<PAGE>
U.S. 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 JANUARY 10, 2000
(Date of earliest event reported)
SOFTLOCK.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
33-37751-D 84-1130229
(Commission File Number) (IRS Employer Identification No.)
5 CLOCK TOWER PLACE, SUITE 440, MAYNARD, MA 01754
(Address principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (978) 461-5940
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ITEM 5. OTHER EVENTS.
On January 10, 2000, SoftLock.com, Inc. (the "Company") announced that
pursuant to closings on December 30, 1999 and January 7, 1999, it had issued
36,765 shares of Series A Preferred Stock (the "Series A Preferred") to a group
of four investors: SI Venture Fund II, L.P. ("SI"), Apex Investment Fund IV,
L.P., Apex Strategic Partners IV, LLC (collectively, "Apex")and RSA Security
Inc. ("RSA") for a purchase price of $102 per share for an aggregate purchase
price of $3,750,030.
The Company also announced that in a separate offering completed in
late October 1999 it had sold 1,600,000 shares of its common stock through a
private placement with certain of its shareholders for total offering of
$2,000,000.
In connection with the Series A Preferred transaction, the Company
entered into a Series A Preferred Stock Purchase Agreement dated as of December
30, 1999 as supplemented on January 7, 2000 the "Purchase Agreement") with SI,
Apex and RSA (collectively, the "Purchasers") and a Shareholders' and Rights
Agreement (the "Shareholders Agreement") with the Purchasers and the President
and Chief Executive Officer and the Chief Technology Officer of the Company. The
Company also filed a Certificate of Designation with the Delaware Secretary of
State that states the powers, preferences and rights of the Series A Preferred.
These documents are attached as exhibits to this Report and are incorporated
into this Report by reference.
The following summarizes important terms of these documents. Because it
is a summary, it does not contain all the information that may be important and
is qualified in its entirety by the exhibits filed with this Report.
THE CERTIFICATE OF DESIGNATION
CONVERSION: Each share of Series A Preferred is initially convertible
into 100 shares of the Company's common stock, subject to certain anti-dilution
adjustments described below, at any time at the holder's option at a conversion
price of $1.02 per share of common stock. The Series A Preferred will
automatically convert into common stock upon the earlier of (i) immediately
prior to the consummation of an underwritten public offering with aggregate
proceeds to the Company in excess of $20 million at a public offering price per
share that is at least four times the then effective conversion price (a
"Qualified Public Offering"), or (ii) at the election of two-thirds of the
outstanding shares of the Preferred Stock. If the Company issues any equity
securities or the right to purchase equity securities at a price below the
conversion price then in effect (subject to certain exceptions), the conversion
price will be reduced on the weighted average basis.
DIVIDEND RIGHTS: Holders of the Preferred Stock are entitled to receive
prior to any distribution to common shareholders if and when and as declared by
the Board out of legally available funds, quarterly dividends at a rate of
$10.20 per preferred share per year. Unpaid
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dividends are cumulative but do not bear interest. However, if all the Preferred
Stock is automatically converted into common stock as a result of a Qualified
Public Offering and the Company provides the Purchasers with an opportunity to
register their shares of common stock resulting from the conversion, all within
two years of the date of closing, then no dividends are payable.
LIQUIDATION PREFERENCE: Upon any liquidation, dissolution, winding up
or any merger, consolidation, sale of assets, reorganization or other
transaction in which control of the Company is transferred, each holder of a
Series A Preferred is entitled to receive prior to the common shareholders, $102
per share plus accrued but unpaid dividends. However, if the preferred
shareholder would receive higher value in the liquidation transaction if its
shares were converted into common stock, then the holders of the Series A
Preferred will receive the higher amount along with the common shareholders.
REDEMPTION RIGHTS: The Company is required to redeem the Series A
Preferred for $102 per share plus any accrued but unpaid dividends at the
election of the majority of the Series A Preferred in two equal annual
installments beginning on the fourth anniversary of the closing, subject to the
availability of legally sufficient funds.
VOTING RIGHTS: Generally, holders of Series A Preferred vote with the
common shareholders as a single class on any matter submitted to the
shareholders with the holders of the Series A Preferred having that number of
votes equal to the whole number of common shares into which each share of Series
A Preferred is then convertible. However, holders of the Series A Preferred
Stock have the right to elect by majority vote one Class III member of the Board
of Directors subject to the provisions of the Shareholders Agreement.
FURTHER ADJUSTMENTS: The dividend rate, redemption price, liquidation
preference and conversion price are subject to adjustment for stock splits and
other stock distributions.
THE PURCHASE AGREEMENT
In the Purchase Agreement, the Company and its wholly owned subsidiary
made various representations and warranties about the Company and its subsidiary
subject to information contained in a disclosure schedule and also agreed to
various negative and affirmative covenants as set forth in the Purchase
Agreement filed as an exhibit hereto.
THE SHAREHOLDERS AGREEMENT
Under the Shareholders Agreement, the Company granted the Purchasers
certain registration rights and rights of first refusal on issuances of
additional equity securities by the Company and on transfers of common stock
owned by the President and Chief Executive Officer or the Chief Technology
Officer. The Purchasers also agreed to certain provisions regarding the
nomination and election of the director representing the Series A Preferred. The
terms of these rights are set forth in the Shareholders Agreement filed as an
exhibit hereto.
