SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
-------------
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 10, 1999
RECKSON SERVICE INDUSTRIES, INC.
(Exact name of Registrant as specified in its Charter)
Delaware
(State of Incorporation)
0-30162 11-3383642
(Commission File Number) (IRS Employer Id. Number)
10 East 50th Street 10022
New York, New York (Zip Code)
(Address of principal executive offices)
(212) 931-8000
(Registrant's telephone number, including area code)
Item 5. Other Events
On August 10, 1999, Reckson Service Industries, Inc. ("RSI") acquired a 53%
economic interest (45% on a fully diluted basis) in eSourceOne, Inc.
("eSourceOne") for a purchase price of $15 million. eSourceOne is a recently
formed Internet-based employee benefits and human administration outsourcing
company targeting small and medium-size businesses.
RSI acquired Series A Preferred Stock of eSourceOne which is convertible
into shares of common stock of eSourceOne. The preferred stock will convert
automatically in the event eSourceOne completes an initial public offering
within certain parameters. RSI is also committed to invest an additional $7.5
million in connection with a future equity funding. RSI also entered into a
Stockholders' Agreement and a Registration Rights Agreement in respect of
certain governance, voting and stockholder rights, including rights with
respect to board representation, rights of first offer with respect to their
eSourceOne stock, pre-emptive rights, registration rights and other matters.
RSI funded the acquisition through a draw under its credit facility with
Reckson Operating Partnership, L.P.
Item 7. Exhibits
(c) Exhibits
10.1 Stock Purchase Agreement, dated as of August 10, 1999, by and among
eSourceOne, Inc., Reckson Service Industries, Inc. and RSI ESO, Inc.
10.2 Registration Rights Agreement, dated as of August 10, 1999, by and
among eSourceOne, Inc., Reckson Service Industries, Inc., RSI ESO,
Inc., Elliott S. Cooperstone and H. Thach Pham
10.3 Stockholders' Agreement, dated as of August 10, 1999, by and among
eSourceOne, Inc. and certain stockholders
99.1 Press Release
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RECKSON SERVICE INDUSTRIES, INC.
By: /s/ Scott Rechler
------------------------------------
Scott Rechler
President and Chief Executive Officer
Date: September 1, 1999
Exhibit 10.1
===============================================================================
eSourceOne, Inc.
(a Delaware corporation)
Series A Convertible Redeemable Preferred Stock
STOCK PURCHASE AGREEMENT
Dated: August 10, 1999
==============================================================================
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") dated as of August 10, 1999
is by and among eSourceOne, Inc., a Delaware corporation (the "Company"),
Reckson Service Industries, Inc., a Delaware corporation ("RSI"), and RSI ESO,
Inc., a Delaware corporation ("RSI ESO"; and together with RSI and their
successors and permitted assigns collectively the "Series A Investors"), and
Elliot S. Cooperstone and H. Thach Pham (each a "Founder;" and collectively the
"Founders").
RECITALS
WHEREAS, the Company desires to issue and sell to the Series A
Investors in accordance with and subject to the terms and conditions set forth
in this Agreement the number of shares of Series A Convertible Redeemable
Preferred Stock, par value $0.01 per share, of the Company set forth herein (the
"Series A Shares");
WHEREAS, the Series A Investors desire to purchase from the Company in
accordance with and subject to the terms and conditions set forth in this
Agreement the Series A Shares;
WHEREAS, the rights and preferences of the Series A Shares, including
the terms on which the Series A Shares may be converted into shares of Common
Stock, par value $0.01 per share (the "Common Stock"), of the Company (defined
herein as the "Conversion Shares" and collectively with the Series A Shares as
the "Shares"), shall be set forth in a Certificate of Designation to be filed as
part of the Certificate of Incorporation of the Company, as amended and restated
(respectively, the "Series A Certificate of Designation" and the "Certificate of
Incorporation"), the forms of which Certificate of Designation and Certificate
of Incorporation are attached hereto as Exhibit A; and
WHEREAS, simultaneous with the Closing (defined herein) of the purchase
and sale of the Series A Shares, the Company, the Series A Investors, and each
of the other stockholders of the Company shall enter into a stockholders
agreement and a registration rights agreement, each dated as of the date of the
Closing (the "Stockholders' Agreement" and the "Registration Rights Agreement",
respectively), the forms of which are attached hereto as Exhibits B and C,
respectively;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements herein contained, the receipt and sufficiency of which is hereby
acknowledged, and subject to the terms and conditions set forth herein, the
parties hereto agree as follows:
1. Representations and Warranties by the Company. The Company represents and
warrants to the Series A Investors as of the time of Closing on the date hereof,
and agrees with the Series A Investors, as follows:
(a) Organization and Good Standing; Power and Authority; Qualifications. The
Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and (ii) has all requisite
corporate power and authority to own, lease and operate its properties, to carry
on the business of the Company conducted prior to the execution of this
Agreement and proposed to be conducted following the execution of this
Agreement, as described in the draft business plan, dated June 15, 1999 as
updated on July 11, 1999 (the "Business Plan"), the form of which is attached
hereto as Exhibit D, delivered to the Series A Investors, and to enter into and
carry out the transactions contemplated by this Agreement and the other
Documents (defined herein) and to perform the obligations contemplated by the
Certificate of Incorporation and Series A Certificate of Designation. The
Company is duly qualified to transact business as a foreign corporation in, and
is in good standing under the laws of, those jurisdictions listed on Schedule 1
hereto, which jurisdictions constitute all of the jurisdictions wherein the
character of the property owned or leased by the Company or the nature of the
activities conducted by the Company makes such qualification necessary, except
for those jurisdictions where the failure to be so qualified and in good
standing would not result in a material adverse change in the business,
operations, properties, assets or financial condition, or in the earnings,
business affairs or business prospects of the Company (a "Material Adverse
Effect").
(b) Authorization, Preparation and Filing of the Certificate. The
preparation and filing with the Secretary of State of the State of Delaware of
the Company's First Amended and Restated Certificate of Incorporation and the
Series A Certificate of Designation has been duly authorized by all requisite
corporate action on the part of the Company, and no other corporate action on
the part of the Company is necessary with respect to such preparation and
filing.
(c) Authorization of the Documents. The execution, delivery and performance
by the Company of each of this Agreement, the Stockholders' Agreement and the
Registration Rights Agreement (collectively, the "Documents") has been duly
authorized by all requisite corporate action on the part of the Company, and no
other corporate action on the part of the Company is necessary to authorize the
execution, delivery and performance of the Documents. Each of the Documents
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except to the extent that
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and
equitable principles generally.
(d) Authorized Capital. The authorized capital of the Company consists of:
(i) 30,000,000 shares of Preferred Stock, par value $0.01 per share
("Preferred Stock"), of which 15,000,000 shares are designated Series
A Shares; and
(ii) 70,000,000 shares of Common Stock, par value, $0.01 per share
("Common Stock"), of which (A) 13,333,334 shares are outstanding,
which such shares shall represent 40% of the aggregate Common Stock
Equivalents (defined below) of the Company immediately following the
Closing, (B) 15,000,000 shares have been duly reserved for issuance in
connection with the conversion of the Series A Shares, which such
shares shall represent 45% of the aggregate Common Stock Equivalents
of the Company immediately following the Closing and (C) 5,000,000
shares have been duly reserved for issuance to employees, officers,
directors, advisors and consultants of the Company (other than the
Founders) upon the exercise of stock options or as Common Stock the
free transferability of which vests over time (collectively,
"Permitted Options and Restricted Stock"), which such shares shall
represent 15% of the aggregate Common Stock Equivalents of the Company
immediately following the Closing. For purposes of this Agreement, the
term "Common Stock Equivalents" as measured on any date shall mean
shares of Common Stock or other securities of the Company having the
same rights and privileges of Common Stock outstanding on such date,
shares of Common Stock into or for which any securities of the Company
are convertible, exchangeable or exercisable on such date, and shares
of Common Stock reserved for issuance upon the exercise of stock
options or issuable as Common Stock subject to restricted transfer,
including, without limitation, the Permitted Options and Restricted
Stock.
(e) Issued and Outstanding Capital Stock. The shares of issued and
outstanding capital stock of the Company immediately prior to the Closing have
been duly authorized and validly issued, and are fully paid and nonassessable
with no personal liability attaching to the ownership thereof; none of the
shares of outstanding capital stock of the Company are subject to preemptive or
similar rights of the stockholders of the Company or others. Schedule 1 hereto
contains a list of (i) all holders of record of capital stock of the Company,
including the number of shares of capital stock held by each such holder, and
(ii) all outstanding warrants, options, agreements, convertible securities or
other commitments pursuant to which the Company is or may become obligated to
issue any shares of its capital stock or other securities, which names all
persons entitled of record to receive such shares or other securities, the
shares of capital stock or other securities required to be issued thereunder as
of the date hereof and the price per share, if any, payable with respect to the
issuance of any share of capital stock issuable thereunder. The Company has no
knowledge after due inquiry of the names of any beneficial owners of shares of
capital stock of the Company who are not otherwise holders of record. Except as
set forth on Schedule 1 or as contemplated by the Documents, the Certificate of
Incorporation or the Series A Certificate of Designation there are, and
immediately after the Closing there will be, no rights, including preemptive or
similar rights, to purchase or otherwise acquire shares or sell or otherwise
transfer shares of the capital stock of the Company pursuant to any provision of
law, the Certificate of Incorporation or the Company's by-laws, or any agreement
to which the Company is a party; and, except as set forth on Schedule 1 or as
contemplated by the Documents, the Certificate of Incorporation or the Series A
Certificate of Designation, to the Company's knowledge after due inquiry, there
are no agreements, restrictions or encumbrances (including, without limitation,
any right of first refusal, right of first offer, proxy, voting agreement,
voting trust, registration rights agreement, stockholders' agreement, or the
like, whether or not the Company is a party thereto) with respect to the
purchase, sale or voting of any shares of capital stock of the Company (whether
outstanding or issuable upon conversion or exercise of outstanding securities).
Except as contemplated by the Documents, the Certificate of Incorporation or the
Series A Certificate of Designation, no person has the right to nominate or
elect one or more directors of the Company.
(f) Authorization and Issuance of Capital Stock. The authorization,
issuance, sale and delivery of the Series A Shares pursuant to this Agreement
and the authorization, reservation, issuance, sale and delivery of the
Conversion Shares have been duly authorized by all requisite corporate action on
the part of the Company, and the Series A Shares, when issued, sold and
delivered in accordance with this Agreement, and the Conversion Shares, when
issued and delivered in accordance with the Series A Certificate of Designation,
will be validly issued and outstanding, fully paid and nonassessable with no
personal liability attaching to the ownership thereof, free of any Encumbrances
(defined herein) and not subject to preemptive or similar rights of the
stockholders of the Company or other rights, in each case created by the
Company. The terms, designations, powers, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations and restrictions, of the Series A Shares are as stated in the
Certificate of Incorporation, the Series A Certificate of Designation, this
Agreement and the other Documents.
(g) Offering Exemption; Private Placement. The offer and sale of the Series
A Shares as contemplated hereby and the issuance and delivery of the Conversion
Shares to the Series A Investors upon the conversion of the Series A Shares are
each exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"), and under applicable state securities and "blue sky" laws, as
currently in effect. Neither the Company nor any affiliate (as defined in Rule
405 under the Securities Act) of the Company has (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any security (as
defined in the Securities Act) which is or will be integrated with the sale of
the Series A Shares in a manner that would require the registration under the
Securities Act of the Series A Shares or (ii) engaged in any form of general
solicitation or general advertising (within the meaning of Rule 502(c) of
Regulation D under the Securities Act) in connection with the offer and sale of
the Series A Shares.
(h) Registration Rights. Except as provided in the Registration Rights
Agreement, there are no persons with registration rights or other similar rights
to have any securities registered by the Company under the Securities Act.
(i) Consents. No permit, authorization, consent or approval of or by, or any
notification of or filing with, any person (governmental or private) is required
of the Company in connection with the execution, delivery and performance by the
Company of this Agreement or the other Documents or any documentation relating
thereto, the performance by the Company of its obligations under the Certificate
of Incorporation and the Series A Certificate of Designation, the consummation
by the Company of the transactions contemplated hereby or thereby, or the
issuance, sale or delivery of the Series A Shares and the Conversion Shares
(other than such notifications or filings required under the General Corporation
Law of the State of Delaware and applicable federal and state securities laws,
if any, which shall be made on a timely basis) except where the absence of such
permit, authorization, consent, approval, notification or filing would not
result in a Material Adverse Effect.
(j) Disclosures. No representation or warranty contained in this Agreement
or Schedule 1 hereto, when read together, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances in which
they were made, not misleading. The Business Plan of the Company was prepared by
the Company in good faith and the financial projections and other estimates
contained therein were prepared by the Company based on its experience in the
industry and on assumptions of fact and opinion as to future events that the
Company, at the date of the Business Plan, believed to be reasonable, but which
the Company cannot and does not assure or guarantee, or otherwise represent or
warrant as to, the attainment of in any manner.
(k) Corporate Minute Books. The Company has made available to the Series A
Investors, true and correct copies of all minutes of meetings or other actions
by the directors, stockholders or incorporators and the by-laws of the Company
held, taken or adopted since inception.
(l) Assets. The Company has good and valid title to, or a leasehold or
license to or interest in, all of its assets and properties, free and clear of
any mortgages, judgments, claims, liens, security interests, pledges, escrows,
charges or other encumbrances of any kind or character whatsoever
("Encumbrances") except (i) Encumbrances for Taxes (defined herein) not yet due
and payable; (ii) Encumbrances which arise in the ordinary course of business
and do not, singly or in the aggregate, materially affect the value of such
property and do not interfere with the use made and proposed to be made of such
property by the Company and do not materially impair the Company's ownership of
any such asset or property or the Company's ability to obtain financing by using
such assets or property as collateral and (iii) Encumbrances that could not
reasonably be expected to result in a Material Adverse Effect. Schedule 1 hereto
contains a list of all of the material assets and properties to or in which the
Company has title or a leasehold, license or interest.
(m) Equity Investments. The Company has not had nor does it currently have,
any subsidiaries, nor has it owned, nor does it currently own, any capital stock
or other proprietary interest, directly or indirectly, in any corporation,
association, trust, partnership, joint venture or other entity.
(n) Absence of Undisclosed Liabilities. The Company has no material
liabilities or obligations (whether accrued, absolute, contingent, unliquidated
or otherwise, whether due or to become due) other than liabilities or
obligations disclosed in Schedule 1.
(o) Use of Proceeds. Except as disclosed on Schedule 1, the Company is not
required pursuant to any agreement, arrangement or the like to apply the
proceeds received from the sale of the Series A Shares pursuant to the
transactions contemplated hereby in any specified manner including, without
limitation, the repayment of any obligations of the Company.
(p) Intellectual Property Rights.
(i) For purposes of this Agreement, the term "Intellectual Property" shall
mean (A) inventions and discoveries (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all patents,
patent applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions and reexaminations
of such patents, patent applications and patent disclosures, (B) trademarks,
service marks, trade names, trade dress, logos, corporate names, Internet domain
names and world wide web uniform resource locators, together with all
translations, adaptations, derivations and combinations thereof and including
all goodwill associated therewith, and all applications, registrations and
renewals in connection therewith, (C) copyrightable works, copyrights, and
applications, registrations and renewals in connection therewith, (D) source
code, object code, data, programs and techniques, (F) trade secrets, proprietary
information, whether patentable or unpatentable and whether or not reduced to
writing (including ideas, research and development, formulas, processes and
techniques, business methods, algorithms, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information and
business and marketing plans and proposals), and (G) all copies and tangible
embodiments of the foregoing (in whatever form or medium).
(ii) Except for over-the-counter retail software, Schedule 1 contains a list
of all of the Intellectual Property to and of which the Company has full title
and ownership. The Company has taken all material steps reasonably necessary to
preserve its legal rights in, and the secrecy of, all Intellectual Property to
which the Company has full title and ownership, except those for which
disclosure is required for legitimate business or legal reasons or where
disclosure will not have a Material Adverse Effect on the Company.
(iii) Except as set forth in Schedule 1, (A) the Company has or expects to
be able to obtain on commercially reasonable terms all of the Intellectual
Property necessary to enable the Company to carry on its business as referred to
in Section 1(a) hereof and (B) to the Company's knowledge, no third party has
any ownership right, title, interest, claim in or lien on any of the
Intellectual Property to which the Company has full title and ownership.
(iv) Except as set forth in Schedule 1, to the Company's knowledge, the
Company has not violated or infringed, is not currently violating or infringing,
has not received any written communications alleging that the Company (or any
employees, consultants, contractors or other agents of the Company in their
capacity as such) has violated or infringed, and has not received any written
communications alleging that, by conducting the business of the Company referred
to in Section 1(a) hereof, would violate or infringe, any Intellectual Property
of any other person or entity.
(v) Each of the employees of the Company has executed and delivered to the
Company an employment agreement containing an invention assignment pursuant to
which each employee has, to the extent permitted by applicable law, assigned to
the Company all right, title and interest in and to any Intellectual Property
developed in the course of such employee's employment with the Company. The
Company does not believe it is or will be necessary to utilize any inventions of
any employees of the Company (or, to the Company's knowledge, persons the
Company currently intends to hire) made prior to their employment by the
Company. At no time during the conception of or reduction to practice of any of
the Intellectual Property of the Company was any developer, inventor or other
contributor to such Intellectual Property operating under any grants from any
governmental entity or agency or private source, performing research sponsored
by any governmental entity or agency or private source or subject to any
employment agreement or invention assignment or nondisclosure agreement or other
obligation with any third party that could adversely affect the Company's right,
title and interest in such Intellectual Property.
(vi) To the best knowledge of the Company, after due inquiry, no third party
has interfered with, infringed upon or misappropriated any Intellectual Property
to which the Company has full title and ownership.
(vii) Schedule 1 sets forth all of the patent applications currently being
prepared or prosecuted for the Company, and the Company has not filed any patent
applications or been granted any patents.
(viii) The Company has not granted any sublicense or similar right with
respect to any Intellectual Property to which the Company has full title and
ownership; no item of Intellectual Property is subject to any outstanding
injunction, judgment, order, decree, ruling or change; and no action, suit,
proceeding, hearing, investigation or complaint is pending or, to the Company's
knowledge after due inquiry, is threatened against the Company or any Founder
which challenges the legality, validity, or enforceability of any such item of
Intellectual Property, except where the same would not have a Material Adverse
Effect.
(ix) Each of the employees of the Company has executed and delivered to the
Company an Intellectual Property confidentiality agreement in the customary form
and covering matters of the type customarily covered in such agreement. The
Company has not disclosed any of its proprietary information (other than (A) in
the ordinary course of business, or (B) in due diligence with potential
investors, lenders or parties to potential strategic relationships), except
where such disclosure would not have a Material Adverse Effect.
(q) Employees.
(i) Schedule 1 contains a list of all agreements with employees,
consultants and advisors of the Company, indicating for each such employee such
employee's time commitment (if less than full time). Except as set forth on
Schedule 1, the Company has no knowledge after due inquiry that any officer,
employee or group of employees intends to terminate his, her or their employment
with the Company, nor does the Company have a present intention to terminate the
employment of any officer, employee or group of employees. Except as set forth
in Schedule 1, the Company is not delinquent in payments to any of its
employees, for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed by the date hereof or amounts required
to be reimbursed by it to the date hereof.
(ii) Schedule 1 hereto contains a true and complete list of (A) each
plan, program, policy, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits of any kind,
whether formal or informal, funded or unfunded, and whether or not legally
binding, which is now or previously has been sponsored, maintained, contributed
to or required to be contributed to by the Company or pursuant to which the
Company has any liability, contingent or otherwise, including, but not limited
to, any "employee benefit plan" within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") (each a
"Benefit Plan"); and (B) each management, employment, bonus, option, equity (or
equity related), severance, consulting, non-compete, confidentiality or similar
agreement or contract between the Company and any current employee, officer,
consultant, independent contractor, agent or director of the Company (an
"Employee") (each an "Employee Agreement"). The Company does not currently
sponsor, maintain, contribute to, nor is it required to contribute to, nor has
the Company ever sponsored, maintained, contributed to or been required to
contribute to, or incurred any liability to, (i) any "defined benefit plan" (as
defined in ERISA Section 3(35)); (ii) any "multiemployer plan" (as defined in
ERISA Section 3(37)) or (iii) any Benefit Plan which provides, or has any
liability to provide, life insurance, medical, severance or other employee
welfare benefits to any Employee upon his or her retirement or termination of
employment, except as required by Section 4980B of the Internal Revenue Code of
1986, as amended (the "Code").
(iii) Based upon the representations of the Company's employees, the
Company is not aware that any employee, consultant, contractor or other agent of
the Company was or is obligated under any agreement (including licenses,
covenants or commitments of any nature) or subject to any judgment, decree or
order of any court or administrative agency, or any other restriction that would
interfere with the use of such person's best efforts to carry out such person's
duties for the Company or to promote the interests of the Company or that would
conflict with the business of the Company referred to in Section 1(a) hereof
except where the same would not have a Material Adverse Effect. Schedule 1
identifies agreements entered into between each Founder and his prior employer,
which such agreements have been provided to the Series A Investors.
(r) Related Transactions. No current or former stockholder, director,
officer or employee of the Company, any "associate" (as defined in the rules and
regulations promulgated under the Securities Exchange Act of 1934, as amended)
of the Company, or any member of the family of any of the foregoing is
presently, or since the organization of the Company, has been, directly or
indirectly through such person's affiliation with any other person or entity, a
party to any agreement or transaction with the Company, other than in connection
with any such person's duties as a director, officer or employee of the Company.
(s) Taxes.
(i) "Tax" or "Taxes," for purposes of this Agreement, means any taxes,
assessments, duties, fees, levies, imposts, deductions, withholdings, or other
governmental charges of any nature whatsoever and any liabilities with respect
thereto, including any penalties, additions to tax, fines or interest thereon,
imposed by any government or taxing authority of any country or political
subdivision of any country.
(ii) Since its inception, the Company has not been required by law to file
any Tax returns.
(t) Agreements.
