggregate Purchase Price
for Preferred Shares" on Schedule I.
Section 1 .2 Closing. The closing shall take place at the offices of Brown
Raysman Millstein Felder & Steiner LLP, 120 West 45th Street, New York, New
York 10036 at 10:00 a.m., New York time, on July 25, 1997, or at such other
location, date and time as may be agreed upon between the Purchasers and the
Company (such closing being called the "Closing" and such date and time being
called the "Closing Date"). At the Closing, the Company shall issue and deliver
to each Purchaser a stock certificate or certificates in definitive form,
registered in the name of such Purchaser, representing the Preferred Shares
being purchased by it at the Closing. As payment in full for the Preferred
Shares being purchased by it under this Agreement, and against delivery of the
stock certificate or certificates therefor as aforesaid, on the Closing Date
each Purchaser shall (i) deliver to the Company a certified check payable to the
order of the Company, in the amount set forth opposite the name of such
Purchaser under the heading "Aggregate Purchase Price for Preferred Shares" on
Schedule I, (ii) transfer such sum to the account of the Company by wire
transfer, (iii) deliver to the Company for cancellation promissory notes issued
by the Company in the amount of such sum, or (iv) deliver or transfer such sum
to the Company by any combination of such methods of payments.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, except as set
forth in the Disclosure Schedule attached as Schedule II (which Disclosure
Schedule makes explicit reference to the particular representation or warranty
as to which exception is taken, which in each case shall constitute the sole
representation and warranty as to which such exception shall apply):
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Section 2.1 Organization, Qualifications and Corporate Power.
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and is duly
licensed or qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification, except where the failure to be so
licensed or qualified would not have material and adverse effect on the
business, prospects, financial condition, operations, property or affairs of the
company ("Material Adverse Effect"). The Company has the corporate power and
authority to own and hold its properties and to carry on its business as now
conducted and as proposed to be conducted, to execute, deliver and perform this
Agreement, the Registration Rights Agreement with the Purchasers in the form
attached as Exhibit A (the "Registration Rights Agreement"), the Stockholders'
Agreement with the parties thereto named in paragraph (h) of Article IV of this
Agreement, in the form attached as Exhibit B (the "Stockholders' Agreement), and
the Amended Employment Agreements with each of Fernando Espuelas and Jack Chen
(each a "Founder" and collectively the "Founders") in the forms attached as
Exhibits C1 and C2 (the "Founders Agreements" and, together with the
Registration Rights Agreement and the Stockholders Agreement, the "Transaction
Documents"), to issue, sell and deliver the Preferred Shares and to issue and
deliver the shares of Common Stock, $0.001 par value, of the Company ("Common
Stock") issuable upon conversion of the Preferred Shares (the "Conversion
Shares").
(b) The Company has no subsidiaries. The Company does not (i) own of
record or beneficially, directly or indirectly, (A) any shares of capital stock
or securities convertible into capital stock of any other corporation or (B) any
participating interest in any partnership, joint venture or other non-corporate
business enterprise or (ii) control, directly or indirectly, any other entity.
Section 2.2 Authorization of Agreements, Etc.
(a) The execution and delivery by the Company of this Agreement and
the Transaction Documents; the performance by the Company of its obligations
hereunder and thereunder, the issuance, sale and delivery of the Preferred
Shares and the issuance and delivery of the Conversion Shares have been duly
authorized by all requisite corporate action and will not violate any provision
of law, any order of any court or other agency of government, the Certificate of
Incorporation of the Company, as amended (the "Charter"), or the By-laws of the
Company, as amended, or any provision of any indenture, agreement or other
instrument to which the Company or any of its properties or assets is bound, or
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument,
or result in the creation or imposition of any lien, charge, restriction, claim
or encumbrance of any nature whatsoever upon any such indenture, agreement or
other instrument, or result in the creation or imposition of any lien, charge,
restriction, claim or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company. To the Company's knowledge, without having
investigated such matter, no provision of the Stockholders' Agreement violates,
conflicts with, results in a breach of or constitutes (with due notice or lapse
of time or both) a default by any other party under any other indenture,
agreement or instrument.
(b) The Preferred Shares have been duly authorized and, when issued
in accordance with this Agreement, will be validly issued, fully paid and
nonassessable shares of Series A Convertible Preferred Stock, with no personal
liability attaching to the ownership thereof, and will be free and clear of all
liens, charges, restrictions, claims and encumbrances
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imposed by or through the Company except as set forth in the Registration Rights
Agreement. The Conversion Shares have been duly reserved for issuance upon
conversion of the Preferred Shares and, when so issued, will be duly authorized,
validly issued, fully paid and nonassessable shares of Class B Common Stock,
with no personal liability attaching to the ownership thereof, and will be free
and clear of all liens, charges, restrictions, claims and encumbrances' imposed
by or through the Company except as set forth in the Registration Rights
Agreement and the Stockholders' Agreement. Neither the issuance, sale or
delivery of the Preferred Shares nor the issuance or delivery of the Conversion
Shares is subject to any preemptive right to stockholders of the Company or to
any right of first refusal or other right in favor of any person.
Section 2.3 Validity. This Agreement has been duly executed and delivered
by the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms. The other Transaction
Documents, when executed and delivered in accordance with this Agreement, will
constitute the legal, valid and binding obligations of the Company, enforceable
in accordance with their respective terms.
Section 2.4 Authorized Capital Stock. The authorized capital stock of the
Company consists of (i) 8,000,000 shares of Preferred Stock, $0.001 par value
(the "Preferred Stock"), of which 7,330,000 shares have been designated Series A
Convertible Preferred Stock, and (ii) 70,000,000 shares of Common Stock, $0.001
par value. Immediately prior to the Closing, 10,012,000 shares of Common Stock
will be validly issued and outstanding, fully paid and nonassessable, with no
personal liability attaching to the ownership thereof, and no shares of
Preferred Stock will have been issued. An aggregate of 7,330,000 shares of
Common Stock has been reserved for issuance upon conversion of the Preferred
Shares. An aggregate of 2,000,000 shares of Common Stock has been reserved for
issuance pursuant to the Company's Stock Option Plan, of which options to
purchase 1,839,933 shares have been granted to date. The designations, powers,
preferences, rights, qualifications, limitation and restrictions in respect of
each class and series of authorized capital stock of the Company are as set
forth in the Charter, a copy of which is attached as Exhibit D, and all such
designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable and in accordance with all
applicable laws. Except as set forth in the attached Disclosure Schedule, (i) no
person owns of record or is known to the Company to own beneficially any share
of Common Stock, (ii) no subscription, warrant, option, convertible security, or
other right (contingent or other) to purchase or otherwise acquire equity
securities of the Company is authorized or outstanding and (iii) there is no
commitment by the Company to issue shares, subscriptions, warrants, options,
convertible securities, or other such rights or to distribute to holders of any
of its equity securities any evidence of indebtedness or asset. Except as
provided for in the Charter or as set forth in the attached Disclosure Schedule,
the Company has no obligation (contingent or other) to purchase, redeem or
otherwise acquire any of its equity securities or any interest therein or to pay
any dividend or make any other distribution in respect thereof. Except for the
Stockholders' Agreement, neither the Company nor, to the Company's knowledge,
without having investigated such matter, any other person is party to any voting
trusts or agreements, stockholders' agreements, pledge agreements, buy-sell
agreements, rights of first refusal, preemptive rights or proxies relating to
any securities of the Company (whether or not the Company is a party thereto).
All of the outstanding securities of the Company were issued in compliance with
all applicable Federal and state securities laws.
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Section 2.5 Financial Statements. The Company has furnished to the
Purchasers (i) the balance sheet of the Company as of December 31, 1996 and the
related unaudited statements of income and stockholders' equity for the year
then ended, and (ii) the unaudited balance sheet of the Company as of March 31,
1997 (the "Balance Sheet"). All such financial statements have been prepared
consistent with the cash method of accounting and fairly present the financial
position of the Company as of December 31, 1996 and the results of their
operations for the year ended December 31, 1996. Since the date of the Balance
Sheet, (i) there has been no change in the assets, liabilities or financial
condition of the Company from that reflected in the Balance Sheet except for
changes in the ordinary course of business which in the aggregate have not been
materially adverse and (ii) none of the business, prospects, financial
condition, operations, property or affairs of the Company has been materially
adversely affected by any occurrence or development, individually or in the
aggregate, whether or not insured against.
