PURCHASE AGREEMENT
DATED OCTOBER 7, 1998
BY AND AMONG
THE COBALT GROUP, INC.
AND
THE PURCHASER NAMED HEREIN
TABLE OF CONTENTS
Page
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1. AUTHORIZATION AND CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . .4
1.1 AUTHORIZATION OF THE SERIES B PREFERRED STOCK . . . . . . . . . . .4
1.2 PURCHASE AND SALE OF THE SERIES B PREFERRED STOCK . . . . . . . . .4
1.3 THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2. CONDITIONS OF THE PURCHASER'S OBLIGATION AT THE CLOSING . . . . . . . . . . . .5
2.1 REPRESENTATIONS AND WARRANTIES; COVENANTS . . . . . . . . . . . . .5
2.2 AMENDMENT OF ARTICLES OF INCORPORATION. . . . . . . . . . . . . . .5
2.3 REGISTRATION AGREEMENT. . . . . . . . . . . . . . . . . . . . . . .5
2.4 SHAREHOLDERS AGREEMENT. . . . . . . . . . . . . . . . . . . . . . .5
2.5 SALE OF SERIES B PREFERRED STOCK TO THE PURCHASER . . . . . . . . .6
2.6 KEY-MAN LIFE INSURANCE. . . . . . . . . . . . . . . . . . . . . . .6
2.7 BLUE SKY CLEARANCE. . . . . . . . . . . . . . . . . . . . . . . . .6
2.8 OPINION OF THE COMPANY'S COUNSEL. . . . . . . . . . . . . . . . . .6
2.9 MANAGEMENT SERVICES AGREEMENT . . . . . . . . . . . . . . . . . . .6
2.10 CONFIDENTIALITY AND NONCOMPETITION AGREEMENT. . . . . . . . . . . .6
2.11 DELIVERY OF REDEMPTION OFFER. . . . . . . . . . . . . . . . . . . .7
2.12 CLOSING DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . .7
3. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.1 FINANCIAL STATEMENTS AND OTHER INFORMATION. . . . . . . . . . . . .7
3.2 INSPECTION OF PROPERTY. . . . . . . . . . . . . . . . . . . . . . .9
3.3 RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.4 AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 12
3.5 COMPLIANCE WITH AGREEMENTS. . . . . . . . . . . . . . . . . . . . 13
3.6 CURRENT PUBLIC INFORMATION. . . . . . . . . . . . . . . . . . . . 13
3.7 RESERVATION OF COMMON STOCK . . . . . . . . . . . . . . . . . . . 14
3.8 FIRPTA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.9 REDEMPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4. TRANSFER OF RESTRICTED SECURITIES . . . . . . . . . . . . . . . . . . . . . . 15
4.1 GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . 15
4.2 OPINION DELIVERY. . . . . . . . . . . . . . . . . . . . . . . . . 15
4.3 LEGEND REMOVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 16
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . 16
5.1 ORGANIZATION AND CORPORATE POWER. . . . . . . . . . . . . . . . . 16
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5.2 CAPITAL STOCK AND RELATED MATTERS . . . . . . . . . . . . . . . . 16
5.3 SUBSIDIARIES; INVESTMENTS . . . . . . . . . . . . . . . . . . . . 17
5.4 AUTHORIZATION; NO BREACH. . . . . . . . . . . . . . . . . . . . . 17
5.5 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . 18
5.6 ABSENCE OF UNDISCLOSED LIABILITIES. . . . . . . . . . . . . . . . 18
5.7 NO MATERIAL ADVERSE CHANGE. . . . . . . . . . . . . . . . . . . . 19
5.8 ABSENCE OF CERTAIN DEVELOPMENTS . . . . . . . . . . . . . . . . . 19
5.9 ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.10 TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.11 CONTRACTS AND COMMITMENTS . . . . . . . . . . . . . . . . . . . . 21
5.12 PROPRIETARY RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . 23
5.13 LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.14 BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.15 GOVERNMENTAL CONSENT. . . . . . . . . . . . . . . . . . . . . . . 24
5.16 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.17 EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.18 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.19 COMPLIANCE WITH LAWS. . . . . . . . . . . . . . . . . . . . . . . 27
5.20 AFFILIATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . 27
5.21 REAL PROPERTY HOLDING CORPORATION STATUS. . . . . . . . . . . . . 27
5.22 DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.23 CLOSING DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.24 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.1 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.2 REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.3 PURCHASER'S INVESTMENT REPRESENTATIONS. . . . . . . . . . . . . . 31
6.4 CONSENT TO AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . 32
6.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . 32
6.6 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . . 32
6.7 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.8 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.9 DESCRIPTIVE HEADINGS; INTERPRETATION. . . . . . . . . . . . . . . 33
6.10 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.11 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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PURCHASE AGREEMENT
THIS AGREEMENT is made as of October 7, 1998 by and among The Cobalt
Group, Inc., a Washington corporation (the "Company"), and the Person listed on
the Schedule of Purchasers attached hereto (referred to herein as the
"Purchaser"). Except as otherwise indicated herein, capitalized terms used
herein are defined in Section 6 hereof.
The parties hereto agree as follows:
1. AUTHORIZATION AND CLOSING
1.1 AUTHORIZATION OF THE SERIES B PREFERRED STOCK
The Company shall authorize the issuance and sale to the Purchaser of
1,858,100 shares of its Series B Preferred Stock, par value $0.01 per share, and
5,118,091 shares of its Series B-1 Preferred Stock, par value $0.01 per share
(together, the "Series B Preferred Stock," which Series B Preferred Stock,
together with the Company's outstanding and issued shares of Series A Preferred
Stock shall be herein referred to as the "Preferred Stock"). The Preferred
Stock is convertible into shares of the Company's Common Stock, par value $0.01
per share (the "Common Stock").
1.2 PURCHASE AND SALE OF THE SERIES B PREFERRED STOCK
At the Closing, the Company shall sell to the Purchaser and, subject to
the terms and conditions set forth herein, the Purchaser shall purchase from the
Company the number of shares of Series B Preferred Stock set forth opposite such
Purchaser's name on the Schedule of Purchasers attached hereto at a price of
$4.20 per share, for a total price of $29,300,002.20 (the "Purchase Price").
1.3 THE CLOSING
The closing of the purchase and sale of the Series B Preferred Stock
(the "Closing") shall take place at the offices of Stoel Rives LLP, 3600 One
Union Square, Seattle, WA 98101 at 7:00 a.m. on October 7, 1998, or at such
other place, date or time as may be mutually agreeable to the Company and the
Purchaser. At the Closing, the Company shall deliver to the Purchaser stock
certificates evidencing the Series B Preferred Stock to be purchased by such
Purchaser, registered in such Purchaser's or its nominee's name, upon payment of
the purchase price thereof by wire transfer of immediately available funds to
the Company's account at Silicon Valley Bank in Seattle, Washington in the
aggregate amount set forth on the Schedule of Purchasers.
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2. CONDITIONS OF THE PURCHASER'S OBLIGATION AT THE CLOSING
The obligation of the Purchaser to purchase and pay for the Series B
Preferred Stock at the Closing is subject to the satisfaction as of the Closing
of the following conditions:
2.1 REPRESENTATIONS AND WARRANTIES; COVENANTS
The representations and warranties contained in Section 5 hereof shall
be true and correct in all material respects at and as of the Closing as though
then made, except to the extent of changes caused by the transactions expressly
contemplated herein, and the Company shall have performed in all material
respects all of the covenants required to be performed by it hereunder prior to
the Closing.
2.2 AMENDMENT OF ARTICLES OF INCORPORATION
The Company's Articles of Incorporation (the "Articles of
Incorporation") shall have been amended to include the provisions set forth in
EXHIBIT A hereto, shall be in full force and effect under the laws of the State
of Washington as of the Closing as so amended and shall not have been further
amended or modified.