(i) Schedule 1 hereto contains a list of any and all written indentures,
mortgages, guaranties, leases, licenses, loans, credit agreements, notes or
other contracts, agreements or understandings (each a "Contract") to which the
Company is a party.
(ii) Complete copies of all Contracts required to be listed on Schedule 1
pursuant to Section 1(t)(i), including all amendments thereto, have been
delivered or made available to the Series A Investors. All of the Contracts will
continue to be legal, valid, binding, enforceable, and in full force and effect
against the Company on identical terms following the execution of this
Agreement. There has been no breach, violation or default by the Company and no
event which, with notice or lapse of time or both, would (A) constitute a
material breach, violation or default by the Company under any such Contract or
(B) give rise to any lien or right of termination, modification, cancellation,
prepayment, suspension, limitation, revocation or acceleration against the
Company under any such Contract the effect of which would be to, or be
reasonably likely to, result in a Material Adverse Effect; and no other party to
any such Contract is in arrears in respect of the performance or satisfaction of
the terms and conditions on its part to be performed or satisfied thereunder
and, except as disclosed on Schedule 1, no waiver or indulgence has been granted
by any of the parties thereto and no party to any such Contract has repudiated
any provision thereof.
(u) Compliance with Laws; Permits. The Company (i) has complied with all
federal, state, local and foreign laws, rules, regulations, judgments and orders
applicable to the Company and the business of the Company referred to in Section
1(a) hereof, except where the failure, individually or in the aggregate, to have
so complied would not reasonably be expected to result in a Material Adverse
Effect, and (ii) other than making filings under the business corporation laws
of Delaware and New York, the Company has not been required to obtain any
federal, state, local or foreign governmental licenses, permits and
qualifications material to and necessary in the conduct of the business of the
Company referred to in Section 1(a) hereof
(v) No Conflict. The Company is not in violation of its Certificate of
Incorporation or by-laws or in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any Contract
required to be set forth on Schedule 1 hereto. The execution, delivery and
performance by the Company of the Documents, the consummation by the Company of
the transactions contemplated thereby, and the issuance, sale and delivery of
the Series A Shares and the Conversion Shares by the Company will not (i)
materially violate any provision of law, statute, rule or regulation, or any
ruling, writ, injunction, order, judgment or decree of any court, administrative
agency or other governmental body applicable to the Company or any of the
properties or assets of the Company, (ii) materially conflict with or result in
any breach of any of the terms, conditions or provisions of, or constitute (with
due notice or lapse of time, or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, or result in the creation of
any Encumbrance upon any of the properties or assets of the Company under, any
material Contract or (iii) violate the certificate of incorporation or the
by-laws of the Company.
(w) Litigation; Orders. There is no civil, criminal or administrative
action, suit, notice, hearing, inquiry, proceeding or investigation at law or in
equity or by or before any court, arbitrator or similar panel, governmental
instrumentality or other agency now pending or, to the best knowledge of the
Company, after due inquiry, threatened against the Company, any officer of the
Company, or the Intellectual Property or other property owned by the Company.
The Company is not subject to any order, writ, injunction or decree of any court
of any federal, state, municipal or other domestic or foreign governmental
department, commission, board, bureau, agency or instrumentality.
(x) No Real Property. The Company has not operated its business from any
location other than the personal residences of the stockholders of the Company
and has not acquired, leased, occupied, or used any other real property.
(y) Year 2000. Except for over-the-counter retail software, the Company has
no computer systems and software. The Company has no specific information that
would cause it to believe that any of the software owned by material vendors,
suppliers, licensors or collaborators of the Company and proposed to be licensed
to the Company is not able to accurately process calendrical data, including,
but not limited to, calculating, comparing and sequencing from, into and between
dates in the twentieth century (through the year 1999), the year 2000 and the
twenty-first century, including leap year calculations.
(z) No Brokers or Finders. Except as disclosed on Schedule 1, neither the
Company nor any of the officers, directors, employees or stockholders of the
Company has employed any broker or finder in connection with the transactions
with the Series A Investors contemplated by this Agreement or the other
Documents, and no commissions, fees or the like are required to be paid on
behalf of the Company to any party in connection with the issuance or sale of
the Series A Shares pursuant to this Agreement.
(aa) Investment Banking Services. The Company is not a party to any
agreement, arrangement or the like that grants rights to any third party with
respect to the performance of investment banking services for the Company,
including, without limitation, with respect to the sale of the Company or a
public offering, including an initial public offering, of securities of the
Company.
(bb) Suitability. Neither the Company nor its Founders (i) has ever been
indicted for or convicted of any felony or any crime involving fraud or
misrepresentation; (ii) is subject to any order, judgment or decree of any court
of competent jurisdiction or any governmental authority barring, suspending, or
otherwise limiting the right of the Company or such person to engage in any
activity conducted by the Company; or (iii) has been denied any license or
permit affecting the Company's or such person's ability to conduct any activity
conducted by the Company, nor is there any basis upon which such liability to
conduct any activity conducted or to be conducted by the Company may be denied.
2. Representations and Warranties of the Series A Investors. Each Series A
Investor represents and warrants to the Company as of the date hereof and as of
the Closing, and agrees with the Company, as follows:
(a) Purchase Entirely for Own Account. Such Series A Investor is acquiring
the Series A Shares to be purchased by it under this Agreement for its own
account, for investment and not with a view to the distribution thereof within
the meaning of the Securities Act; provided, however, that any Series A Investor
may transfer such Series A Shares or Conversion Shares at any time to any of its
affiliates so long as any such transfer does not effect a change in the
investment intent of any such transferee. For purposes of this Agreement, unless
otherwise specified herein, the term "affiliate" shall mean (i) in the case of a
corporation or other entity, any corporation or other entity in which the
subject person (A) (1) owns or controls the voting rights of 50% or more of the
capital stock or other equity interests the holders of which are generally
entitled to vote for the election of the board of directors or other governing
body of such corporation or entity or (2) has the right to nominate and/or elect
at least one-half of the members of the board of directors of such corporation
or entity or (3) at least one-half of the then current members of the board of
directors of such corporation or entity were nominated or designated for
election as directors of such corporation by the subject person and (B) for
financial reporting purposes, the financial statements of the subject person
includes on a consolidated basis the financial statements of such corporation or
other entity, and (ii) in the case of an individual, a member of that
individual's family, by blood or marriage.
(b) Restricted Securities. Such Series A Investor understands that (i) the
Series A Shares have not been, and that the Conversion Shares will not be,
registered under the Securities Act, by reason of their issuance by the Company
in a transaction exempt from the registration requirements of the Securities Act
and (ii) the Series A Shares and the Conversion Shares may not be sold unless
such disposition is registered under the Securities Act or is exempt from
registration thereunder. Such Series A Investor further understands that the
exemption from registration afforded by Rule 144 (the provisions of which are
known to such Series A Investor) promulgated under the Securities Act depends on
the satisfaction of various conditions, and that, if applicable, Rule 144 may
afford the basis for sales only in limited amounts.
(c) Accredited Investor. Such Series A Investor is an "accredited investor"
within the meaning of Rule 501(a) of Regulation D under the Securities Act. Such
Series A Investor (i) fully understands that an investment in the Company is
highly speculative and that such Series A Investor may lose its entire
investment in the Series A Shares; (ii) is experienced in evaluating and
investing in companies such as the Company, (iii) is capable of evaluating the
merits and risks of such Series A Investor's investment in the Series A Shares;
(iv) is able to bear the economic risk of a loss of the entire amount of its
investment in the Series A Shares; and (v) is prepared to hold the Series A
Shares for an indefinite period of time.
(d) Disclosure of Information. Such Series A Investor has received from the
Company and Founders all of the information which such Series A Investor and its
representatives have requested. Such Series A Investor further represents that
such Series A Investor has had an opportunity to ask questions and receive
answers from the Company regarding the business of the Company referred to in
Section 1(a) hereof and the terms and conditions of the offering of the Series A
Shares. The foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 1 or the right of such Series A Investor to
rely thereon.
(e) Due Authorization. Such Series A Investor has full power and authority
to enter into the Documents to which such Series A Investor is a party and to
carry out the transactions contemplated by such Documents, each such Document
has been duly authorized by all necessary corporate or other action on the part
of such Series A Investor, and each such Document constitutes a valid and
binding agreement of such Series A Investor enforceable against such Series A
Investor in accordance with its terms except to the extent that enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and equitable principles
generally.
(f) Consents. No permit, authorization, consent or approval of or by, or any
notification of or filing with, any person (governmental or private) is required
of such Series A Investor in connection with the execution, delivery and
performance of this Agreement or the other Documents to which such Series A
Investor is a party, the consummation by such Series A Investor of the
transactions contemplated hereby or thereby (other than such notifications or
filings required under the General Corporation Law of the State of Delaware and
applicable federal and state securities laws, if any, which shall be made on a
timely basis) except where the absence of such permit, authorization, consent,
approval, notification or filing would not result in a material adverse change
in the business, operations, properties, assets or financial condition, or in
the earnings, business affairs or business prospects of such Series A Investor.
(g) No Conflict. The execution, delivery and performance by such Series A
Investor of the Documents to which such Series A Investor is a party and the
consummation by such Series A Investor of the transactions contemplated hereby
and thereby will not (i) materially violate any provision of law, statute, rule
or regulation, or any ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other governmental body applicable to such
Series A Investor or any of the properties or assets of such Series A Investor
or (ii) violate the certificate of incorporation or the by-laws of such Series A
Investor,.
(h) No Brokers or Finders. Except as disclosed by the Company on Schedule 1,
such Series A Investor has not employed any broker or finder in connection with
the transactions contemplated by this Agreement or the other Documents, and no
commissions, fees or the like are required to be paid on behalf of such Series A
Investor to any party in connection with the issuance or sale of the Series A
Shares pursuant to this Agreement.
3. Sale and Delivery to the Series A Investors; Closing; Second Round
Securities.
(a) Sale and Purchase of Series A Shares. On the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company agrees to sell to RSI ESO, and RSI ESO
agrees to purchase from the Company, at a price of $1.00 per share, 15,000,000
shares of the Company's Series A Shares. The aggregate purchase price for the
Series A Shares shall be $15,000,000.
(b) Closing. Payment of the purchase price for, and delivery of certificates
for, the Series A Shares shall be made at the offices of Brown & Wood LLP, One
World Trade Center, New York, New York 10048, or at such other place as shall be
agreed upon by the Series A Investors and the Company, and shall be made at the
time and date of execution of this Agreement (such payment and delivery being
herein called the "Closing").
(c) Form of Payment. Payment for the Series A Shares purchased hereunder
shall be made to the Company by the Series A Investors by (i) a certified check
or wire transfer of immediately available funds in the amount of $5,000,000 to a
bank account designated by the Company and (ii) delivery of a fully executed
demand note in the principal amount of $10,000,000, together with a standby
irrevocable letter of credit from The Chase Manhattan Bank in support of such
demand note, against delivery to the Series A Investors of certificates for the
number of Series A Shares to be purchased by the Series A Investors. The demand
note and standby irrevocable letter of credit shall each be in the form attached
hereto as Exhibit E and provide for payments from time to time upon written
demand from the Company, which such payments shall be made on the second
business day next following the date such demand is received if received prior
to 10:00 A.M. and shall be by certified check or by wire transfer of immediately
available funds to a bank account designated by the Company, provided that the
minimum amount of any such demand shall be $1,000,000.
(d) Denominations; Registration. Certificates for the Series A Shares
purchased by the Series A Investors pursuant to this Agreement shall be in such
denominations and registered in such names as the Series A Investors may request
in writing at the Closing.
(e) Second Round of Capital Stock. The parties contemplate that within
eighteen (18) months following the Closing the Company expects to raise
additional funds through the issuance of capital stock in the form of Series B
Convertible Preferred Stock or other capital stock or securities convertible
into capital stock of the Company (the "Second Round Securities") having such
rights and privileges as shall be negotiated with the purchasers thereof. The
aggregate gross proceeds to the Company from the issuance of the Second Round
Securities shall not exceed $30,000,000.
The Series A Investors agree that one or more of them or their
affiliates shall purchase Second Round Securities comprising at least one-half
of the Second Round Securities offered, at the same time and on the same terms
and conditions as are applicable to other entities purchasing the Second Round
Securities, provided that (A) the closing of the issuance of the Second Round
Securities (the "Second Round Closing") occurs within 18 months of the Closing,
(B) each purchaser of the Second Round Securities is an "accredited investor""
within the meaning of Rule 501(a) of Regulation D under the Securities Act and
at least 75% of the Second Round Securities not purchased by the Series A
Investors are purchased by one or more bona fide, recognized financial,
institutional, corporate or like investors, (C) the Series A Investors shall not
be obligated to purchase in excess of $7.5 million of the Second Round
Securities, (D) the Company shall have performed and complied in all material
respects with all material agreements, covenants and conditions required of it
contained in this Agreement, each other Document, the Certificate of
Incorporation and the Series A Certificate of Designation, the noncompliance or
nonperformance of which could reasonably by expected to result in a Material
Adverse Effect and (E) the Company shall have issued to the Series A Investors
as early as practicable but in no event later than fifteen (15) business days
prior to the date scheduled for the Second Round Closing a certificate to the
effect that the conditions in this Section 3(e) have been or will be satisfied
on or prior to the date of the Second Round Closing.
The Company agrees that whether or not the Second Round Closing occurs
within 18 months of the Closing, when and if any Second Round Securities are
issued by the Company, the Series A Investors shall have the right to purchase,
on the same terms and conditions as are applicable to other entities purchasing
the Second Round Securities, that portion of the Second Round Securities
sufficient in amount so that immediately following the closing of such purchase
of such additional capital stock, the Series A Investors shall own 50% of the
Common Stock Equivalents of the Company.
(f) Additional Purchases to Comply with Investment Company Act. In the event
that from time to time prior to any Qualified IPO (defined herein) by the
Company it becomes necessary, in the reasonable opinion of counsel to the Series
A Investors, who shall be expert in such matters, and which such opinion shall
be reasonably concurred in by counsel to the Company, that the Series A
Investors own up to 50% of the Common Stock Equivalents of the Company in order
to avoid a significant risk that the Series A Investors may be considered an
investment company within the meaning of the Investment Company Act of 1940, as
amended, then the Investors shall have the right, upon prior written notice to
the Company, to purchase such shares of a series of preferred stock that are
substantially identical to the Series A Shares which such shares shall vote with
the Series A Shares on all matters and not as a separate series or class and
otherwise shall be on the same terms and conditions as set forth in this
Agreement, the other Documents, the Certificate of Incorporation and the Series
A Certificate of Designation (the "Additional Stock"), provided that (i) the
purchase price per share for such Additional Stock shall be (A) prior to the
issuance of any Second Round Securities, two (2) times the purchase price per
share for the sale of the Series A Shares and (B) thereafter, the Fair Market
Value (as defined in the Stockholders' Agreement) of such Additional Stock, and
(ii) such right of the Series A Investors to purchase such Additional Stock
shall cease if not exercised in connection with the first issuance of the Second
Round Securities. Upon receipt of such Series A Investors' notice, the Company
shall as soon as practicable but in no event later than fifteen (15) business
days following such receipt, issue and sell to the Series A Investors such
shares of Additional Stock as are necessary to provide the Series A Investors
with ownership of 50% of the Common Stock Equivalents of the Company. For
purposes of this Agreement, the term "Qualified IPO" shall mean a firm
underwritten public offering of Common Stock of the Company by a nationally
recognized underwriter which offering results in the receipt of aggregate gross
proceeds by the Company of at least $30,000,000 and reflects a market value of
the Company of at least $150,000,000 immediately prior to such public offering.
(g) Additional Purchases Prior to Qualified IPO. In the event that the
Company does not consummate the sale of the Second Round Securities prior to the
filing of a registration statement under the Securities Act in respect of a
Qualified IPO by the Company, then the Series A Investors shall have the right,
upon written notice to the Company as soon as practicable but in no event later
than fifteen (15) business days prior to the date specified in writing by the
Company to the Series A Investors as the expected filing date of such
registration statement, to purchase, simultaneously with the consummation of the
Qualified IPO, Additional Stock of the Company at a purchase price per share of
two (2) times the price per share for the sale of the Series A Shares and on the
same terms and conditions as set forth in this Agreement and the other
Documents; provided, however, that in such event, the Series A Investors shall
not have the right to purchase more than that amount of Additional Stock which,
if added to the capital stock of the Company previously owned by the Series A
Investors, is greater than 50% of the Company's Common Stock Equivalents;
provided, further, that the Series A Investors shall, if necessary to comply
with securities laws, consummate such purchase prior to the consummation of the
Qualified IPO or the filing of such registration statement.
4. Covenants of the Company. The Company covenants with the Series A Investors
as follows:
(a) Accounting Controls and Principles.
(i) The Company will maintain a system of internal accounting controls
sufficient to provide reasonable assurance that transactions will be recorded as
necessary to permit preparation of financial statements to maintain asset
accountability and in conformity with generally accepted accounting principles
consistently applied. As soon as practicable following the date hereof, the
Company shall select one of the nationally recognized "Big Five" independent
accounting firms as the independent auditor of the Company and establish a
system of internal accounting controls acceptable to the Board of Directors of
the Company; provided, that until such system has been approved by the Board of
Directors or an annual audit by the Company's independent auditor has been
accepted by the Board of Directors, any disbursement or series of related
disbursements by the Company in an aggregate amount of $1,000,000 or more, shall
require the approval of at least one of the directors elected to the Company's
Board of Directors pursuant to Section 2.1.1(c) or Section 2.1.1(d) of the
Stockholders' Agreement.
(ii) Upon reasonable prior request from time to time from the Series A
Investors, the Company will, and will direct its independent auditor, to (A)
provide promptly to the Series A Investors such information as is necessary to
permit the Series A Investors to prepare timely their financial statements,
which information shall include, without limitation, information as to the
accounting principles employed in the preparation of the Company's financial
statements and the work sheets of the Company and the Company's independent
auditor drawn in connection with the preparation of the Company's financial
statements, and (B) provide reasonable access to the employees of the Company
and the Company's independent auditor responsible for the preparation of the
Company's financial statements and the related aforementioned work sheets.
(b) Operating Plan. Within thirty (30) days prior to the beginning of each
fiscal year, the Company shall cause the Company's management to provide for
approval by the Board of Directors of the Company an operating plan in respect
of such fiscal year, which operating plan shall include, without limitation, (i)
an annual budget (the "Annual Budget") for such fiscal year with details on
forecasted revenues, operating costs, cashflow from operations, capital
expenditures and other investing activities, and financing activities and (ii)
other details as may reasonably be requested by the Board of Directors. Attached
hereto as Exhibit F is the initial Annual Budget for the Company, which such
initial Annual Budget covers a period of less than one year. The Company shall
prepare, as soon as practicable after the date hereof, a detailed Annual Budget.
(c) Information Rights and Visitation Rights.
(i) The Company shall deliver to the Series A Investors:
(A) as soon as practicable, but in any event within twenty-five
(25) days after the end of each fiscal month of the Company,
monthly and trailing twelve-month unaudited financial
statements;
(B) as soon as practicable, but in any event within thirty (30)
days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss
statement, an unaudited balance sheet and statements of cash
flow and stockholders' equity as of the end of such fiscal
quarter, each prepared in accordance with generally accepted
accounting principles consistently applied, provided that such
interim financial statements may not contain footnotes required
by generally accepted accounting principles and audit
adjustments customarily made in the preparation of year-end
financial statements;
(C) as soon as practicable, but in any event within seventy-five
(75) days after the end of each fiscal year of the Company, a
draft income statement for such fiscal year, a draft balance
sheet of the Company and draft statements of cash flow and
stockholders' equity as of the end of such year, prepared in
accordance with generally accepted accounting principles
consistently applied, and accompanied by a draft of the report
that the Company's independent auditors expect to issue in
respect of such financial statements;
(D) as soon as practicable, but in any event within eighty-five
(85) days after the end of each fiscal year of the Company, a
final income statement for such fiscal year, a final balance
sheet of the Company and final statements of cash flow and
stockholders' equity as of the end of such year, prepared in
accordance with generally accepted accounting principles
consistently applied, and audited and certified by the
independent auditors of the Company;
(E) promptly upon becoming available, (1) copies of all financial
statements, reports, press releases, notices, proxy statements
and other documents sent by the Company to its stockholders or
released to the public and copies of all regular and periodic
reports, if any, filed by the Company with the U.S. Securities
and Exchange Commission or any securities exchange and (2) any
other financial or operating reports available to management of
the Company as any of the Series A Investors shall have
reasonably requested on a timely basis.
(ii) Each Series A Investor shall have the right, upon reasonable notice,
during the Company's regular business hours, for any purpose reasonably related
to such Series A Investor's interest as a stockholder of the Company, to visit
the Company's facilities and to inspect the Company's books and records and to
make copies thereof at such Series A Investor's expense.
(d) Private Placement. Neither the Company nor any affiliate (as defined in
Rule 405 under the Securities Act) of the Company will (i) sell, offer for sale,
solicit offers to buy or otherwise negotiate in respect of, any security (as
defined in the Securities Act) which will be integrated with the sale of the
Series A Shares in a manner that would require the registration under the
Securities Act of the Series A Shares or (ii) engage in any form of general
solicitation or general advertising (within the meaning of Rule 502(c) of
Regulation D under the Securities Act) in connection with the offer and sale of
the Series A Shares.
(e) Insurance. The Company shall, if it has not done so by the Closing,
promptly thereafter obtain and cause to be maintained the following insurance
policies, each with a reputable insurer reasonably satisfactory to the Series A
Investors and in form and substance reasonably satisfactory to the Series A
Investors: (i) key-man life insurance policies for the benefit of the Company
covering the lives of Messrs. Cooperstone and Pham, each such policy to provide
for payment of at least $10,000,000 to the Company upon the death of the person
covered thereby; (ii) a director and officer liability insurance policy for the
benefit of the executive officers and members of the Board of Directors of the
Company, which such policy provides coverage in amount and scope consistent with
prudent industry practice; and (iii) one or more insurance policies that insure
all of the assets of the Company that are of insurable character against risks
of liability, casualty and fire, theft and other losses and liabilities
customarily obtained, if at all, to cover comparable businesses and assets in
amounts, scope and coverage which are consistent with prudent industry practice.