Section 2.6 Events Subsequent to the Date of the Balance Sheet. Since the
date of the Balance Sheet, except as set forth in the attached Disclosure
Schedule, the Company has not (i) issued any stock, bond or other corporate
security, (ii) borrowed any amount or incurred or become subject to any
liability (absolute, accrued or contingent), except current liabilities incurred
and liabilities under contracts enter into in the ordinary course of business
(iii) discharged or satisfied any lien or encumbrance or incurred or paid any
obligation or liability (absolute, accrued or contingent) other than current
liabilities shown on the Balance Sheet and current liabilities incurred since
the date of the Balance Sheet in the ordinary course of business, (iv) declared
or made any payment or distribution to stockholders or purchased or redeemed any
share of its capital stock or other security, (v) mortgaged, pledged, encumbered
or subjected to lien any of its assets, tangible or intangible, other than liens
of current real property taxes not yet due and payable, (vi) sold, assigned or
transferred any of its tangible assets except in the ordinary course of
business, or cancelled any debt or claim, (vii) sold, assigned, transferred or
granted any exclusive license with respect to any patent, trademark, trade name,
service mark, copyright, trade secret or other intangible asset, (viii) suffered
any loss of property or waived any right of substantial value whether or not in
the ordinary course of business, (ix) made any change in officer compensation
except in the ordinary course of business and consistent with past practice, (x)
made any material change in the manner of business or operations of the Company,
(xi) entered into any transaction except in the ordinary course of business or
as otherwise contemplated hereby or (xii) entered into any commitment
(contingent or otherwise) to do any of the foregoing.
Section 2.7 Litigation; Compliance with Law. Except as set forth on the
attached Disclosure Schedule there is no (i) action, suit, claim, proceeding or
investigation pending or, to the best of the Company's knowledge, threatened
against or affecting the Company, at law or in equity, or before or by any
foreign or domestic Federal, state, municipal or other governmental department,
commission, board, bureau agency or instrumentality, (ii) arbitration proceeding
relating to the Company pending under collective bargaining agreements or
otherwise or (iii) foreign or domestic governmental inquiry pending or, to the
best of the Company's knowledge, threatened against or affecting the Company
(including without limitation any inquiry as to the qualification of the Company
to hold or receive any license or permit), and there is no basis for any of the
foregoing. The Company has not received any opinion or memorandum or legal
advice from foreign or domestic legal counsel to the effect that it is exposed,
from a legal standpoint, to any liability or disadvantage which may be material
to its business, prospects, financial condition, operations, property or
affairs. The Company is not in default with respect to any order, writ,
injunction or decree known to or served upon the Company of any court or of any
foreign or domestic Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign. There
is no action or suit by the Company pending, threatened or contemplated against
others. The Company has
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commission, board, bureau, agency or instrumentality, domestic or foreign. There
is no action or suit by the Company pending, threatened or contemplated against
others. The Company has complied with all foreign and domestic laws, rules,
regulations and orders applicable to its business, operations, properties,
assets, products and services, the Company has all necessary permits, licenses
and other authorizations required to conduct its business as conducted and as
proposed to be conducted, and the Company has been operating its business
pursuant to and in compliance with the terms of all such permits, licenses and
other authorizations, except to the extent that the failure to do any of the
foregoing would not have a Material Adverse Effect. There is no existing law,
rule, regulation or order, and the Company is not aware of any proposed law,
rule, regulation or order, whether foreign or domestic, Federal, state, county
or local, which would prohibit or restrict the Company from, or otherwise
materially adversely affect the Company in, conducting its business in any
jurisdiction in which it is now conducting business or in which it proposes to
conduct business.
Section 2.8 Proprietary Information. (a) To the best of the Company's
knowledge, no third party has claimed or has reason to claim that any officer or
director or other person employed by or engaged by the Company has (i) violated
or may be violating any of the terms or conditions of his employment,
non-competition or non-disclosure agreement with such third party, (ii)
disclosed or may be disclosing or utilized or may be utilizing any trade secret
or proprietary information or documentation of such third party or (iii)
interfered or may be interfering in the employment relationship between such
third party and any of its present or former employees. No third party has
requested information from the Company which suggests that such a claim might be
contemplated. To the best of the Company's knowledge, no officer or director or
other person employed by or engaged by the Company has employed or proposes to
employ any trade secret or any information or documentation proprietary to any
former employer, and to the best of the Company's knowledge, no officer or
director or other person employed by or engaged by the Company has violated any
confidential relationship which such person may have had with any third party,
in connection with the development, manufacture or sale of any product or
proposed product or the development or sale of any service or proposed service
of the Company, and the Company has no reason to believe there will be any such
employment or violation. To the best of the Company's knowledge, none of the
execution or delivery of this Agreement, or the carrying on of the business of
the Company as officers, employees or agents by any officer, director or key
employee of the Company, or the conduct or proposed conduct of the business of
the Company, will conflict with or result in a breach of the terms, conditions
or provisions of or constitute a default under any contract, covenant or
instrument under which any such person is obligated.
Section 2.9 Proprietary Rights. Set forth in the Disclosure Schedule is a
list and brief description of (i) all domestic and foreign patents, patent
rights, patent applications, trademarks, trademark applications, service marks,
service mark applications, trade names and copyrights, and all applications for
such which are in the process of being prepared, owned by or registered in the
name of the Company, or of which the Company is a licensor or licensee or in
which the Company has any right, and in each case a brief description of the
nature of such right, (ii) all licenses and other agreements with third parties
(the "Third Party Licenses") relating to any software, copyrights, technology,
know-how or processes that the Company has licensed or is otherwise authorized
by such third parties to use, market, distribute or incorporate into products
distributed or services provided by the Company (such software, technology,
know-how and processes being collectively referred to as "Third Party
Technology"). The Company owns or possesses adequate licenses or other rights to
use all patents, patent applications, trademarks, trademark applications,
service marks, service mark applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets, customer lists and know-how, including
without limitation the Third Party Technology (collectively, "Intellectual
Property") necessary or
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desirable to the conduct of its business as conducted and as proposed to be
conducted, free and clear of all liabilities, charges, liens, pledges,
mortgages, restrictions, adverse claims, security interests, rights of other and
encumbrances (including, without limitation, distribution rights). The foregoing
representation as it relates to Third Party Technology is limited to the
Company's interest pursuant to the Third Party Licenses, all of which are valid
and enforceable and in full force and effect and which grant the Company such
right to Third Party Technology as are employed in or necessary to the business
of the Company as conducted or proposed to be conducted. All of the Company's
registered patents, trademarks and copyrights in any of the Company Products and
applications therefor, if any, are valid and in full force and effect, and
consummation of the transactions contemplated hereby will not alter or impair
any such rights. Except as set forth in the attached disclosure schedule, no
claim is pending or, to the best of the Company's knowledge, threatened to the
effect that the operations of the Company infringe upon or conflict with,
constitute misappropriation of or in any way involves unfair competition with
respect to, the asserted rights of any other person under any Intellectual
Property, and there is no basis for any such claim (whether or not pending or
threatened). Except as set forth in the attached disclosure schedule, no claim
is pending or, to the best of the Company's knowledge, threatened to the effect
that any such Intellectual Property owned or licensed by the Company or which
the Company otherwise has the right to use, is invalid or unenforceable by the
Company, and there is no basis for any such claim (whether or not pending or
threatened). All prior art known to the Company which may be or may have been
pertinent to the examination of any United States patent or patent application
listed in Schedule II has been cited to the United States Patent and Trademark
Office. To the best of the Company's knowledge, all technical information
developed by and belonging to the Company which has not been patented has been
kept confidential. The Company has not granted or assigned to any other person
or entity any right to manufacture, have manufactured, assemble or sell the
products or proposed products or any adaptations, translations or derivative
works based on such products, or to provide the service or proposed services of
the Company.
Section 2.10 Title to Properties. The Company has good, clear and valid
title to its properties and assets reflected on the Balance Sheet or acquired by
it since the date of the Balance Sheet (other than properties and assets
disposed of in the ordinary course of business since the date of the Balance
Sheet), and all such properties and assets are free and clear of mortgages,
pledges, security interests, liens, charges, claims, restrictions and other
encumbrances (including without limitation, easements and licenses), except for
liens for or current taxes not yet due and payable and minor imperfections of
title, if any, not material in nature or amount and not materially detracting
from the value or impairing the use of the property subject thereto or impairing
the operations or proposed operations of the Company, including, without
limitation, the ability of the Company to secure financing using such properties
and assets as collateral. To the best of the Company's knowledge, there are no
condemnation, environmental, zoning or other land use regulation proceedings,
either instituted or planned to be instituted, which would adversely affect the
use or operation of the Company's properties and assets for their respective
intended uses and purposes, or the value of such properties, and the Company has
not received notice of any special assessment proceedings which would affect
such properties and assets.
Section 2.11 Leasehold Interests. Each lease or agreement to which the
Company is a party under which it is a lessee of any property, real or personal,
is a valid and subsisting agreement, duly authorized and entered into, without
any default of the Company thereunder and, to the best of the Company's
knowledge, without any default thereunder of any other party thereto. No event
has occurred and is continuing which, with due notice or lapse of time or both,
would constitute a default or event of default by the Company under any such
lease or agreement or, to the best of the Company's knowledge, by any other
party thereto. The Company's possession of such property has not been disturbed
and, to the best of the Company's knowledge,
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no claim has been asserted against the Company adverse to its rights in such
leasehold interests.