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ADDITIONAL WARRANTS
In connection with certain bridge loan financing provided by SI in
advance of the consummation of the sale of the Series A Preferred, the Company
granted SI warrants to purchase 1,964 shares of Series A Preferred for an
exercise price of $.01 per share. The warrants are exercisable for a period of
five years from December 30, 1999.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) The followings Exhibits are filed with this Current Report on Form
8-K.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
99.1 Press Release dated as of January 10, 2000
99.2 Shareholders' and Rights Agreement
99.3 Series A Preferred Stock Purchase Agreement By and among the
Purchasers, Softlock.com, Inc. and SoftLock Services, Inc.
99.4 Certificate of Designation of Powers, Preferences and Rights of the
Series A Preferred Stock
99.5 Supplement to Series A Preferred Stock Purchase Agreement
</TABLE>
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SIGNATURE
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 hereunder duly authorized.
SOFTLOCK.COM, INC.
(REGISTRANT)
Date: January 10, 2000 By: /s/ Keith Loris
-----------------------------
Keith Loris
President and Chief
Executive Officer
(Principal Executive Officer)
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
99.1 Press Release dated as of January 10, 2000
99.2 Shareholders' and Rights Agreement
99.3 Series A Preferred Stock Purchase Agreement by and among the
Purchasers, Softlock.Com, Inc. and SoftLock Services, Inc.
99.4 Certificate of Designation of Powers, Preferences and Rights of the
Series A Preferred Stock
99.5 Supplement to Series A Preferred Stock Purchase Agreement
</TABLE>
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PRESS CONTACTS:
Leila Dillon Bob Joyce
SoftLock.com Inc. FitzGerald Communications, Inc.
[email protected] [email protected]
http://www.softlock.com www.fitzgerald.com
978-461-4120 617-588-2298
SOFTLOCK.COM ANNOUNCES STRATEGIC INVESTMENT BY APEX INVESTMENT FUND, RSA
SECURITY AND SI VENTURES, A GARTNERGROUP AFFILIATE
PROCEEDS TO EXTEND COMPANY'S LEADERSHIP POSITION MERCHANDISING
DIGITAL CONTENT ON THE WEB
MAYNARD, MA. - JANUARY 17, 2000 - SoftLock.com, Inc. (OTCBB: SLCK), a leader in
merchandising valuable digital content, today announced the completion of fourth
quarter 1999 financings totaling $5.75 million, involving both common stock and
preferred stock. SoftLock.com's preferred stock investors include Apex
Investment Fund IV and RSA Security Inc. (NASDAQ: RSAS), together with lead
investor SI Venture Fund II, L.P.
SoftLock.com will use the proceeds from these financings to solidify its leading
position merchandising digital content within the explosively growing digital
content market. J.P. Morgan recently reported that over $275 billion would be
spent purchasing digital content and intellectual property by the year 2003.
"This represents a strong endorsement of SoftLock.com's first mover advantage in
being the only company to provide a complete business solution for securely
selling and widely merchandising digital content," said Keith Loris,
SoftLock.com's president and CEO. "SoftLock.com enters the new millennium with
industry leading customers, technology and services and these advantages can now
be leveraged to their full potential through the strong financial support from
RSA Security, Apex Investment Partners and SI Ventures. Our most recent
investors understand the value SoftLock.com delivers to publishers of valuable
digital content by enabling them to utilize the Internet as a mass marketing and
selling channel."
Created in 1997 by executives of Gartner Group, Inc. -- the world's leading
authority on IT that provides clients with advisory services, measurement,
research, decision support, analysis and consulting - SI Ventures leverages
GartnerGroup's vast resources, research and publishing experience to make
strategic investments in rising companies.
"SI Ventures invests in promising companies that provide innovative electronic
commerce solutions in a high-growth industry," explained Adam Rin, managing
director, SI Ventures, former head of GartnerGroup's worldwide research and
advisory services organizations and SoftLock.com's newest
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SoftLock.com Announces Strategic Investment/Page 2
Board member. "As a compelling solution to Content Providers wishing to
maximize their return on valuable intellectual property, SoftLock.com
surpassed our investment criteria."
RSA Security Inc. is the most trusted name in e-security and a global leader in
strong authentication, encryption and public key management products. RSA
Security has the global reach, unrivaled technical and systems experience, and
proven leadership to address the changing needs of securing e-business and
bringing trust to today's online economy.
"RSA Security believes, and SoftLock.com demonstrates, that security is a
critical enabler for Internet commerce," said Chuck Stuckey, president and CEO
of RSA Security Inc. "We think that by providing publishers of valuable digital
content a turnkey business solution based on strong security technologies,
SoftLock.com is enabling such publishers to leverage the Internet to expand
reach and grow sales. It's a powerful value proposition that should help drive
the growth of e-commerce for valuable digital content."
Apex Investment Partners, established in 1987, has more than $130 million under
management. The firm invests in emerging growth companies of all stages in
telecommunications, software, and information technology industries, with
additional emphasis in specialty retail and consumer products. Other investments
include NetDelivery, Exodus, and Dialogic.
ABOUT SOFTLOCK.COM, INC.
SoftLock.com (OTCBB: SLCK) is an e-commerce leader in merchandising valuable
digital content. SoftLock.com's patented system and service offering, the
SoftLock CyberSales Solution-TM-, actively markets and sells brand-name
electronic content that delivers major benefits to Content Providers, SoftLock
Affiliates, and Consumers. The SoftLock CyberSales Solution brokers prime Web
placements, helping Content Providers effectively merchandise valuable
intellectual property through a point-of-sale system while also opening new
revenue streams, extending audience reach, building Web site stickiness and
growing brand awareness for SoftLock Affiliates. Consumers reap the benefits of
a universe full of valuable, superior online content that is easily and readily
available, and can be safely and securely passed from consumer to consumer.