(f) Transfer Taxes. The Company agrees that it will pay, and will hold each
Series A Investor harmless from any and all liability with respect to any stamp
or similar taxes which may be determined to be payable in connection with the
execution and delivery and performance of this Agreement or any modification,
amendment or alteration of the terms or provisions of this Agreement.
(g) Use of Proceeds. The Company shall use the net proceeds from the sale of
the Series A Shares to (i) fund the development of the Company's products and
services consistent with the Business Plan, (ii) for working capital and general
corporate purposes and (iii) to pay the accrued liabilities identified on
Schedule 1.
(h) Agreements with Employees other than Founders. With respect to employees
of the Company other than the Founders, the Company shall enter into and
maintain agreements with each such employee, which agreements shall include
provisions covering, among other things, protection of confidential information
of the Company, and assignment of inventions and other intellectual property to
the Company. In addition, the Company shall in its form employee agreement or in
its employee policy manual include provisions obligating the employee of the
Company covered thereby to refrain from competing with the Company during and
following such employee's employment by the Company.
(i) Agreements with Founders. The employment agreements specified in Section
5(d) below with each of its Founders shall not be terminated or altered, amended
or changed in any material respect without the approval of the Board of
Directors, which such approval shall include the approval of at least one of the
directors elected to the Board of Directors pursuant to Section 2.1.1(d) of the
Stockholders' Agreement.
(j) Option and Restricted Stock Plan. As soon as practicable following the
date hereof, the Company shall adopt a Option and Restricted Stock Plan in the
customary form and covering matters of the type customarily covered in such plan
and providing for the reservation of Permitted Options and Restricted Stock for
issuance to employees, officers, directors, advisors and consultants of the
Company (other than the Founders), which such shares shall represent 15% of the
aggregate Common Stock Equivalents of the Company immediately following the
Closing.
5. Conditions of Series A Investors' Obligations. The obligations of each Series
A Investor hereunder at the Closing are subject to the performance by the
Company of its covenants and other obligations hereunder, and to the following
further conditions:
(a) Filing of the Certificate of Designation. Prior to the Closing, the
Company's First Restated and Amended Certificate of Incorporation and the Series
A Certificate of Designation shall each have been duly filed with, and accepted
for filing by, the Secretary of State of the State of Delaware .
(b) Stockholders' Agreement. At or prior to the Closing, the Company and the
holders of the Common Stock of the Company shall have executed and delivered to
the Series A Investors the Stockholders' Agreement and such Stockholders'
Agreement shall be in full force and effect.
(c) Registration Rights Agreement. At or prior to the Closing, the Company
shall have executed and delivered to the Series A Investors the Registration
Rights Agreement and such Registration Rights Agreement shall be in full force
and effect.
(d) Employment Agreements. Each of the officers and key employees of the
Company, including, without limitation, each of Messrs. Cooperstone and Pham,
shall have executed and delivered to the Company an employment agreement
substantially in the form set forth in Exhibit G attached hereto, and each such
employment agreement shall be in full force and effect.
(e) Authorizations. All authorizations, permits and approvals (including
Board of Directors and stockholder approvals) required for the consummation of
the transactions contemplated hereby as of the date and time of the Closing,
shall have been received. The Company and each of the other parties to the
Documents other than such Series A Investor shall have performed and complied in
all material respects with all agreements, covenants and conditions contained in
each Document that are required to be performed or complied by the Company and
such other parties at or before the Closing.
(f) Opinion of Counsel for the Company. At the time of the Closing, the
Series A Investors shall have received the favorable opinion, dated as of the
Closing, of Orrick, Herrington & Sutcliffe, LLP, counsel to the Company,
substantially in the form set forth in Exhibit H, subject to customary
qualifications and the reasonable satisfaction of the Series A Investors and
their counsel.
(g) Additional Documents. All proceedings taken by the Company in connection
with the issuance and sale of the Series A Shares as herein contemplated shall
be reasonably satisfactory in form and substance to the Series A Investors and
their counsel.
6. Conditions of the Company's Obligations. The obligations of the Company
hereunder at the Closing are subject to the performance by each Series A
Investor of its covenants and other obligations hereunder, and to the following
further conditions:
(a) Stockholders' Agreement. At or prior to the Closing, the Series A
Investors shall have executed and delivered to the Company the Stockholders'
Agreement and such Stockholders' Agreement shall be in full force and effect.
(b) Registration Rights Agreement. At or prior to the Closing, the Series A
Investors shall have executed and delivered to the Company the Registration
Rights Agreement and such Registration Agreement shall be in full force and
effect.
(c) Opinion of Counsel for the Series A Investors. At the time of the
Closing, the Company shall have received the favorable opinion, dated as of the
Closing, of Brown & Wood LLP, counsel to the Series A Investors, substantially
in the form set forth in Exhibit I, subject to customary qualifications and the
reasonable satisfaction of the Series A Investors and their counsel.
7. Confidentiality. Except as required by law or judicial order, any and all
Confidential Information (as defined below) of either the Company or any Series
A Investor shall be subject to the provisions of this Section 7 for a period of
two (2) years following the later of (A) disclosure of such Confidential
Information to the receiving party and (B) the date that the Series A Investors
no longer have the right to nominate a director to the Board of Directors of the
Company pursuant to Section 2.1.1(d) of the Stockholders' Agreement (the
"Confidentiality Period"). Confidential or proprietary information disclosed by
any Series A Investor or the Company, as well as the terms of the Documents and
the investments by the Series A Investors in the Company, shall be considered
confidential information (as hereinafter defined, the "Confidential
Information"). Confidential Information shall not include any information which
(i) is publicly available at the time of disclosure to the receiving party or
thereafter becomes publicly available not as a result of a breach of any duty of
confidentiality to any party hereunder, (ii) was known to the party charged with
a confidentiality obligation hereunder before disclosure from the other party
hereto on a confidential basis; (iii) was obtained from a source which the
receiving party reasonably believed owed no duty of confidentiality to any party
hereunder, (iv) is authorized for release in writing by the disclosing party,
(v) is developed by the receiving party completely independently of any
Confidential Information received by such party, or (vi) that is required to be
disclosed pursuant to applicable law, a court order, a judicial proceeding, or
the enforcement hereof, provided that the disclosing party is provided with
reasonable prior written notice so that the disclosing party may contest such
disclosure. Neither the Confidential Information nor the terms of this Agreement
shall be disclosed by the Company or the Series A Investors to any third party
without the other party's prior written consent; provided that from and after
the Closing, the Company may disclose the terms of the sale and issuance of
Series A Shares and copies of the documents relating thereto, solely to the
Company's employees, investors, investment bankers, lenders, accountants, legal
counsel, business partners, and bona fide prospective investors, lenders and
business partners, in each case only where such persons or entities have been
advised by the Company of the confidential nature of such information and the
Company's obligation with respect thereto and such parties, other than legal
counsel, have executed and delivered to the Company an agreement containing
confidentiality obligations substantially equivalent to those set forth in this
Section 7; provided, however, that the Company may without the cover of
confidentiality disclose orally or in writing that RSI ESO, a wholly-owned
subsidiary of RSI, has invested $15,000,000 in the Company as the sole purchaser
of the Series A Shares, and the Company may without the cover of confidentiality
disclose only orally that the Series A Shares so purchased constitute less than
50% of the outstanding capital stock of the Company on a fully-diluted basis. In
any event, during the Confidentiality Period, prior to the disclosure of any
Confidential Information to a third party, the Company shall use its best
efforts to obtain from such third party an executed agreement containing
confidentiality obligations substantially equivalent to those set forth in this
Section 7; provided, however, that in the event such executed agreement cannot
be obtained, the Company may disclose only that information that has been
previously approved by the Board of Directors of the Company as suitable for
disclosure. The parties may at any time make public announcements or filings
regarding the parties' relationship which are required by applicable law,
regulatory bodies, or stock exchange or stock association rules, so long as the
party so required to make the public announcement or filing, promptly upon
learning of such requirement, notifies the other affected party of such
requirement and in the case of public filings, including, without limitation,
periodic and other reports filed under the Securities Exchange Act of 1934, as
amended, seeks confidential treatment for information reasonably determined by
the parties as appropriate for such treatment.
8. Representations, Warranties and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company submitted pursuant hereto, shall remain
operative and in full force and effect indefinitely, regardless of any
investigation made by or on behalf of any Series A Investors or person
controlling such Series A Investors, or by or on behalf of the Company, and
shall survive delivery of the Shares to the Series A Investors; provided,
however, that the representations, warranties and agreements contained in
Sections 1(d), (e), (j), (l), (m), (n), (o), (p), (q), (r), (t), (w), (x), (z),
(aa) and (bb) hereof shall survive for a period of only eighteen (18) months
following the Closing. Notwithstanding anything to the contrary contained in the
foregoing, nothing in this Section 8 is intended to indicate that any
representation or warranty will be true at any time other than at the time of
simultaneous execution of this Agreement and Closing.
9. [Reserved].
10. Indemnification.
(a) Indemnity by Company. The Company shall indemnify the Series A Investors
and their directors, officers and employees against all expenses, costs, losses,
claims, damages, liabilities and judgments (including, without limitation,
reasonable attorney's fees and expenses) resulting from (i) any action or
proceeding brought by a third party alleging that the Company's execution or
consummation of this Agreement, the other Documents, the Certificate of
Incorporation or the Series A Certificate of Designation contravenes or
otherwise conflicts with any commitment by such third party to provide financing
to the Company, (ii) any breach of the representations and warranties of the
Company set forth in Section 1 hereof other than the representations and
warranties identified in the proviso to Section 8 that has resulted or is
reasonable likely to result in a Material Adverse Effect and (iii) any breach of
the representations and warranties of the Company set forth in Section 1 that
are identified in the proviso of Section 8 that has resulted or is reasonably
likely to result in a Material Adverse Effect and which Material Adverse Effect
occurs within six (6) months from the date of discovery of the breach by the
indemnified persons; provided, however, that such indemnity shall not extend to
any expenses, costs, losses, claims and damages arising out of the gross
negligence or willful misconduct of any person indemnified under this Section
10(a) or any action or inaction on the part of any such indemnified person other
than the execution of this Agreement and the other Documents.
(b) Indemnity by Founders. Each Founder and each permitted transferee of
such Founder under Sections 3.2(ii) and 3.2(iii) of the Stockholders' Agreement
(subject to the provisions of this Section 10(b)) shall, jointly and severally,
indemnify the Series A Investors and their directors, officers and employees
against all expenses, costs, losses, claims, damages, liabilities and judgments
(including, without limitation, reasonable attorney's fees and expenses)
("Losses") resulting from any willful, intentional or knowing breach of the
representations and warranties of the Company set forth in Sections 1(d), (e),
(j), (l), (m), (n), (o), (p), (q), (r), (t), (w), (x), (z), (aa) and (bb) hereof
that has resulted or is reasonable likely to result in a Material Adverse Effect
and which Material Adverse Effect occurs within six (6) months from the date of
discovery of the breach by the indemnified persons; provided, however, that such
indemnity shall not extend to any expenses, costs, losses, claims and damages
arising out of the gross negligence or willful misconduct of any person
indemnified under this Section 10(b); and further provided, however, that (A)
each Founder and such permitted transferee shall not be required to satisfy any
indemnity claim by an indemnified party under this Section 10(b) until the
aggregate amount of such claim or claims (with respect to all indemnified
parties) is at least $200,000 whereupon the indemnified persons shall be
entitled to indemnification for all Losses in excess of such amount, and (B) the
satisfaction of any indemnity claim by an indemnified party under this Section
10(b) shall be limited to the capital stock of the Company valued at Fair Market
Value (as defined in the Stockholders' Agreement) held by such Founder and/or
permitted transferee and shall constitute the sole and exclusive remedy in
respect of the indemnification obligations contained in this Section 10(b);
provided, however, that a Founder or any such permitted transferee may, in its
or his sole option and discretion, elect to instead satisfy such indemnification
obligations by the payments of cash. The sole obligation of each permitted
transferee of a Founder under this Section 10(b) shall be to transfer and
deliver to the Series A Investors that portion of any capital stock of the
Company previously transferred to and held by such permitted transferee by a
Founder and required to be transferred and delivered to the Series A Investors
in satisfaction of the indemnity provided by this Section 10(b) and to execute
any stock powers and other documents necessary to effect such transfer and
delivery. Anything contained herein to the contrary notwithstanding, the
indemnity provided under this Section 10(b) shall (i) expire with respect to any
items otherwise covered by such indemnity for which a claim for indemnity
hereunder has not been made by a Series A Investor or any director, officer or
employee of a Series A Investor on or prior to the eighteen (18) month
anniversary of the date of this Agreement and (ii) constitute the sole and
exclusive remedy of the indemnified persons against the Founders (but not the
Company) with respect to the matters set forth in Section 10(a)(i), (ii) and
(iii) and this Section 10(b), which are subject to indemnification.
(c) Indemnity by Investors. The Series A Investor shall indemnify the
Company and its directors, officers and employees against all expenses, costs,
losses, claims, damages, liabilities and judgments (including, without
limitation, reasonable attorney's fees and expenses) resulting from any breach
of the representations and warranties of the Series A Investors set forth in
Section 2 hereof; provided, however, that such indemnity shall not extend to any
expenses, costs, losses, claims and damages arising out of the gross negligence
or willful misconduct of any person indemnified under this Section 10(c).
(d) Notice of Actions or Proceedings. In case any action or proceeding shall
be commenced involving any party in respect of which indemnity may be sought
pursuant to Sections 10(a), 10(b) or 10(c) (the "indemnified party"), the
indemnified party shall promptly notify the party against whom such indemnity
may be sought (the "indemnifying party") in writing of such action or
proceeding; provided, however, that failure of an indemnified party to provide
such notice shall not relieve the indemnifying party of its obligations under
this Section 10 if such failure does not materially and adversely affect the
rights of the indemnifying party.
(e) Defense of Actions and Proceedings. The indemnifying party may assume
the defense of such action or proceeding provided that the expenses of the
indemnified party are reimbursed as they are incurred (including, without
limitation, the payment of all reasonable and documented fees and expenses of
counsel to the indemnified party) and the indemnifying party has not failed to
comply with any such reimbursement request. Any indemnified party shall have the
right to employ separate counsel in any such action or proceeding and
participate in the defense thereof, but the reasonable fees and expenses of such
counsel shall be at the expense of the indemnified party, unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have failed to assume
the defense of such action or proceeding or (iii) the named parties to any such
action (including any impleaded parties) include both the indemnified party and
the indemnifying party, and the indemnified party shall have been reasonably
advised by such counsel that the representation of the indemnifying party and
the indemnified party by the same counsel would be inappropriate due to actual
or potential differing interests between the indemnifying party and the
indemnified party (in which case the indemnifying party shall not have the right
to assume the defense of such action on behalf of the indemnified party). In any
such case, the indemnifying party shall not, in connection with any one action
or separate but substantially similar or related actions or proceedings in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys for all indemnified parties and all such reasonable fees and expenses
shall be reimbursed as they are incurred. Such firm shall be designated in
writing by a majority of the Series A Investors. The indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
expenses, costs, losses, claims, damages, liabilities and judgments by reason of
any settlement made by the indemnified party of any action (i) effected with the
indemnifying party's written consent or (ii) effected without the indemnifying
party's written consent if the indemnifying party is adjudicated by a court of
competent jurisdiction to have breached its obligations under this Section 10
and if the indemnified party enters into the settlement more than twenty
business days after the indemnifying party shall have received a request from
the indemnified party for reimbursement for the reasonable fees and expenses of
counsel (in any case where such reasonable fees and expenses are at the expense
of the indemnifying party) and, prior to the date of such settlement, the
indemnifying party shall have failed to comply with such reimbursement request.
The indemnifying party shall not, without the prior written consent of the
indemnified party, effect any settlement or compromise of, or consent to the
entry of judgment with respect to, any pending or threatened action or
proceeding in respect of which the indemnified party is or could have been a
party and indemnity may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action or proceeding and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act, by or on behalf of the indemnified party.
11. Miscellaneous.
(a) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested, with a copy sent by ordinary
mail on the same day), telex, telecopier with confirmation and followed promptly
by hard copy in accordance with this provision, or courier guaranteeing
overnight delivery and recognized for high quality service:
(i) if to RSI ESO or RSI, at
Reckson Service Industries, Inc.
10 East 50th Street - 27th Floor
New York, NY 10103
Tel: 212-931-8000
Fax: 212-931-8001
Attn: Jeffrey D. Neumann and Stephen M. Rathkopf
with copies to:
Jason Barnett, Esq.
General Counsel
Reckson Service Industries, Inc.
10 East 50th Street - 27th Floor
New York, NY 10103
Tel: 212-931-8000
Fax: 212-931-8001
Brown & Wood LLP
One World Trade Center
New York, NY 10048
Attention: J. Gerard Cummins, Esq.
Tel: 212-839-5300
Fax: 212-839-5599
(ii) if to the Company or the Founders, at
eSourceOne, Inc.
53 Fayette Road
Scarsdale, NY 10583
Attention: H. Thach Pham, Chief Financial Officer
Tel: 914-725-5751
Fax: 914-722-1429
with a copy to:
Orrick, Herringon & Sutcliffe LLP
666 Fifth Avenue
New York, NY 10103
Attention: Martin H. Levenglick, Esq.
Tel: 212-506-5000
Fax: 212-506-5151
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a Series A Investor) or to the Series
A Investors (in the case of the Company) in accordance with the provisions of
this Section 11(a).
All such notices and communications shall be deemed to have been duly
given: at the time delivered, if delivered by hand or telex; one (1) business
day if sent by overnight courier; five (5) business days after being deposited
in the mail, if mailed; and when receipt acknowledged, if telecopied.
(b) Expenses. The Company shall, upon Closing, reimburse the Series A
Investors for all reasonable and documented out-of-pocket fees and expenses
incurred by it or on its behalf in connection with the negotiation and
preparation of this Agreement, the other Documents, the Certificate of
Incorporation and the Series A Certificate of Designation, and the consummation
of the transactions contemplated thereby, including all reasonable and
documented out-of-pocket legal, due diligence and other fees and expenses in
connection with the transaction; provided, however, that such reimbursement by
the Company shall not exceed $100,000 in the aggregate. If any action at law or
in equity is necessary to enforce or interpret the terms of this Agreement, any
other Document, the Certificate of Incorporation or the Series A Certificate of
Designation, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
(c) Parties. This Agreement shall inure to the benefit of and be binding
upon the Series A Investors and the Company and their respective successors and
assigns (including permitted transferees of any Series A Investor's Shares);
provided, however, that the rights of the Series A Investors set forth in
Sections 3(e), 3(f), 3(g), 4(b), 4(c)(i)(E)(2) and 4(c)(ii) (but only to the
extent that Section 4(c)(ii) provides greater visitation and inspection rights
than would otherwise be afforded to holders of the Company's Common Stock in the
absence of the grant of rights in Section 4(c)(ii)) shall terminate as to the
Series A Investors and be of no further force or effect on the earlier of (A) a
Qualified IPO and (B) such time that less than 20% of the Series A Shares
originally issued remain outstanding; provided, however, that the rights set
forth in Sections 3(e), 3(f) and 3(g), and Section 4 shall expire as to any
holder of Series A Shares who holds less than 5% of the outstanding capital
stock of the Company; and further provided, however, that such rights shall not
be assignable to any competitor of the Company unless such assignment is in
connection with the sale by the Series A Investors of a majority of the Series A
Shares held by them. Nothing expressed or implied in this Agreement is intended
or shall be construed to give any person, firm or corporation, other than the
Series A Investors and the Company and their respective successors and assigns,
any legal or equitable right, remedy or claim under or in respect of this
Agreement or any provision herein contained. This Agreement and all conditions
and provisions hereof are intended to be for the sole and exclusive benefit of
the Series A Investors and the Company and their respective successors and
assigns, and for the benefit of no other person, firm or corporation. No
purchaser of Shares from the Series A Investors shall be deemed to be a
successor by reason merely of such purchase. RSI and RSI ESO shall be jointly
and severally liable for the obligations of RSI and RSI ESO under this
Agreement.
(d) Submission to Jurisdiction. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of New York and of the United States of America, in
each case located in the County of New York, for any action, proceeding or
investigation in any court or before any governmental authority ("Litigation")
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any Litigation relating thereto except in
such courts). Each of the parties hereto hereby irrevocably and unconditionally
waives any objection to the laying of venue of any Litigation arising out of
this Agreement or the transactions contemplated hereby in the courts of the
State of New York or the United States of America, in each case located in the
County of New York, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such Litigation
brought in any such court has been brought in an inconvenient forum.
(e) Governing Law. This agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
conflict of law rules thereof, applicable to contracts made and to be performed
within that State.
(f) Remedies. Each of the Company and the Series A Investors acknowledges
and agrees that any failure by the other party to comply with its obligations
under Sections 3(e), 3(f), 3(g), 4(a)(ii), 4(c)(i) (other than clauses (A) and
E(1) thereof), and 7 and, until a system of internal accounting controls has
been approved by the Board of Directors or an annual audit by the Company's
independent auditor has been accepted by the Board of Directors, Section 4(a)(i)
hereof, may result in material irreparable injury to the Company or the Series A
Investors, as the case may be, for which there is no adequate remedy at law,
that it will not be possible to measure damages for such injuries precisely and
that, in the event of any such failure, the Company or the Series A Investors,
as the case may be, may seek such relief as may be required to specifically
enforce the other party's obligations thereunder. Each of the Company and the
Series A Investors further agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(g) Effect of Headings. The Article and Section headings herein are for
convenience only and shall not affect the construction hereof.
(h) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. In proving this Agreement
it shall not be necessary to produce or account for more than one such
counterpart executed by the party against whom enforcement is sought.
(i) Severability. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement unless the effect thereof would be to alter materially the effect of
this Agreement, and this Agreement (if not so altered) shall be carried out as
if any such illegal, invalid or unenforceable provision were not contained
herein.