Section 2.12 Insurance. The Company holds valid policies covering all of
the insurance required to be maintained by it under Section 5.5.
Section 2.13 Taxes. The Company has filed all tax returns, Federal, state,
county and local, required to be filed by it, and the Company has paid all taxes
shown to be due by such returns as well as all other taxes, assessments and
governmental charges which have become due or payable, including without
limitation all taxes which the Company is obligated to withhold from amounts
owing to employees, creditors and third parties. The Company has established
adequate reserves for all taxes accrued but not yet payable. All material tax
elections of any type which the Company has made as of the date hereof are set
forth in the financial statements referred to in Section 2.5. The Federal income
tax returns of the Company have never been audited by the Internal Revenue
Service. No deficiency assessment with respect to or proposed adjustment of the
Company's Federal, state, county or local taxes is pending or, to the best of
the Company's knowledge, threatened. There is no tax lien (other than for
current taxes not yet due and payable), whether imposed by any Federal, state,
county or local taxing authority, outstanding against the assets, properties or
business of the Company. Neither the Company nor any of its present or former
stockholders has ever filed an election pursuant to Section 1362 of the Internal
Revenue Code of 1986, as amended (the "Code") that the Company be taxed as an S
corporation. The Company's net operating losses for Federal income tax purposes,
as set forth in the financial statements referred to in Section 2.5, are not
subject to any limitations imposed by Section 382 of the Code and the full
amount of such net operating losses are available to offset the taxable income
of the Company for the current fiscal year and, to the extent not so used,
succeeding fiscal years. Consummation of the transactions contemplated by this
Agreement or by any other agreement, understanding or commitment (contingent or
otherwise) to which the Company is a party or by which it is otherwise bound
will not have the effect of limiting the Company's ability to use such net
operating losses in full to offset such taxable income.
Section 2.14 Other Agreements. Except as set forth in the attached
Disclosure Schedule, the Company is not a party to or otherwise bound by any
written or oral agreement, instrument, commitment or restriction which
individually or in the aggregate could materially adversely affect the business,
prospects, financial condition, operations, property or affairs of the Company.
Except as set forth in the attached Disclosure Schedule, the Company is not a
party to or otherwise bound by any written or oral:
(a) distributor, dealer, manufacturer's representative or sales
agency agreement which is not terminable on less than ninety (90) days'
notice without cost or other liability to the Company (except for
agreements which, in the aggregate, are not material to the business of
the Company);
(b) sales agreement which entitled any customer to a rebate or right
of set-off, to return any product to the Company after acceptance thereof
or to delay the acceptance thereof, or which varies in any material
respect from the Company's standard form agreements;
(c) agreement with any labor union (and, to the knowledge of the
Company, no organizational effort is being made with respect to any of its
employees);
(d) agreement with any supplier containing any provision permitting
any party other than the Company to renegotiate the price or other terms,
or containing any pay-back or other similar provision, upon the occurrence
of a failure by the Company to
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meet its obligations under the agreement when due or the occurrence of any other
event;
(e) agreement for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of its
normal operating requirements;
(f) agreement for the employment of any officer, employee or other
person (whether of a legally binding nature or in the nature of informal
understandings) on a full-time or consulting basis which is not terminable
on notice without cost or other liability to the Company, except normal
severance arrangements and accrued vacation pay;
(g) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option or other plan, agreement or
understanding pursuant to which benefits are provided to any employee of
the Company (other than group insurance plans which are not self-insured
and are applicable to employees generally);
(h) agreement relating to the borrowing of money or to the
mortgaging or pledging of, or otherwise placing a lien or security
interest on, any asset of the Company;
(i) guaranty of any obligation for borrowed money or otherwise;
(j) voting trust or agreement, stockholders' agreement, pledge
agreement, buy-sell agreement or first refusal or preemptive rights
agreement relating to any securities of the Company;
(k) agreement, or group of related agreements with the same party or
any group of affiliated parties, under which the Company has advanced or
agreed to advance money or has agreed to lease any property as lessee or
lessor;
(1) agreement or obligation (contingent or otherwise) to issue, sell
or otherwise distribute or to repurchase or otherwise acquire or retire
any share of its capital stock or any of its other equity securities;
(m) assignment, license or other agreement with respect to any form
of intangible property;
(n) agreement under which it has granted any person any registration
rights, other than the Registration Rights Agreement;
(o) agreement under which it has limited or restricted its right to
compete with any person in any respect;
(p) other agreement or group of related agreements with the same
party involving more than $10,000 or continuing over a period of more than
six months from the date or dates thereof (including renewals or
extensions optional with another party), which agreement or group of
agreements is not terminable by the Company without penalty upon notice of
thirty (30) days or less, but excluding any agreement or group of
agreements with a customer of the Company for the sale, lease or rental of
the Company's products or services if such agreement or group of
agreements was entered into by the Company in the ordinary course of
business; or
(q) other agreement, instrument, commitment, plan or arrangement, a
copy of which would be required to be filed with the Securities and
Exchange Commission (the
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"Commission") as an exhibit to a registration statement on Form S-l if the
Company were registering securities under the Securities Act of 1933, as
amended (the "Securities Act").
Any agreement specified in the Disclosure Schedule pursuant to this Section 2.14
is hereafter referred to as a "Material Agreement". The Company, and to the best
of the Company's knowledge after due inquiry, each other party thereto have in
all material respects performed all the obligations required to be performed by
them to date (or such non-performing party has received a valid, enforceable and
irrevocable written waiver with respect to its non-performance), have received
no notice of default and are not in default (with due notice or lapse of time or
both) under any Material Agreement. The Company has no present expectation or
intention of not fully performing all its obligations under each such Material
Agreement, and the Company has no knowledge of any breach or anticipated breach
by the other party to any Material Agreement, to which the Company is a party.
The Company is in full compliance with all of the terms and provisions of its
Charter and By-laws, as amended.
Section 2.15 Loans and Advances. The Company does not have any outstanding
loans or advances to any person and is not obligated to make any such loans or
advances, except, in each case, for advances to employees of the Company in
respect of reimbursable business expenses anticipated to be incurred by them in
connection with their performance of services for the Company.
Section 2.16 Assumptions, Guaranties, Etc. of Indebtedness of Other
Persons. The Company has not assumed, guaranteed, endorsed or otherwise become
directly or contingently liable on any indebtedness of any other person
(including, without limitation, liability by way of agreement, contingent or
otherwise, to purchase, to provide funds for payment, to supply funds to or
otherwise invest in the debtor, or otherwise to assure the creditor against
loss), except for guaranties by endorsement of negotiable instruments for
deposit in collection in the ordinary course of business.
Section 2.17 Significant Customers and Suppliers. No customer or supplier
which was significant to the Company during the period covered by the financial
statements referred to in Section 2.5 or which has been significant to the
Company thereafter, has terminated, materially reduced or threatened to
terminate or materially reduce its purchases from or provision of products or
services to the Company, as the case may be.
Section 2.18 Governmental Approvals. Subject to the accuracy of the
representations and warranties of the Purchasers set forth in Article III, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement, the Registration Rights Agreement or the Stockholders'
Agreement, the issuance, sale and delivery of the Preferred Shares or, upon
conversion thereof, the issuance and delivery of the Conversion Shares, other
than (i) filings pursuant to Federal and state securities laws (all of which
filings have been made by the Company, other than those which are required to be
made after the Closing and which will be duly made on a timely basis) in
connection with the sale of the Preferred Shares and (ii) with respect to the
Registration Rights Agreement, the registration of the shares covered thereby
with the Commission and filings pursuant to state securities laws.
Section 2.19 Disclosure. Neither this Agreement, nor any Schedule or
Exhibit to this Agreement, nor the Business Plan of the Company dated [March],
1997 (the "Business Plan"), contains an untrue statement of a material fact or
omits a material fact necessary to make the
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statements contained herein or therein not misleading. None of the statements,
documents, certificates or other items prepared or supplied by the Company with
respect to the transactions contemplated hereby contains an untrue statement of
a material fact or omits a material fact necessary to make the statements
contained therein not misleading. There is no fact which the Company has not
disclosed to the Purchasers and their counsel in writing and of which the
Company is aware which materially and adversely affects or is reasonably likely
to materially and adversely affect the business, prospects, financial condition,
operations, property or affairs of the Company. The financial projections and
other estimates contained in the Business Plan were prepared by the Company
based on the Company's experience in the industry and on assumptions of fact and
opinion as to future events which the Company, at the date of the issuance of
the Business Plan, believed to be reasonable, but which the Company cannot and
does not assure or guarantee the attainment of in any manner. Except as set
forth in the Disclosure Schedule, as of the date hereof no facts have come to
the attention of the Company which would, in its opinion, require the Company to
revise or amplify the assumptions underlying such projections and other
estimates or the conclusions derived therefrom.