2.3 REGISTRATION AGREEMENT
The Productivity Fund III, L.P., a Delaware limited partnership (the
"Productivity Fund"), Environmental Private Equity Fund II, L.P., a Delaware
limited partnership (the "Environmental Private Equity Fund") and Mark
Koulogeorge (together, the "Series A Purchasers"), the Company and the Purchaser
shall have entered into a First Amendment to the Registration Agreement, dated
February 28, 1997 in the form and substance as set forth in EXHIBIT B attached
hereto (the "Registration Agreement"), and the Registration Agreement shall be
in full force and effect as of the Closing.
2.4 SHAREHOLDERS AGREEMENT
The Company, the Purchaser, the Series A Purchasers, Geoffrey Barker,
John Holt and the individual shareholders named therein shall have entered into
a First Amendment to the Amended and Restated Shareholders Agreement dated May
18, 1995 and amended and restated as of February 28, 1997 in the form and
substance as set forth in EXHIBIT C attached hereto (the "Shareholders
Agreement"), and the Shareholders Agreement shall be in full force and effect as
of the Closing.
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2.5 SALE OF SERIES B PREFERRED STOCK TO THE PURCHASER
The Company shall have sold to the Purchaser the Series B Preferred
Stock to be purchased by it hereunder at the Closing and shall have received
payment therefor in full.
2.6 KEY-MAN LIFE INSURANCE
The Company shall have obtained key-man life insurance policies on the
lives of each of Geoffrey T. Barker and John W.P. Holt in the face amount of
$1,500,000 each, which policies shall be in full force and effect as of the
Closing. Such insurance policies shall name the Purchaser as beneficiary and
shall provide that such insurance policies may not be cancelled unless the
insurance carrier gives at least 30 days' prior written notice of such
cancellation to the Purchaser. An executed copy of both policies (with evidence
of all corporate and board approval) shall be delivered to the Purchaser within
10 business days of the date hereof.
2.7 BLUE SKY CLEARANCE
The Company shall have made all filings under applicable state
securities laws necessary to consummate the issuance of the Series B Preferred
Stock pursuant to this Agreement in compliance with such laws.
2.8 OPINION OF THE COMPANY'S COUNSEL
The Purchaser shall have received from Stoel Rives LLP, counsel for the
Company, an opinion with respect to the matters set forth in EXHIBIT D attached
hereto, which shall be addressed to the Purchaser, dated the date of the Closing
and in form and substance reasonably satisfactory to the Purchaser.
2.9 MANAGEMENT SERVICES AGREEMENT
First Analysis Securities Corporation ("First Analysis") and the Company
shall have entered into a First Amendment to the Management Services Agreement,
dated as of February 28, 1997 in the form and substance as set forth in
EXHIBIT E attached hereto.
2.10 CONFIDENTIALITY AND NONCOMPETITION AGREEMENT
The Company shall have entered into a confidentiality and noncompetition
agreement in form and substance as set forth in EXHIBIT F attached hereto (the
"Confidentiality and Noncompetition Agreement"), with each of Geoffrey T. Barker
and John W.P. Holt and the
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Confidentiality and Noncompetition Agreement shall be in full force and effect
as of the Closing.
2.11 DELIVERY OF REDEMPTION OFFER
The Company shall have delivered written notice of the offer of
redemption (the "Redemption Offer") to each holder of shares of Common Stock and
of shares of Series A Preferred Stock to be redeemed in accordance with the
provisions of paragraph 3.9, below, and shall have received binding acceptances
of the Redemption Offer with respect to at least 2,173,204 shares of Common
Stock and at least 2,404,652 shares of Series A Preferred Stock, pursuant to
which the Company shall redeem the above shares (the "Redemption"). Such
Redemption shall be effective as of the Closing Date.
2.12 CLOSING DOCUMENTS
The Company shall have delivered to the Purchaser all of the following
documents:
(i) an Officer's Certificate, dated the date of the Closing,
stating that the conditions specified in Section 1 and paragraphs 2.1 through
2.9, inclusive, have been fully satisfied;
(ii) certified copies of the resolutions duly adopted by the
Company's board of directors authorizing the execution, delivery and performance
of this Agreement, the Registration Agreement, the Shareholders Agreement, and
each of the other agreements contemplated hereby, the filing of the amendment to
the Articles of Incorporation referred to in paragraph 2.2, the issuance and
sale of the Series B Preferred Stock, the reservation for issuance upon
conversion of the Series B Preferred Stock an aggregate of 6,976,190 shares of
Common Stock and the consummation of all other transactions contemplated by this
Agreement;
(iii) certified copies of the Amended and Restated Articles of
Incorporation and the Company's bylaws, each as in effect at the Closing; and
copies of all third party and governmental consents, approvals and filings
required in connection with the consummation of the transactions hereunder
(including, without limitation, all blue sky law filings).
3. COVENANTS
3.1 FINANCIAL STATEMENTS AND OTHER INFORMATION
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The Company shall deliver to the Purchaser, who is at the time a holder
of Underlying Common Stock:
(i) as soon as available but in any event within 30 days
after the end of each monthly accounting period in each fiscal year, unaudited
statements of income and cash flows of the Company for such monthly period and
for the period from the beginning of the fiscal year to the end of such month,
and balance sheets of the Company as of the end of such monthly period, selling
forth in each case comparisons to the annual budget and to the corresponding
period in the preceding fiscal year, and all such statements shall be prepared
in accordance with generally accepted accounting principles, consistently
applied, subject to the absence of footnote disclosures and to normal year-end
adjustments;
(ii) within 90 days after the end of each fiscal year,
statements of income and cash flows of the Company for such fiscal year, and a
balance sheet of the Company as of the end of such fiscal year, setting forth in
each case comparisons to the annual budget and to the preceding fiscal year, all
prepared in accordance with generally accepted accounting principles,
consistently applied, and accompanied by (a) an opinion of an independent
accounting firm of recognized national standing selected by the board of
directors;
(iii) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant aspects
of the Company's operations or financial affairs given to the Company by its
independent accountants (and not otherwise contained in other materials provided
hereunder);
(iv) prior to the beginning of each fiscal year, an annual
budget prepared on a monthly basis for the Company for such fiscal year
(displaying anticipated statements of income and cash flows and balance sheets),
and promptly upon preparation thereof any other significant budgets prepared by
the Company and any revisions of such annual or other budgets;
(v) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general written
communications which the Company sends to its stockholders and copies of all
registration statements and all regular, special or periodic reports which it
files, or (to its knowledge) any of its officers or directors file with respect
to the Company, with the Securities and Exchange Commission or with any
securities exchange on which any of its securities are then listed, and copies
of all press release and other statements made available generally by the
Company to the public concerning material developments in the Company's
business, and
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(vi) with reasonable promptness, such other operating
information and financial data concerning the Company as any Person entitled to
receive information under this paragraph 3.1 may reasonably request.
Each of the financial statements referred to in subparagraphs (i) and
(ii) shall be true and correct in all material respects as of the dates and for
the periods stated therein, subject in the case of the unaudited financial
statements to changes resulting from normal year-end audit adjustments (none of
which would, alone or in the aggregate, be materially adverse to the financial
condition, operating results, assets, operations or business prospects of the
Company). For purposes of this Agreement and the Registration Agreement, all
holdings of Underlying Common Stock by Persons who are Affiliates of each other
shall be aggregated for purposes of meeting any threshold tests under this
Agreement and the Registration Agreement.