SoftLock.com turns piracy into profits and makes every copy an opportunity. For
more information, visit www.softlock.com. Further information on the investment
can be found in the Company's 8K filing with the U.S. Securities Exchange
Commission.
###
SoftLock-Registered Trademark- is a registered trademark of SoftLock.com,
Inc. The SoftLock CyberSales Solution, the SoftLock Chain Reaction Channel
and the SoftLock Merchandising Network are trademarks of SoftLock.com. All
other products or company names are trademarks or registered trademarks of
their respective owners.
This news release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements are subject to
risks and uncertainties that could cause actual results to vary materially from
those projected in the forward-looking statements. SoftLock.com may experience
significant fluctuations in future operating results due to a number of
economic, competitive and
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SoftLock.com Announces Strategic Investment/Page 3
other factors, including, among other things, the size and timing of customer
orders, changes in laws, new or increased competition, delays in new products,
production problems, changes in market demand, market acceptance of new
products, seasonality in product purchases and availability of capital to
finance intended expansion of operations. These factors and others could cause
operating results to vary significantly from those in prior periods, and those
projected in forward-looking statements. Additional information with respect to
these and other factors, which could materially affect the Company and its
operations, are included in the Company's fillings with the Securities and
Exchange Commission and are incorporated herein.
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Exhibit 99.2
SHAREHOLDERS' AND RIGHTS AGREEMENT
THIS SHAREHOLDERS' AND RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of this 30th day of December, 1999, by and among SoftLock.com,
Inc., (the "Company"), a Delaware corporation, and the Shareholders listed on
Schedule I and Schedule II hereto.
W I T N E S S E T H:
WHEREAS, the Shareholders listed on Schedule I hereto (each a
"Preferred Shareholder" and collectively the "Preferred Shareholders") have
agreed to purchase from the Company shares (the "Shares") of Series A Preferred
Stock (as hereinafter defined); and
WHEREAS, the Shareholders listed on Schedule II hereto (each a "Common
Shareholder" collectively the "Common Shareholders" and collectively with the
Preferred Shareholders, the "Shareholders") were, prior to the date hereof,
owners of shares of the Company's Common Stock; and
WHEREAS, the Shareholders and the Company have agreed to enter into an
agreement with respect to (i) the procedures to be followed in connection with
the election of the Company's Board of Directors, (ii) certain restrictions upon
the transfer by each Common Shareholder of shares of Common Stock, (iii) certain
restrictions upon the issuance by the Company of New Securities, and (iv) the
rights to register shares of Common Stock under the Securities Act;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and to induce the Preferred
Shareholders to purchase the Shares, and in consideration thereof, it is hereby
covenanted and agreed as follows:
SECTION l
DEFINITIONS
As used herein, the following terms shall have the respective meanings
following such term:
AFFILIATE shall mean, as to any Shareholder, (i) if such Shareholder is
an entity, the partners, members, retired partners, retired members, managers,
directors and officers, as the case may be, of such Shareholder, (ii) the
partners or members of any of the parties referred to in the foregoing clause of
this definition, (iii) any parent, spouse or lineal descendant sharing the same
household of such Shareholder or any of the parties referred to in the foregoing
clauses of this definition, (iv) a trust for the benefit of such Shareholder or
any of the parties referred to in the foregoing clauses of this definition, (v)
any corporation, partnership or other entity controlled
<PAGE>
by such Shareholder or by any of the parties referred to in the foregoing
clauses of this definition, and (vi) any other party that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, any Shareholder.
BOARD shall mean the Board of Directors of the Company.
CERTIFICATE OF INCORPORATION shall mean the Company's Amended and
Restated Certificate of Incorporation, as amended from time to time.
COMMISSION shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
COMMON GROUP shall mean any Group that has a Common Shareholder as a
member thereof; provided however, that the Company and SoftLock Services, Inc.
shall not be considered a part of any Common Group.
COMMON SHAREHOLDERS shall mean the persons listed on Schedule II
hereto.
COMMON STOCK shall mean the Company's common stock, par value $0.01 per
share.
CONVERSION SHARES shall mean, at any time, (i) the issued and
outstanding shares of Preferred Stock (for purposes of calculating the number of
Conversion Shares at any time, each such share shall be deemed to be that number
of shares of Common Stock or other securities into which such share is then
convertible), (ii) the shares of Common Stock issued upon conversion of the
issued and outstanding shares of Preferred Stock owned as of the date hereof by
the Preferred Shareholders, and (iii) any securities issued or issuable directly
or indirectly in respect of the aforesaid shares of Common Stock or Preferred
Stock, or both, in payment of a dividend or in connection with a stock split,
recapitalization or other similar event.
EQUITY SECURITY shall mean any capital stock (including the Common and
Preferred Stock) of the Company, whether now authorized or not, and rights,
options, warrants or rights to purchase capital stock, and securities of any
type whatsoever that are, or may become, convertible into capital stock; the
number of shares of an Equity Security which is an option, warrant, right or
convertible security shall be the number of shares of such Equity Security which
would result upon the immediate exercise of such option, warrant or right of
conversion of such convertible security, without regard to when such option,
warrant or right may in fact be exercised or such convertible security may in
fact be converted.
FIRST PUBLIC OFFERING shall mean the first firm commitment underwritten
public offering of the Company's Common Stock occurring after the date of this
Agreement.