(j) Delays or Omissions. It is agreed that no delay or omission to exercise
any right, power or remedy on the part of any party upon any breach or default
of any party to this Agreement shall impair any such right, power or remedy, nor
shall it be construed to be a waiver of any such breach or default, or any
acquiescence therein, or of any similar breach or default thereafter occurring;
nor shall any waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. It is further
agreed that any waiver, permit, consent or approval of any kind or character on
any party of any breach or default under this Agreement must be in writing and
shall be effective only to the extent specifically set forth in such writing and
that all remedies either under this Agreement, or by law otherwise afforded to
any party, shall be cumulative and not alternative.
(k) Entire Agreement. This Agreement, together with the other Documents
being executed in connection herewith, is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Restricted
Stock.
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
eSourceOne, Inc.
By: ____________________________________________
Chief Executive Officer
THE FOUNDERS
By: ____________________________________________
Name: Elliot S. Cooperstone
By: ____________________________________________
Name: H. Thach Pham
THE SERIES A INVESTORS
RSI ESO, Inc.
By: ____________________________________________
Name:
Title:
Reckson Service Industries, Inc.
By: ____________________________________________
Name:
Title:
Exhibit 10.2
=============================================================================
eSourceOne, Inc.
(a Delaware corporation)
Series A Convertible Redeemable Preferred Stock
REGISTRATION RIGHTS AGREEMENT
Dated: August 10, 1999
==============================================================================
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") dated as of August 10,
1999 is by and among eSourceOne, Inc., a Delaware corporation (the "Company"),
Reckson Service Industries, Inc., a Delaware corporation ("RSI"), and RSI ESO,
Inc., a Delaware corporation ("RSI ESO" or the "Series A Investor;" and together
with RSI and their successors and permitted assigns collectively the "Series A
Investors"), Elliott S. Cooperstone and H. Thach Pham.
RECITALS
WHEREAS, the Company and the Series A Investors have executed and
delivered that certain Stock Purchase Agreement, dated August 10, 1999 (the
"Stock Purchase Agreement"), pursuant to which the Company has agreed to issue
and sell to the Series A Investors, and the Series A Investors have agreed to
purchase from the Company, the shares of the Company's Series A Convertible
Redeemable Preferred Stock, par value $0.01 per share (the "Series A Shares"),
specified therein;
WHEREAS, as an inducement to the Series A Investors to consummate the
purchase of the Series A Shares in accordance with the Stock Purchase Agreement,
the Company desires to grant to the Series A Investors the registration rights
set forth in this Agreement, subject to the terms and conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements herein contained, the receipt and sufficiency of which is hereby
acknowledged, and subject to the terms and conditions set forth herein, the
parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms shall
have the following respective meanings:
"Business Day" shall mean any day except Saturday, Sunday and any day
on which banks in The City of New York are required or permitted by law or
executive order to close.
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $0.01 par value per share,
of the Company.
"Conversion Shares" shall mean shares of Common Stock issued upon
conversion of the Series A Shares.
"Eligible Founder" shall mean a Founder who holds Restricted Stock
following such time as sales or transfers of Series A Shares by the Series A
Investors result in the receipt of aggregate net proceeds to each Series A
Investor (measured on a cumulative basis from the date hereof) of an amount
equal to the price originally paid to the Company for the Series A Shares by
such Series A Investor (such receipt of such amount being the "Series A
Threshold"). To the extent that the aggregate net proceeds of any transaction
covered by a Registration Statement exceeds the amount required to satisfy the
Series A Threshold, each Founder shall become an Eligible Founder with respect
to such excess.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Founders" shall mean Elliot S. Cooperstone and H. Thach Pham.
"Founders' Shares" shall mean shares of Common Stock held, as of the
date of this Agreement, by a Founder.
"Investor Transferee" shall mean, with respect to any Series A
Investor, a transferee of Preferred Stock or Restricted Stock of such Series A
Investor if such transferee (i) has given the Company written notice at the time
of or within a reasonable time after such transfer stating the name and address
of such transferee and (ii) has executed and delivered to the Company an
instrument in the form reasonably prescribed by the Company agreeing to be bound
by the terms thereof and of this Agreement and the Stockholders' Agreement;
provided, however, that the rights of the Series A Investors under this
Agreement shall not be assignable to any competitor of the Company unless such
assignment is in connection with the sale by the Series A Investors of a
majority of the Series A Shares held by them.
"Person" shall mean an individual, corporation, partnership, joint
venture, trust university, or unincorporated organization, or a government or
any agency or political subdivision thereof.
"Preferred Stock" shall mean the Series A Shares of the Company and any
other convertible preferred stock issued by the Company from time to time.
"Prospectus" shall mean the prospectus included in a Registration
Statement at the time such Registration Statement is declared effective, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
"Qualified Initial Public Offering" shall mean a firm underwritten
public offering of Common Stock by a nationally recognized underwriter with
aggregate gross proceeds to the Company of at least $30,000,000 and reflecting a
market value of the Company of at least $150,000,000 immediately prior to such
public offering.
"register," "registered," and "registration" shall mean a registration
effected by preparing and filing one or more Registration Statements in
compliance with the Securities Act and, with respect to Section 5 hereof,
pursuant to Rule 415 under the Securities Act or any successor rule providing
for offering securities on a continuous or delayed basis and the declaration or
ordering of effectiveness of such Registration Statement(s) by the Commission.
"Registration Delay Limit" shall mean the period, not to exceed, for so
long as this Agreement is in effect, ninety (90) consecutive days, subject to an
aggregate of one-hundred twenty (120) days in any twelve (12) month period,
wherein the Company may delay or suspend a registration of Restricted Stock;
provided, however, that the combined number of days in any such period and any
Lock-up Period contemplated by Section 13 of this Agreement shall not exceed
two-hundred ten (210) days in any twelve (12) month period.
"Registration Expenses" shall mean all expenses incurred by the Company
in complying with the Registration Provisions, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for the Company, fees and expenses
(including counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, and the
reasonable fees and disbursements of one counsel for the sellers of Restricted
Stock, but excluding any Selling Expenses.
"Registration Provisions" shall mean Sections 3, 4, and 5 of this
Agreement.
"Registration Statement" shall mean any registration statement of the
Company relating to the registration for resale of Restricted Stock that is
filed pursuant to the provisions of this Agreement and including the Prospectus
included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
"Restricted Stock" shall mean the Conversion Shares and Founders'
Shares, but excluding in each case shares of Common Stock which have been (i)
registered under the Securities Act pursuant to an effective Registration
Statement filed thereunder and disposed of in accordance with the Registration
Statement covering them or (ii) publicly sold pursuant to Rule 144 or Rule 701
under the Securities Act; provided, that prior to a Qualified Initial Public
Offering, the term "Restricted Stock" shall be deemed to include the number of
shares of Common Stock that would be issuable upon conversion of a Series A
Share.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Restricted Stock and all fees and expenses
incurred to perform any interim audit of the financial statements of the Company
requested by the Series A Investors in connection with a registration pursuant
to Section 3 hereof that would not otherwise be required for or in connection
with the Company's periodic filings required under the Exchange Act.
"Series A Eligible Sellers" shall have the meaning attributed to such
term in Section 3(a).
"Series A Investors Demand Notice" shall have the meaning attributed to
such term in Section 3(a).
"Stockholders' Agreement" shall mean the Stockholders' Agreement, dated
the date hereof, among the Company and certain of its stockholders, as amended
to date and as the same may be amended from time to time hereafter.
2. Restrictive Legend. Each certificate representing Restricted Stock shall,
except as otherwise provided in the Registration Provisions, be stamped or
otherwise imprinted with a legend substantially in the form required under the
Stockholders' Agreement.
3. Required Registrations.
(a) Upon the expiration of the lock-up period required by an underwriter in
connection with an initial public offering by the Company of shares of its
Common Stock pursuant to the Securities Act (but in no event later than six (6)
months following such initial public offering), the holders of Restricted Stock
then owned beneficially or of record by the Series A Investors and Investor
Transferees of the Series A Investors (collectively, the "Series A Eligible
Sellers") constituting at least 20% of the total Restricted Stock held by such
Series A Eligible Sellers may request (the "Series A Investors Demand Notice")
the Company to register under the Securities Act all or any portion of the
shares of Restricted Stock held by such requesting holder or holders for sale in
the manner specified in such Series A Investors Demand Notice, provided that the
reasonably anticipated aggregate price to the public of such public offering
would be at least $10,000,000.
(b) Following receipt of a Series A Investors Demand Notice, the Company
shall immediately notify the Series A Eligible Sellers from whom notice has not
been received and shall use its best efforts to register under the Securities
Act, for public sale in accordance with the method of disposition specified in
such Series A Investors Demand Notice from requesting holders, the number of
shares of Restricted Stock specified in (x) such Series A Investors Demand
Notice and (y) all notices received by the Company from other Series A Eligible
Sellers within 30 days after the giving of such notice by the Company. The
Company shall be obligated to register Restricted Stock pursuant to this Section
3 on three occasions only; provided, however, that, in each case, such
obligation shall be deemed satisfied only when a Registration Statement covering
all shares of Restricted Stock specified in notices received as aforesaid, for
sale in accordance with the method of disposition specified by the requesting
holders, shall have become effective and shall have remained continuously
effective during the period of distribution (as specified in Section 6 hereof).
Each registration of Restricted Stock pursuant to a Series A Investors Demand
Notice issued pursuant to this Section 3(b), which satisfies the requirements in
the proviso to the immediately preceding sentence, shall satisfy the Company's
obligation to register Restricted Stock on one occasion.
(c) Subject to the Registration Delay Limit, the Company shall be permitted
to delay or suspend any registration pursuant to this Section 3 if (i) an event
occurs and is continuing as a result of which the Registration Statement, any
related Prospectus or any document incorporated therein by reference as then
amended or supplemented would, in the Company's good faith judgment, contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, (ii) the Company determines in its good
faith judgment that the disclosure of an event contemplated by Section 3(c)(i)
at such time (A) would have a material adverse effect on the business,
operations or prospects of the Company or (B) otherwise relates to a material
business transaction which has not yet been publicly disclosed, or (iii) the
Company has prior to the receipt of a Series A Investors Demand Notice filed a
Registration Statement or has notified the Series A Investors of its intent to
file a Registration Statement and the transaction contemplated by such filed or
proposed Registration Statement is actively being pursued by the Company in good
faith.
(d) If the method of disposition of Restricted Stock pursuant to this
Section 3 shall be an underwritten public offering, the lead underwriter
selected for such offering shall be (i) nationally recognized or (ii) mutually
acceptable to the Company and a majority of the Series A Eligible Sellers
participating in the offering; provided, however, that any underwriting
agreement the Company enters into pursuant to such selection shall contain
commercially reasonable terms and fees. Senior management of the Company shall
use its best efforts to assist in the marketing of any shares of Restricted
Stock registered for sale in an underwritten public offering pursuant to this
Section 3 including, without limitation, participation in any roadshow.
(e) The Company shall be entitled to include in any Registration Statement
referred to in this Section 3, for sale in accordance with the method of
disposition specified by the requesting Series A Eligible Sellers (provided that
such method of disposition need not be followed by the Company if such method
would not reasonably be expected to result in an adverse impact on the offering
of the requesting Series A Eligible Sellers), shares of Common Stock to be sold
by the Company for its own account and shares of Common Stock to be sold by
other security holders with incidental registration rights triggered by the
receipt of a Series A Investors Demand Notice or filing of any Registration in
response thereto, except as and to the extent that, in the reasonable opinion of
the lead underwriter (if such method of disposition shall be an underwritten
public offering), such inclusion would materially adversely affect the marketing
of the Restricted Stock to be sold, then the number of shares that may be
included in such underwritten public offering shall be allowed: first, to the
Series A Eligible Sellers and any holders of other securities of the Company who
have the right that is equivalent to the right of the Series A Eligible Sellers
set forth in Section 3(f) of this Agreement to join in a request by the Series A
Eligible Sellers for a required registration under this Section 3 pro rata among
them; second, to the Company; and third, to the other security holders pro rata
among them. Subject to Section 3(b), except for Registration Statements on Form
S-4, S-8 or any successor thereto, the Company will not file with the Commission
any other Registration Statement with respect to its Common Stock, whether for
its own account or that of other stockholders, from the date of receipt of a
notice from requesting holders pursuant to this Section 3 until the completion
of the period of distribution of the shares of Restricted Stock registered
thereby, which such period of distribution shall not exceed 120 days.
(f) Following receipt of a notice from any holder of registration rights
other than a Series A Eligible Seller requesting that the Company file with the
Commission a Registration Statement in respect of shares of capital stock of the
Company held by such holder, the Company shall immediately notify the Series A
Eligible Sellers. The Series A Eligible Sellers shall thereupon have the right
to join in the request for registration of shares of Restricted Stock held by
them and the terms and conditions applicable to such registration shall be the
same as those set forth in this Section 3, including, without limitation, the
allocation procedure set forth in paragraph (e) of this Section 3.
4. Incidental Registrations.
(a) If the Company proposes to register any of its securities under the
Securities Act for sale to the public, whether for its own account or for the
account of other security holders or both (except with respect to Registration
Statements on Forms S-4, S-8 or another form not available for registering the
Restricted Stock for sale to the public), each such time the Company will give
written notice to all Series A Eligible Sellers and Eligible Founders of its
intention so to do and of the proposed method of distribution of such securities
(the "Company Registration Notice"). Upon the written request of any such Series
A Eligible Seller or Eligible Founder, received by the Company within 30 days
after the giving of any such notice by the Company, to register any of its
Restricted Stock, the Company will use its best efforts to cause the Restricted
Stock as to which registration shall have been so requested to be included in
the securities to be covered by the Registration Statement proposed to be filed
by the Company, all to the extent and under the conditions such registration is
permitted under the Securities Act.
(b) If the Registration Statement as to which the Company gives notice under
this Section 4 is for an underwritten offering, the Company shall so advise the
Series A Eligible Sellers and Eligible Founders. In such event, the right of any
Series A Eligible Seller and Eligible Founder to be included in a registration
pursuant to this Section 4 shall be conditioned upon such Series A Eligible
Seller's and Eligible Founder's participation in such underwriting and the
inclusion of such Series A Eligible Seller's and Eligible Founder's Restricted
Stock in the underwriting to the extent provided herein. All Series A Eligible
Sellers and Eligible Founders participating in an underwritten public offering
pursuant to this Section 4 shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of the
Agreement, if the Company proposes to register any of its securities under the
Securities Act for its own account and the underwriter determines in good faith
that marketing factors require a limitation of the number of securities to be
underwritten, the number of shares that may be included in the underwriting
pursuant to this Section 4 shall be allocated: first, to the Company; and
second, on a pro rata basis among the Series A Eligible Sellers, the Eligible
Founders and security holders other than the Series A Eligible Sellers and
Eligible Founders with incidental registration rights substantially equivalent
to those set forth in this Section 4; provided, however, that, if such
registration is pursuant to an initial public offering of Common Stock by the
Company, the number of shares that may be included in the underwriting may be
limited solely to shares of the Company; and provided further, however, that, if
the Series A Eligible Sellers are limited, participation in such underwritten
offering shall be restricted to the Company, the Series A Eligible Sellers and
holders of Preferred Stock ranking pari passu to the Series A Preferred. If the
Company proposes to register for an underwritten offering (without the inclusion
of any securities for the account of the Company in such underwritten offering)
any of its securities under the Securities Act for the account of security
holders other than the Series A Eligible Sellers and Eligible Founders pursuant
to required registration rights, and the Series A Eligible Sellers and/or the
Eligible Founders do not elect to participate in such offering through the
exercise of the required registration right afforded to them in Section 3(f) but
do elect to participate in such offering through the exercise of the incidental
registration right afforded to them in Section 4(a) and the underwriter
determines in good faith that marketing factors require a limitation of the
number of shares to be underwritten, the number of shares that may be included
in the underwriting shall be allocated: first, on a pro rata basis among such
other security holders; and second, on a pro rata basis among any Series A
Eligible Sellers and Eligible Founders who elect to participate therein through
such exercise of their incidental registration right.
(c) Notwithstanding the foregoing provisions, the Company may withdraw any
Registration Statement referred to in this Section 4 which it initially proposed
to file to register newly issued securities for sale in its sole discretion
without thereby incurring any liability to the holders of Restricted Stock, and
the Series A Eligible Sellers holding Restricted Stock included in the offering
covered by such Registration Statement at the time of such withdrawal shall
thereupon continue to be entitled to the registration rights under this
Agreement in respect of such Restricted Stock.
5. Registrations on Form S-3. If at any time (i) Series A Eligible Sellers
holding Restricted Stock request that the Company file a Registration Statement
on Form S-3 or any successor thereto for a public offering of all or any portion
of the shares of Restricted Stock held by such requesting holder or holders, the
reasonably anticipated aggregate price to the public of which would exceed
$1,000,000, and (ii) the Company is a registrant entitled to use Form S-3 or any
successor thereto to register such shares, then the Company shall use its best
efforts to register under the Securities Act on Form S-3 or any successor
thereto, for public sale in accordance with the method of disposition specified
in such notice, the number of shares of Restricted Stock specified in such
notice. Whenever the Company is required by this Section 5 to use its best
efforts to effect the registration of Restricted Stock, each of the procedures
and requirements of Section 3 (including, but not limited to, the requirement
that the Company notify all holders of Restricted Stock from whom notice has not
been received and provide them with the opportunity to participate in the
offering) shall apply to such registration; provided, however, that the
requirement contained in Section 3(a) that the Series A Eligible Sellers holding
at least 20% of the Restricted Stock request such registration shall not apply
to any registration on Form S-3 that may be requested and obtained under this
Section 5. The Company shall be obligated to register Restricted Stock pursuant
to this Section 5 on five (5) occasions only; provided, however, that, in each
case, such obligation shall be deemed satisfied only when a Registration
Statement covering all shares of Restricted Stock shall have become effective
and shall have remained continuously effective during the period of distribution
(as specified in Section 6 hereof). Notwithstanding anything to the contrary
contained herein, the Company shall not be required to file any registration
statement pursuant to this Section 5 within 120 days of the effective date of
any registration statement filed by the Company (except with respect to
Registration Statements on Forms S-4, S-8 or another form not available for
registering the Restricted Stock for sale to the public). Subject to the
Registration Delay Limit, the Company shall be permitted to delay or suspend any
registration pursuant to this Section 5 if (i) an event occurs and is continuing
as a result of which the Registration Statement, any related Prospectus or any
document incorporated therein by reference as then amended or supplemented
would, in the Company's good faith judgment, contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, (ii) the Company determines in its good faith judgment
that the disclosure of an event contemplated by clause (i) hereof at such time
(A) would have a material adverse effect on the business, operations or
prospects of the Company or (B) otherwise relates to a material business
transaction which has not yet been publicly disclosed, or (iii) the Company has
prior to the receipt of a Series A Investors Demand Notice filed a Registration
Statement or has notified the Series A Investors of its intent to file a
Registration Statement and the transaction contemplated by such filed or
proposed Registration Statement is actively being pursued by the Company in good
faith.