3.2 INSPECTION OF PROPERTY
Prior to a Qualified Public Offering (used herein as defined in the
Registration Agreement), the Company shall permit representatives designated by
any Purchaser who is at the time a holder of the Underlying Common Stock, upon
reasonable notice, during normal business hours and upon delivery of an executed
confidentiality agreement by such representative in a form reasonably
satisfactory to the Company to (i) visit and inspect any of the properties of
the Company, (ii) examine the corporate and financial records of the Company and
make copies thereof or extracts therefrom and (iii) discuss the affairs,
finances and accounts of the Company with the directors, officers, key employees
and independent accountants of the Company. The presentation of an executed
copy of this Agreement by any Purchaser to the Company's independent accountants
shall constitute the Company's permission to its independent accountants to
participate in discussions with such representatives.
Each holder of Underlying Common Stock that is a "venture capital
operating company" for purposes of Department of Labor Regulation Section
2510.3-101 shall in addition to all other rights granted under this Agreement
have the right to consult with and advise the officers of the Company with
respect to the management of the Company.
3.3 RESTRICTIONS
Subject to the last sentence of this Section 3.3, without the consent of
the majority of the holders of Underlying Common Stock, the Company shall not:
(i) directly or indirectly declare or pay any dividends or
make any distributions upon any of its equity securities;
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(ii) except as expressly contemplated by this Agreement,
directly or indirectly redeem, purchase or otherwise acquire any of the
Company's equity securities (including, without limitation, warrants, options
and other rights to acquire equity securities) other than the Preferred Stock
pursuant to the terms of the Articles of Incorporation;
(iii) except as expressly contemplated by this Agreement,
authorize, issue or enter into any agreement providing for the issuance
(contingent or otherwise) of any securities of the Company (including, without
limitation, warrants, options and other rights to acquire equity securities);
(iv) make any loans or advances to, guarantees for the
benefit of, or Investments in, any Person except for (a) reasonable advances to
employees in the ordinary course of business, (b) acquisitions permitted
pursuant to subparagraph (viii) below and (c) Investments having a stated
maturity no greater than one year from the date the Company makes such
Investment (or similar Investment) in (1) obligations of the United States
government or any agency thereof or obligations guaranteed by the United States
government, (2) certificates of deposit of commercial banks having combined
capital and surplus of at least $50 million or (3) commercial paper with a
rating of at least "Prime-1" by Moody's Investors Service, Inc.;
(v) merge or consolidate with any Person;
(vi) sell, lease or otherwise dispose of more than 25% of the
assets of the Company in any transaction or series of related transactions or
sell or permanently dispose of any of its Proprietary Rights;
(vii) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation, any
reorganization into partnership or limited liability company form);
(viii) acquire any interest in any business (whether by a
purchase of assets, purchase of stock, merger or otherwise) or enter into any
joint venture, involving an aggregate consideration (including the assumption of
liabilities whether direct or indirect) exceeding $1,000,000 in any one
transaction or exceeding $2,000,000 in any twelve-month period;
(ix) enter into the ownership, active management or operation
of any business other than as presently conducted;
(x) become subject to any agreement or instrument which by
its terms would (under any circumstances) restrict the Company's right to
perform the provisions of this Agreement, the Registration Agreement, the
Shareholders Agreement, the Articles of
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Incorporation or the Company's bylaws (including, without limitation, provisions
relating to making redemptions and conversions of the Preferred Stock);
(xi) except as expressly contemplated by this Agreement, make
any amendment to the Amended and Restated Articles of Incorporation or the
Company's bylaws, or file any resolution of the board of directors with the
Washington Secretary of State containing any provisions which would increase the
number of authorized shares of the Common Stock or the Preferred Stock or
adversely affect or otherwise impair the rights or relative priority of the
holders of the Preferred Stock or Underlying Common Stock under this Agreement,
the Articles of Incorporation, the Company's bylaws, the Registration Agreement,
or the Shareholders Agreement;
(xii) enter into any transaction with any of its officers,
directors, employees or Affiliates or any individual related by blood or
marriage to any such Person (a "Relative") or any entity in which any such
Person or individual owns a beneficial interest (an "Interested Entity"), except
for normal employment arrangements and benefit programs on reasonable terms,
which arrangements or programs must be approved by the Compensation Committee
(as defined) if Geoffrey Barker, John Holt, or any Affiliate, Relative or
Interested Entity thereof is a party thereto, and except as otherwise expressly
contemplated by this Agreement;
(xiii) the Company shall not increase the compensation of any
officer of the Company, unless approved by the compensation committee of the
board of directors, which shall be comprised of two directors representing the
Investors and one director representing the Executives (as such terms are used
in the Shareholders Agreement) (the "Compensation Committee");
(xiv) establish or acquire (a) any Subsidiaries other than
wholly-owned Subsidiaries or (b) any Subsidiaries organized outside of the
United States and its territorial possessions;
(xv) create, incur, assume or suffer to exist indebtedness
for borrowed money exceeding in the aggregate [$1,000,000] outstanding at any
time;
(xvi) make any capital expenditures (including, without
limitation, payments with respect to capitalized leases, as determined in
accordance with generally accepted accounting principles consistently applied)
exceeding [$300,000] in the aggregate during any twelve-month period;
(xvii) enter into any leases or other rental agreements
(excluding (a) capitalized leases, as determined in accordance with generally
accepted accounting principles consistently applied and (b) the lease of the
Company's offices at 2030 First Avenue, Suite 300, Seattle,
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Washington 98121) under which the amount of the aggregate lease payments for
all such agreements exceeds [$150,000] for any twelve-month period;
(xviii) enter into (a) any contract triggered by any change of
control or (b) any golden parachute agreement or (c) any employment agreement;
(xix) change its fiscal year; or
(xx) increase the authorized size of its board of directors
above six members.
Notwithstanding the foregoing, the board of directors' discretion in
administering The Cobalt Group, Inc. 1995 Stock Option Plan (the "Stock Option
Plan") shall not be limited or restricted.
3.4 AFFIRMATIVE COVENANTS
Prior to the consummation of a Qualified Public Offering (used herein as
defined in the Registration Agreement), the Company shall:
(i) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material licenses,
authorizations and permits necessary to the conduct of its business;
(ii) maintain and keep its properties in good repair, working
order and condition, and from time to time make all necessary or desirable
repairs, renewals and replacements, so that its business may be properly and
advantageously conducted at all times;
(iii) pay and discharge when payable all taxes, assessments
and governmental charges imposed upon its properties or upon the income or
profits therefrom (in each case before the same becomes delinquent and before
penalties accrue thereon) and all claims for labor, materials or supplies to the
extent to which the failure to pay or discharge such obligations would
reasonably be expected to have a material adverse effect upon the financial
condition, operating results, assets, operations or business prospects of the
Company, unless and to the extent that the same are being contested in good
faith and by appropriate proceedings and adequate reserves (as determined in
accordance with generally accepted accounting principles, consistently applied)
have been established on its books with respect thereto;
(iv) comply with all other material obligations which it
incurs pursuant to any contract or agreement, whether oral or written, express
or implied, as such obligations become due to the extent to which the failure to
so comply would reasonably be expected to
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have a material adverse effect upon the financial condition, operating results,
assets, operations or business prospects of the Company, unless and to the
extent that the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as determined in accordance with generally
accepted accounting principles, consistently applied) have been established on
its books with respect thereto;
(v) comply with all applicable laws, rules and regulations
of all governmental authorities, the violation of which would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company;
(vi) maintain the key-man life insurance policies referred to
in paragraph 2.6 hereof;
(vii) maintain proper books of record and account which fairly
present its financial condition and results of operations and make provisions on
its financial statements for all such proper reserves as in each case are
required in accordance with generally accepted accounting principles,
consistently applied; and
3.5 COMPLIANCE WITH AGREEMENTS
The Company shall perform and observe (i) all of its obligations to each
holder of the Preferred Stock and the Underlying Common Stock set forth in the
Amended and Restated Articles of Incorporation and the Company's bylaws, and
(ii) all of its obligations to each holder of Registrable Securities set forth
in the Registration Agreement.