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GROUP shall mean:
(i) IN THE CASE OF ANY SHAREHOLDER WHO IS AN INDIVIDUAL, such
Shareholder or any Affiliate of such Shareholder;
(ii) IN THE CASE OF ANY SHAREHOLDER WHICH IS A PARTNERSHIP,
(A) such partnership and any of its limited or general partners, (B)
any corporation or other business organization to which such
partnership shall sell all or substantially all of its assets or with
which it shall be merged or consolidated and (C) any Affiliate of such
partnership;
(iii) IN THE CASE OF ANY SHAREHOLDER WHICH IS A CORPORATION,
(A) any such corporation, its parent and any of such corporation's or
parent's subsidiaries, (B) any corporation or other business
organization to which such corporation shall sell all or substantially
all of its assets or with which it shall be merged, and (C) any
Affiliate of such corporation;
(iv) IN THE CASE OF ANY SHAREHOLDER WHICH IS A LIMITED
LIABILITY COMPANY, OR OTHER BUSINESS ORGANIZATION NOT DESCRIBED IN (II)
OR (III) ABOVE, (A) any such company or organization, any member or
similar equity owner of such company or organization, and any person or
entity controlling such company or organization or under common control
with such company or organization, (B) any corporation, limited
liability company or other business organization to which such company
or organization shall sell all or substantially all of its assets or
with which it shall be merged, and (C) any Affiliate of such company or
organization; and
(v) in the case of any Shareholder which is a trust, (A) any
grantor or beneficiary of such trust, or (B) any Affiliate of such
grantor or beneficiary.
NEW SECURITIES shall mean any Equity Securities hereafter issued;
provided, however, that such term shall not include (i) securities purchased
under the Purchase Agreement and Conversion Shares; (ii) securities offered to
the public pursuant to a registration statement filed in accordance with the
provisions of the Securities Act; (iii) securities issued in connection with the
acquisition of another corporation by the Company by merger, purchase of
substantially all assets or other reorganization whereby the Company owns, upon
consummation of such acquisition, greater than fifty percent (50%) of the voting
power to elect the directors of such corporation; (iv) securities evidencing any
borrowings, direct or indirect, from financial institutions or other persons by
the Company, whether or not presently authorized, including any type of loan or
payment evidenced by any type of debt instrument, provided such securities do
not have equity features (such as warrants, options or other rights to purchase
capital stock) and are not convertible into capital stock of the Company; (v)
securities issued or issuable to employees, officers or directors of, or
consultants to, the Company pursuant to the Company's 1998 Stock Option Plan
(the "Plan"), provided that the number of shares so issued or issuable shall not
exceed 5,000,000 (subject to adjustment for stock splits and similar changes in
capitalization in accordance with the Plan); (vi) securities issued to financial
institutions and
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leasing companies in connection with borrowing or lease financing arrangements
of the Company, provided that such issuances or grants are approved by the Board
of Directors; and (vi) securities issued to suppliers, distributors and other
parties in payment of the Company's obligations, provided that such issuances or
grants are approved by the Board of Directors.
PREEMPTIVE SHARE shall mean, immediately prior to any issue of New
Securities, and as to each Preferred Group, the percentage which expresses the
ratio between (i) the number of Equity Securities owned at such time by such
Preferred Group (assuming that all such Equity Securities are fully converted
into the Common Stock), and (ii) the aggregate number of Equity Securities
(assuming all such Equity Securities are fully converted and/or exercised into
the Common Stock) outstanding at such time.
PREFERRED GROUP shall mean any Group that has a Preferred Shareholder
as a member thereof.
PREFERRED SHAREHOLDERS shall mean the persons listed on Schedule I
hereto.
PREFERRED STOCK shall mean the Company's Series A Preferred Stock, par
value $0.01 per share.
PRO RATA SHARE shall mean, at any time, as to each Preferred Group, the
percentage which expresses the ratio between (i) the number of Equity Securities
owned at such time by such Preferred Group (assuming that all Equity Securities
owned by that Preferred Group are fully converted or exercised into Common
Stock), and (ii) the aggregate number of Equity Securities owned at such time by
all Preferred Groups (assuming that all Equity Securities owned by all Preferred
Groups are fully converted or exercised into Common Stock).
PUBLIC FLOAT shall mean the existence of a minimum aggregate market
value of at least $100,000,000 for the outstanding equity securities of the
Company that are registered under the Exchange Act, and held by non-Affiliates
of the Company, sustained for a ninety (90) day period.
PURCHASE AGREEMENT shall mean the Preferred Stock Purchase Agreement,
dated as of the date hereof, among the Company, SoftLock Services, Inc. and the
initial Preferred Shareholders.
QUALIFIED PUBLIC OFFERING shall mean an underwritten public offering
pursuant to an effective registration statement under the Securities Act
covering the offer and sale of Common Stock for the account of the Company, on a
firm commitment basis, yielding aggregate proceeds to the Company of $20,000,000
at a public offering price that is at least four times the then effective
"Conversion Price" of the Preferred Stock (as set forth in the Certificate of
Incorporation).
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SECURITIES ACT shall mean the Securities Act of l933, as amended, and
any successor statute thereto.
SELL, as to any Equity Security, shall mean to sell, or in any other
way directly or indirectly transfer, assign, distribute, encumber or otherwise
dispose of such Equity Security, either voluntarily or involuntarily.
SELLING GROUP shall mean any Common Group proposing to Sell any Equity
Security and which is obligated to deliver a Notice of Intention to Sell
pursuant to Section 3 hereof.
SHAREHOLDERS shall mean the persons listed on Schedules I and II hereto
and shall include any other party who agrees in writing with the parties hereto
to be bound by and to comply with all applicable provisions of this Agreement.