6. Registration Procedures. If and whenever the Company is required by any
Registration Provisions (other than Section 4) to use its best efforts to effect
the registration of any shares of Restricted Stock under the Securities Act or
the Company is required to include shares of Restricted Stock in a registration
subject to Section 4, the Company will, as expeditiously as possible:
(a) use its best efforts to effect such registration to permit the sale of
the Restricted Stock being sold in accordance with the intended method or
methods of distribution thereof, and pursuant thereto prepare and file with the
Commission a Registration Statement on any appropriate form under the Securities
Act (which in the case of an underwritten public offering pursuant to Section 3,
shall be on Form S-1 or other form of general applicability satisfactory to the
underwriter selected as therein provided), which form shall be available for the
sale of the Restricted Stock in accordance with the intended method or methods
of distribution thereof for the period of the distribution contemplated hereby
(determined as hereinafter provided) and otherwise in accordance with the
provisions hereof;
(b) use its reasonable best efforts to keep such Registration Statement
continuously effective for the period of the distribution contemplated hereby
(determined as hereinafter provided). Upon the occurrence of any event that
would cause any such Registration Statement or the Prospectus contained therein
(i) to contain an untrue statement of material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or (ii) not to be
effective and usable for resale of the Restricted Stock during the period
required by this Agreement, the Company shall, subject to the Registration Delay
Limit, file promptly an appropriate amendment to such Registration Statement or
a supplement to the Prospectus, as applicable, curing such defect, and, in the
case of an amendment, use its best efforts to cause such amendment to be
declared effective as soon as practicable;
(c) prepare and file with the Commission such amendments and post-effective
amendments to the applicable Registration Statement as may be necessary to keep
such Registration Statement continuously effective for the period of
distribution as contemplated hereby (determined as hereinafter provided); cause
the Prospectus to be supplemented by any required Prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 under the Securities Act, and
to comply fully with Rules 424, 430A and 462, as applicable, under the
Securities Act in a timely manner; and comply with the provisions of the
Securities Act with respect to the disposition of all Restricted Stock covered
by such Registration Statement during the applicable period in accordance with
the participating Series A Eligible Sellers' and Eligible Founders' intended
method of disposition set forth in such Registration Statement for such period;
(d) advise the participating Series A Eligible Sellers and Eligible Founders
promptly and, if requested by such Series A Eligible Sellers and Eligible
Founders, confirm such advice in writing, (i) when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to any applicable Registration Statement or any post-effective amendment
thereto, when the same has become effective, (ii) of any request by the
Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating thereto,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Securities Act or of the
suspension by any state securities commission of the qualification of the
Restricted Stock for offering or sale in any jurisdiction, or the initiation of
any proceeding for any of the preceding purposes, and (iv) of the existence of
any fact or the happening of any event that makes any statement of a material
fact made in the Registration Statement, the Prospectus, any amendment or
supplement thereto or any document incorporated by reference therein untrue, or
that requires the making of any additions to or changes in the Registration
Statement in order to make the statements therein not misleading, or that
requires the making of any additions to or changes in the Prospectus in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. If at any time the Commission shall issue any stop
order suspending the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the Restricted
Stock under state securities or Blue Sky laws, the Company shall use its best
efforts to obtain the withdrawal or lifting of such order at the earliest
possible time;
(e) subject to Section 6(b) hereof, if any fact or event contemplated by
Section 6(d)(iv) hereof shall exist or have occurred, prepare a supplement or
post-effective amendment to the Registration Statement or related Prospectus or
any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of Restricted Stock,
the Prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
Series A Eligible Sellers and Eligible Founders agree, upon receipt of notice by
the Company of any fact or event contemplated by Section 6(d)(iv) hereof,
forthwith to cease making offers and sales of Restricted Stock pursuant to such
Registration Statement or deliveries of the Prospectus contained therein for any
purpose until the Company has prepared and furnished such amendment or
supplement to the Prospectus as may be necessary so that, as thereafter
delivered to purchasers of such Restricted Stock, such Prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(f) furnish to each participating Series A Eligible Seller and Eligible
Founder and to each underwriter, before filing with the Commission, copies of
any Registration Statement or any Prospectus included therein or any amendments
or supplements to any such Registration Statement or Prospectus (including all
documents incorporated by reference after the initial filing of such
Registration Statement), which sections of such documents that are applicable to
the participating Series A Eligible Seller or Eligible Founder will be subject
to the review and comment of such persons, if any (any of which comments the
Company, in its reasonable discretion, may reject), for a period of at least
five Business Days, and the Company will not file any such Registration
Statement or Prospectus or any amendment or supplement to any such Registration
Statement or Prospectus (including all such documents incorporated by reference)
to which a participating Series A Eligible Seller or Eligible Founder shall
reasonably object within five Business Days after the receipt thereof;
(g) promptly prior to the filing of any document that is to be incorporated
by reference into a Registration Statement or Prospectus, provide copies of such
document to each participating Series A Eligible Seller and Eligible Founder and
to each underwriter, make the Company's representatives available for discussion
of such document and other customary due diligence matters, and include such
information in such document prior to the filing thereof as such participating
Series A Eligible Seller and Eligible Founder may reasonably request;
(h) make available for inspection upon reasonable notice during the
Company's regular business hours by each participating Series A Eligible Seller
and Eligible Founder, any underwriter participating in any distribution pursuant
to such Registration Statement, and any attorney, accountant or other agent
retained by such Series A Eligible Seller, Eligible Founder or underwriter, all
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such Series A Eligible Seller, Eligible
Founder, underwriter, attorney, accountant or agent in connection with such
Registration Statement or any post-effective amendment thereto subsequent to the
filing thereof and prior to its effectiveness;
(i) if requested by the participating Series A Eligible Sellers and Eligible
Founders, promptly include in the Registration Statement or Prospectus, pursuant
to a supplement or post-effective amendment if necessary, such corrective,
supplementary or like information as the participating Series A Eligible Sellers
and Eligible Founders may reasonably request to have included therein; and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after the Company is notified of the matters to be
included in such Prospectus supplement or post-effective amendment;
(j) furnish to each participating Series A Eligible Seller and Eligible
Founder and to each underwriter, without charge, such number of copies of the
Registration Statement and the Prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or other disposition of the Restricted Stock covered
by such Registration Statement;
(k) prior to any public offering of Restricted Stock, use its best efforts
to register or qualify the Restricted Stock covered by such Registration
Statement under the securities or "blue sky" laws of such jurisdictions as the
sellers of Restricted Stock or, in the case of an underwritten public offering,
the underwriter reasonably shall request and do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Restricted Stock covered by the applicable Registration Statement; provided,
however, that the Company shall not for any such purpose be required to qualify
generally to transact business as a foreign corporation in any jurisdiction
where it is not so qualified or to consent to general service of process in any
such jurisdiction other than as to matters and transactions relating to the
Registration Statement;
(l) use its best efforts to list the Restricted Stock covered by such
Registration Statement with any securities exchange on which the Common Stock of
the Company is then listed;
(m) use its best efforts to cause the disposition of the Restricted Stock
covered by the Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof to consummate the disposition of such Restricted
Stock, subject to the proviso contained in clause (k) above;
(n) in connection with any sale of Restricted Stock that will result in such
securities no longer being Restricted Stock, cooperate with the Series A
Investors to facilitate the timely preparation and delivery of certificates
representing Restricted Stock to be sold and not bearing any restrictive
legends; and to register such Restricted Stock in such denominations and such
names as the selling Series A Investors may request at least two Business Days
prior to such sale of Restricted Stock;
(o) if the offering is underwritten and at the request of any participating
Series A Eligible Seller or Eligible Founder, enter into such agreements
(including underwriting agreements) and make such reasonable representations and
warranties and take all such other reasonable actions in connection therewith in
order to expedite or facilitate the disposition of the Restricted Stock pursuant
to any applicable Registration Statement contemplated by this Agreement as may
be reasonably requested by the participating Series A Eligible Seller or
Eligible Founder in connection with any sale or resale pursuant to any
applicable Registration Statement; in such connection, the Company shall upon
request of any participating Series A Eligible Seller or Eligible Founder,
furnish (or in the case of clauses (ii) and (iii), use its best efforts to cause
to be furnished) to such Series A Eligible Seller and Eligible Founder, on the
date that Restricted Stock is delivered to the underwriters for sale pursuant to
such registration: (i) such documents and certificates as may be reasonably
requested by the participating Series A Eligible Sellers and Eligible Founders
to evidence compliance with the applicable matters covered in this Section 6,
(ii) a letter, dated such date, from the Company's independent certified public
accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
and (iii) an opinion, dated as of such date, of counsel representing the Company
covering substantially the same matters with respect to such Registration
Statement as are customarily covered in opinions of issuer's counsel delivered
to underwriters with respect to similar registration statements in underwritten
public offerings, addressed to the participating Series A Eligible Sellers and
Eligible Founders and the underwriters;
(p) otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission, and make generally available to its security
holders with regard to any applicable Registration Statement, as soon as
practicable (but not sooner than the filing deadline of the last quarterly
report included therein), a consolidated earnings statement meeting the
requirements of Rule 158 of the Securities Act (which need not be audited)
covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in Rule 158(c) under the
Securities Act); and
(q) if such documents are not readily available on the Commission's EDGAR
database, or any successor thereto, provide promptly to the Series A Investors,
upon request, each document filed with the Commission pursuant to the
requirements of Section 13 or Section 15(d) of the Exchange Act.
For purposes of Sections 3(b) and (e), Section 4(b) and Section 5, the
period of distribution of Restricted Stock in a firm commitment underwritten
public offering shall be deemed to extend until the earlier of (i) one hundred
twenty (120) days or (ii) the date on which each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock in any other registration shall be deemed to extend until
the earlier of (i) 120 days or (ii) the date upon which the underwriter, if any,
terminates the lock-up agreements applicable to such distribution.
In connection with each registration hereunder, the Series A Eligible
Sellers and Eligible Founders participating shall (a) provide such information
and execute such documents as may reasonably be required in connection with such
registration, (b) agree to sell Restricted Stock on the basis provided in any
underwriting arrangements and (c) complete and execute all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements, which arrangements
shall not be inconsistent herewith.
In connection with each registration pursuant to any Registration Provision
covering an underwritten public offering, the Company and each participating
Series A Eligible Seller and Eligible Founder agree to enter into a written
agreement with the lead underwriter in such form and containing such provisions
as are customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
The Company may not withdraw any Registration Statement referred to in
Sections 3 or 5 without the consent of the party or parties initiating the
demand thereunder which such consent shall not be unreasonably withheld, delayed
or conditioned.
7. Conditions to Registration Obligations. The Company shall not be obligated to
effect the registration of the Restricted Stock pursuant to Sections 3, 4 or 5
unless the participating Series A Eligible Sellers and Eligible Founders consent
to customary conditions of a reasonable nature, including the following:
(a) conditions prohibiting the sale of Restricted Stock by the
participating Series A Eligible Sellers and Eligible Founders until the
registration is effective;
(b) conditions requiring the participating Series A Eligible Sellers and
Eligible Founders to comply with all applicable provisions of the
Securities Act and the Exchange Act including, but not limited to, the
prospectus delivery requirements of the Securities Act, and to furnish
to the Company information about sales made in such public offering;
(c) subject to the Registration Delay Limit, conditions prohibiting the
participating Series A Eligible Sellers and Eligible Founders upon
receipt of telegraphic or written notice from the Company that it is
required by law to correct or update the registration statement or
prospectus from effecting sales of the Restricted Stock until the
Company has completed the necessary correction or updating, provided,
that the Company shall use its best efforts to promptly complete such
necessary correction or updating; and
(d) conditions prohibiting the participating Series A Eligible Sellers and
Eligible Founders from selling all or substantially all of the
Restricted Stock of such participating Series A Eligible Sellers and
Eligible Founders in a block trade at a discount of more than the
lesser of 10% and two (2) times the then standard discount for block
trades of similar size and of similar securities issued by entities
with financial condition and prospects similar to the Company at such
time.
8. Expenses. The Company will pay all Registration Expenses in connection with
each Registration Statement pursuant to Sections 4 and 5 hereof. With respect to
registrations made pursuant to Section 3 hereof, the Company will pay all
Registration Expenses in connection with the first two registrations only. All
Registration Expenses of the third registration made pursuant to Section 3
hereof (excluding the fees and disbursements of counsel for any holder of
Restricted Stock other than a Series A Eligible Seller) shall be borne by the
participating Series A Eligible Sellers in proportion to the number of shares
sold by each, or by such participating Series A Eligible Sellers as they may
agree, except that if the Company participates in such third registration, then
the Company shall pay the incremental expenses of such third registration
attributable to the Company's participation in such third registration. All
Selling Expenses attributable to the sale of securities by Series A Eligible
Sellers or Eligible Founders in connection with each Registration Statement
under any Registration Provision shall be borne by the participating Series A
Eligible Sellers and Eligible Founders in proportion to the number of shares
sold by each, or by such participating Series A Eligible Sellers and Eligible
Founders as they may agree; and all Selling Expenses attributable to the sale of
securities by the Company in connection with any Registration Provision shall be
borne by the Company.
9. Indemnification and Contribution.
(a) In the event of a registration of any of the Restricted Stock under the
Securities Act pursuant to any Registration Provision, the Company will
indemnify and hold harmless each Series A Eligible Seller and Eligible Founder
thereunder and each underwriter of such Restricted Stock thereunder and each
other Person, if any, who controls such Series A Eligible Seller, Eligible
Founder or underwriter (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act), against any losses, claims, damages,
liabilities or judgments, joint or several, as incurred (including, without
limitation, any legal or other expenses incurred in connection with
investigating or defending any matter, including any action that could give rise
to any such losses, claims, damages, liabilities or judgments), to which such
Series A Eligible Seller, Eligible Founder underwriter or controlling Person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement, preliminary prospectus or
Prospectus (or any amendment or supplement thereto) provided by the Company to
any Series A Investor, underwriter, each other Person, if any, who controls such
Series A Eligible Seller, Eligible Founder or underwriter within the meaning of
the Securities Act or any prospective purchaser of Restricted Stock, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any violation by the Company of the Securities Act, and will pay the legal
fees and other expenses, as incurred, of each such Series A Eligible Seller,
each such Eligible Founder, each such underwriter and each such controlling
Person incurred by them in connection with investigating or defending any such
loss, claim, damage, liability or action, provided, however, that the Company
will not be liable in any such case if and to the extent that any such loss,
claim, damage, liability or judgment arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
reliance upon and in conformity with information furnished by any such Series A
Eligible Seller, any such Eligible Founder, any such underwriter or any such
controlling Person, in each case, in writing specifically for use in such
Registration Statement or Prospectus.
(b) In the event of a registration of any of the Restricted Stock under the
Securities Act pursuant to any Registration Provision, each Series A Eligible
Seller and Eligible Founder thereunder, severally and not jointly, will
indemnify and hold harmless the Company, its directors and officers, and each
Person, if any, who controls (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) the Company, to the same extent as the
foregoing indemnity from the Company set forth in Section 8(a) hereof, but only
with reference to information relating to such Series A Eligible Seller or such
Eligible Founder, as the case may be, furnished in writing to the Company by
such Series A Eligible Seller or such Eligible Founder expressly for use in any
Registration Statement. In no event shall any Series A Eligible Seller, Eligible
Founder or its or their directors, officers or any Person who controls such
Series A Eligible Seller or Eligible Founder be liable or responsible for any
amount in excess of the gross proceeds (after deducting underwriting discounts
and selling commissions) received by such Series A Eligible Seller or Eligible
Founder with respect to its sale of Restricted Stock pursuant to a Registration
Statement.
(c) In case any action shall be commenced involving any Person in respect of
which indemnity may be sought pursuant to Section 9(a) or 9(b) (the "indemnified
party"), the indemnified party shall promptly notify the Person against whom
such indemnity may be sought (the "indemnifying Person") in writing; provided,
however, that failure of an indemnified party to provide such notice shall not
relieve an indemnifying Person of its obligations under this Section 8 if such
failure does not materially and adversely affect the rights of such indemnifying
Person. The indemnifying party may assume the defense of such action provided
that the expenses of the indemnified party are reimbursed as they are incurred
(including, without limitation, the payment of all fees and expenses of counsel
to the indemnified party) and such indemnifying party has not failed to comply
with any such reimbursement request. Any indemnified party shall have the right
to employ separate counsel in any such action and participate in the defense
thereof, but the reasonable fees and expenses of such counsel shall be at the
expense of the indemnified party, unless (i) the employment of such counsel
shall have been specifically authorized in writing by the indemnifying party,
(ii) the indemnifying party shall have failed to assume the defense of such
action or (iii) the named parties to any such action (including any impleaded
parties) include both the indemnified party and the indemnifying party, and the
indemnified party shall have been reasonably advised by such counsel that the
representation of the indemnifying party and the indemnified party by the same
counsel would be inappropriate due to actual or potential differing interests
between the indemnifying party and the indemnified party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all indemnified parties and all such reasonable fees and expenses
shall be reimbursed as they are incurred. Such firm shall be designated in
writing by a majority of the Series A Eligible Sellers and Eligible Founders, in
the case of the parties indemnified pursuant to Section 9(a), and by the
Company, in the case of parties indemnified pursuant to Section 9(b). The
indemnifying party shall indemnify and hold harmless the indemnified party from
and against any and all losses, claims, damages, liabilities and judgments by
reason of any settlement of any action (i) effected with the indemnifying
party's written consent or (ii) effected without the indemnifying party's
written consent if the indemnifying party is adjudicated by a court of competent
jurisdiction to have breached its obligations under this Section 9 and the
indemnified party enters into a settlement more than twenty Business Days after
the indemnifying party shall have received a request from the indemnified party
for reimbursement for the reasonable fees and expenses of counsel (in any case
where such reasonable fees and expenses are at the expense of the indemnifying
party) and, prior to the date of such settlement, the indemnifying party shall
have failed to comply with such reimbursement request. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the indemnified party
is or could have been a party and indemnity or contribution may be or could have
been sought hereunder by the indemnified party, unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability on claims that are or could have been the subject
matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.
(d) To the extent that the indemnification provided for in this Section 9 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or judgments (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company, on the one hand, and the
Series A Eligible Sellers and Eligible Founders, on the other hand, from their
sale of Restricted Stock or (ii) if the allocation provided by clause (i) of
this Section 9(d) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in such clause
(i) but also the relative fault of the Company, on the one hand, and of the
Series A Eligible Seller and Eligible Founder, on the other hand, in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative fault of the Company, on the one hand, and of the
Series A Eligible Seller and Eligible Founder, on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, on the one hand,
or by the Series A Eligible Seller and Eligible Founder, on the other hand, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or payable by
an indemnified party as a result of the losses, claims, damages, liabilities or
judgments referred to above shall be deemed to include, subject to the
limitations set forth in Section 9(c), any legal or other fees or expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any matter, including any action that could have given rise to such
losses, claims, damages, liabilities or judgments.
The Company and each Series A Eligible Seller and Eligible Founder
agree that it would not be just and equitable if contribution pursuant to this
Section 9(d) were determined by pro rata allocation (even if the Series A
Eligible Sellers and Eligible Founders were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 8, no Series A Eligible Seller,
Eligible Founder, its or their directors or officers or any Person, if any, who
controls such Series A Eligible Seller or Eligible Founder shall be required to
contribute, in the aggregate, any amount in excess of the gross proceeds (after
deducting underwriting discounts and selling commissions) received by such
Series A Eligible Seller or Eligible Founder with respect to its sale of
Restricted Stock pursuant to a Registration Statement. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. The Series A Eligible Sellers' and
Eligible Founders' obligations to contribute pursuant to this Section 9(d) are
several in proportion to the respective shares of Restricted Stock held by each
Series A Eligible Seller and Eligible Founder hereunder and not joint.
10. Changes in Common Stock or Preferred Stock. If, and as often as, there is
any change in the Common Stock or the Preferred Stock by way of a stock split,
stock dividend, combination or reclassification, or through a merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof so that the rights
and privileges granted hereby shall continue with respect to the Common Stock or
the Preferred Stock as so changed.
11. Rule 144 Reporting and Rule 144A Information. With a view to making
available the benefits of certain rules and regulations of the Commission that
may at any time permit the resale of the Restricted Stock without registration,
the Company will:
(a) at all times after 90 days after any Registration Statement covering a
public offering of securities of the Company under the Securities Act shall have
become effective:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(ii) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act; and
(iii) furnish to each Series A Eligible Seller and Eligible Founder
forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of such Rule 144
and of the Securities Act and the Exchange Act; and
(b) at any time, at the request of any Series A Eligible Seller or Eligible
Founder, make available to such Series A Eligible Seller or Eligible Founder, as
the case may be, and to any prospective transferee of Preferred Stock or shares
of Restricted Stock the information concerning the Company described in Rule
144A(d)(4) under the Securities Act.
12. Representations and Warranties of the Company. The Company represents and
warrants to the Series A Investors and Founders, as of the date hereof, as
follows:
(a) The execution, delivery and performance of this Agreement by the Company
have been duly authorized by all requisite corporate action and will not cause a
material violation of any provision of any law applicable to the Company, any
order of any court or other agency of government applicable to the Company, the
Certificate of Incorporation or By-laws of the Company or any provision of any
indenture, agreement or other instrument to which it or any or its properties or
assets is bound, 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
or encumbrance of any nature whatsoever upon any of the properties or assets of
the Company.
(b) 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, subject to laws of general application from time
to time in effect affecting creditors' rights and the exercise of judicial
discretion in accordance with general equitable principles.
13. Lock-Up Period Agreements. In connection with any underwritten public
offering of the Company's securities, the Series A Investors hereby agree, and
each Series A Investor shall secure the agreement of any Investor Transferee,
upon request of the Company or the lead underwriter, not to sell or otherwise
transfer or dispose of any securities of the Company held by such person for a
period (the "Lock-Up Period") following the effective date of a registration
statement of the Company filed under the Securities Act with respect to such
offering. The Lock-Up Period shall not exceed 120 days after such effective date
for any public offering; provided, however, that in the case of an initial
public offering of Common Stock by the Company, the Lock-Up Period shall not
exceed 180 days after the effective date of such initial public offering. No
Lock-Up Period agreement shall apply under this Section 12 to any public
offering unless each executive officer, director, and holder of 1.5% of the
outstanding shares of Common Stock of the Company shall enter into the same
Lock-Up Period agreement or a Lock-Up Period agreement more favorable to the
Company in respect of such public offering. In the event that the provisions set
forth in Section 4(b) of this Agreement prevent a Series A Investor from
registering its Restricted Stock pursuant to Section 4(a) of this Agreement in a
public offering by the Company, such Series A Investor shall not be subject to
the Lock-Up Period agreement set forth in this Section 12 during such offering.
14. Miscellaneous.
(a) Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon the successors and assigns of each of the parties, including,
without limitation, Investor Transferees; provided that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Restricted
Stock in violation of the terms hereof or of the Stock Purchase Agreement or the
Stockholders' Agreement; provided, further, that the rights of the Series A
Investors hereunder shall not be assignable to any competitor of the Company
unless such assignment is in connection with the sale by the Series A Investors
of a majority of the Restricted Stock held by the Series A Investors and notice
of such assignment and the identity of such transferee is provided to the
Company. If any transferee of any Series A Investor shall acquire Restricted
Stock in any manner, whether by operation of law or otherwise, such Restricted
Stock shall be held subject to all of the terms of this Agreement, and by taking
and holding such Restricted Stock such Person shall be conclusively deemed to
have agreed to be bound by and to perform all of the terms and provisions of
this Agreement, including the restrictions on resale set forth in this Agreement
and, if applicable, the Stock Purchase Agreement and Stockholders' Agreement,
and such Person shall be entitled to receive the benefits hereof.
(b) Remedies. Each party to this Agreement acknowledges and agrees that any
failure by such party to comply with such party's obligations hereunder may
result in material irreparable injury to the other parties hereto for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of any such failure,
the other parties may seek such relief as may be required to specifically
enforce the breaching party's obligations hereunder. Each party further agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate.
(c) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier with
confirmation and followed promptly by hard copy in accordance with this
provision, or courier guaranteeing reasonably prompt delivery and recognized for
high quality service:
(i) if to RSI ESO or RSI, at
Reckson Service Industries, Inc.
10 East 50th Street - 27th Floor
New York, NY 10103
Tel: 212-931-8000
Fax: 212-931-8001
Attn: Jeffrey D. Neumann and Stephen M. Rathkopf
with copies to:
Jason Barnett, Esq.
General Counsel
Reckson Service Industries, Inc.
10 East 50th Street - 27th Floor
New York, NY 10103
Tel: 212-931-8000
Fax: 212-931-8001
Brown & Wood LLP
One World Trade Center
New York, NY 10048
Attention: J. Gerard Cummins, Esq.
Tel: 212-839-5300
Fax: 212-839-5599
(ii) if to Elliot S. Cooperstone, at
36 New England Drive
Stamford, CT 06903
Tel: 203-968-1113
Fax: 203-968-1113
with a copy to:
Orrick, Herringon & Sutcliffe LLP
666 Fifth Avenue
New York, NY 10103
Attention: Martin H. Levenglick, Esq.
Tel: 212-506-5000
Fax: 212-506-5151
(iii) if to H. Thach Pham, at
53 Fayette Road
Scarsdale, NY 10583
Tel: 914-725-5751
Fax: 914-722-1429
with a copy to:
Orrick, Herringon & Sutcliffe LLP
666 Fifth Avenue
New York, NY 10103
Attention: Martin H. Levenglick, Esq.