3.6 CURRENT PUBLIC INFORMATION
At all times after the Company has filed a registration statement with
the Securities and Exchange Commission pursuant to the requirements of either
the Securities Act or the Securities Exchange Act, the Company shall file all
reports required to be filed by it under the Securities Act and the Securities
Exchange Act and the rules and regulations adopted by the Securities and
Exchange thereunder and shall take such further action as may be required by
Rule 144 adopted by the Securities and Exchange Commission under the Securities
Act (as such rule may be amended from time to time) or any similar rule or
regulation hereafter adopted by the Securities and Exchange Commission
("Rule 144"), all to the extent required to enable such holders to sell
Restricted Securities pursuant to (i) Rule 144 or (ii) a registration statement
on Form S-1 or S-3 or any similar registration form hereafter adopted by the
Securities and Exchange Commission. Upon request, the Company shall deliver to
any holder of Restricted Securities a written statement as to whether it has
complied with such requirements.
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3.7 RESERVATION OF COMMON STOCK
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
issuance upon the conversion of the Series B Preferred Stock, such number of
shares of Common Stock issuable upon the conversion of all outstanding Series B
Preferred Stock. All shares of Common Stock which are so issuable shall, when
issued, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges. The Company shall take all such actions as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately transmitted by the Company upon issuance).
3.8 FIRPTA
The Company acknowledges that certain Purchasers may be foreign entities
or have foreign persons and entities as partners and that the Company may be
required to file or cause to be filed in the future with the IRS certain
statements with its United States income tax returns required under
Section 1.897-2(h) of the Treasury Regulations. The Company shall use
reasonable efforts consistent with sound business practice to avoid becoming a
"United States real property holding corporation" within the meaning of
Section 897(c)(2) of the IRC. Upon any Purchaser's request, the Company shall
provide such Purchaser with a statement that the Company is or is not a "United
States real property holding corporation" as of the date specified by the
Purchaser (or as of the date of the request if the Purchaser does not specify a
date) and shall send a copy of such statement to the IRS in a form and manner
which identifies the Purchaser and which otherwise satisfies the requirements of
Section 1.89-2(h)(2) of the Treasury Regulations. In the event the Company in
the future becomes a "United States real property holding corporation," the
Company shall promptly notify the Purchaser in writing of such fact.
Thereafter, upon written request from any Purchaser, the Company shall provide
information, documentation and assistance to such Purchaser reasonably related
to the Company's status as a "United States real property holding corporation,"
including but not limited to (i) an affidavit stating (if true) that the stock
held by such Purchaser is of a class that is regularly traded (as defined by
Sections 1.897-l(n) and 1.897-9T of the Treasury Regulations) on an established
securities market (as defined by Section 1.897-l(m) of the Treasury
Regulations), and (ii) information or assistance which would enable such
Purchaser to obtain a withholding certificate permitting a transferee of such
Purchaser's stock to avoid or reduce any withholding obligation such transferee
would otherwise have under federal tax law.
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3.9 REDEMPTION
From the Purchase Price received by the Company upon the purchase and
sale of the Series B Preferred Stock, as provided in Section 1.2 above, the
Company shall redeem at least 2,173,204 of outstanding shares of Common Stock
and at least 2,404,652 of outstanding shares of Series A Preferred Stock, and on
the date stated in the Redemption Offer, which Redemption Offer as provided in
paragraph 2.10 shall have been delivered as a condition to the Closing to each
holder thereof, the Company shall be obligated to pay each such holder an amount
equal to (i) $4.20 per share of Common Stock, and (ii) $4.20 per share of Series
A Preferred Stock.
4. TRANSFER OF RESTRICTED SECURITIES
4.1 GENERAL PROVISIONS
Restricted Securities are transferable only pursuant to (i) public
offerings registered under the Securities Act, (ii) Rule 144 or Rule 144A of the
Securities and Exchange Commission (or any similar rule or rules then in force)
if such rule is available and (iii) subject to the conditions specified in
paragraph 4.2 below, any other legally available means of transfer.
4.2 OPINION DELIVERY
In connection with the transfer of any Restricted Securities (other than
a transfer described in paragraph 4.1(i) or (ii) above), the holder thereof
shall deliver written notice to the Company describing in reasonable detail the
transfer or proposed transfer, together with an opinion of Perkins Coie, LLP or
other counsel which (to the Company's reasonable satisfaction) is knowledgeable
in securities law matters to the effect that such transfer of Restricted
Securities may be effected without registration of such Restricted Securities
under the Securities Act. In addition, if the holder of the Restricted
Securities delivers to the Company an opinion of Perkins Coie, LLP or such other
counsel that no subsequent transfer of such Restricted Securities shall require
registration under the Securities Act, the Company shall promptly upon such
contemplated transfer deliver new certificates for such Restricted Securities
which do not bear the Securities Act legend set forth in paragraph 7.3. If the
Company is not required to deliver new certificates for such Restricted
Securities not bearing such legend, the holder thereof shall not transfer the
same until the prospective transferee has confirmed to the Company in writing
its agreement to be bound by the conditions contained in this paragraph 4.2 and
paragraph 7.3.
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4.3 LEGEND REMOVAL
Upon the request of any holder of Restricted Securities, the Company
shall remove the Securities Act legend set forth in paragraph 7.3 from the
certificates for such holder's Restricted Securities; provided that such
Restricted Securities are eligible for sale pursuant to Rule 144(k).
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to the Purchaser to enter into this Agreement
and purchase the Series B Preferred Stock, the Company hereby represents and
warrants that:
5.1 ORGANIZATION AND CORPORATE POWER
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Washington and is qualified to do
business in every jurisdiction in which its ownership of property or conduct of
business requires it to qualify and in which the failure to qualify would have a
material adverse affect on the financial condition, operating results, assets,
operations or business prospects of the Company. The Company has all requisite
corporate power and authority and all material licenses, permits and
authorizations necessary to own and operate its properties, to carry on its
business as now conducted and presently proposed to be conducted and to carry
out the transactions contemplated by this Agreement. The copies of the
Company's Amended and Restated Articles of Incorporation and bylaws which have
been furnished to the Purchaser's special counsel reflect all amendments made
thereto at any time prior to the date of this Agreement and are correct and
complete.
5.2 CAPITAL STOCK AND RELATED MATTERS
(i) As of the Closing and immediately after giving effect to
the Redemption, the authorized capital stock of the Company shall consist of
(a) 4,510,934 shares of Series A Preferred Stock of which 2,106,282 shares shall
be issued and outstanding, (b) 8,000,000 shares of Series B Preferred Stock of
which 1,858,100 shares shall be issued and outstanding, (c) 7,000,000 shares of
Series B-1 Preferred Stock of which 5,118,091 shares shall be issued and
outstanding and (d) 200,000,000 shares of Common Stock, of which 1,329,685
shares shall be issued and outstanding and (i) 2,106,282 reserved for issuance
upon conversion of the Series A Preferred Stock, (ii) 1,858,100 reserved for
issuance upon conversion of the Series B Preferred Stock and (iii) 5,118,091
reserved for issuance upon conversion of the Series B-1 Preferred Stock. As of
the Closing, the Company shall not have outstanding any stock or securities
convertible or exchangeable for any shares of its capital stock or containing
any profit participation features, nor shall it have outstanding any rights or
options to subscribe for
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or to purchase its capital stock or any stock or securities convertible into or
exchangeable for its capital stock; or any stock appreciation rights or phantom
stock plans other than as set forth on Schedule 5.2(i). As of the Closing, the
Company shall not be subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock or any
warrants, options or other rights to acquire its capital stock, except pursuant
to the Amended and Restated Articles of Incorporation, the permitted redemptions
described in Section 3.9 or as otherwise provided herein. As of the Closing,
all of the outstanding shares of the Company's capital stock shall be validly
issued, fully paid and nonassessable.