SECTION 2
ELECTION OF DIRECTORS
SECTION 2.1. DESIGNATION OF NOMINEES.
(a) Pursuant to the Certificate of Incorporation, the holders
of the Preferred Stock have the right to elect one member of the Board. So long
as the Preferred Shareholder named below shall continue to hold (with any
members of its Group) no less than thirty five percent (35%) of the Shares
initially acquired by it under the Purchase Agreement (on an as-converted
basis), such Preferred Shareholder shall be entitled, but shall be under no
obligation, to designate the nominee to be elected to the Board by the holders
of the Preferred Stock (the "Series A Director").
SI VENTURE FUND II, L.P. ("SI")
Initially, the Series A Director will be N. Adam Rin. Such Series A Director
shall be a Class III director under Section 5.2 of the Certificate of
Incorporation.
(b) In the event a designation is not made by SI in accordance
with this Section 2.1, unless otherwise agreed by such Preferred Shareholder or
unless SI has notified the Company in writing that it no longer wishes to have
the right to designate the nominee for Series A Director, the Preferred
Shareholders will use their best efforts to ensure that such position on the
Board shall be left vacant until a nominee is so designated but in no event
longer than thirty (30) days. If SI has notified the Company in writing that it
no longer wishes to designate the nominee for Series A Director, if SI fails to
designate a nominee within thirty (30) days after the position becomes vacant or
if SI shall no longer own thirty five percent (35%) or more of the Shares
initially acquired by it under the Purchase Agreement (on an as-converted
basis), the nominee for the Series A Director shall be designated by majority
action of the Preferred Shareholders.
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SECTION 2.2. VOTING FOR NOMINEES. Each Preferred Shareholder agrees to
vote the Equity Securities held by it from time to time for the nominee so
designated in accordance with Section 2.1 at any annual meeting of shareholders
of the Company at which such nominee is included on the slate of directors to be
elected, and at any special meeting of shareholders of the Company called for
the election of directors at which such nominee is included on the slate of
directors to be elected, in such manner as may be required to elect such
nominee.
SECTION 2.3. OBLIGATIONS OF COMPANY. The Company agrees to use its best
efforts to cause the nominee so designated in accordance with Section 2.1 to be
included in part of the slate of directors to be recommended to, and elected by
shareholders, at the annual meeting of shareholders of the Company electing the
Class III directors (or any earlier annual meeting if the Series A Director then
in office shall have died, resigned or been removed), and at any special meeting
of shareholders of the Company called for the election of directors including
the Class III directorship held by the Series A Director.
SECTION 2.4. REMOVAL; ELECTION OF SUCCESSORS. If (a) the Series A
Director elected pursuant to Section 2.1 is removed or (b) such director shall
have resigned or shall be unable to serve, then, in any such case, the Company
and the Shareholders will use their best efforts to cause the Board of Directors
to appoint a replacement Series A Director nominated by SI to serve on the Board
of Directors until the next annual meeting of shareholders and to include such
person on the slate of directors to be elected at such next annual meeting. At
such meeting each Preferred Shareholder shall vote to accomplish said result.
The procedures set forth in this Section 2, including Section 2.1, shall apply
to the nomination and election of any replacement for a Series A Director. If
requested by SI, at the next annual meeting of shareholders, the Company will
include on the agenda an amendment to its Certificate of Incorporation to permit
the Series A Director to be removed with or without cause by the Preferred
Shareholders only and without the approval or concurrence of the holders of
outstanding shares of any other class of voting stock.
SECTION 2.5. PROXY. If any Preferred Shareholder shall refuse to vote
the Equity Securities held by it as provided in any of the foregoing Sections of
this Section 2 at any meeting of shareholders of the Company, or shall refuse to
give its written consent in lieu of a meeting, thereupon, without further action
by such Preferred Shareholder, the President or any Vice President of the
Company shall be, and hereby is, irrevocably constituted the attorney-in-fact
and proxy of such Preferred Shareholder for the purpose of voting, and shall
vote such shares at such meeting as provided in the foregoing Sections of this
Section 2 or give such consent, as the case may be.
SECTION 2.6. AUDIT AND COMPENSATION COMMITTEES. Except as otherwise
required by law or regulation including but not limited to the federal
securities laws or requirements of any exchange or market on which the Company's
Equity Securities are listed or quoted from time to time, the Company shall, by
provision of its bylaws or otherwise, establish and maintain a Compensation
Committee and an Audit Committee of the Board. For so long as the holders of
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Preferred Stock have the right to elect a director to the Board, the Audit
Committee and the Compensation Committee shall each consist of at least two
directors, one of whom is the Series A Director and the other of whom shall be
unaffiliated with management of the Company.
SECTION 3
RESTRICTIONS ON TRANSFER OF EQUITY SECURITIES
BY SHAREHOLDERS
SECTION 3.1. LIMITATIONS. Each Common Shareholder hereby agrees that
such Common Shareholder shall not at any time prior to the earlier of (i) the
completion of a Qualified Public Offering, or (ii) such time as the Preferred
Shareholders in the aggregate cease to own at least ten percent (10%) of the
Shares initially acquired by them pursuant to the Purchase Agreement, Sell any
Equity Securities except:
(a) by sale in accordance with this Section 3;
(b) by pledge which creates a mere security interest in the
Equity Securities, provided that the pledgee thereof shall agree in writing in
advance with the parties hereto to be bound by and comply with all applicable
provisions of this Agreement to the same extent as if such pledgee were the
Common Shareholder making such pledge;
(c) by transfer to another member of its Common Group,
provided that the transferee of such Equity Securities shall agree in writing
with the parties hereto to be bound by and to comply with all applicable
provisions of this Agreement and to be deemed a member of such Common Group; or
(d) by sale as a part of a registered public offering of the
Company's securities in accordance with Section 7 of this Agreement, in which
case the transferee of such Equity Securities shall not be bound by, or entitled
to the benefits of, this Agreement.