Section 2.20 Offering of the Preferred Shares. Neither the Company nor any
person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering or sale of the Preferred Shares or any
security of the Company similar to the Preferred Shares has offered the
Preferred Shares or any such similar security for sale to, or solicited any
offer to buy the Preferred Shares or any such similar security from, or
otherwise approached or negotiated with respect thereto with, any person or
persons, and neither the Company nor any person acting on its behalf has taken
or will take any other action (including, without limitation, any offer,
issuance or sale of any security of the Company under circumstances which might
require the integration of such security with Preferred Shares under the
Securities Act or the rules and regulations of the Commission thereunder), in
either case so as to subject the offering, issuance or sale of the Preferred
Shares to the registration provisions of the Securities Act.
Section 2.21 Brokers. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
Section 2.22 Officers. Set forth in the Disclosure Schedule is a list of
the names of the officers of the Company, together with the title or job
classification of each such person and the total compensation anticipated to be
paid to each such person by the Company in 1997. Except as set forth in the
Disclosure Schedule, none of such persons has an employment agreement or
understanding, whether oral or written, with the Company, which is not
terminable on notice by the Company without cost or other liability to the
Company.
Section 2.23 Transactions With Affiliates. Except as set forth in the
Disclosure Schedule, no director, officer, employee or stockholder of the
Company, or member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or any member of
the family of any such person, has a substantial interest or is an officer,
director, trustee, partner or holder of more than 5% of the outstanding capital
stock thereof, is a party to any transaction with the Company, including any
contract, agreement or other arrangement providing for the employment of,
furnishing of services by rental of real or personal property from or otherwise
requiring payments to any such person or firm, other than employment-at-will
arrangements in the ordinary course of business.
Section 2.24 Employees. Except as set forth on the Disclosure Schedule,
each of the officers of the Company, each key employee and each other employee
now employed by the
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Company who has access to confidential information of the Company has executed
an Employee Nondisclosure and Developments Agreement] substantially in the form
of Exhibit E (collectively, the "Employee Nondisclosure and Developments
Agreements"), and such agreements are in full force and effect. To the best
knowledge of the Company, no employee or former employee of the Company is in
violation of any term of any employment contract, patent disclosure agreement,
confidentiality agreement or any other contract or agreement relating to the
relationship of any such employee with the Company. No officer or key employee
of the Company has advised the Company (orally or in writing) that he intends to
terminate employment with the Company. The Company has complied in all material
respects with all applicable laws relating to the employment of labor, including
provisions relating to wages, hours, equal opportunity, collective bargaining
and the payment of Social Security and other taxes.
Section 2.25 U.S. Real Property Holding Corporation. The Company is not
now and has never been a "United States real property holding corporation", as
defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenues Service, and the Company has
filed with the Internal Revenue Service all statements, if any, with its United
States income tax returns which are required under Section 1.897-2(h) of such
Regulations.
Section 2.26 Environmental Protection. The Company has not caused or
allowed, or contracted with any party for, the generation, use, transportation,
treatment, storage or disposal of any Hazardous Substances (as defined below) in
connection with the operation of its business or otherwise. The Company, the
operation of its business, and, to the best knowledge of the Company, any real
property that the Company owns, leases or otherwise occupies or uses (the
"Premises"), are in compliance with all applicable Environmental Laws (as
defined below) and orders or directives of any governmental authorities having
jurisdiction under such Environmental Laws, including, without limitation, any
Environmental Laws or orders or directives with respect to any cleanup or
remediation of any release or threat of release of Hazardous Substances. The
Company has not received any citation, directive, letter or other communication,
written or oral, or any notice of any proceeding, claim or lawsuit, from any
person arising out of the ownership or occupation of the Premises, or the
conduct of its operations, and the Company is not aware of any basis therefor.
The Company has obtained and is maintaining in full force and effect all
necessary permits, licenses and approvals required of it by all Environmental
Laws applicable to the Premises and the business operations conducted thereon
(including operations conducted by tenants on the Premises), and is in
compliance with all such permits, licenses and approvals. The Company has not
caused or allowed a release, or a threat of release, of any Hazardous Substance
unto, at or near the Premises, and, to the best of the Company's knowledge,
neither the Premises nor any property at or near the Premises has ever been
subject to a release, or a threat of release, of any Hazardous Substance. For
the purposes of this Agreement, the term "Environmental Laws" shall mean any
Federal, state or local law or ordinance or regulation pertaining to the
protection of human health or the environment, including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Sections 9601, et seq, the Emergency Planning and Community Right-to-Know
Act, 42 U.S.C. Sections 11001 et seq., and the Resource Conservation and
Recovery Act, 42 U.S.C Sections 6901 et seq. For purposes of this Agreement,
the term "Hazardous Substances" shall include oil and petroleum products,
asbestos, polychlorinated biphenyls, urea formaldehyde and any other materials
classified as hazardous or toxic under any Environmental Laws.
Section 2.27 ERISA.
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(a) Except as set forth on the Disclosure Schedule, the Company,
prior to the date of this Agreement, has not maintained, adopted or established,
contributed to or been required to contribute to, or otherwise participated in
or been required to participate in, and, as of the date of this Agreement, has
not adopted or established, does not maintain, does not contribute to an is not
required to contribute to, and does not otherwise participate in and is not
required to participate in,
(i) any "employee welfare benefit plan" or "welfare plan" as
defined under Section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA");
(ii) any "employee pension benefit plan" or "pension plan" as
defined under Section 3(2) of ERISA;
(iii) any "excess benefit plan" as defined under Section 3(36)
of ERISA;
(iv) any "multiemployer plan" as such term is defined under
Section 3(37)(A) of ERISA;
(v) any "multiple employer welfare arrangement" as defined
under Section 3(40) of ("ERISA");
(vi) any plan, fund, program, agreement or arrangement which
is unfunded and which is maintained primarily for the purpose of
providing deferred compensation for a select group of management or
highly compensated employees as such term is referred to in Sections
201(2), 301(a)(3) and 401(a)(l) of ERISA; or;
(vii) any other plan, fund program, agreement of arrangement,
whether oral or written, which was or could have been prior to the
date of this Agreement, or which is or could be as of the date of
this Agreement, subject to any of the provisions of ERISA or the
Code;
(b) The Company has not committed itself, orally or in writing, to
create, establish, adopt, maintain or participate in any plan, fund, program,
agreement or arrangement described in paragraph (a) hereof. In addition, except
as disclosed in the Disclosure Schedule, the Company has not committed itself,
orally or in writing, to provide or to cause to be provided any severance,
salary continuation, termination, disability, death, retirement, health or
medical benefit, or similar benefit to any person (including, without
limitation, any former or current employee).
(c) Notwithstanding anything else set forth herein, except as set
forth in the Disclosure Schedule, there exists no condition or set of
circumstances which has resulted in, or which could result in the imposition of
liability under ERISA, the Code, or other applicable law with respect to any
plan, fund, program agreement or arrangement described in paragraph (a) of this
Section 2.
Section 2.28 [RESERVED]
Section 2.29 Qualified Small Business. The Company represents that, as of
the date of this Agreement, it qualifies as a "Qualified Small Business" as
defined in Section 1202(d) of the
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Code and covenants that so long as its shares are held by the Purchasers (or a
transferee in whose hands the shares are eligible to qualify as Qualified Small
Business Stock as defined in Section 1202(c) of the Code), it will use its
reasonable efforts to cause the shares to qualify as Qualified Small Business
Stock; provided that, notwithstanding the foregoing, the Company shall not be
obligated to take any action, or refrain from any action, which in its good
faith business judgment is not in the best interests of the Company or its
stockholders.
Section 2.30 Foreign Corrupt Practices Act. The Company has not taken any
action which would cause it to be in violation of the Foreign Corrupt Practices
Act of 1977, as amended, or any rules and regulations thereunder. To the best of
the Company's knowledge, there is not now, and there has never been, any
employment by the Company of, or beneficial ownership in the Company by, any
governmental or political official in any country in the world.
Section 2.31 Federal Reserve Regulation. The Company is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
securities (within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of the Preferred Shares
will be used to purchase or carry any margin security or to extend credit to
others for the purpose of purchasing or carrying any margin security or in any
other manner which would involve a violation of any of the regulations of the
Board of Governors of the Federal Reserve System.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, represents and warrants to the
Company that:
(a) such Purchaser, if not a natural person, is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization and has the power and authority to execute, deliver and perform
this Agreement and the Transaction Documents to which it is a party, and to
purchase the Preferred Shares being purchased by it hereunder
(b) the execution and delivery by such Purchaser of this Agreement
and the Transaction Documents; the performance by such Purchaser of its
obligations hereunder and thereunder, and the purchase of the Preferred Shares
have been duly authorized by all requisite organizational action.