(ii) There are no statutory or, to the best of the Company's
knowledge, contractual stockholders preemptive rights or rights of refusal with
respect to the issuance of the Series B Preferred Stock hereunder or the
issuance of the Common Stock upon conversion of the Series B Preferred Stock.
To the best of the Company's knowledge, the Company has not violated any
applicable federal or state securities laws in connection with the offer, sale
or issuance of any of its capital stock, and the offer, sale and issuance of the
Series B Preferred Stock hereunder do not require registration under the
Securities Act or any applicable state securities laws. Other than as described
on Schedule 5.2(ii), to the best of the Company's knowledge, there are no
agreements between the Company's stockholders with respect to the voting or
transfer of the Company's capital stock or with respect to any other aspect of
the Company's affairs.
5.3 SUBSIDIARIES; INVESTMENTS
Except as described on Schedule 5.3, the Company does not own or hold
any rights to acquire any shares of stock or any other security or interest in
any other Person, and the Company has never had any Subsidiary.
5.4 AUTHORIZATION; NO BREACH
The execution, delivery and performance of this Agreement, the
Registration Agreement, the Shareholders Agreement, and all other agreements
contemplated hereby to which the Company is a party, and the filing of the
Articles of Incorporation have been duly authorized by the Company. This
Agreement, the Registration Agreement, the Shareholders Agreement, the Amended
and Restated Articles of Incorporation, and all other agreements contemplated
hereby each constitutes a valid and binding obligation of the Company,
enforceable in accordance with its terms, except as it may be limited by
applicable bankruptcy, insolvency; reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity. The execution and delivery by the Company of
this Agreement, the Registration Agreement, the Shareholders Agreement, and all
other agreements contemplated hereby to which the Company is a party, the
offering, sale and
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issuance of the Series B Preferred Stock hereunder, the issuance of the Common
Stock upon conversion of the Series B Preferred Stock, the Amended and Restated
Articles of Incorporation and the fulfillment of and compliance with the
respective terms hereof and thereof by the Company, do not and shall not
(i) conflict with or result in a breach of the terms, conditions or provisions
of, (ii) constitute a default under, (iii) result in the creation of any lien,
security interest, charge or encumbrance upon the Company's capital stock or
assets pursuant to, (iv) give any third party the right to modify, terminate or
accelerate any obligation under, (v) result in a violation of, or (vi) require
any authorization, consent, approval, exemption or other action by or notice to
any court or administrative or governmental body pursuant to the Amended and
Restated Articles of Incorporation or bylaws of the Company, or any law,
statute, rule or regulation to which the Company is subject, or any agreement,
instrument, order, judgment or decree to which the Company is subject.
5.5 FINANCIAL STATEMENTS
Attached hereto as the "Financial Statements Schedule" are the following
financial statements:
(i) the unaudited balance sheets of the Company as of
December 31, 1996 and December 31, 1997, and the related statements of income
and cash flows (or the equivalent) for the respective twelve-month periods then
ended; and
(ii) the unaudited balance sheet of the Company as of
August 31, 1998 (the "Latest Balance Sheet").
Each of the foregoing financial statements (including in all cases the
notes thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of the Company (which, in turn, are
accurate and complete in all material respects) and has been prepared in
accordance with generally accepted accounting principles, consistently applied,
subject to the lack of footnote disclosure and changes resulting from normal
year-end adjustments (none of which would, alone or in the aggregate, be
materially adverse to the financial condition, operating results, assets,
operations or business prospects of the Company).
5.6 ABSENCE OF UNDISCLOSED LIABILITIES
Except as set forth on the attached "Liabilities Schedule," the Company
does not have any material obligation or liability (whether accrued, absolute,
contingent, unliquidated or otherwise, whether or not known to the Company,
whether due or to become due and regardless of when asserted) arising out of
transactions entered into at or prior to the Closing, or any action or inaction
at or prior to the Closing, or any state of facts existing at or prior to
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the Closing other than: (i) liabilities set forth on the Latest Balance Sheet
(including any notes thereto), (ii) liabilities and obligations which have
arisen after the date of the Latest Balance Sheet in the ordinary course of
business (none of which is a liability resulting from breach of contract, breach
of warranty, tort, infringement, claim or lawsuit) and (iii) other liabilities
and obligations expressly disclosed in the other Schedules to this Agreement.
5.7 NO MATERIAL ADVERSE CHANGE
Except as set forth on the attached "Adverse Change Schedule," since the
date of the Latest Balance Sheet, there has been no material adverse change in
the financial condition, operating results, assets, operations, business
prospects, employee relations or customer or supplier relations of the Company.
5.8 ABSENCE OF CERTAIN DEVELOPMENTS
(i) Except as expressly contemplated by this Agreement or as
set forth on the attached "Developments Schedule," since the date of the Latest
Balance Sheet, the Company has not
(a) issued any notes, bonds or other debt securities
or any equity securities or any securities convertible, exchangeable or
exercisable into any equity securities;
(b) borrowed any amount or incurred or become subject
to any material liabilities, except current liabilities incurred in the ordinary
course of business and liabilities under contracts entered into in the ordinary
course of business;
(c) discharged or satisfied any material lien or
encumbrance or paid any material obligation or liability, other than current
liabilities paid in the ordinary course of business;
(d) declared or made any payment or distribution of
cash or other property to its stockholders with respect to its stock or
purchased or redeemed any shares of its stock or any warrants, options or other
rights to acquire its stock;
(e) pledged any of its properties or assets or
subjected them to any material lien, security interest, charge or other
encumbrance, except liens for current property taxes not yet due and payable;
(f) sold, assigned or transferred any of its tangible
assets, except in the ordinary course of business, or cancelled any material
debts or claims;
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(g) sold, assigned or transferred any patents or
patent applications, trademarks, service marks, trade names, corporate names,
copyrights or copyright registrations, trade secrets or other intangible assets,
or disclosed any material proprietary confidential information to any Person;
(h) suffered any material extraordinary losses or
waived any rights of material value, whether or not in the ordinary course of
business or consistent with past practice;
(i) made capital expenditures or commitments therefor
that aggregate in excess of $50,000;
(j) entered into any other material transaction other
than in the ordinary course of business or entered into any other material
transaction; whether or not in the ordinary course of business;
(k) made any loans or advances to, guarantees for the
benefit of, or any Investments in, any Persons in excess of $50,000 in the
aggregate;
(l) made any charitable contributions or pledges;
(m) suffered any damage, destruction or casualty loss
exceeding in the aggregate $50,000, whether or not covered by insurance; or
(n) made any Investment in or taken steps to
incorporate any Subsidiary.
(ii) The Company has not at any time made any payments for
political contributions or made any bribes, kickback payments or other illegal
payments.
5.9 ASSETS
Except as set forth on the attached "Assets Schedule," the Company has
good and marketable title to, or a valid leasehold interest in, the properties
and assets used by it, located on its premises or shown on the Latest Balance
Sheet or acquired thereafter, free and clear of all liens, security interests,
charges and encumbrances, except for properties and assets disposed of in the
ordinary course of business since the date of the Latest Balance Sheet and
except for liens disclosed on the Latest Balance Sheet (including any notes
thereto) and liens for current property taxes not yet due and payable. Except
as described on the Assets Schedule, the Company's buildings, equipment and
other tangible assets are in good operating condition in all material respects
and are fit for use in the ordinary course of business. The Company owns, or
has a valid
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leasehold interest in, all assets necessary for the conduct of its business as
presently conducted and as presently proposed to be conducted.