Tel: 212-506-5000
Fax: 212-506-5151
(iv) if to the Company, at
eSourceOne, Inc.
53 Fayette Road
Scarsdale, NY 10583
Attention: H. Thach Pham, Chief Financial Officer
Tel: 914-725-5751
Fax: 914-722-1429
with a copy to:
Orrick, Herringon & Sutcliffe LLP
666 Fifth Avenue
New York, NY 10103
Attention: Martin H. Levenglick, Esq.
Tel: 212-506-5000
Fax: 212-506-5151
or, in any case, at such other address or addresses as shall have been furnished
in writing by one party to the other parties in accordance with the provisions
of this Section 14(c).
All such notices and communications shall be deemed to have been duly
given: at the time delivered, if delivered by hand, telex or by courier; five
(5) business days after being deposited in the mail, if mailed; and when receipt
acknowledged, if telecopied.
(d) Governing Law. This agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
conflict of law rules thereof, applicable to contracts made and to be performed
within such State.
(e) Submission to Jurisdiction. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of New York and of the United States of America, in
each case located in the County of New York, for any action, proceeding or
investigation in any court or before any governmental authority ("Litigation")
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any Litigation relating thereto except in
such courts). Each of the parties hereto hereby irrevocably and unconditionally
waives any objection to the laying of venue of any Litigation arising out of
this Agreement or the transactions contemplated hereby in the courts of the
State of New York or the United States of America, in each case located in the
County of New York, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such Litigation
brought in any such court has been brought in an inconvenient forum.
(f) No Inconsistent Agreements. The Company will not, on or after the date
of this Agreement, enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Series A Investors in this
Agreement or otherwise conflicts with the provisions hereof. The rights granted
to the Series A Investors hereunder do not in conflict in any material respect
with and are not inconsistent with the rights granted to the holders of the
Company's securities under any agreement in effect on the date hereof. The
Company shall not grant to any third party any registration rights that are more
favorable than, inconsistent with, or equivalent to any of those contained
herein, so long as any of the registration rights under this Agreement remains
in effect, except that the Company may grant to any third party who purchases
from the Company Second Round Securities (as defined in the Stock Purchase
Agreement) registration rights that are equivalent to any or all of those
contained herein.
(g) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given, unless (i) in the case of this Section
13(g), the Company has obtained the written consent of each Series A Eligible
Seller, and (ii) in the case of all other provisions hereof, the Company has
obtained the written consent of the Series A Eligible Sellers holding a majority
of the outstanding shares of Restricted Stock (excluding Restricted Stock held
by the Company or any of its affiliates (as defined in Rule 144 under the
Securities Act)).
(h) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. In proving this Agreement
it shall not be necessary to produce or account for more than one such
counterpart executed by the party against whom enforcement is sought.
(i) Termination. This Agreement and the rights granted herein with respect
to any Series A Eligible Seller or Eligible Founder shall terminate on the
earlier of (i) the seventh (7th) anniversary of a Qualified Initial Public
Offering and (ii) such time that all of the Restricted Stock held by such Series
A Eligible Seller or Eligible Founder can be sold under Rule 144(k) promulgated
under the Securities Act.
(j) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(k) Severability. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement unless the effect thereof would be to alter materially the effect of
this Agreement, and this Agreement (if not so altered) shall be carried out as
if any such illegal, invalid or unenforceable provision were not contained
herein.
(l) Delays or Omissions. It is agreed that no delay or omission to exercise
any right, power or remedy on the part of any party upon any breach or default
of any party to this Agreement shall impair any such right, power or remedy, nor
shall it be construed to be a waiver of any such breach or default, or any
acquiescence therein, or of any similar breach or default thereafter occurring;
nor shall any waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. It is further
agreed that any waiver, permit, consent or approval of any kind or character on
any party of any breach or default under this Agreement must be in writing and
shall be effective only to the extent specifically set forth in such writing and
that all remedies either under this Agreement, or by law otherwise afforded to
any party, shall be cumulative and not alternative.
(m) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Restricted
Stock. This Agreement supersedes all prior agreements and understandings between
the parties with respect to such subject matter.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
eSourceOne, Inc.
By: ___________________________________
Chief Executive Officer
THE SERIES A INVESTORS
RSI ESO, Inc.
By: ____________________________________
Name:
Title:
RECKSON SERVICE INDUSTRIES, INC.
By: _____________________________________
Name:
Title:
THE FOUNDERS
-----------------------------------
Elliot S. Cooperstone
-----------------------------------
H. Thach Pham
Exhibit 10.3
==============================================================================
eSourceOne, Inc.
(a Delaware corporation)
STOCKHOLDERS' AGREEMENT
Dated: August 10, 1999
=============================================================================
<PAGE>
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement ("Agreement") is made and entered into as of this
10th day of August, 1999, by and among eSourceOne, Inc., a Delaware corporation
(the "Company"), and each of the persons and entities, severally and not
jointly, that are signatories hereto, and any additional stockholder who becomes
a party hereto as provided herein (collectively, the "Stockholders").
RECITALS
WHEREAS, the Company, the persons defined therein as the "Series A
Investors" and the persons defined therein and herein as the Founders have
executed and delivered that certain Stock Purchase Agreement, dated August 10,
1999 (the "Stock Purchase Agreement"), pursuant to which the Company has agreed
to issue and sell to such Series A Investors, and such Series A Investors have
agreed to purchase from the Company, the shares of the Company's Series A
Convertible Redeemable Preferred Stock, par value $0.01 per share (the "Series A
Preferred Stock"), specified therein;
WHEREAS, as an inducement to the Series A Stockholders to consummate
the purchase of the Series A Preferred Stock in accordance with the Stock
Purchase Agreement, the Company and its other Stockholders each desires to enter
into this Agreement with the Series A Stockholders;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements herein contained, the receipt and sufficiency of which is hereby
acknowledged, and subject to the terms and conditions set forth herein, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1. Defined Terms. Certain defined terms used in this Agreement have
the following meanings:
Affiliate. The term "affiliate" shall mean (i) in the case of a
corporation or other entity, any corporation or other entity in which the
subject person (A)(1) owns or controls the voting rights of 50% or more of the
capital stock or other equity interests the holders of which are generally
entitled to vote for the election of the board of directors or other governing
body of such corporation or entity or (2) has the right to nominate and/or elect
at least one-half of the members of the board of directors of such corporation
or entity or (3) at least one-half of the then current members of the board of
directors of such corporation or entity were nominated or designated for
election as directors of such corporation by the subject person and (B) for
financial reporting purposes, the financial statements of the subject person
includes on a consolidated basis the financial statements of such corporation or
other entity, and (ii) in the case of an individual, a member of that
individual's family, by blood or marriage.
Agreement. The "Agreement" shall mean this Stockholders Agreement, as
the same may be amended or restated from time to time hereafter.
Board. The "Board" shall mean the Board of Directors of the Company as
the same may be constituted from time to time hereafter pursuant to this
Agreement, applicable law, the Certificate of Incorporation and the By-Laws.
Bona Fide Offer. A "Bona Fide Offer" shall mean an offer in writing to
a Series A Stockholder or Founder, offering to purchase (other than pursuant to
or in connection with a public offering or a sale under Rule 144 of the
Securities Act following a Qualified Initial Public Offering) all or any part of
the Shares owned by such Series A Stockholder or Founder or any interest of the
Series A Stockholder or Founder therein and setting forth all the material terms
and conditions of the proposed purchase, from an offeror who is ready, willing
and able to consummate the purchase and who is not a permissible transferee
pursuant to Section 3.3.
By-Laws. The "By-Laws" shall mean the By-Laws of the Company in effect
as of the date hereof and as the same may be modified from time to time
hereafter pursuant to applicable law and the Certificate of Incorporation.
Certificate of Incorporation. The "Certificate of Incorporation" shall
mean the Certificate of Incorporation of the Company, as filed with the
Secretary of State of the State of Delaware, including, without limitation, the
Series A Certificate of Designation, in effect as of August _, 1999, and as the
same may be modified, amended or replaced from time to time hereafter in
compliance with applicable law and the Company's other obligations with respect
thereto.
Commission. The "Commission" shall mean the Securities and Exchange
Commission and any successor commission or agency having similar powers.
Common Stock. The "Common Stock" shall mean the Company's Common Stock,
$0.01 par value per share.
Common Stock Equivalents. "Common Stock Equivalents" shall mean the
then outstanding shares of the Company's Common Stock, on a fully-diluted, as
converted basis, accounting for all outstanding convertible securities and all
options, warrants and rights to acquire Common Stock, regardless of whether such
options, warrants and rights to acquire Common Stock are vested or unvested.
Common Stockholder. "Common Stockholder" shall mean any holder of the
Company's Common Stock.
Fair Market Value. "Fair Market Value" shall mean with respect to any
asset, property or security the fair market value thereof as determined in good
faith by the Board, provided, however, that in the event any such determination
by the Board is disputed by an interested Stockholder, then the Company, at
shared expense, shall engage an independent appraiser mutually acceptable to the
Company and such Stockholder, and the fair market value of such asset, property
or security for the purposes hereof shall be determined by such independent
appraiser; and provided further, however, that in the event that the parties are
not able to promptly agree upon an independent appraiser, then the party
entitled to receive such asset, property or security shall be entitled to select
as an independent appraiser any of the independent accounting firms generally
regarded as comprising the "Big Five" independent accounting firms and which is
not then providing services to such party; and provided further, however, that
the Fair Market Value of capital stock of the Company for purposes of any
payment requirements under Sections 3.4 or 3.5 shall be the value of such
capital stock as provided in the offer and sale to which such payment
requirements relate.
Founders. The "Founders" shall mean Elliot S. Cooperstone and H. Thach
Pham.
Person. A "Person" shall mean any entity, corporation, company,
association, joint venture, joint stock company, partnership, limited liability
company, trust, organization, individual (including personal representatives,
executors and heirs of a deceased individual), nation, state, government
(including agencies, departments, bureaus, boards, divisions and
instrumentalities thereof), trustee, receiver or liquidator.
Qualified Initial Public Offering. "Qualified Initial Public Offering"
shall mean a firm underwritten public offering of Common Stock by a nationally
recognized underwriter with aggregate gross proceeds to the Company of at least
$30,000,000 and reflecting a market value of the Company of at least
$150,000,000 immediately prior to such public offering.
Second Round Closing. The term "Second Round Closing" shall have the
meaning ascribed to that term in the Stock Purchase Agreement.
Second Round Securities. The term "Second Round Securities" shall have
the meaning ascribed to that term in the Stock Purchase Agreement.
Securities Act. The "Securities Act" shall mean the Securities Act of
1933, as amended, and the rules and regulations thereunder.
Series A Certificate of Designation. The "Series A Certificate of
Designation" shall mean the Certificate of Designation filed as part of the
Certificate of Incorporation of the Company and designating the rights and
privileges attributable to the Series A Preferred Stock.
Series A Closing. The "Series A Closing" shall mean the date upon which
the purchase and sale of the Series A Preferred Stock was consummated in
accordance with the Stock Purchase Agreement.
Series A Preferred Stock. The "Series A Preferred Stock" shall have the
meaning ascribed to that term in the Recitals to this Agreement.
Series A Stockholder. "Series A Stockholder" shall mean any holder of
the Company's Series A Preferred Stock; provided that solely for purposes of
this Agreement, the term "Series A Stockholder" shall also mean Reckson Service
Industries, Inc., a Delaware corporation ("RSI"), for so long as (i) RSI ESO,
Inc., a Delaware corporation ("RSI ESO"), or any successor or permitted assign
of RSI ESO is an affiliate of RSI and (ii) RSI ESO or such successor or
permitted assign holds the Company's Series A Preferred Stock.
Stock Purchase Agreement. "Stock Purchase Agreement" shall have the
meaning set forth in the Recitals to this Agreement.
Shares. The "Shares" shall mean the shares of the capital stock and
other securities (including, without limitation, options, warrants and other
rights to acquire capital stock) of the Company held by the Stockholders,
together with any other shares of the capital stock of the Company hereafter
acquired by any Stockholder (whether by purchase, exercise of options or
warrants, or otherwise) and any other shares or securities thereafter issued in
respect of such shares in any reorganization, recapitalization,
reclassification, readjustment or other change in a capital structure of the
Company.
Stockholder. A "Stockholder" shall mean each of the Persons who has
executed a counterpart copy of this Agreement, including without limitation
Common Stockholders and Series A Stockholders, whether prior to or on the date
hereof or, at the invitation of the Company as permitted pursuant to this
Agreement, subsequent to the date hereof, and who is listed on Schedule A
attached hereto, as amended from time to time, and each other Person who
succeeds to the interest of such named Person in and to any Shares in a manner
permitted by the provisions of this Agreement. In the event that any Person
executes a counterpart copy of this Agreement at the invitation of the Company
as permitted pursuant to this Agreement, following the date hereof or succeeds
to an interest in any Shares as permitted hereunder, Schedule A shall be amended
as appropriate.
Transfer. A "Transfer" of Shares or any interest of a Stockholder
therein shall mean any sale, assignment, transfer, disposition, pledge,
hypothecation or encumbrance, whether direct or indirect, voluntary, involuntary
or by operation of law, and whether or not for value, of such Shares or such
interest of a Stockholder therein, including, without limitation, any direct or
indirect Transfer of a controlling interest in any Stockholder, other than
transfers of capital stock of Reckson Service Industries, Inc.
ARTICLE II
CORPORATE GOVERNANCE
2.1. Board of Directors.
2.1.1. The Board of Directors of the Company shall initially
consist of five (5) directors, designated as follows:
(a) one person shall be designated by Mr. Cooperstone, subject to
Section 2.1.1(e) below, and the Stockholders shall vote all of their Shares in
favor of such nominee;
(b) one person shall be designated by Mr. Pham, subject to
Section 2.1.1(e) below, and the Stockholders shall vote all of their Shares in
favor of such nominee;
(c) one person shall be designated by the Founders, subject to
Section 2.1.1(f) below and subject to the approval of the holders of a majority
of the shares of Series A Preferred Stock, which such approval shall not be
unreasonably withheld, delayed or conditioned, and, upon such approval, the
Stockholders shall vote all of their Shares in favor of such nominee, provided,
however, that such nominee shall not otherwise be or have been an employee or
affiliate of the Company or an affiliate or member of the family, by blood or
marriage, of either Founder (such nominee, and if elected to the Board, such
Director, being referred to as the "Independent Nominee" and "Independent
Director", respectively; and
(d) two persons shall be designated by the holders of a majority
of the Series A Preferred Stock, subject to Section 2.1.2 below, and the
Stockholders shall vote all of their Shares in favor of such nominee.
(e) In the event that a Founder fails to maintain ownership of at
least 20% of the outstanding capital stock of the Company owned by such Founder
as of the date of the Series A Closing, the right of such Founder to designate a
director under Section 2.1.1(a) or 2.1.1(b), as the case may be, shall thereupon
terminate. Upon such termination of such right of such Founder, the holders of a
majority of outstanding Common Stock of the Company (voting as a separate class)
shall have the right to designate the nominee pursuant to Section 2.1.1(a) or
(b), as the case may be, and the Stockholders shall vote all of their shares in
favor of such nominee. In the event that the Company terminates employment of
the Founder "for cause" (as defined in the Employment Agreement, dated August
10, 1999, by and between the Company and such Founder) or the Founder terminates
such Founder's employment without "good reason" (as defined in such Employment
Agreement), the rights of such Founder under Sections 2.1.1, 3.4 and 3.5 shall
thereupon terminate; provided, however, that in the event that the Founder is
indicted for allegedly committing a felony under the laws of the United States
or any state thereof, then such Founder's rights under Section 2.1.1, 3.4 and
3.5 shall be (i) suspended until such time as such Founder is found not guilty
by a court of competent jurisdiction of such felony at which time the rights
under Section 2.1.1, 3.4 and 3.5 shall be reinstated or (ii) terminated if the
such Founder is found guilty by a court of competent jurisdiction of such
felony.
(f) With respect to the Independent Nominee to be designated by
the Founders pursuant to Section 2.1.1(c) above, the Founders shall have an
initial period of sixty (60) days to designate an Independent Nominee. If the
holders of a majority of the shares of Series A Preferred Stock fail to approve,
which such approval shall not be unreasonably withheld, delayed or conditioned,
such Independent Nominee within five business days of being notified of such
designation, the Founders shall have a thirty (30) day period immediately
following notice of such rejection in which to designate a first alternate
Independent Nominee. If the holders of a majority of the shares of Series A
Preferred Stock fail to approve, which such approval shall not be unreasonably
withheld, delayed or conditioned, such first alternate Independent Nominee
within five business days of being notified of such designation, the Founders
shall have an additional thirty (30) days in which to designate a second
alternate Independent Nominee. If the holders of a majority of the shares of
Series A Preferred Stock fail to approve any such second alternate Independent
Nominee designated by the Founders, which such approval shall not be
unreasonably withheld, delayed or conditioned, the holders of a majority of the
shares of Series A Preferred Stock shall thereupon have a period of thirty (30)
days to designate an Independent Nominee. If the Founders reject such
Independent Nominee designated by the holders of the Series A Preferred Stock
within five business days of being notified of such designation, which such
rejection shall not be unreasonably made, delayed or conditioned, then the
holders of a majority of the shares of Series A Preferred Stock shall thereupon
have the exclusive right (without regard to any approval by the Founders) to
designate an Independent Nominee and the Stockholders shall vote all of their
Shares in favor of such Independent Nominee at a meeting of the Stockholders
promptly held for such purpose.
2.1.2. In the event that aggregate redemptions, repurchases or
Transfers of Series A Preferred Stock (including any Shares into which the
Series A Preferred Stock is converted or exchanged) by the Series A Stockholders
to one or more unaffiliated third-parties are greater than 50%, but no more than
80%, of the number of shares of Series A Preferred Stock purchased by the Series
A Stockholders upon the Series A Closing (including any Shares into which the
Series A Preferred Stock is converted or exchanged), the number of directors
that the Series A Stockholders shall have the right to designate pursuant to
Section 2.1.1(d) shall be reduced from two (2) directors to one (1) director. In
the event that aggregate redemptions, repurchases or Transfers of Series A
Preferred Stock (including any Shares into which the Series A Preferred Stock is
converted or exchanged) by the Series A Stockholders to one or more unaffiliated
third-parties are greater than 80% of the number of shares of Series A Preferred
Stock purchased by the Series A Stockholders upon the Series A Closing
(including any Shares into which the Series A Preferred Stock is converted or
exchanged), the Series A Stockholders shall not have any right under Section
2.1.1(d) to designate any directors or any right under Sections 2.1.1(c) and
2.1.1(f) to approve any Independent Nominee. Upon termination of any right of
the Series A Stockholders to designate one or more directors, such right shall
revert to the holders of a majority of outstanding Common Stock of the Company.
2.1.3. Prior to a Qualified IPO, the By-Laws of the Company shall
provide that the maximum number of Directors of the Company shall be seven (7)
and that the minimum number shall be five (5). In the event that prior to the
Second Round Closing, the Board desires to increase the number of standing
Directors from the initial number of five (5), then the number of standing
directors shall be increased from five (5) to seven (7), but not six (6), and at
least one of such two (2) additional directors shall be designated by a majority
of the Series A Stockholders. If such increase in the number of standing
directors does not occur prior to the Second Round Closing, then the sixth and
seventh director positions on the Board shall be made available for designation
by the purchasers of the Second Round Securities. In addition, the By-Laws of
the Company shall provide that (i) any director shall have the power to call a
special meeting of the Board of the Company for any purpose on not less than
twenty-hours notice in accordance with the provisions of the By-Laws relating to
the manner of such notices and (ii) any director or holder of 10% or more of the
Common Stock Equivalents shall have the power to call a special meeting of the
holders of capital stock of the Company in accordance with the notice procedures
set forth in the By-Laws.
2.1.4. Each director shall hold office until his or her death or
resignation or until his or her successor shall have been duly elected and
qualified. Any Stockholder having the right to nominate a director pursuant to
Section 2.1.1 above, also shall have the right to request the resignation or
removal of the director so nominated and elected. In such event, such director
shall immediately resign or be subject to removal by a vote of a majority of
such Stockholders and the Stockholders shall vote all of their Shares in favor
of such removal. In the event any director is so removed, or if a vacancy is
created by the death, disability, retirement, resignation or removal of any
director, the vacancy so created shall be filled in accordance with Section
2.1.1 hereof.
2.1.5. In the event that the Company shall establish any
committee of its Board, including, without limitation, any Executive,
Compensation or Audit Committee, such committee shall be comprised of an equal
number of directors designated to the Board by each of (i) the Founders and (ii)
the Series A Stockholders; provided, however, that no Executive Committee will
be established by the Board, until such time as the number of directors on the
Board is greater than five (5).
2.1.6. Each Stockholder shall take all actions necessary to call,
or cause the Company and the appropriate officers and directors of the Company
to call, a special or annual meeting of stockholders of the Company and to vote
all Shares owned or held of record by such Stockholder at any such annual or
special meeting in favor of, or take all actions by written consent in lieu of
any such meeting necessary to cause, the election as members of the Board of
those individuals so designated in accordance with, and otherwise to effect the
intent of, this Article II. In addition, each Stockholder shall vote the Shares
owned or held of record by such Stockholder upon any other matter arising under
this Agreement submitted to a vote of the stockholders of the Company in a
manner so as to implement the terms of this Agreement. Except as provided
herein, each Stockholder may vote such Stockholder's Shares on any and all
matters presented to the stockholders of the Company as such Stockholder may, in
such Stockholder's sole discretion, determine. Nothing herein shall be deemed to
create any ownership interest on the part of any party in any Shares held by any
of the other parties.
ARTICLE III
TRANSFERS OF SHARES
3.1. General Restriction. No Founder of the Company shall
Transfer Shares or an interest in any Shares until the later of (i) six (6)
months after the consummation of a Qualified Initial Public Offering or (ii) the
expiration of any lock-up or restricted transfer period required by the
underwriters for such Qualified Initial Public Offering, except in accordance
with the terms of this Agreement. Any attempted Transfer by a Founder of the
Company in violation of this Agreement shall be null and void ab initio, and
neither the Company nor any transfer agent of the Company shall give effect to
any such attempted Transfer in its stock records or for any other purpose.