(c) this Agreement has been duly executed and delivered by such
Purchaser and constitutes the legal, valid and binding obligation of such
Purchaser, enforceable in accordance with its terms. The other Transaction
Documents, when executed and delivered in accordance with this Agreement, will
constitute the legal, valid and binding obligations of such Purchaser,
enforceable in accordance with their respective terms.
(d) such Purchaser is an "accredited investor" within the meaning of
Rule 501 under the Securities Act and was not organized for the specific purpose
of acquiring the Preferred Shares;
(e) such Purchaser has sufficient knowledge and experience in
investing in companies similar to the Company in terms of the Company's stage of
development so as to be able to evaluate the risks and merits of its investment
in the Company and it is able financially to bear the risks thereof;
(f) such Purchaser has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's management;
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(g) the Preferred Shares being purchased by such Purchaser are being
acquired for its own account for the purpose of investment and not with a view
to or for sale in connection with any distribution thereof;
(h) such Purchaser understands that (i) the Preferred Shares and the
Conversion Shares have not been registered under the Securities Act by reason of
their issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated
under the Securities Act, (ii) the Preferred Shares and, upon conversion
thereof, the Conversion Shares must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration, (iii) the Preferred Shares and the Conversion Shares will
bear a legend to such effect and (iv) the Company will make a notation on its
transfer books to such effect; and
(i) if such Purchaser sells any Conversion Shares pursuant to Rule
144A promulgated under the Securities Act, it will take all necessary steps in
order to perfect the exemption from registration provided thereby, including (i)
obtaining on behalf of the Company information to enable the Company to
establish a reasonable belief that the purchaser is a qualified institutional
buyer and (ii) advising such purchaser that Rule 144A is being relied upon with
respect to such resale.
ARTICLE IV.
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS
The obligation of each Purchaser to purchase and pay for the Preferred
Shares being purchased by it on the Closing Date is, at its option, subject to
the satisfaction, on or before the Closing Date, of the following conditions:
(a) Opinion of Company's Counsel. The Purchasers shall have received
from Winthrop, Stimson, Putnam & Roberts, counsel for the Company, an opinion
dated the Closing Date, in form and scope satisfactory to the Purchasers and
their counsel, to the effect set forth in Exhibit E hereto.
(b) Representations and Warranties to be True and Correct. The
representations and warranties contained in Article II shall be true, complete
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and the
President and Treasurer of the Company shall have certified to such effect to
the Purchasers in writing.
(c) Performance. The Company shall have performed and complied with
all agreements contained herein required to be performed or complied with by it
prior to or at the Closing Date, and the President and Treasurer of the Company
shall have certified to the Purchasers in writing to such effect and to the
further effect that all of the conditions set forth in this Article IV have been
satisfied.
(d) All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Purchasers and their counsel, and the Purchasers and
their counsel shall have received all such counterpart originals or certified or
other copies of such documents as they reasonably may request.
(e) Supporting Documents. The Purchasers and their counsel shall
have received copies of the following documents:
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(i) (A) the Charter, certified as of a recent date by
the Secretary of State of the State of Delaware, (B) a
certificate of said Secretary, dated as of a recent date, as
to the due incorporation and good standing of the Company, the
payment of all excise taxes by the Company and listing all
documents of the Company on file with said Secretary and (C) a
certificate of the Secretary of the State of the State of
Connecticut, dated as of a recent date, as to the good
standing of the Company in such state.
(ii) a certificate of the Secretary or an Assistant
Secretary of the Company dated the Closing Date and
certifying: (A) that attached thereto is a true and complete
copy of the By-laws of the Company as in effect on the date of
such certification; (B) that attached thereto is a true and
complete copy of all resolutions adopted by the Board of
Directors or the stockholders of the Company authorizing the
execution, delivery and performance of this Agreement and the
Transaction Documents, the issuance, sale and delivery of the
Preferred Shares and the reservation, issuance, sale and
delivery of the Conversion Shares, and that all such
resolutions are in full force and effect and are all the
resolutions adopted in connection with the transactions
contemplated by this Agreement and the Transaction Documents;
(C) that the Charter has not been amended since the date of
the last amendment referred to in the certificate delivered
pursuant to clause (i)(B) above; and (D) to the incumbency and
specimen signature of each officer of the Company executing
this Agreement or any of the Transaction Documents, the stock
certificates representing the Preferred Shares and any
certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the
incumbency and signature of the officer signing the
certificate referred to in this clause (ii); and
(iii) such additional supporting documents and other
information with respect to the operations and affairs of the
Company as the Purchasers or their counsel reasonably may
request.
(f) Registration Rights Agreement. The Company shall have executed
and delivered the Registration Rights Agreement.
(g) Stockholders' Agreement. The Stockholders' Agreement shall have
been executed and delivered by the Company and each of the Founders.
(h) Founders Agreement. The Company shall have entered into a
Founder's Agreement with each of the Founders.
(i) Charter. The Charter shall read in its entirety as set forth in
Exhibit D. The Charter shall have been duly amended, if necessary, to provide
that: (i) all directors of the Company shall be indemnified against, and
absolved of, liability to the Company and its stockholders to the maximum extent
permitted under the laws of the State of Delaware, and (ii) the number of shares
of authorized Common Stock of the Company may be increased or decreased (but not
below the number then outstanding) by the affirmative vote of the holders of a
majority of the outstanding shares of capital stock of the Company entitled to
vote thereon, voting together as a single class notwithstanding the provisions
of Section 242(b)(2) of the General Corporation Law of the State of Delaware.
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(j) By-Laws. The Company's By-laws shall have been amended, if
necessary, to provide that (i) unless otherwise required by the laws of the
State of Delaware, (A) any two directors and (B) any holder or holders of at
least 1,500,000 shares of Series A Convertible Preferred Stock shall have the
right to call a meeting of the Board of Directors or stockholders and (ii) the
number of directors fixed in accordance therewith shall in no event conflict
with any of the terms or provisions of the Series A Convertible Preferred Stock
as set forth in the Charter.
(k) Employee Agreements. Copies of the Employee Nondisclosure and
Developments Agreements shall have been delivered to counsel for the Purchasers.
(l) SBA Side Letter. A letter in the form of Exhibit G hereto
obligating the Company with respect to certain regulatory requirements of the
Small Business Administration shall have been executed and delivered by the
Company.
(m) Stock Option Plan. A Stock Option Plan, in the form of Exhibit H
hereto, shall have been approved by the Board of Directors of the Company.
(n) (n) Election of Directors. The number of directors constituting
the entire Board of Directors shall have been fixed at seven and the following
persons shall have been elected as the directors and shall each hold such
position as of the Closing Date: Fernando Espuelas and Jack Chen as the
directors elected solely by the holders of the Common Stock, Fred Wilson,
__________ and __________ as the directors elected solely by the holders of the
Series A Convertible Preferred Stock, and _______ and _________ as the two
directors with relevant industry expertise as the directors elected by both the
holders of a majority of the Common Stock, voting as a separate class, and the
holders of a majority of the Series A Convertible Preferred Stock, voting as a
separate series.
(o) Key Person Insurance. An insurance company of national standing
shall have executed a binding commitment to provide the Key Person Insurance (as
defined in Section 5.5).
(p) Preemptive Rights. All stockholders of the Company having any
preemptive, first refusal or other rights with respect to the issuance of the
Preferred Shares or the Conversion Shares shall have irrevocably waived the same
in writing.
(q) Fees of Purchasers' Counsel and Consultants. The Company shall
have paid in accordance with Section 6.1 the fees and disbursements of
Purchasers' counsel and consultants invoiced at the Closing.
All such documents shall be reasonably satisfactory in form and substance to the
Purchasers and their counsel.
ARTICLE V.
COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the Purchasers that:
Section 5.1 Financial Statements, Reports, Etc. Until the consummation of
an underwritten public offering of the Company's Common Stock conducted by a
major bracket underwriter that results in net proceeds to the Company of at
least $20 million and at a price per share of at least $4.00 (as adjusted for
stock splits, combinations and the like) (a "Qualified Public Offering") the
Company shall furnish to each Purchaser that shall hold at least 200,000
Preferred Shares:
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(a) within ninety (90) days after the end of each fiscal year of the
Company a consolidated balance sheet of the Company and its subsidiaries, if
any, as of the end of such fiscal year and the related consolidated statements
of income, stockholders' equity and cash flows for the fiscal year then ended,
prepared in accordance with generally accepted accounting principles and
certified by a firm of independent public accountants of recognized national
standing selected by the Board of Directors of the Company;
(b) on or before September 30, 1998, consolidated statements of
income of the Company and its subsidiaries, if any, for the period beginning
July 1, 1997 and ending June 30, 1998 for such period, prepared in accordance
with generally accepted accounting principles and certified by a firm of
independent public accountants of recognized national standing selected by the
Board of Directors of the Company;
(c) within twenty (20) days after the end of each month in each
fiscal year (other than the last month in each fiscal year), a consolidated
balance sheet of the Company and its subsidiaries, if any, and the related
consolidated statements of income, stockholders' equity and cash flows,
unaudited but prepared in accordance with generally accepted accounting
principles and certified by the Chief Financial Officer of the Company, such
consolidated balance sheet to be as of the end of such month and such
consolidated statements of income, stockholders' equity and cash flows to be for
such month and for the period from the beginning of the fiscal year to the end
of such month, in each case with comparative statements for the prior fiscal
year;
(d) at the time of delivery of each annual financial statement
pursuant to Section 5.1(a), a certificate executed by the Chief Financial
Officer of the Company stating that such officer has caused this Agreement and
the Series A Convertible Preferred Stock to be reviewed and has no knowledge of
any default by the Company in the performance or observance of any of the
provisions of this Agreement or the Series A Convertible Preferred Stock or, if
such officer has such knowledge, specifying such default and the nature thereof;
(e) at the time of delivery of each monthly statement pursuant to
Section 5.1(c), a management narrative report explaining all significant
variances from forecasts and all significant current developments in staffing,
marketing, sales and operations;
(f) no later than thirty (30) days prior to the start of each fiscal
year, consolidated capital and operating expense budgets, cash flow projections
and income and loss projections for the Company and its subsidiaries in respect
of such fiscal year, all itemized in reasonable detail and prepared on a monthly
basis, and, promptly after preparation, any revisions to any of the foregoing;
(g) promptly following receipt by the Company, each audit response
letter, accountants management letter and other written report submitted to the
Company by its independent public accountants in connection with an annual or
interim audit of the books of the Company or any of its subsidiaries;
(h) promptly after the commencement thereof, notice of all actions,
suits, claims, proceedings, investigations and inquiries of the type described
in Section 2.7 that could materially adversely affect the Company or any of its
subsidiaries, if any;
(i) promptly upon sending, making available or filing the same, all
press releases, reports and financial statements that the Company sends or makes
available to its stockholders or directors or files with the Commission; and
(j) promptly, from time to time, such other information regarding
the business, prospects, financial condition, operations, property or affairs of
the Company and its subsidiaries
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as such Purchaser reasonably may request.
Section 5.2 [RESERVED]
Section 5.3 Reserve for Conversion Shares. The Company shall at all times
keep available out of its authorized but unissued shares of Common Stock, for
the purpose of effecting the conversion of the Preferred Shares and otherwise
complying with the terms of this Agreement, such number of its duly authorized
shares of Common Stock as shall be sufficient to effect the conversion of the
Preferred Shares from time to time outstanding or otherwise to comply with the
terms of this Agreement. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of the
Preferred Shares or otherwise to comply with the terms of this Agreement, the
Company will forthwith take such corporate action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes. The Company will use its best
efforts to obtain any authorization, consent, approval or other action by, and
will make any filing with, any court or administrative body that may be required
under applicable state securities laws in connection with the issuance of shares
of Common Stock upon conversion of the Preferred Shares.
Section 5.4 Corporate Existence. The Company shall maintain and, except as
otherwise permitted by Section 5.17 cause each of its subsidiaries (if any) to
maintain their respective corporate existence, rights and franchises in full
force and effect.
Section 5.5 Properties, Business, Insurance. The Company shall maintain
and cause each of its subsidiaries (if any) to maintain as to their respective
properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies similarly situated, which insurance
shall be deemed by the Company to be sufficient. The Company shall also maintain
in effect "key person" life insurance policies, payable to the Company, on the
lives of Fernando Espuelas and Jack Chen (so long as they remain employees of
the Company), in the amount of $2,000,000 each (the "Key Person Insurance"). The
Company shall not cause or permit any assignment or change in beneficiary and
shall not borrow against any such policy. If requested by Purchasers holding at
least a majority of the outstanding Preferred Shares, the Company will add one
designee of the Purchasers as a notice party for each such policy and shall
request that the issuer of each policy provide such designee with ten (10) days'
notice before such policy is terminated (for failure to pay premiums or
otherwise) or assigned or before any change is made in the beneficiary thereof.
Section 5.6 Inspection, Consultation and Advice. The Company shall permit
and cause each of its subsidiaries (if any) to permit each Purchaser which holds
at least 200,000 Preferred Shares and covenants to preserve the confidentiality
of the Company's proprietary information and its agents and representatives, at
such Purchaser's expense, to visit and inspect any of the properties of the
Company and its subsidiaries, examine their books and take copies and extracts
therefrom, discuss the affairs, finances and accounts of the Company and its
subsidiaries with their officers, employees and public accountants (and the
Company hereby authorizes said accountants to discuss with such Purchaser and
such designees such affairs, finances and accounts), and consult with and advise
the management of the Company and its subsidiaries as to their affairs, finances
and accounts, all at reasonable times and upon reasonable notice.
Section 5.7 Restrictive Agreements Prohibited. Neither the Company nor any
of its subsidiaries shall become a party to any agreement which by its terms
restricts the Company's
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performance of any of this Agreement, the Transaction Documents or the Charter.
Section 5.8 Transactions with Affiliates. Except for transactions
contemplated by this Agreement or as otherwise approved by the Board of
Directors, neither the Company nor any of its subsidiaries shall enter into any
transaction with any director, officer, employee or holder of more than 5% of
the outstanding capital stock of any class or series of capital stock of the
Company or any of its subsidiaries, member of the family of any such person, or
any corporation, partnership, trust or other entity in which any such person, or
member of the family of any such person, is a director, officer, trustee,
partner or holder of more than 5% of the outstanding capital stock thereof,
except for transactions on customary terms related to such person's employment.
Section 5.9 Expenses of Directors. The Company shall promptly reimburse in
full, each director of the Company who is not an employee of the Company and who
was elected as a director solely or in part by the holders of Series A
Convertible Preferred Stock, for all of his reasonable out-of-pocket expenses
incurred in attending each meeting of the Board of Directors of the Company or
any Committee thereof.
Section 5.10 Use of Proceeds. The Company shall use the proceeds from the
sale of the Preferred Shares solely for working capital.
Section 5.11 Board of Directors Meetings. The Company shall use its best
efforts to ensure that meetings of its Board of Directors are held at least once
per month.
Section 5.12 Compensation. The Company shall not pay to its management
compensation in excess of that compensation customarily paid to management in
companies of similar size, of similar maturity, and in similar businesses
without the unanimous written consent of the members of the Compensation
Committee of the Company's Board of Directors.
Section 5.13 By-laws. The Company shall at all times cause its By-laws to
provide that, (a) unless otherwise required by the laws of the State of
Delaware, (i) any two directors and (ii) any holder or holders of at least
1,500,000 shares of Series A Convertible Preferred Stock shall have the right to
call a meeting of the Board of Directors or stockholders and (b) the number of
directors fixed in accordance therewith shall in no event conflict with any of
the terms or provisions of the Series A Convertible Preferred Stock as set forth
in the Charter. The Company shall at all times maintain provisions in its
By-laws and/or Charter indemnifying all directors against liability and
absolving all directors from liability to the Company and its stockholders to
the maximum extent permitted under the laws of the State of Delaware.
Section 5.14 Performance of Contracts. The Company shall not amend,
modify, terminate, waive or otherwise alter, in whole or in part any of the
Employee Nondisclosure and Developments Agreements or the Founders Agreements
without the unanimous written consent of those members of the Company's Board of
Directors elected solely by the holders of Series A Convertible Preferred Stock.
Section 5.15 Vesting of Reserved Employee Shares. The Company shall not
grant to any of its employees options to purchase Reserved Employee Shares which
will become exercisable at a rate in excess of 33-1/3% per annum from the date
of such grant without the unanimous written consent of those members of the
Company's Board of Directors elected solely by the holders of Series A
Convertible Preferred Stock.
Section 5.16 Employee Nondisclosure and Developments Agreements. The
Company shall use its best efforts to obtain, and shall cause its subsidiaries
(if any) to use their best efforts
-19-
to obtain, an Employee Nondisclosure and Developments Agreement in substantially
the form of Exhibit E from all future officers, key employees and other
employees who will have access to confidential information of the Company or any
of its subsidiaries, upon their employment by the Company of its subsidiaries,
and, within 30 days following the Closing Date, from all current employees who
have not previously provided such agreement.
Section 5.17 Activities of Subsidiaries. The Company will not organize or
acquire any entity that is a subsidiary unless such subsidiary is wholly-owned
(directly or indirectly) by the Company. The Company shall not permit any
subsidiary to consolidate or merge into or with or sell or transfer all or
substantially all its assets, except that any subsidiary may (i) consolidate or
merge into or with or sell or transfer assets to any other subsidiary, or (ii)
merge into or sell or transfer assets to the Company. The Company shall not sell
or otherwise transfer any shares of capital stock of any subsidiary, except to
the Company or another subsidiary, or permit any subsidiary to issue, sell or
otherwise transfer any shares of its capital stock or the capital stock of any
subsidiary, except to the Company or another subsidiary. The Company shall not
permit any subsidiary to purchase or set aside any sums for the purchase of, or
pay any dividend or make any distribution on, any shares of its stock, except
for dividends or other distributions payable to the Company or another
subsidiary.