SECTION 3.2. PROCEDURES ON SALE OF EQUITY SECURITIES. Except as
otherwise expressly provided herein, each Common Shareholder, and each member of
its Common Group which agrees to comply herewith, hereby agrees that until the
earlier of (i) completion of a Qualified Public Offering, or (ii) such time as
the Preferred Shareholders in the aggregate cease to own at least ten percent
(10%) of the Shares initially acquired by them pursuant to the Purchase
Agreement, such Common Shareholder and the members of such Common Shareholder's
Group shall not Sell any Equity Securities except in accordance with the
following procedures:
(a) The Selling Group shall first deliver to the Company a
written Notice of Intention to Sell offering to the Company such Equity
Securities owned by the Selling Group at the purchase price and on the other
material terms specified therein at which it proposes to Sell the Equity
Securities. The Company shall have the right of first refusal and option for a
period of ten (10) days after delivery to the Company of the Notice of Intention
to Sell, to purchase all
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<PAGE>
or any part of the Equity Securities so offered at the purchase price and on the
other terms stated therein. Such acceptance shall be made by delivering a
written Notice of Acceptance to the Selling Group within the aforesaid ten (10)
day period.
(b) In the event that the Company shall elect to purchase none
or less than all of the Equity Securities so offered, the Selling Group shall
promptly deliver to each Preferred Shareholder a written Notice of Intention to
Sell, which shall be irrevocable for a period of ten (10) days after delivery
thereof, offering to each Preferred Group the Equity Securities that were
offered to, and not purchased by, the Company, at the same purchase price and on
the same other terms, whereupon each Preferred Group shall have the right and
option for a period of ten (10) days after delivery to each Preferred
Shareholder of the Notice of Intention to Sell, to accept up to its Pro Rata
Share of the Equity Securities so offered which are not so purchased by the
Company at the purchase price and on the other terms stated therein. Such
acceptance shall be made by delivering a written Notice of Acceptance to the
Selling Group within the aforesaid ten (10) day period.
(c) If any Preferred Group shall fail to accept, or shall
reject in writing, the offer made pursuant to Section 3.2(b), then, upon the
earlier of the expiration of such ten (10) day period, or the receipt of Notices
of Acceptance or written rejections of such offer from all Preferred Groups, the
Selling Group's then remaining Equity Securities formerly subject to such offer
shall be reoffered to all other Preferred Groups, if any, which shall have
accepted their Pro Rata Share of such original offer. Such subsequent offer
shall be on the terms and subject to acceptance in the manner provided in
Section 3.2(b), except that the Preferred Groups receiving such subsequent offer
shall have (i) the right and option to accept such offer with respect to all of
the then remaining Equity Securities subject thereto pro rata, in accordance
with their respective Pro Rata Shares for a period of five (5) business days and
(ii) the further right and option to offer, in any Notice of Acceptance, to
purchase any of such Equity Securities not purchased by other Preferred Groups,
in which case such Equity Securities not accepted by the other Preferred Groups
shall be deemed to have been offered to and accepted by the Preferred Groups
which have exercised their option under this clause (ii), pro rata in accordance
with their respective Pro Rata Shares, and on the above-described terms and
conditions.
(d) The closing of any sales of Equity Securities under the
terms of Section 3.2(a), Section 3.2(b) and Section 3.2(c) shall be made at the
offices of the Company on a mutually satisfactory business day within fourteen
(l4) days after the expiration of the aforesaid periods. Delivery of
certificates or other instruments evidencing such Equity Securities duly
endorsed for transfer to the Company or to members of the Preferred Groups, as
the case may be, shall be made on such date against payment of the purchase
price therefor.
(e) Any Preferred Group which does not deliver a Notice of
Acceptance during the ten (10) day period referred to in Section 3.2(b) hereof
shall have the right during such ten (10) day period to deliver to the Selling
Group a Notice of Intention to Participate. The Company shall compute the
proportion of shares of Equity Securities available for sale by the Selling
Group to the purchaser thereof. If, and to the extent the Selling Group is to
Sell all or
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<PAGE>
part of the remaining Equity Securities covered by the Notice of Intention to
Sell as contemplated by Section 3.2(f) hereof, it shall be a condition of such
sale that each Preferred Group delivering the Notice of Intention to Participate
shall have the right to have a portion of its Equity Securities purchased by the
purchaser of the Equity Securities covered by the Notice of Intention to Sell,
such portion to be equal to the product obtained by multiplying (i) the
aggregate number of Equity Securities to be purchased by the purchaser by (ii)
the "Ownership Percentage" (as hereinafter defined) of such Preferred Group
giving a Notice of Intention to Participate. The Ownership Percentage for any
Preferred Group giving a Notice of Intention to Participate shall be the
percentage figure which expresses the ratio between (i) the number of Equity
Securities desired to be sold by such Preferred Group and (ii) the aggregate of
(a) the number of Equity Securities desired to be sold by all Preferred Groups
delivering a Notice of Intention to Participate and (b) the number of Equity
Securities to be sold by the Selling Group delivering a Notice of Intention to
Sell. The sale of any Equity Securities by a Preferred Group pursuant to a
Notice of Intention to Participate shall be subject to all terms and conditions
applicable to the sale by the Selling Group as set forth in the Notice of
Intention to Sell.