3.2. Permissible Transfers. Notwithstanding anything to the
contrary set forth in this Agreement, provided that any Founder has first given
the Company written notice of any such Transfer, the restriction on Transfer
specified in Section 3.1 shall not apply to any Transfers: (i) the aggregate
amount of which in any twelve (12) month period shall not exceed the greater of
(A) 10% of the number of Shares held by such Founder as of the Series A Closing
and (B) $1,000,000 of gross proceeds received by such Founder upon such
Transfer; (ii) to a Founder's estate, heirs, administrators or executors and
(iii) (whether by gift or otherwise) from a Founder to such Founder's spouse,
siblings, lineal descendants or ancestors (or to a trustee of a trust which upon
such Transfer and at all times thereafter is maintained solely for the benefit
of such persons). Any transferee(s) under clauses (ii) and (iii) of this Section
3.2, shall hold the Shares subject to all of the provisions of this Agreement
and the Stock Purchase Agreement (including, without limitation, Section 10(b)
thereof) and no Transfer shall be effective until such transferee has executed
and delivered to the Company an instrument, in the form prescribed by the
Company, agreeing to be bound by this Agreement and granting to the Transferring
Founder an irrevocable proxy to continue to vote such Shares until the
termination of the Transfer restrictions provided by Section 3.1 hereof.
3.3. Restrictions under Securities Laws. The Shares have been
issued in a non-public offering pursuant to the private offering exemptions
under Section 4(2) of the Securities Act and various exemptions from
registration requirements under applicable state securities laws. Accordingly,
the Shares have not been qualified or registered with any federal or state
securities regulatory authority. Notwithstanding anything to the contrary stated
in this Agreement and except as provided in Section 3.6, no Shares may be
Transferred unless and until (i) counsel for the Company shall have determined,
or the transferring Stockholder shall have delivered to the Company an opinion
of such Stockholder's counsel reasonably satisfactory to the Company, that the
intended Transfer does not violate the Securities Act or the rules and
regulations of the Commission thereunder, and any applicable state securities
laws; or (ii) in the opinion of counsel the intended Transfer is the subject of
a "no-action" letter from the staff of the Commission and any applicable state
securities regulatory agency to the effect that the intended Transfer without
registration or qualification will not result in a recommendation by the staff
of the Commission or applicable state securities regulatory agency that civil or
criminal action be taken with respect thereto; or (iii) the Shares have been
validly registered under the Securities Act and all applicable state securities
laws. All costs and expenses of counsel to the Company in reviewing the
foregoing matters with respect to an intended Transfer of any Shares shall be
borne by the Stockholder owning such Shares.
3.4. Right of First Offer for Series A Preferred Stock.
3.4.1. (a) Except as provided in Sections 3.2(ii), 3.2(iii), 3.6
and 4.2, if at any time prior to a Qualified Initial Public Offering, any Series
A Stockholder (each a "Series A Selling Stockholder") shall decide to Transfer
(other than to an affiliated entity) all or any part of his Shares or any
interest therein ("Offered Shares") for value, the Series A Selling Stockholder
shall first deliver to the Company, the Founders and all other Series A
Stockholders a written notice (the "Stockholder Sale Notice") of such decision,
which such Stockholder Sale Notice may or may not disclose the terms and
conditions (including, without limitation, the proposed price) upon which the
Offered Shares are being offered for sale.
(b) Upon the receipt of the Stockholder Sale Notice, each
Founder and each other Series A Stockholder, pro rata in accordance with such
Founder's or other Series A Stockholder's ownership of Shares (determined on a
Common Stock Equivalents basis), shall have the following rights (each a "Right
of First Offer") during the Exercise Period (as defined):
(i) if such Stockholder Sale Notice discloses the terms
and conditions (including, without limitation, the proposed price) of any
proposed Transfer of Offered Shares, each Founder and each other Series A
Stockholder may accept the terms and conditions (including, without limitation,
the proposed price) disclosed in such Stockholder Sale Notice by delivering,
within the Exercise Period, written notice of such acceptance to the Series A
Selling Stockholder (an "Exercise Notice") and a down-payment of 10% of the
price of the Offered Shares, payable in cash or capital stock of the Company, to
the Series A Selling Stockholder; and
(ii) if such Stockholder Sale Notice does not disclose
the terms and conditions (including, without limitation, price) of the proposed
Transfer of Offered Shares, each Founder and each other Series A Stockholder may
negotiate the terms and conditions of the Transfer of the Offered Shares by
delivering an Exercise Notice to the Series A Selling Stockholder within twenty
(20) days of receipt of the Stockholder Sale Notice; whereupon the Series A
Selling Stockholder and such persons delivering an Exercise Notice shall in good
faith endeavor to negotiate during the Exercise Period the terms and conditions
(including, without limitation, the price) of the Transfer of the Offered
Shares, and if such negotiation results in an agreement on the terms and
conditions of the Transfer of the Offered Shares, then those Founders and other
Series A Stockholders who timely delivered Exercise Notices (the "Exercising
Stockholders") may accept such terms and conditions by delivering, within the
Exercise Period, a written notice to such effect and a down-payment of 10% of
the price of the Offered Shares, payable in cash or capital stock of the
Company, to the Series A Selling Stockholder.
(c) If one or more Founders or Series A Stockholders fail to
timely deliver an Exercise Notice, the Series A Selling Stockholder shall give
prompt notice of such failure to the Exercising Stockholders. Such notice may be
made by telephone and confirmed in writing within two (2) business days. Upon
receipt of such notice, each of the Exercising Stockholders shall have the right
to purchase up to the entire unsold portion of the Offered Shares, pro rata in
accordance with such Exercising Stockholders' ownership of Shares (determined on
a Common Stock Equivalents basis), by giving written notice to the Series A
Selling Stockholder within five (5) days.
(d) For purposes of this Section 3.4, the "Exercise Period" shall
mean, in the case of Section 3.4.1(b)(i), twenty (20) days from the date of
receipt of the Stockholder Sale Notice and, in the case of Section 3.4.1(b)(ii),
forty-five (45) days from the date of receipt of the Stockholder Sale Notice.
3.4.2. If any Right of First Offer, pursuant to Section 3.4.1
hereof, results in a binding agreement with the Series A Selling Stockholder,
the closing of the Transfer of the Offered Shares shall take place not later
than, in the case of Section 3.4.1(b)(i), forty-five (45) days after the date of
delivery of the Stockholder Sale Notice and, in the case of Section
3.4.1(b)(ii), sixty (60) days after the date of delivery of the Stockholder Sale
Notice, in each case time being of the essence, except as extended by mutual
written agreement of the parties thereto. Upon any closing made pursuant to this
Section 3.4.2, the Series A Selling Stockholder shall deliver (i) a
representation and warranty that such Offered Shares are being delivered free
and clear of any encumbrances, (ii) a stock power signed in blank for such
Offered Shares and (iii) usual and customary officer certificates,
cross-receipts and other closing documents. In the event that any down-payment
by an Exercising Stockholder, pursuant to Section 3.4.1(b) or otherwise, is made
in capital stock of the Company, the value of such capital stock for purposes of
this Section 3.4.2 shall be the then Fair Market Value thereof. Any down-payment
made by an Exercising Stockholder in capital stock of the Company shall be
replaced by cash upon any closing made pursuant to this Section 3.4.2.
3.4.3. If any closing pursuant to Section 3.4.2 above is not
timely effected by an Exercising Stockholder during the period required (and has
not been extended by mutual written agreement) and the Series A Selling
Stockholder is unable to consummate a Transfer of the Offered Shares on the same
or better terms for such Series A Selling Stockholder, then (A) such Series A
Selling Stockholder shall retain as liquidated damages any payment made by the
Exercising Stockholder to the Series A Selling Stockholder pursuant to Section
3.4.1 hereof and (B) any future down-payment required of such Exercising
Stockholder pursuant to Sections 3.4 and 3.5 shall be increased to 25%,
provided, however, that if, by reason of this Section 3.4.3, the amount of the
down-payment required pursuant to Section 3.4.1 was already 25%, then such
down-payment shall be increased to 50% and provided further, that if, by reason
of this Section 3.4.3, the amount of the down-payment required pursuant to
Section 3.4.1 was already 50%, then any and all rights of such Exercising
Stockholder pursuant to Sections 3.4, 3.5 and 4.1 of this Agreement shall
expire, which in each case shall constitute the sole and exclusive remedy for
each such failure to close. In addition, if it shall be determined by a court of
competent jurisdiction, that any Stockholder has tortiously interfered with the
contractual relations between a Series A Selling Stockholder and a proposed
transferee of Shares, then any and all rights of such Stockholder pursuant to
Sections 3.4, 3.5 and 4.1 of this Agreement shall thereupon expire, which shall
constitute the sole and exclusive remedy for such tortious interference.
Notwithstanding anything to the contrary contained in this Section 3.4.3, the
Series A Selling Stockholder shall in no event have any obligation or duty to
mitigate its damages by reason of a failure of one or more Exercising
Stockholders to timely effect a closing pursuant to Section 3.4.2.
3.4.4. Notwithstanding the foregoing, if (a) the Stockholders
(pursuant to Section 3.4.1) do not offer to purchase all of the Offered Shares
subject to the Right of First Offer, (b) the Right of First Offer does not
result in a binding agreement because of a failure to agree on one or more
material terms or conditions, or (c) the closing of the Transfer of the Offered
Shares does not occur within the periods specified in Section 3.4.2 (subject to
any extensions) after the date of delivery of the Stockholder Sale Notice, the
Series A Selling Stockholder shall have the right, for a period of one hundred
twenty (120) days after the term of the Right of First Offer expires, to
Transfer all of the Offered Shares to one or more Persons on terms and
conditions no less favorable to the Series A Selling Stockholder than those
offered in writing by the Exercising Stockholders (pursuant to Section 3.4.1);
provided, however, that in the event that governmental consents are required in
connection with any closing of the Transfer of the Offered Shares pursuant to
this Section 3.4.4 and such required governmental consents have been applied for
but not received within the one hundred twenty (120) day period, such period
shall be extended until the time that such required consents have been received,
but in no event shall such period be extended beyond one hundred eighty (180)
days after the term of the Right of First Offer expires; and provided further,
that any such transferee(s) of the Offered Shares shall take and hold the
Offered Shares subject to this Agreement and to all of the obligations and
restrictions arising hereunder upon the Series A Selling Stockholder and no such
Transfer to a transferee not already a party hereto shall be effective until
such transferee has executed and delivered to the Company an instrument in the
form prescribed by the Company agreeing to be bound by this Agreement. If no
such Transfer is effected within the time required by this Section 3.4.4, the
Offered Shares shall once again be subject to the provisions of this Section
3.4.
3.4.5. Nothing in this Section 3.4 shall prohibit, before or
after delivery of a Stockholder Sale Notice, a Series A Selling Stockholder from
negotiating with one or more Persons regarding any terms or conditions of a
proposed Transfer of Shares; provided, however, that if a Series A Selling
Stockholder receives a written offer from one or more Persons regarding any
terms or conditions of a proposed Transfer of Shares, such Series A Selling
Stockholder must disclose, to each Founder and each other Series A Stockholder,
that such Series A Selling Stockholder has an offer and, with respect to the
offeror, only whether the offeror is a financial investor, strategic investor,
competitor of the Company or a vendor to the Company, but shall not be required
to identify the offeror.
3.5. Right of First Offer for Common Stock.
3.5.1. (a) Except as provided in Sections 3.2(i) (to the
extent that the gross proceeds from any Transfer permitted under Section 3.2(i)
do not exceed $1,000,000 per annum), 3.2(ii), 3.2(iii), 3.6 and 4.2, if at any
time prior to a Qualified Initial Public Offering, any Common Stockholder (each
a "Selling Stockholder") shall decide to Transfer all or any part of such
Selling Stockholder's Shares or any interest therein ("Offered Shares") for
value, the Selling Stockholder shall first deliver to the Company, the Founders
and the Series A Stockholders a written notice (the "Stockholder Sale Notice")
of such decision, which such Stockholder Sale Notice may or may not disclose the
terms and conditions (including, without limitation, the proposed price) upon
which the Offered Shares are being offered for sale.
(b) Upon receipt of the Stockholder Sale Notice, each Founder
and each Series A Stockholder, pro rata in accordance with such Founder's and
Series A Stockholder's ownership of Shares (determined on a Common Stock
Equivalents basis), shall then have the following rights (the "Right of First
Offer") during the Exercise Period (as defined):
(i) if such Stockholder Sale Notice discloses the terms
and conditions (including, without limitation, the proposed price) of any
proposed Transfer of Offered Shares, each Founder and each Series A Stockholder
may accept the terms and conditions (including, without limitation, the proposed
price) disclosed in such Stockholder Sale Notice by delivering, within the
Exercise Period, written notice of such acceptance to the Selling Stockholder
(an "Exercise Notice") and a down-payment of 10% of the price of the Offered
Shares, payable in cash or capital stock of the Company, to the Selling
Stockholder; and
(ii) if such Stockholder Sale Notice does not disclose
the terms and conditions (including, without limitation, price) of the proposed
Transfer of Offered Shares, each Founder and each Series A Stockholder may
negotiate the terms and conditions of the Transfer of the Offered Shares by
delivering an Exercise Notice to the Selling Stockholder within twenty (20) days
of receipt of the Stockholder Sale Notice; whereupon the Selling Stockholder and
such persons delivering an Exercise Notice shall in good faith endeavor to
negotiate during the Exercise Period the terms and conditions (including,
without limitation, the price) of the Transfer of the Offered Shares, and if
such negotiation results in an agreement on the terms and conditions of the
Transfer of the Offered Shares, then those Founders and Series A Stockholders
who timely delivered Exercise Notices (the "Exercising Stockholders") may accept
such terms and conditions by delivering, within the Exercise Period, a written
notice to such effect and a down-payment of 10% of the price of the Offered
Shares, payable in cash or capital stock of the Company, to the Selling
Stockholder; provided, however, that the first $2.5 million of any such
down-payment made by the Series A Investors in respect of the proposed purchase
of Common Stock of a Founder under this Section 3.5 shall be in cash.
(c) If one or more Founders or Series A Stockholders fails to
timely deliver an Exercise Notice, the Selling Stockholder shall give prompt
notice of such failure to the Exercising Stockholders. Such notice may be made
by telephone and confirmed in writing within two (2) business days. Upon receipt
of such notice, each of the Exercising Stockholders shall have the right to
purchase up to the entire unsold portion of the Offered Shares, pro rata in
accordance with their ownership of Shares (determined on a Common Stock
Equivalents basis), by giving written notice to the Selling Stockholder within
five (5) days.
(d) For purposes of this Section 3.5, the "Exercise Period"
shall mean, in the case of Section 3.5.1(b)(i) above, twenty (20) days from the
date of receipt of the Stockholder Sale Notice and, in the case of Section
3.5.1(b)(ii) above, forty-five (45) days from the date of receipt of the
Stockholder Sale Notice.
3.5.2. If any Right of First Offer, pursuant to Section 3.5.1
above, results in a binding agreement with the Selling Stockholder, the closing
of the Transfer of the Offered Shares shall take place not later than, in the
case of Section 3.5.1(b)(i), forty-five (45) days after the date of delivery of
the Stockholder Sale Notice and, in the case of Section 3.5.1(b)(ii), sixty (60)
days after the date of delivery of the Stockholder Sale Notice, in each case
time being of the essence, except as extended by mutual written agreement of the
parties thereto. Upon any closing made pursuant to this Section 3.5.2, the
Selling Stockholder shall deliver (i) a representation and warranty that such
Offered Shares are being delivered free and clear of any encumbrances, (ii) a
stock power signed in blank for such Offered Shares and (iii) usual and
customary officer certificates, cross-receipt and other closing documents. In
the event that any payment by an Exercising Stockholder, pursuant to Section
3.5.1(b) or otherwise, is made in capital stock of the Company, the value of
such capital stock for purposes of this Section 3.5.2 shall be the Fair Market
Value thereof. Any down-payment made by an Exercising Stockholder in capital
stock of the Company shall be replaced by cash upon any closing made pursuant to
this Section 3.5.2.
3.5.3. If any closing pursuant to Section 3.4.2 above is not
timely effected by an Exercising Stockholder during the period required (and has
not been extended by mutual written agreement) and the Selling Stockholder is
unable to consummate a Transfer of the Offered Shares on the same or better
terms for such Selling Stockholder, then (A) such Selling Stockholder shall
retain as liquidated damages any payment made by such Exercising Stockholder to
the Selling Stockholder pursuant to Section 3.5.1 hereof and (B) any future
down-payment required of such Exercising Stockholder pursuant to Sections 3.4
and 3.5 shall be increased to 25%; provided, however, that if, by reason of this
Section 3.5.3, the amount of the down-payment required pursuant to Section 3.5.1
had been previously increased to 25%, then such down-payment shall be increased
to 50%; and further provided, however, that if, by reason of this Section 3.5.3,
the amount of the down-payment required pursuant to Section 3.5.1 had been
previously increased to 50%, then any and all rights of such Exercising
Stockholder pursuant to Sections 3.4, 3.5 and 4.1 of this Agreement shall
thereupon expire, which in each case shall constitute the sole and exclusive
remedy for each such failure to close. In addition, if it shall be determined by
a court of competent jurisdiction, that any Stockholder has tortiously
interfered with the contractual relations between a Selling Stockholder and a
proposed transferee of Shares, then any and all rights of such Stockholder
pursuant to Sections 3.4, 3.5 and 4.1 of this Agreement shall thereupon expire,
which shall constitute the sole and exclusive remedy for such tortious
interference. Notwithstanding anything to the contrary contained in this Section
3.5.3, the Selling Stockholder shall in no event have any obligation or duty to
mitigate its damages by reason of a failure of one or more Exercising
Stockholders to timely effect a closing pursuant to Section 3.5.2.
3.5.4. Notwithstanding the foregoing, if (a) the Stockholders
(pursuant to Section 3.5.1) do not offer to purchase all of the Offered Shares
subject to the Right of First Offer, (b) the Right of First Offer does not
result in a binding agreement because of a failure to agree on one or more
material terms or conditions, or (c) the closing of the Transfer of the Offered
Shares does not occur within the periods specified in Section 3.5.2, (subject to
any extension) after the date of delivery of the Stockholder Sale Notice, the
Selling Stockholder shall have the right, for a period of one hundred twenty
(120) days after the term of the Right of First Offer expires, to Transfer all
of the Offered Shares to one or more Persons on terms and conditions no less
favorable to the Selling Stockholder than those offered in writing by the
Exercising Stockholders (pursuant to Section 3.5.1); provided, however, that in
the event that governmental consents are required in connection with any closing
of the Transfer of the Offered Shares pursuant to this Section 3.5.3 and such
required governmental consents have been applied for but not received within the
one hundred twenty (120) day period, such period shall be extended until the
earlier of (i) the time that such required consents have been received or (ii)
one hundred eighty (180) days; and provided further, that any such transferee(s)
of the Offered Shares shall take and hold the Offered Shares subject to this
Agreement and to all of the obligations and restrictions arising hereunder upon
the Selling Stockholder and no such Transfer to a transferee not already a party
hereto shall be effective until such transferee has executed and delivered to
the Company an instrument in the form prescribed by the Company agreeing to be
bound by this Agreement. If no such Transfer is effected within the time
required by this Section 3.5.3, the Offered Shares shall once again be subject
to the provisions of this Section 3.5.
3.5.5. Nothing in this Section 3.5 shall prohibit, before or
after delivery of a Stockholder Sale Notice, a Selling Stockholder from
negotiating with one or more Persons regarding any terms or conditions of a
proposed Transfer of Shares; provided, however, that if a Selling Stockholder
receives a written offer from one or more Persons regarding any terms or
conditions of a proposed Transfer of Shares, such Selling Stockholder must
disclose, to each Founder and each Series A Stockholder, that such Selling
Stockholder has an offer and, with respect to the offeror, only whether the
offeror is a financial investor, strategic investor, competitor of the Company
or a vendor to the Company, but shall not be required to identify the offeror.
3.6. Shares Held by the Series A Stockholders. Notwithstanding
anything to the contrary contained herein, without the need to comply with the
provisions of Sections 3.3 or 3.4, each Series A Stockholder may Transfer its
Shares or an interest in its Shares to any of its affiliates. No Stockholder
shall Transfer its Shares pursuant to this Section 3.6 unless such Transfer is
in compliance with the Securities Act, the rules and regulations thereunder and
applicable state securities laws. All Transferees acquiring Shares pursuant to
this Section 3.6 shall agree to be bound by the terms and conditions of this
Agreement and execute a counterpart hereof at the Company's request.
ARTICLE IV
PARTICIPATION RIGHTS
4.1. Co-Sale Rights. Except as provided in Sections 3.2(ii),
3.2(iii), 3.6 and 4.2, the Series A Stockholders shall have the right to
participate in any Transfer of Shares by (i) a Founder from and after the date
such Founder has received aggregate gross proceeds of $5,000,000 from prior
Transfers of such Founder's Shares and (ii) by any other Series A Stockholder as
of the date hereof, and the Founders shall have the right, as of the time at
which a Transfer (or part thereof) of Series A Preferred Stock by the Series A
Stockholders results in the receipt of aggregate net proceeds to each Series A
Stockholder (measured on a cumulative basis from the date hereof) of an amount
equal to the price paid for the Series A Preferred Stock by such Series A
Stockholder at the Series A Closing, to participate on a pro rata basis
(determined as set forth in Section 4.1.2) in any Transfer of Shares by a Series
A Stockholder or other Founder. If at any time, in the case of a Series A
Stockholder, or at such time following the receipt by each Series A Stockholder
of the amount specified in the first sentence of this Section 4.1, any Series A
Stockholder or Founder (each a "Seller"; collectively the "Sellers") shall
decide to Transfer (other than to an affiliated entity) all or any part of the
capital stock of the Company owned by such Series A Stockholder or Founder or
any interest therein ("Offered Securities") for value pursuant to a Bona Fide
Offer, the Seller shall comply with the following provisions with respect to
such Transfer.