5.10 TAX MATTERS
Except as set forth in the attached "Taxes Schedule" the Company has
filed all tax returns which it is required to file under applicable laws and
regulations; all such returns are complete and correct in all material respects;
the Company in all material respects has paid all taxes due and owing by it and
has withheld and paid over all taxes which it is obligated to withhold from
amounts paid or owing to any employee, stockholder, creditor or other third
party; the Company has not waived any statute of limitations with respect to
taxes or agreed to any extension of time with respect to a tax assessment or
deficiency; the accrual for current taxes on the Latest Balance Sheet would be
adequate to pay all of the Company's current tax liabilities if its current tax
year were treated as ending on the date of the Latest Balance Sheet; the
assessment of any additional taxes for periods for which returns have been filed
is not expected to exceed the recorded liability therefor on the Latest Balance
Sheet; no foreign, federal, state or local tax audits are pending or being
conducted with respect to the Company, no information related to tax matters has
been requested by any foreign, federal, state or local taxing authority and no
notice indicating an intent to open an audit or other review has been received
by the Company from any foreign, federal, state or local taxing authority; and
there are no material unresolved questions or claims concerning the Company's
tax liability.
5.11 CONTRACTS AND COMMITMENTS
(i) Except as expressly contemplated by this Agreement or as
set forth on the attached "Contracts Schedule," as of the Closing, the Company
is not a party to any written or oral:
(a) pension, profit sharing, stock option, employee
stock purchase or other plan or arrangement providing for deferred or other
compensation to employees or any other employee benefit plan or arrangement, or
any contract with any labor union, or any severance agreements;
(b) contract for the employment of any officer,
individual employee or other Person on a full-time, part-time, consulting or
other basis providing annual compensation in excess of $50,000 or contract
relating to loans to officers, directors or affiliates;
(c) contract under which the Company has advanced or
loaned any other Person amounts in the aggregate exceeding $50,000;
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(d) agreement or indenture relating to the borrowing
of money or the mortgaging, pledging or otherwise placing a lien on any material
asset or material group of assets of the Company;
(e) guarantee of any obligation in excess of $50,000;
(f) lease or agreement under which the Company is
lessee of or holds or operates any property, real or personal, owned by any
other party, except for any lease of real or personal property under which the
aggregate annual rental payments do not exceed $50,000;
(g) lease or agreement under which the Company is
lessor of or permits any third party to hold or operate any property, real or
personal, owned or controlled by the Company;
(h) contract or group of related contracts with the
same party or group of affiliated parties the performance of which involves a
consideration in excess of $50,000;
(i) assignment, license, indemnification or agreement
with respect to any intangible property (including, without limitation, any
patent, trademark, trade name, copyright, know-how, trade secret or confidential
information);
(j) warranty agreement with respect to its services
rendered or its products sold or leased;
(k) agreement under which it has granted any Person
any registration rights (including piggyback rights);
(l) contract, agreement or other arrangement with any
officer, director, employee or Affiliate, or any Affiliate of any officer,
director or employee;
(m) contract or agreement prohibiting it from freely
engaging in any business or competing anywhere in the world; or
(n) any other agreement which is material to its
operations and business prospects or involves a consideration in excess of
$50,000 annually.
(ii) All of the contracts, agreements and instruments set
forth on the Contracts Schedule are valid, binding and enforceable in accordance
with their respective terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and general equitable principles
regardless of whether such enforceability is considered in a proceeding at law
or in
-22-
equity. The Company has performed all material obligations required to be
performed by it and is not in default under or in breach of nor in receipt of
any claim of default or breach under any material contract, agreement or
instrument to which the Company is subject; no event has occurred which with the
passage of time or the giving of notice or both would result in a default,
breach or event of noncompliance under any material contract, agreement or
instrument to which the Company is subject; the Company does not have any
present expectation or intention of not fully performing all such obligations;
the Company has no knowledge of any breach or anticipated breach by the other
parties to any material contract or commitment to which it is a party; and the
Company is not a party to any materially adverse contract or commitment.
5.12 PROPRIETARY RIGHTS
The attached "Proprietary Rights Schedule" contains a complete and
accurate list of (i) all patented and registered Proprietary Rights owned by the
Company, (ii) all pending patent applications and applications for registrations
of other Proprietary Rights filed by the Company, (iii) all unregistered trade
names and corporate names owned or used by the Company, and (iv) all
unregistered trademarks, service marks and copyrights and computer software
which are material to the financial condition, operating results, assets,
operations or business prospects of the Company. The Proprietary Rights
Schedule also contains a complete and accurate list of all licenses and other
rights granted by the Company to any third party with respect to any Proprietary
Rights and all licenses and other rights granted by any third party to the
Company with respect to any Proprietary Rights. The Company owns or has the
right to use pursuant to a valid license all Proprietary Rights necessary for
the operation of the business of the Company as presently conducted and as
presently proposed to be conducted. Except as set forth on the Proprietary
Rights Schedule, the loss or expiration of any Proprietary Right or related
group of Proprietary Rights would not have a material adverse effect on the
conduct of the Company's business, and no such loss or expiration is to the best
of the Company's knowledge, threatened, pending or reasonably foreseeable. The
Company has taken all reasonable and appropriate actions to maintain and protect
the Proprietary Rights which it owns and uses. To the best of the Company's
knowledge, the owners of any Proprietary Rights licensed to the Company have
taken all reasonable and appropriate actions to maintain and protect the
Proprietary Rights which are subject to such licenses. Except as indicated on
the Proprietary Rights Schedule, (i) the Company owns all right, title, and
interest in and to all of the Proprietary Rights listed on such Schedule and all
other Proprietary Rights material to the operation of the business of the
Company, (ii) there have been no claims made against the Company asserting the
invalidity, misuse or unenforceability of any of such rights and, to the best of
the Company s knowledge, there are no grounds for the same, (iii) the Company
has not received a notice of conflict with the asserted rights of others within
the last five years, and (iv) the conduct of the Company's business has not
infringed or misappropriated and does not infringe or misappropriate any
Proprietary Rights of other Persons, nor would any future conduct as presently
contemplated infringe any Proprietary Rights of other Persons.
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5.13 LITIGATION
Except as set forth on the attached "Litigation Schedule," there are no
actions, suits, proceedings, orders, investigations or claims pending or, to the
best of the Company's knowledge, threatened against or affecting the Company (or
to the best of the Company's knowledge, pending or threatened against or
affecting any of the officers, directors or employees of the Company with
respect to its business or proposed business activities) at law or in equity, or
before or by any governmental department, commission, board, bureau, agency or
instrumentality (including, without limitations, any actions, suit, proceedings
or investigations with respect to the transactions contemplated by this
Agreement); the Company is not subject to any arbitration proceedings under
collective bargaining agreements or otherwise or, to the best of the Company's
knowledge, any governmental investigations or inquiries, and, to the best of the
Company's knowledge, there is no basis for any of the foregoing. The Company is
not subject to any judgment, order or decree of any court or other governmental
agency. The Company has not received any opinion or memorandum or legal advice
from legal counsel to the effect that it is exposed, from a legal standpoint, to
any liability which is material to its business.
5.14 BROKERAGE
Except as described in the attached "Brokerage Schedule," there are no
claims for brokerage commissions, finders' fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement binding upon the Company. The Company shall pay, and
hold the Purchaser harmless against, any liability, loss or expense (including,
without limitation, reasonable attorneys' fees and out-of-pocket expenses)
arising in connection with any such claim.
5.15 GOVERNMENTAL CONSENT
No permit, consent, approval or authorization of, or declaration to or
filing with, any governmental authority is required in connection with the
execution, delivery and performance by the Company of this Agreement or the
other agreements contemplated hereby, or the consummation by the Company of any
other transactions contemplated hereby or thereby, except as set forth on the
attached "Consents Schedule" and except as expressly contemplated herein or in
the exhibits hereto.