(f) If effective acceptance shall not be received pursuant to
Section 3.2(a), Section 3.2(b) and Section 3.2(c) above with respect to all
Equity Securities offered for sale pursuant to a Notice of Intention to Sell,
then the Selling Group may sell all or any part of the remaining Equity
Securities so offered for sale at a price not less than the price, and on terms
not more favorable to the purchaser thereof than the terms, stated in the
original Notice of Intention to Sell, at any time within ninety (90) days after
the expiration of the last offer required by Section 3.2(b) and Section 3.2(c)
above. In the event the remaining Equity Securities are not sold by the Selling
Group during such ninety (90) day period, the right of the Selling Group to sell
such remaining Equity Securities shall expire and the obligations of this
Section 3.2 shall be reinstated; provided, however, that in the event the
Selling Group determines, at any time during such ninety (90) day period, that
the sale of all or any part of the remaining Equity Securities on the terms set
forth in the Notice of Intention to Sell is impractical, the Selling Group can
terminate the offer and reinstate the procedure provided in this Section 3.2
without waiting for the expiration of such ninety (90) day period.
(g) Anything contained in this Section 3.2 to the contrary
notwithstanding, any purchaser or other transferee of Equity Securities pursuant
to this Section 3.2 who is not a Shareholder but who is an employee of the
Company as of the date of the purchase or transfer shall agree in writing in
advance with the parties hereto to be bound by and comply with all applicable
provisions of this Agreement and shall be deemed to be a Common Shareholder for
all purposes of this Agreement.
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<PAGE>
SECTION 4
SALE OF NEW SECURITIES BY THE COMPANY
Except as otherwise expressly provided herein, the Company hereby
agrees that until (but not including) the consummation of a Qualified Public
Offering, it shall not Sell any New Securities except in accordance with the
following procedures:
(a) The Company shall first deliver to each Preferred
Shareholder a written Notice of Intention To Sell, which shall be irrevocable
for a period of ten (10) days after delivery thereof, offering to each Preferred
Group the right to purchase up to its Preemptive Share of such New Securities at
the purchase price and on the terms specified therein. Each Preferred Group
shall have the right and option, for such period of ten (10) days after delivery
to Preferred Shareholders of such Notice of Intention To Sell, to purchase all
or any part of the New Securities so offered up to its Preemptive Share at the
purchase price and on the terms stated therein. Such acceptance shall be made by
delivering a written Notice of Acceptance to the Company within the aforesaid
ten (10) day period.
(b) If any Preferred Group shall fail to accept, or shall
reject in writing, the offer made pursuant to Section 4(a), then, upon the
earlier of the expiration of the aforesaid ten (10) day period or the receipt of
Notices of Acceptance or written rejections of such offer from all Preferred
Groups, the then remaining New Securities formerly subject to such offer shall
be reoffered to all other Preferred Groups, if any, which shall have accepted
their Preemptive Share of such original offer. Such subsequent offer shall be on
the terms and subject to acceptance in the manner provided in Section 4(a),
except that the Preferred Groups receiving such subsequent offer shall have (i)
the right and option to accept such offer with respect to all of the then
remaining New Securities subject thereto pro rata in accordance with their
respective Preemptive Shares, for a period of five (5) business days, and (ii)
the further right and option to offer, in any Notice of Acceptance, to purchase
any of such New Securities not purchased by other Preferred Groups, in which
case such New Securities not accepted by other Preferred Groups shall be deemed
to have been offered to and accepted by the Preferred Groups which have
exercised their option under this clause (ii), pro rata, in accordance with
their respective Preemptive Shares, and on the above-described terms and
conditions.
(c) The closing of any sales of New Securities under the terms
of Section 4(a) shall be made at the offices of the Company on a mutually
satisfactory business day within fourteen (14) days after the expiration of the
aforesaid periods. Delivery of certificates or other instruments evidencing such
New Securities duly endorsed for transfer to the Preferred Shareholders shall be
made on such date against payment of the purchase price therefor.
(d) If effective acceptance shall not be received pursuant to
Section 4(a) above with respect to all New Securities offered for sale pursuant
to a Notice of Intention To
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<PAGE>
Sell, then the Company may sell all or any part of the remaining New Securities
so offered for sale at a price not less than the price, and on terms not more
favorable to the purchaser thereof than the terms stated in the original Notice
of Intention To Sell, at any time within one hundred twenty (l20) days after the
expiration of the offer required by Section 4(a) above. In the event the
remaining New Securities are not sold by the Company during such one hundred
twenty (l20) day period, the right of the Company to sell such remaining New
Securities shall expire and the obligations of this Section 4 shall be
reinstated; provided, however, that in the event the Company determines, at any
time during such one hundred twenty (l20) day period, that the sale of all or
any part of the remaining New Securities on the terms set forth in the Notice of
Intention To Sell is impractical, the Company can terminate the offer and
reinstate the procedure provided in this Section 4 without waiting for the
expiration of such one hundred twenty (l20) day period.
SECTION 5
TRANSFER OF SHARES; COVENANTS OF THE COMPANY
SECTION 5.1. TRANSFER BY SHAREHOLDERS. No Shareholder shall sell,
assign, transfer, pledge, encumber or otherwise dispose of, whether by operation
of law or otherwise, any Equity Securities unless any such transfer is made to a
transferee who concurrently with or prior to such transfer becomes a party to
this Agreement.