Section 5.18 Compliance with Laws. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could materially adversely affect its business
or condition, financial or otherwise.
Section 5.19 Keeping of Records and Books of Account. The Company shall
keep, and cause each subsidiary to keep, adequate records and books of account,
in which complete entries regarding its transactions will be made in accordance
with generally accepted accounting principles consistently applied, reflecting
all financial transactions of the Company and such subsidiary, and in which, for
each fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
Section 5.20 Change in Nature of Business. The Company shall not make, or
permit any subsidiary to make, any material change in the nature of its business
as set forth in the Business Plan.
Section 5.21 Rule 144A Information. The Company shall, at all times during
which it is neither subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), nor
exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, provide
in writing, upon the written request of any Purchaser or a prospective buyer of
Preferred Shares or Conversion Shares from any Purchaser, all information
required by Rule 144A(d)(4)(i) of the General Regulations promulgated by the
Commission under the Securities Act ("Rule 144A Information"). The Company also
shall, upon the written request of any Purchaser, cooperate with and assist such
Purchaser or any member of the National Association of Securities Dealers, Inc.
PORTAL system in applying to designate and thereafter maintain the eligibility
of the Preferred Shares or Conversion Shares, as the case may be, for trading
through PORTAL. The Company's obligations under this Section 5.24 shall at all
times be contingent upon the relevant Purchaser's obtaining from the prospective
buyer of Preferred Shares or Conversion Shares a written agreement to take all
reasonable precautions to safeguard the Rule 144A Information from disclosure to
anyone other than a person who will assist such buyer in evaluating the purchase
of any Preferred Shares or Conversion Shares.
Section 5.22 Compensation and Audit Committees. The Company shall, by
amending
-20-
its By-laws or otherwise, establish and maintain a Compensation Committee and an
Audit Committee of the Board of Directors, each of which shall consist of two
non-management directors. No increase in compensation, bonuses or other
remuneration shall be paid to, and no capital stock or options to acquire
capital stock of the Company shall be issued or granted to, any director or
executive officer of the Company or any of its subsidiaries, without the
approval of the Compensation Committee. No employee stock option plan, employee
stock purchase plan, employee restricted stock plan or other employee stock plan
shall be established without the approval of the Compensation Committee. The
Audit Committee shall select (subject to the approval of the Board of Directors)
and provide instructions to the Company's auditors and shall approve the
Company's annual audit prior to its issuance each year.
Section 5.23. Termination of Covenants. The covenants contained in this
Article V will terminate and be of no further force or effect upon the earlier
of (i) the date of a Qualified Public Offering and (ii) the date on which at
least 4,500,000 Conversion Shares have been sold in one or more public
offerings.
ARTICLE VI.
MISCELLANEOUS
Section 6.1 Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that the Company will
reimburse the fl@tiron Fund LLC for consultant expenses of $2,250 and that upon
closing the Company shall pay the fees of the Purchasers' special counsel, Brown
Raysman Millstein Felder & Steiner LLP, and O'Sullivan Graev & Karabell, LLP, in
connection with such transactions and any subsequent amendment, waiver, consent
or enforcement thereof, and all related disbursements incurred by any of such
counsel.
Section 6.2 Survival of Representatives; Termination of Agreements. All
covenants, agreements, representations and warranties made in this Agreement or
any Transaction Document or any certificate or instrument delivered to the
Purchasers pursuant to or in connection with this Agreement or any Transaction
Document, shall survive the execution and delivery of this Agreement or the
Transaction Documents, the issuance, sale and delivery of the Preferred Shares,
and the issuance and delivery of the Conversion Shares (i) in the case of
covenants and agreements, an indefinite period of time (subject to the
provisions of Section 5.23 hereof), and (ii) in the case of representations and
warranties, for a period of five (5) years, and all statements contained in any
certificate or other instrument delivered by the Company hereunder or thereunder
or in connection herewith or therewith shall be deemed to constitute
representations and warranties made by the Company.
Section 6.3 Brokerage. Each party hereto will indemnify and hold harmless
the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party. If the party to be
indemnified shall be a Purchaser, then such indemnification shall include
without limitation losses which may be suffered as a result of diminution in
value of such Purchaser's investment hereunder in the case of loss.
Section 6.4 Parties in Interest. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or
-21-
not. Without limiting the generality of the foregoing, all representations,
covenants and agreements benefiting the Purchasers shall inure to the benefit of
any and all subsequent holders from time to time of Preferred Shares or
Conversion Shares, unless the conversion shares were purchased by such
subsequent holders in a public offering.
Section 6.5. Lock-Up Agreement. Each Purchaser and its successors and
assigns will agree, to the extent reasonably requested by any underwriter of
securities of the Company in connection with an initial public offering of the
Company's Common Stock, to enter into an agreement consistent with then market
practice for major bracket underwriters not to sell or otherwise transfer or
dispose of any shares of Common Stock for such period of time (not to exceed 180
days) following the effective date of a registration statement of the Company
filed under the Securities Act, which agreement shall also bind the Founders,
executive officers, directors, and other shareholders on terms and conditions
substantially similar to those which shall apply to the Purchasers and said
successors and assigns.
Section 6.6 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, addressed as follows:
(a) if to the Company, to it at StarMedia Network, Inc., 1076 East
Putnam Avenue, Riverside, Connecticut 06878, Attention: President, with a copy
to Justin K. Macedonia, Esq., Winthrop, Stimson, Putnam & Roberts, One Battery
Park Plaza, New York, NY 10004; and
(b) if to any Purchaser, at the address of such Purchaser set forth
in Schedule I with a copy to Jay S. Rand, Esq., Brown Raysman Millstein Felder &
Steiner, 120 West 45th Street, New York, New York 10036;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
Section 6.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
Section 6.8 Entire Agreement. This Agreement, including the Schedules and
Exhibits hereto, constitutes the sole and entire agreement of the parties with
respect to the subject matter hereof. All Schedules and Exhibits hereto are
hereby incorporated herein by reference.
Section 6.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 6.10 Amendments. This Agreement may not be amended or modified,
and no provisions hereof may be waived, without the written consent of the
Company and the holders of at least two-thirds of the outstanding shares of
Common Stock issued or issuable upon conversion of the Preferred Shares.
Section 6.11 Severability. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
Section 6.12 Titles and Subtitles. The titles and subtitles used in this
Agreement are for
-22-
convenience only and are not to be considered in construing or interpreting any
term or provision of this Agreement.
Section 6.13 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(a) "person" shall mean an individual, corporation, trust,
partnership, joint venture, unincorporated organization, government or any
agency or political subdivision thereof, or other entity.
(b) "subsidiary" shall mean, as to the Company, any corporation of
which more than 50% of the outstanding stock having ordinary voting power to
elect a majority of the Board of Directors of such corporation (irrespective of
whether or not at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned by the Company, or
by one or more of its subsidiaries, or by the Company and one or more of its
subsidiaries.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-23-
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
StarMedia Network, Inc.
By: /s/ Fernando Espuelas
---------------------------------
Name: Fernando Espuelas
Title: CEO
Purchasers named in Schedule I to the
Purchase Agreement:
The fl@tiron Fund LLC
By: /s/ Frederick Wilson
---------------------------------
Title: Managing Member
------------------------------
Chase Venture Capital Associates,
L.P.
By: Chase Capital Partners, its
General Partner
By: /s/ [ILLEGIBLE]
---------------------------------
Title:
------------------------------
-24-
/s/ Christopher T. Linen
- --------------------------------------------
Christopher T. Linen
Caramia LLC
By: /s/ [ILLEGIBLE]
----------------------------------------
Title: Member/Trustee
-------------------------------------
/s/ Benjamin Gitlow, Jr. & Joan Gitlow
- --------------------------------------------
Benjamin Gitlow, Jr. & Joan H Gitlow
/s/ Peter M. Feldman
- --------------------------------------------
Peter M. Feldman
/s/ Lynda H. Feldman
- --------------------------------------------
Lynda H. Feldman
/s/ Kevin & Paige Guidotti
- --------------------------------------------
Kevin & Paige Guidotti
/s/ [ILLEGIBLE]
- --------------------------------------------
Stephen M. Kosslyn & Robin Rosenberg
/s/ [ILLEGIBLE]
- --------------------------------------------
Steven Rosenberg
/s/ Rhonda Roland Scherer
- --------------------------------------------
Rhonda Roland Scherer
/s/ Katherine G. Bramante and A. Donald Bramante
- ------------------------------------------------
Katherine G. Bramante and A. Donald Bramante
Leigh Ellen Feldman Trust Fund
By: /s/ Peter M. Feldman
----------------------------------------
Title: TTE
-------------------------------------
/s/ Tracy Leeds
- --------------------------------------------
Tracy Leeds
/s/ Laurence Leeds, Jr.