5.16 INSURANCE
The attached "Insurance Schedule" contains a description of each
insurance policy maintained by the Company with respect to its properties,
assets and businesses, and each such policy is in full force and effect as of
the Closing. The Company is not in default with respect
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to its obligations under any insurance policy maintained by it. The insurance
coverage of the Company is customary for corporations of similar size engaged in
similar lines of business.
5.17 EMPLOYEES
The Company is not aware that any executive or key employee of the
Company or any group of employees of the Company has any plans to terminate
employment with the Company. The Company has complied in all material respects
with all laws relating to the employment of labor, including provisions thereof
relating to wages, hours, equal opportunity, collective bargaining and the
payment of social security and other taxes, and the Company is not aware that it
has any material labor relations problems (including any union organization
activities, threatened or actual strikes or work stoppages or material
grievances). Except as set forth on Schedule 5.17, neither the Company nor, to
the best of the Company's knowledge, any of its employees is subject to any
noncompete, nondisclosure, confidentiality, employment, consulting or similar
agreements relating to, affecting or in conflict with the present or proposed
business activities of the Company except for agreements between the Company and
its present and former employees.
5.18 ERISA
(i) The "ERISA Schedule" attached hereto lists each Employee
Benefit Plan that the Company maintains or to which the Company contributes.
(a) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the IRC, and other
applicable laws.
(b) All required reports and descriptions (including
Form 5500 Annual Reports, Summary Annual Reports, PBGC-l's, and Summary Plan
Descriptions) have been filed or distributed appropriately with respect to each
such Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title I
of ERISA and of Section Sec. 4980B of the IRC have been met with respect to
each such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(c) All contributions (including all employer
contributions and employee salary reduction contributions) which are due have
been paid to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before the
Closing which are not yet due have been paid to each such Employee Pension
Benefit Plan or accrued in accordance with the past custom and practice of the
Company. All premiums or other payments for all periods ending on or before the
Closing have been paid with respect to each such Employee Benefit Plan which is
an Employee Welfare Benefit Plan.
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(d) Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan and which is described on the ERISA Schedule as
meeting the requirements of Section 401(a) of the IRC, meets the requirements of
a "qualified plan" under Section 401(a) of the IRC and has within the last two
years, either received a favorable determination letter from the IRS or has
requested such a letter within the remedial amendment period of Section 401(b)
of the IRC.
(e) The market value of assets under each such
Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) equals or exceeds the present value of all vested and
nonvested liabilities thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension Benefit Plan
terminating on the date for determination.
(f) The Company has delivered to the Purchaser correct
and complete copies of the plan documents and Summary Plan Descriptions, the
most recent determination letter received from the IRS, the most recent
Form 5500 Annual Report, and all related trust agreements, insurance contracts,
and other funding agreements which implement each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the
Company maintains or ever has maintained or to which it contributes, ever has
contributed, or ever has been required to contribute:
(a) No such Employee Benefit Plan which is an Employee
Pension Benefit Plan (other than any Multiemployer Plan) has been completely or
partially terminated or been the subject of a reportable event as to which
notices would be required to be filed with the PBGC. No proceeding by the PBGC
to terminate any such Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or threatened.
(b) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary has any liability for
breach of fiduciary duty or any other failure to act or comply in connection
with the administration or investment of the assets of any such Employee Benefit
Plan. No action, suit, proceeding, hearing, or investigation with respect to
the administration or the investment of the assets of any such Employee Benefit
Plan (other than routine claims for benefits) is pending or threatened. The
Company does not have any knowledge of any basis for any such action, suit,
proceeding, hearing, or investigation.
(c) The Company has not incurred, or will incur, any
liability to the PBGC (other than PBGC premium payments) or otherwise under
Title IV of ERISA (including any withdrawal liability) or under the IRC with
respect to any such Employee Benefit Plan which is an Employee Pension Benefit
Plan.
-26-
(iii) Except as set forth on the ERISA Schedule, the Company
does not contribute to, has not contributed to, or has not been required to
contribute to any Multiemployer Plan or has any liability (including withdrawal
liability) under any Multiemployer Plan.
(iv) Except as set forth on the ERISA Schedule, the Company
does not maintain and has not maintained and does not contribute, has not
contributed, or ever has been required to contribute to any Employee Welfare
Benefit Plan providing medical, health, or life insurance or other welfare-type
benefits for current or future retired or terminated employees, their spouses,
or their dependents (other than in accordance with Section 4980B of the IRC).
5.19 COMPLIANCE WITH LAWS
Except as set forth on the attached "Compliance Schedule," the Company
has not violated any law or any governmental regulation or requirement which
violation would reasonably be expected to have a material adverse effect upon
the financial condition, operating results, assets, operations or business
prospects of the Company, and the Company has not received notice of any such
violation. The Company is not subject to any clean up liability, and has no has
reason to believe it may become subject to any clean up liability, under any
federal, state or local environmental law, rule or regulation.
5.20 AFFILIATED TRANSACTIONS
Except as set forth on the attached "Affiliated Transactions Schedule,"
no officer, director, shareholder or Affiliate of the Company or any individual
related by blood or marriage to any such Person or any entity in which any such
Person or individual owns any beneficial interest, is a party to any agreement,
contract, commitment or transaction with the Company or has any material
interest in any material property used by the Company.
5.21 REAL PROPERTY HOLDING CORPORATION STATUS
Since its date of incorporation the Company has not been, and as of the
date of the Closing shall not be, a "United States real property holding
corporation," as defined in Section 897(c)(2) of the IRC, and in
Section 1.897-2(b) of the Treasury Regulations issued thereunder. The Company
has no current plans or intentions which would cause the Company to become a
"United States real property holding company," and the Company has filed with
the IRS all statements, if any, with its United States income tax returns which
are required under Section 1.897-2(h) of the Treasury Regulations.
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5.22 DISCLOSURE
Neither this Agreement nor any of the schedules, attachments, written
statements, documents, certificates or other items prepared or supplied to any
Purchaser by or on behalf of the Company with respect to the transactions
contemplated hereby contain any untrue statement of a material fact or omit a
material fact necessary to make each statement contained herein or therein, in
light of the circumstances under which such statements were made, not
misleading. There is no fact which the Company has not disclosed to the
Purchaser in writing and of which any of its officers, directors or executive
employees is aware and which has had or would reasonably be anticipated to have
a material adverse effect upon the existing or expected financial condition,
operating results, assets, customer or supplier relations, employee relations or
business prospects of the Company.
5.23 CLOSING DATE
The representations and warranties of the Company contained in this
Section 5 and elsewhere in this Agreement and all information contained in any
exhibit, schedule or attachment hereto or in any writing delivered by, or on
behalf of, the Company to any Purchaser shall be true and correct in all
material respects on the date of the Closing as though then made, except as
affected by the transactions expressly contemplated by this Agreement.
5.24 DEFINITIONS
For the purposes of this Agreement, the following terms have the
meanings set forth below:
"AFFILIATE" of any particular person or entity means any other person or
entity controlling, controlled by or under common control with such particular
person or entity.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan,
(b) qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), (d) Employee Welfare Benefit Plan, or (e) any bonus,
incentive, severance, stock option, stock purchase, short-term disability plan
or other material fringe benefit plan, program or arrangement, including
policies concerning holidays, vacations and salary continuation during short
absences for illness or otherwise.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(1).
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"FIDUCIARY" has the meaning set forth in ERISA Section 3(21).
"INVESTMENT" as applied to any Person means (i) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37).
"OFFICER'S CERTIFICATE" means a certificate signed by one of the
Company's Co-Chief Executive Officers, stating that (i) he has made or has
caused to be made such investigations as are necessary in order to permit him to
verify the accuracy of the information set forth in such certificate and (ii) to
the best of his knowledge, such certificate does not misstate any material fact
and does not omit to state any fact necessary to make the certificate not
misleading.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA Section 406
and Section 4975 of the IRC.