4.1.1. Notice of Sale. The Seller shall promptly deliver or
cause to be delivered a written notice (the "Notice of Sale") to each
non-selling Series A Stockholder and non-selling Founder upon such Seller's
intent to sell any Shares pursuant to a Bona Fide Offer. The Notice of Sale
shall state (i) the Seller's bona fide intention to sell, (ii) the name and
address of the prospective transferee(s), (iii) the number of Shares to be sold,
(iv) the terms and conditions (including price) of the contemplated sale and (v)
the expected closing date of the transaction. If, at the time of delivery of
such Notice of Sale, an Exercise Period under Section 3.4.1 or Section 3.5.1, as
applicable, is not then in effect, then such Notice of Sale shall be accompanied
by a Stockholder Sale Notice pursuant to Section 3.4 or Section 3.5, as
applicable.
4.1.2. Option to Participate. Any non-selling Series A
Stockholder or non-selling Founder (each, a "Co-Seller") receiving the Notice of
Sale may elect to participate in the contemplated sale by delivering a written
notice (an "Election Notice") to the Seller by 5:00 P.M. (Eastern Time) on the
date determined as follows:
(a) if, at the time of delivery of such Notice of Sale, an
Exercise Period under Section 3.4.1 or Section 3.5.1, as applicable, is not then
in effect, the twentieth (20th) day after receipt of such Notice of Sale; or
(b) if, at the time of delivery of such Notice of Sale, an
Exercise Period under Section 3.4.1 or Section 3.5.1, as applicable, is then in
effect, the later of (i) the fifth (5th) day after receipt of such Notice of
Sale and (ii) (A) in the case of an Exercise Period pursuant to Section
3.4.1(b)(i) or Section 3.5.1(b)(i), the twentieth (20th) day after receipt of
the Stockholder Sale Notice in respect of such Exercise Period or (B) in the
case of an Exercise Period pursuant to Section 3.4.1(b)(ii) or Section
3.5.1(b)(ii), the forty-fifth (45th) day after receipt of the Stockholder Sale
Notice in respect of such Exercise Period.
Each Co-Seller may elect to sell in the contemplated
transaction up to that number of Shares owned by him as is equal to the number
of Shares which the Seller proposes to sell multiplied by a fraction, the
numerator of which shall be the number of Shares owned by such Co-Seller, and
the denominator of which shall be the aggregate number of Shares held by all
Co-Sellers participating in the sale and by the Seller (determined on a Common
Stock Equivalents basis). Any Co-Seller who fails to timely deliver an Election
Notice to the Seller shall be deemed to have waived any right to participate in
the sale. To the extent that one or more Co-Sellers exercise such right of
participation, in accordance with the terms and conditions hereof, the number of
Shares which the Seller may sell shall be correspondingly reduced.
4.1.3. No Waiver of Subsequent Rights. The exercise or
non-exercise of the rights of the Co-Sellers hereunder to participate in one or
more sales of Shares made by a Seller shall not affect their rights to
participate in subsequent sales by Series A Stockholders or Founders that meet
the conditions specified in this Section 4.1.
4.1.4. Consummation of Sale. Any sale made pursuant to this
Section 4.1 shall be consummated within forty-five (45) days of the date of, and
on terms no more favorable to the buyer then provided in, the Notice of Sale
given pursuant to Section 4.1.1; provided, however, that the Seller shall not
consummate any such sale until the expiration of the period set forth in Section
4.1.2. Notwithstanding anything to the contrary set forth herein, the Seller
shall have no liability to any Co-Seller if any sale proposed to be made
pursuant to this Article IV is not consummated. Nothing contained in this
Section 4.1 shall affect the right of first offer afforded pursuant to Sections
3.4 or 3.5 or the right to compel participation pursuant to Section 4.2. Any
proposed sale of Shares pursuant to a Bona Fide Offer shall be deemed a Transfer
for purposes of Sections 3.4 and 3.5 hereof and any transferee(s) of the Offered
Securities shall take and hold the Offered Shares subject to this Agreement and
to all of the obligations and restrictions arising hereunder upon the Selling
Stockholder and no such Transfer to a transferee not already a party hereto
shall be effective until such transferee has executed and delivered to the
Company an instrument in the form prescribed by the Company agreeing to be bound
by this Agreement. .
4.2. Right to Compel Participation in Certain Transfers. If
the Series A Stockholders, together with at least one Founder (collectively, the
"Section 4.2 Sellers"), should propose to Transfer all Shares that they own
(including Shares that they have the right to acquire) to any unaffiliated third
party in a bona fide, arms-length transaction, including through a stock sale or
merger (the "Section 4.2 Transfer"), the Section 4.2 Sellers may, at their
option, require all but not less than all of the other Stockholders (the "Other
Stockholders") to participate in such transfer.
4.2.1. Notice of Sale. The Section 4.2 Sellers shall
provide written notice of such Section 4.2 Transfer to the Other Stockholders (a
"Section 4.2 Notice") and a copy of the agreement pursuant to which such shares
are proposed to be transferred (the "Section 4.2 Agreement"). The Section 4.2
Notice shall state (i) the Section 4.2 Sellers' bona fide intention to sell,
(ii) the name and address of the prospective transferee(s), (iii) the number of
Shares to be sold, (iv) the terms and conditions (including price) of the
contemplated sale and (v) the expected closing date of the transaction. Each
Other Stockholder shall be required as appropriate to participate in the Section
4.2 Transfer on the terms and conditions set forth in the Section 4.2 Notice and
to tender all of its Shares. The price of such Section 4.2 Transfer shall be the
price set forth in the Section 4.2 Notice in the case of shares of Common Stock,
and, in the case of Series A Preferred Stock shall be such price multiplied by
the number of shares of Common Stock into which such Series A Preferred Stock is
then convertible.
4.2.2. Delivery of Shares. Within ten (10) days
following the receipt of the Section 4.2 Notice, each of the Other Stockholders
shall deliver to a representative of the Section 4.2 Sellers designated in the
Section 4.2 Notice certificates representing all Shares held by such Other
Stockholders duly endorsed, together with any other documents reasonably
required to be executed in connection with such Section 4.2 Transfer or, if such
delivery is not permitted by applicable law, an unconditional agreement to
deliver such Shares pursuant to this Section 4.2 at the closing for such Section
4.2 Transfer against delivery to such Other Stockholder of the consideration
therefor. If any Other Stockholder should fail to deliver such certificates to
the Section 4.2 Sellers, the Company shall cause its books and records to show
that such Shares are bound by the provisions of this Section 4.2 and that such
Shares shall be Transferred to the transferee identified in the Section 4.2
Notice immediately upon surrender for Transfer by the Other Stockholder thereof.
4.2.3. Consummation of Sale. Promptly after the
consummation of the Section 4.2 Transfer pursuant to this Section 4.2.3, the
Section 4.2 Sellers shall give notice thereof to the Other Stockholders, shall
remit to each of the Other Stockholders who has surrendered its certificates the
total consideration for the Shares of such Other Stockholder Transferred
pursuant hereto and, in any event, shall furnish such other evidence of the
completion and time of completion of such Transfer and the terms thereof as may
be reasonably requested by such Other Stockholder. If within forty-five (45)
days after the Section 4.2 Sellers give the Section 4.2 Notice, they have not
completed the Section 4.2 Transfer, the Section 4.2 Sellers shall, if
applicable, return to each of the Other Stockholders all certificates
representing the Shares of such Other Stockholders that such Other Stockholders
delivered for transfer pursuant hereto, together with any documents in the
possession of the Section 4.2 Sellers executed by the Other Stockholders in
connection with such proposed transaction, and all the restrictions on transfer
contained in this Agreement applicable at such time with respect to the Shares
owned by the Other Stockholders shall again be in effect.
ARTICLE V
TERMINATION OF AGREEMENT
5.1. Generally. This Agreement shall terminate, and the
certificates representing the Shares shall be released from the terms of this
Agreement upon the first to occur of: (i) the written agreement of the Company,
the Founders and the holders of a majority of the Series A Preferred Stock; (ii)
the consummation of a Qualified Initial Public Offering; (iii) the liquidation
and dissolution of the Company; or (iv) the commencement of proceedings in
bankruptcy or receivership of the Company. In addition, the rights of the Series
A Stockholders under this Agreement shall expire at such time that less than 20%
of the number of shares of Series A Preferred Stock purchased by the Series A
Stockholders at the Series A Closing, subject to adjustment for combinations or
consolidations of the Series A Preferred Stock set forth in the Certificate of
Incorporation, remains outstanding and the Series A Preferred Stock does not
have any designee on the Board of the Company.
5.2. Effect of Termination. The termination of this Agreement
shall not affect or diminish any obligations of the parties hereto to pay for
any Shares actually purchased prior to such termination. Upon the termination of
this Agreement for any of the above reasons, the certificates of stock held by
each Stockholder shall be surrendered to the Company, and the Company shall
issue new certificates for the same number of Shares but without the applicable
legend(s) set forth in Article VI pertaining to this Agreement or any
predecessor or successor agreement.
ARTICLE VI
LEGENDS ON SHARE CERTIFICATES
6.1. Legends. Each of the certificates representing the Shares
issued on or after the date hereof shall bear the following legends:
"These securities have not been registered under the Securities Act of
1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with
respect to the securities under such Act or an opinion of counsel
satisfactory to the Company and that registration is not required or
unless sold pursuant to Rule 144 of such Act."
"The Shares represented by this certificate are subject to the terms
and conditions of a Stockholders' Agreement, dated as of August 10,
1999, as amended or restated from time to time, a copy of which may be
inspected at the principal office of this Company and accordingly may
not be sold, assigned, transferred, pledged, hypothecated or in any
other way disposed of or encumbered, voluntarily or involuntarily, by
gift, bankruptcy, operation of law, winding up of a corporation or
otherwise, except in accordance with the provisions thereof. All of the
provisions of such Stockholders' Agreement are incorporated herein by
this reference."
In addition to the two immediately preceding legends, each of the certificates
representing Shares held by the Founders and any permitted transferees thereof
issued on or after the date hereof shall bear the following legend:
"The Shares represented by this certificate are subject to the
indemnity provisions of Section 10(b) of the Stockholders' Agreement
referred to in the above paragraph."
Each of the certificates representing Shares issued to the Founders prior to the
date hereof, if any, shall be promptly surrendered to the Company and thereupon
promptly reissued with the three aforesaid legends affixed thereto.
6.2. Inquiries. A copy of this Agreement shall be delivered to
the Secretary of the Company and shall be shown by the Secretary to any Person
making inquiry concerning it; provided that such Person agrees in writing to
keep confidential the terms and conditions of this Agreement.
ARTICLE VII
RECAPITALIZATIONS
7.1 In the event the Company is a party to any reorganization,
recapitalization, reclassification, readjustment or other change in its capital
structure wherein any other shares or securities of the Company are issued in
respect of all or part of the Shares, then such other shares or securities shall
be deemed Shares and shall be subject to all of the terms and provisions of this
Agreement.
ARTICLE VIII
PROVISION OF SERVICES
8.1 Reckson Service Industries, Inc. intends to actively
provide (either directly or indirectly through its affiliates) to the Company,
without additional cost to the Company, administrative and operational services
and advice, and access to the broad management experience of the corporate
management staff of Reckson Service Industries, Inc., including without
limitation, consultation in regard to general management, investor relations,
financial management, human resources management, audit administration, tax
research and planning, and preparation of federal and state income tax returns
and such other services that Reckson Service Industries, Inc. or its affiliates
may otherwise be in a position from time to time to provide. Reckson Service
Industries, Inc. and/or its affiliates shall make available to the Company, its
affiliates and their respective clients, and the Company shall make available to
Reckson Service Industries, Inc., its affiliates and their respective clients,
without additional cost to the Company, the opportunity to receive such services
as may be deemed by the parties as mutually beneficial on a "most favored
nations" basis.
ARTICLE IX
GENERAL PROVISIONS
9.1. Notices. All notices and other communications provided
for or permitted hereunder shall be made in writing by hand-delivery,
first-class mail (registered or certified, return receipt requested, with a copy
sent by ordinary mail on the same day), telex, telecopier with confirmation and
followed promptly by hard copy in accordance with this provision, or courier
guaranteeing reasonably prompt delivery and recognized for high quality service:
(i) if to RSI ESO or RSI at
Reckson Service Industries, Inc.
10 East 50th Street - 27th Floor
New York, NY 10103
Tel: 212-931-8000
Fax: 212-931-8001
Attn: Jeffrey D. Neumann and Stephen M. Rathkopf
with copies to:
Jason Barnett, Esq.
General Counsel
Reckson Service Industries, Inc.
10 East 50th Street - 27th Floor
New York, NY 10103
Tel: 212-931-8000
Fax: 212-931-8001
Brown & Wood LLP
One World Trade Center
New York, NY 10048
Attention: J. Gerard Cummins, Esq.
Tel: 212-839-5300
Fax: 212-839-5599
(ii) if to any Series A Stockholder (other than RSI ESO), at the
address for such Series A Stockholder set forth on Schedule A;
and
(iii) if to the Company or either of the Founders, at
eSourceOne, Inc.
53 Fayette Road
Scarsdale, NY 10583
Attention: H. Thach Pham, Chief Financial Officer
Tel: 914-725-5751
Fax: 914-722-1429
with a copy to:
Orrick, Herringon & Sutcliffe LLP
666 Fifth Avenue
New York, NY 10103
Attention: Martin H. Levenglick, Esq.
Tel: 212-506-5000
Fax: 212-506-5151
or, in any case, at such other address or addresses as shall have been furnished
in writing by one party to the other parties in accordance with the provisions
of this Section 9.1.
All such notices and communications shall be deemed to have been duly
given: at the time delivered, if delivered by hand, telex or by courier; five
(5) business days after being deposited in the mail, if mailed; and when receipt
acknowledged, if telecopied.
9.2. Waiver. No waiver of any provision of this Agreement in
any instance shall be, or for any purpose be deemed to be, a waiver of the right
of any party hereto to enforce strict compliance with the provisions hereof in
any subsequent instance.
9.3. Agreement to Perform Necessary Acts. Each party hereto
and the heirs, executors or administrators of the Stockholders shall perform any
further acts and execute and deliver any documents or procure any court orders
which may reasonably be necessary or appropriate to carry out the provisions of
this Agreement.
9.4. Modification. Except as otherwise provided herein, this
Agreement may not be modified or amended except by a writing signed by Series A
Stockholders holding at least a majority of the outstanding Series A Preferred
Stock, each of the Founders, and by an officer duly authorized to act on behalf
of the Company. Accordingly, any amendment or restatement which is adopted in
accordance with this Section 9.4 shall be binding upon all of the Stockholders,
whether or not they are signatories thereto. In the event of the amendment or
modification of this Agreement in accordance with its terms, the Stockholders
shall cause the Board to meet as soon as practicable following such amendment or
modification for the purpose of adopting any amendment to the Certificate of
Incorporation and By-Laws that may be required as a result of such amendment or
modification to this Agreement, and, if required, proposing such amendments to
the Stockholders entitled to vote thereon.
9.5. Injunctive Relief. The parties acknowledge and agree that
a violation of any of the terms of Articles II, III, IV, V, VI, VII, or Sections
9.3, 9.4 and 9.6 of this Agreement may cause the parties irreparable injury for
which adequate remedy at law is not available. Therefore, the parties agree that
each party shall be entitled to seek an injunction, restraining order or other
equitable relief from any court of competent jurisdiction, restraining any party
from committing any violations of such provisions of this Agreement. No right or
remedy contained herein is intended to be exclusive of any other right or
remedy, and all remedies either under this Agreement, or by law otherwise
afforded to any party, shall be cumulative and not alternative. The assertion or
employment of any right or remedy hereunder shall not prevent the concurrent
assertion or employment of any other right or remedy available by law or
otherwise afforded to any party.
9.6. Parties. This Agreement shall inure to the benefit of and
be binding upon the Series A Stockholders, the Founders and the Company and
their respective successors and assigns (including transferees of any Series A
Stockholder's Shares); provided, however, that the rights of the Series A
Stockholders under this Agreement shall not be assignable to any competitor of
the Company unless such assignment is in connection with the sale by the Series
A Stockholders of a majority of the Series A Preferred Stock held by them.
Nothing expressed or implied in this Agreement is intended or shall be construed
to give any person, firm or corporation, other than the Stockholders and the
Company and their respective successors and assigns, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
herein contained. This Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of the Stockholders and the
Company and their respective successors and assigns, and for the benefit of no
other person, firm or corporation. No purchaser of Shares from the Stockholders
shall be deemed to be a successor by reason merely of such purchase. RSI and RSI
ESO shall be jointly and severally liable for the obligations of RSI and RSI ESO
under this Agreement.
9.7. Submission to Jurisdiction. Each of the parties hereto
hereby irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of New York and of the United States of
America, in each case located in the County of New York, for any action,
proceeding or investigation in any court or before any governmental authority
("Litigation") arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any Litigation relating thereto
except in such courts). Each of the parties hereto hereby irrevocably and
unconditionally waives any objection to the laying of venue of any Litigation
arising out of this Agreement or the transactions contemplated hereby in the
courts of the State of New York or the United States of America, in each case
located in the County of New York, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such Litigation brought in any such court has been brought in an
inconvenient forum.
9.8. Governing Law. This agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the conflict of law rules thereof, applicable to contract made and to be
performed within that State.
9.9. Effect of Headings. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
9.10. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. In proving this Agreement
it shall not be necessary to produce or account for more than one such
counterpart executed by the party against whom enforcement is sought.
9.11. Severability. If any provision of this Agreement shall
be held to be illegal, invalid or unenforceable such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement unless the effect thereof would be to alter materially the effect of
this Agreement, and this Agreement (if not so altered) shall be carried out as
if any such illegal, invalid or unenforceable provision were not contained
herein.
9.12. Delays or Omissions. It is agreed that no delay or
omission to exercise any right, power or remedy on the part of any party upon
any breach or default of any party to this Agreement shall impair any such
right, power or remedy, nor shall it be construed to be a waiver of any such
breach or default, or any acquiescence therein, or of any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character on any party of any breach or default under
this Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing and that all remedies either under this
Agreement, or by law otherwise afforded to any party, shall be cumulative and
not alternative.
9.13. Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. To the extent that this
Agreement refers to any defined term or provision in any other agreement between
and among the parties hereto, such reference or use thereof in this Agreement
shall not be deemed to supercede such defined term or provision in such other
agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
eSourceOne, Inc.
By: _____________________________________
Chief Executive Officer
COMMON STOCKHOLDERS
By: ___________________________________
Name: Elliot S. Cooperstone
By: ____________________________________
Name: H. Thach Pham
SERIES A STOCKHOLDERS
RSI ESO, Inc.
By: _____________________________________
Name:
Title:
Reckson Service Industries, Inc.
By: _____________________________________
Name:
Title:
<PAGE>
SCHEDULE A
STOCKHOLDERS
Elliot S. Cooperstone
H. Thach Pham
Reckson Service Industries, Inc. through its subsidiary RSI ESO, Inc.
Exhibit 99.1
RECKSON SERVICE INDUSTRIES, INC. ACQUIRES SIGNIFICANT INTEREST
IN INTERNET-BASED HUMAN RESOURCES AND BENEFITS COMPANY
Strategic E-Commerce Investment Complements the Company's
Outsourced Business Services Package
NEW YORK, August 11, 1999 - Reckson Service Industries, Inc. (RSI) (NASDAQ;
RSII), a provider of outsourced business services, today announced it has made a
$15 million acquisition of a significant interest in eSourceOne, a fully
integrated Internet-based employee benefits and human resource administration
outsourcing company for small and medium-size businesses. RSI also committed to
invest an additional $7.5 million in connection with a future equity funding.
This investment represents RSI's addition of an important third component to
its "Virtual Corporate Infrastructure."
Elliot S. Cooperstone, CEO, and H. Thach Pham, CFO, founding principals of
eSourceOne, anchor an outstanding management team with a wealth of corporate,
financial, and technology experience in the human resource industry. "We are
pleased to be entering this exciting $17 billion sector," said Scott Rechler,
president and CEO of RSI. "With more and more small and medium-size companies
turning to the Web for their business needs, eSourceOne will offer them an
integrated and efficient on-line solution for all of their benefits and human
resource administration requirements."
Mr. Cooperstone, the former president and CEO of U.S. operations for Alexander &
Alexander Services, Inc., added, "RSI shares our strategic vision and has
demonstrated success in supporting aggressive growth plans in companies such as
eSourceOne. We are thrilled to have RSI as our partner."
Mr. Rechler continued, "eSourceOne is the third important component in our
'Virtual Corporate Infrastructure' now composed of three core outsourced
business services. This investment represents another meaningful step for RSI in
building a full network of Internet-based outsourced business services. The
eSourceOne service offering complements our existing service offerings, and
should be particularly attractive to RSI's current and targeted customer base.
eSourceOne joins VANTAS, the largest executive office suite owner in the U.S.,
and OnSite Access, an integrated communications provider, as outsourced business
services RSI can provide to small and medium-size companies."
Reckson Service Industries, Inc. identifies, invests in, acquires, operates, and
manages companies that provide outsourced business services to small and
medium-size businesses, satellite offices and the mobile workforce of larger
corporations. RSI primarily concentrates on business models that are
transforming the industry's current service offering or delivery mechanisms,
including Internet enabled outsourced business services. RSI enhances the value
of each Partner Company by facilitating collaboration and cross marketing, as
well as by providing the strategic and financial resources of RSI's entire
organization. By creating a network of best-in-class outsourced business
services, RSI is able to offer a "Virtual Corporate Infrastructure" that will
afford customers the same high-powered operating resources available to
America's top CEOs.
Certain matters discussed within this press release are forward-looking
statements within the meaning of the federal securities laws. Although Reckson
Service Industries (RSI) believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, it can give no
assurance that its expectations will be achieved. Factors that could cause
actual results to differ materially from RSI expectations include changes in the
business services industry, failure to consummate anticipated transactions,
finding acquisition opportunities which meet its investment strategy, general
economic conditions, competition, changes in technology, technological
obsolescence, interest rates, available capital, conflicts of interests of
management, and other risks detailed from time to time in the RSI reports filed
with the Securities and Exchange commission, including annual reports on Form
10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
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