- --------------------------------------------
Laurence Leeds, Jr.
/s/ Adele Morrissette
- --------------------------------------------
Adele Morrissette
Katherine Yu-ting Chen Trust
By: /s/ Jack C. Chen
----------------------------------------
Title: Trustee
-------------------------------------
/s/ [ILLEGIBLE]
- --------------------------------------------
Ralph & Rebecca Clark
Niki Francesca Bramante Custodial Account
By: /s/ Katherine G. Bramante
----------------------------------------
Title: Custodian
-------------------------------------
/s/ Daniel D. & Lois F. Chabris
- --------------------------------------------
Daniel D. & Lois F. Chabris
/s/ William T. End
- --------------------------------------------
William T. End
/s/ Douglas & Elizabeth McLaury
- --------------------------------------------
Douglas & Elizabeth McLaury
/s/ Sidney Landau
- --------------------------------------------
Sidney Landau
/s/ Matthew J. Whitehead II
- --------------------------------------------
Matthew J. Whitehead II
/s/ Matthew J. Whitehead III
- --------------------------------------------
Matthew J. Whitehead III
/s/ Richard Davies
- --------------------------------------------
Richard Davies
/s/ Harold & Judith Edelman
- --------------------------------------------
Harold & Judith Edelman
/s/ [ILLEGIBLE]
- --------------------------------------------
Walter J. Boyles
/s/ Herbert L. Wasserman, Ph.D.
- --------------------------------------------
Herbert L. Wasserman, Ph.D.
SCHEDULE I
Purchasers
Number of Preferred
Name and Shares Purchase Price for
Address of Purchaser to be Purchased Preferred Shares
- -------------------- --------------- ----------------
Chase Venture Capital Associates, L.P.
380 Madison Avenue, 12th floor
New York, NY 10017
Attn: Mr. I. Robert Greene
The fl@tiron Fund LLC
do Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, NY 10017
Attn: Mr. Fred Wilson
StarMedia Network, Inc.
List of Preferred Shareholders
Name Preferred Shares to be Purchased in this Placement
- --------------------------------------------------------------------------------
The fl@tiron Fund LLC 465,000
Chase Venture Capital 5,535,000
Associates, L.P.
Christopher Linen 100,000
Caramia LUC 100,000
Tracy Leeds 100,000
Laurence Leeds, Jr. 100,000
Benjamin & Joan H. Gitlow 100,000
Peter M. Feldman & Associates, Inc. 80,000
Kevin & Paige Guidotti 70,000
Professor Stephen M. Kosslyn 50,000
Steven Rosenberg 50,000
Rhonda Scherer 50,000
Daniel D. Chabris 50,000
William T. End 50,000
Douglas & Elizabeth McLaury 50,000
Sidney Landau 50,000
Matt Whitehead II 50,000
Matt Whitehead III 50,000
Richard Davies 40,000
Harold & Judith Edelman 30,000
Walter Boyles 30,000
Herbert L. Wasserman 30,000
Katherine and Donald Bramante 25,000
Leigh Ellen Feldman Trust 20,000
Adele Morrissette 20,000
Katherine Yu-ting Chen Trust 20,000
Ralph & Rebecca Clark 10,000
Bramante Custodian Account 5,000
---------
Total 7,330,000
Schedule II: Disclosure Schedule
Article II
Section 2.4
There are twenty (20) holders of Common Stock whom in aggregate hold 10,012,000
shares of Common Stock.
There are nineteen (19) holders of options on Common Stock whom in aggregate
hold options to purchase 1,839,933 shares of Common Stock.
Upon closing of this placement, there will be twenty-eight (28) holders of the
Series A Convertible Preferred Stock whom in aggregate will hold 7,330,000
shares of the Series A Convertible Preferred Stock.
Section 2.6
Accounts payable to Wunderman Cato Johnson, an advertising agency, of
approximately $75,000.
Promissory note debt to Fernando Espuelas date May 3, 1997 for $18,5000 and paid
down on July 24, 1997.
Promissory note debt to S.L. Chen & Associates, Inc. dated May 3, 1997 for
$30,000 and paid down on July 24, 1997. S.L. Chen & Associates is controlled by
family members of Jack Chen, President of StarMedia Network, Inc.
Promissory note debt to Jack Chen date May 17, 1997 for $100,000 and paid down
on July 24, 1997.
Section 2.7
Violation of trademark alleged by Starmedia, Inc. in letter received from Handal
& Morofsky dated January 24, 1997.
Section 2.9
Trademark applications have been made with the US patent & Trademark Office for
the following marks: StarMedia, StarMedia with design, TalkPlanet.
Violation of trademark alleged by Starmedia, Inc. in letter received from
Handal & Morofsky dated January 24, 1997.
Section 2.14
Stockholders' Agreement dated July 25, 1997.
Registration Rights Agreement dated July 25, 1997.
Agreement between StarMedia Network, Inc. and CBS Telenoticias dated June 20,
1997.
Agreement between America Economia and StarMedia Network, Inc. dated May 14,
1997.
Internet Services and Products Master Agreement between StarMedia Network, Inc.
and BBN Planet dated August 9, 1996.
Netline Reporting Services Agreement with Internet Profiles Corporation dated
January 15, 1997.
Nielsen-I/PRO I/COUNT Software License Agreement with Internet Profiles
Corporation dated January 21, 1997.
Content Licensing Agreement with Quote.com, Inc. dated November 25, 1996.
Oral Agreement between StarMedia Network, Inc. and Fox Latin America with
respect to co-markting arrangement dated January 22, 1997.
Oral Agreement between StarMedia Network, Inc. and Spelling Satellite Networks
with respect to co-marketing arrangement dated February 10, 1997.
Employment Agreement with Fernando Espuelas dated July 25, 1997.
Employment Agreement with Jack Chen dated July 25, 1997.
Oral compensation agreement with Anne Andiorio, Senior Vice President, Corporate
Relations dated June 1, 1997.
Oral agreement with Mokonet, Inc. with respect to developing an electronic mail
system dated April 21, 1997.
Oral lease for 1076 East Putnam Avenue dated September 1, 1996 with JC
Corporation, which is owned and controlled by family members of Jack Chen,
President of StarMedia Network, Inc.
Lease dated June 5, 1997 for office in Bogota, Colombia.
Medical Insurance plan available to all employees. Stock option plan available
to certain employees. Disability Insurance for Fernando Espuelas and Jack Chen.
Section 2.19
Expect to be delayed by approximately 2 to 3 months on revenue and profit & loss
model given that model assumed completion of financing in May 1997. The level of
investment since the Private Placement Memorandum dated March 1997 has been
substantially below the level which was budgeted; further described in
electronic mail correspondence with Flatiron Partners dated June 19, 1997.
Section 2.22
Office Total Estimated 1997 Compensation (not
including any bonuses, option grants or
other such compensation TBD by the Board or
benefit costs)
Fernando J. Espuelas $73,000
Chairman and CEO
Jack C. Chen $73,000
President
Anne Andiorio $166,000
Senior Vice President, Corporate
Relations
Alfredo Escobedo $43,000
General Manager, Andinos Region
Jonathan Hirschman $40,000
Vice President, Operations
Tracy Leeds $35,000
Vice President, Product Development
and Marketing
Brian Stauffer $60,000
Vice President and Creative Director
Employment Agreement with Fernando Espuelas dated July 25, 1997.
Employment Agreement with Jack Chen dated July 25, 1997.
Oral compensation agreement with Anne Andiorio, Senior Vice President, Corporate
Relations dated June 1, 1997.
Section 2.23
Promissory note debt to Fernando Espuelas dated May 3, 1997 for $18,500 and paid
down on July 24, 1997.
Promissory note debt to S.L. Chen & Associates, Inc. dated May 3, 1997 for
$30,000 and paid down on July 24, 1997. S.L. Chen & Associates is controlled by
family members of Jack Chen, President of StarMedia Network, Inc.
Promissory note debt to Jack Chen dated May 17, 1997 for $100,000 and paid down
on July 24, 1997.
Oral lease for 1076 East Putnam Avenue dated September 1, 1996 with JC
Corporation, which is owned and controlled by family members of Jack Chen,
President of StarMedia Network, Inc.
Section 2.24
Jonathan Hirschman, Vice President, Operations, David Baker, Director of
Technology, and Tracy Leeds, Vice President of Product Development & Marketing,
have not signed the Non-Disclosure and Development Agreements.
Section 2.27
Medical insurance plan available to all employees. Disability insurance for
Fernando Espuelas and Jack Chen.
The company has made oral commitments to its employees regarding providing the
medical insurance plan available to all employees. The company has obligations
in Employment Agreements dated July 25, 1997 to provide the disability insurance
for Fernando Espuelas and Jack Chen.