"PROPRIETARY RIGHTS" means all (i) patents, patent applications, patent
disclosures and inventions, (ii) trademarks, service marks, trade dress, trade
names and corporate names and registrations and applications for registration
thereof, (iii) copyrights and registrations and applications for registration
thereof, (iv) mask works and registrations and applications for registration
thereof, (v) computer software, data and documentation, (vi) trade secrets and
other confidential information (including, without limitation, ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or not
reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial
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and marketing plans and customer and supplier lists and information), (vii)
other intellectual property rights, and (viii) copies and tangible embodiments
thereof (in whatever form or medium).
"RESTRICTED SECURITIES" means (i) the Series B Preferred Stock issued
hereunder, (ii) the Common Stock issued upon conversion of the Series B
Preferred Stock and (iii) any securities issued with respect to the securities
referred to in clauses (i) or (ii) above by way of a stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Restricted
Securities, such securities shall cease to be Restricted Securities when they
have (a) been effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (b) become eligible
for sale pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act or (c) been otherwise transferred and new certificates for them
not bearing the Securities Act legend set forth in paragraph 7.3 have been
delivered by the Company in accordance with paragraph 4.2. Whenever any
particular securities cease to be Restricted Securities, the holder thereof
shall be entitled to receive from the Company, without expense, new securities
of like tenor not bearing a Securities Act legend of the character set forth in
paragraph 7.3.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar federal law then in force.
"SECURITIES AND EXCHANGE COMMISSION" includes any governmental body or
agency succeeding to the functions thereof.
"SUBSIDIARY" means any corporation of which the securities having a
majority of the ordinary voting power in electing the board of directors are, at
the time as of which any determination is being made, owned by the Company
either directly or through one or more Subsidiaries.
"TREASURY REGULATIONS" means the United States Treasury Regulations
promulgated under the IRC, and any reference to any particular Treasury
Regulation section shall be interpreted to include any final or temporary
revision of or successor to that section regardless of how numbered or
classified.
"UNDERLYING COMMON STOCK" means (i) the Common Stock issued or issuable
upon conversion of the Preferred Stock and (ii) any Common Stock issued or
issuable with respect to the-securities referred to in clause (i) above by way
of stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other
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reorganization. For purposes of this Agreement, any Person who holds Preferred
Stock shall be deemed to be the holder of the Underlying Common Stock obtainable
upon conversion of the Preferred Stock in connection with the transfer thereof
or otherwise regardless of any restriction or limitation on the conversion of
the Preferred Stock. As to any particular shares of Underlying Common Stock,
such shares shall cease to be Underlying Common Stock when they have been
(a) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them or (b) distributed to
the public through a broker, dealer or market maker pursuant to Rule 144 under
the Securities Act (or any similar provision then in force).
6. MISCELLANEOUS
6.1 EXPENSES
The Company agrees to pay, and hold the Purchaser and all holders of
Underlying Common Stock harmless against liability for the payment of, (i) the
reasonable and documented fees and expenses of Perkins Coie, LLP not to exceed
$35,000 arising in connection with the negotiation and execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement which shall be payable at the Closing and (ii) stamp and other taxes
which may be payable in respect of the execution and delivery of this Agreement
or the issuance, delivery or acquisition of any shares of Series B Preferred
Stock or any shares of Common Stock issuable upon conversion of the Series B
Preferred Stock.
6.2 REMEDIES
Each holder of Preferred Stock and Underlying Common Stock shall have
all rights and remedies set forth in this Agreement and the Amended and Restated
Articles of Incorporation and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any Person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
6.3 PURCHASER'S INVESTMENT REPRESENTATIONS
The Purchaser hereby represents that it or he is an accredited investor
as that term is defined in Regulation D promulgated under the Securities Act of
1933, as amended, and is acquiring the Restricted Securities purchased hereunder
or acquired pursuant hereto for its or his own account with the present
intention of holding such securities for purposes of investment, and that it or
he has no intention of selling such securities in a public distribution in
violation of the federal securities laws or any applicable state securities
laws; provided that nothing contained
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herein shall prevent any Purchaser and subsequent holders of Restricted
Securities from transferring such securities in compliance with the provisions
of Section 4 hereof. Each certificate for Restricted Securities shall be
imprinted with a legend in substantially the following form:
"The securities represented by this certificate were originally
issued on October 7, 1998, and have not been registered under the
Securities Act of 1933, as amended. The transfer of the
securities represented by this certificate is subject to the
conditions specified in the Purchase Agreement, dated as of
October 7, 1998 between the issuer (the "Company") and certain
investors, and the Company reserves the right to refuse the
transfer of such securities until such conditions have been
fulfilled with respect to such transfer. A copy of such
conditions shall be furnished by the Company to the holder hereof
upon written request and without charge."
6.4 CONSENT TO AMENDMENTS
Except as otherwise expressly provided herein, the provisions of this
Agreement may be amended and the Company may take any action herein prohibited,
or omit to perform any act herein required to be performed by it, only if the
Company has obtained the written consent of the holders of a majority of the
Underlying Common Stock. No other course of dealing between the Company and the
holder of any Underlying Common Stock or any delay in exercising any rights
hereunder or under the Amended and Restated Articles of Incorporation shall
operate as a waiver of any rights of any such holders. For purposes of this
Agreement, shares of Preferred Stock or Underlying Common Stock held by the
Company shall not be deemed to be outstanding.
6.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties contained herein or made in writing
by any party in connection herewith shall survive the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
regardless of any investigation made by any Purchaser or on its behalf, for a
period of two years from the Closing.
6.6 SUCCESSORS AND ASSIGNS
Except with respect to the rights granted in paragraphs 3.1 and 3.2 and
as otherwise expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto whether so expressed or not. In addition, and whether or not any express
assignment has been made, the provisions of this Agreement which are for any
Purchaser's benefit as a purchaser or holder of Preferred Stock or Underlying
Common Stock are
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also for the benefit of, and enforceable by, any subsequent holder of such
Preferred Stock or such Underlying Common Stock, except for the provisions in
paragraphs 3.1 and 3.2.
6.7 SEVERABILITY
Whenever possible, each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of this Agreement.
6.8 COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same Agreement.
6.9 DESCRIPTIVE HEADINGS; INTERPRETATION
The descriptive headings of this Agreement are inserted for convenience
only and do not constitute a substantive part of this Agreement. The use of the
word "including" in this Agreement shall be by way of example rather than by
limitation.
6.10 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
domestic laws of the State of Washington without giving effect to any choice or
conflict of law provision or rule (either of the State of Washington or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Washington.
6.11 NOTICES
All notices, demands or other communications to be given or delivered
under or by reason of the provisions of this Agreement shall be in writing and
shall be deemed to have been given when delivered personally to the recipient,
sent to the recipient by reputable express courier service (charges prepaid) or
mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
shall be sent to the Purchaser at the address indicated on the Schedule of
Purchasers and to the Company at the address indicated below:
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The Cobalt Group, Inc.
2030 First Avenue
Suite 300
Seattle, Washington 98121
Attention: John W.P. Holt
Geoffrey T. Barker
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
THE COBALT GROUP, INC.
By:
------------------------------------
Name:
---------------------------
Title:
--------------------------
WARBURG, PINCUS EQUITY
PARTNERS, L.P.
By: Warburg, Pincus & Co., Inc.
Its: General Partner
By:
----------------------------
Joseph P. Landy
Its
---------------------
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SCHEDULE OF PURCHASERS
TOTAL PURCHASE
NUMBER OF SHARES PRICE OF SHARES OF
NAME AND ADDRESS OF SERIES B PREFERRED STOCK SERIES B PREFERRED STOCK
Warburg, Pincus Equity Series B 1,858,100 Series B $7,804,020
Partners, L.P. Series B-1 5,118,091 Series B-1 $21,495,982
466 Lexington Avenue
New York, NY 10017
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