SECTION 5.2. REGISTRATION OF TRANSFER. The Company shall permit
registration of transfer of Equity Securities held by a Shareholder only in
accordance with the terms of this Agreement. Any transfer of Equity Securities
which is made in any manner contrary to the provisions of this Agreement shall
be void and shall not be effective to constitute the transferee as a shareholder
of the Company entitled to any rights, benefits, and privileges as such.
SECTION 5.3. LEGEND. Each certificate of Common Stock or Preferred
Stock and certificates representing other Equity Securities of the Company, held
by a Shareholder, shall be stamped or otherwise have endorsed or imprinted
thereon a legend in substantially the following form:
"The transfer of the shares represented by this certificate, and the
rights of the holder hereof, are subject to the terms and conditions of a
Shareholders' and Rights Agreement, dated as of December 30, 1999 (a copy of
which is on file with the Company), as the same may be amended from time to
time, and no transfer of the shares represented hereby or of shares issued in
exchange therefor shall be valid or effective unless the terms and conditions of
such Agreement have been fulfilled."
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<PAGE>
SECTION 6
DURATION
The provisions of Sections 2, 3, 4 and 5 of this Agreement shall be of
no further force or effect upon the closing of a Qualified Public Offering. In
addition, the provisions of Section 7 of this Agreement shall be of no further
force or effect upon (a) the date that is four (4) years after the First Public
Offering, or (b) as to a particular Preferred Shareholder, at such earlier time
as such Preferred Shareholder may sell all Shares and Conversion Shares held by
such Preferred Shareholder in any ninety (90) day period pursuant to Commission
Rule 144, provided, however, that in the case of either clause (a) or (b), there
exists a Public Float at such time.
SECTION 7
RESTRICTIONS ON TRANSFERABILITY OF
SECURITIES; COMPLIANCE WITH SECURITIES ACT
SECTION 7.1. CERTAIN DEFINITIONS. As used in this Section 7, the
following terms shall have the following respective meanings:
"RESTRICTED SECURITIES" shall mean the securities of the Company
required to bear or bearing the legend set forth in Section 7.2 hereof.
"REGISTRABLE SECURITIES" shall mean, from time to time, (i) the
Conversion Shares, and (ii) any shares of Common Stock issued as dividends on
the Shares.
The terms "REGISTER," "REGISTERED" AND "REGISTRATION" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the Company
in compliance with Sections 7.4, 7.5 and 7.6 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company and one special counsel for all Holders
chosen by the Holders of a majority of the securities included in such
registration, blue sky fees and expenses, and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company, which shall be paid in any event by the
Company).
"SELLING EXPENSES" shall mean all underwriting discounts, stock
transfer taxes and selling commissions applicable to the sale of Registrable
Securities, and all fees and disbursements of counsel for any Holder not
specifically included in Registration Expenses.
"HOLDER" shall mean any holder of outstanding Shares or Registrable
Securities.
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<PAGE>
"INITIATING HOLDERS" shall mean any Preferred Shareholders (or their
assignees under Section 7.13 hereof) who in the aggregate are Holders of not
less than twenty percent (20%) of the then outstanding Registrable Securities,
and, after any other Holder or Holders have joined in a request by Initiating
Holders, shall include such other Holder or Holders.
"OTHER SHAREHOLDERS" shall have the meaning set forth in Section
7.4(b).
SECTION 7.2. RESTRICTIVE LEGEND. Each certificate representing (i) the
Shares, or (ii) Conversion Shares, or (iii) any other securities issued in
respect of the Shares or the Conversion Shares, upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted or unless the securities evidenced by such
certificate shall have been registered under the Securities Act) be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR APPLICABLE STATE SECURITIES LAWS. 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 THAT SUCH REGISTRATION
IS NOT REQUIRED PURSUANT TO A VALID EXEMPTION THEREFROM UNDER THE
SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS
Upon request of a holder of such a certificate, the Company shall
remove the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if with such request, the
Company shall have received either the opinion referred to in Section 7.3(a)(i)
or the "no-action" letter referred to in Section 7.3(a)(ii), to the effect that
any transfer by such holder of the securities evidenced by such certificate will
not violate the Securities Act and applicable state securities laws.
SECTION 7.3. NOTICE OF PROPOSED TRANSFERS AND SECURITIES ACT
COMPLIANCE.
The holder of Restricted Securities by acceptance thereof
agrees to comply in all respects with the provisions of this Section 7.3. Prior
to any proposed transfer of any Restricted Securities (other than under
circumstances described in Sections 7.4, 7.5 and 7.6 hereof), the holder thereof
shall give written notice to the Company of such holder's intention to effect
such transfer. Each such notice shall describe the manner and circumstances of
the proposed transfer in sufficient detail, and shall be accompanied (except
that transactions in compliance with Rule 144 may instead be accompanied by such
broker and seller representations reasonably requested by the Company to support
the qualification of the transaction under Rule 144) by either (i) a written
opinion of Shipman & Goodwin LLP or other legal counsel (including counsel for
the holder who also may be an employee of the holder) who shall be reasonably
satisfactory to the
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<PAGE>
Company, addressed to the Company and reasonably satisfactory in form and
substance to the Company's counsel, to the effect that the proposed transfer of
the Restricted Securities may be effected without registration under the
Securities Act and applicable state securities laws, or (ii) a "no-action"
letter from the Commission to the effect that the distribution of such
securities without registration will not result in a recommendation by the staff
of the Commission that action be taken with respect thereto. Upon receipt by the
Company of such notices and accompanying opinion or "no-action" letter, if
required, the holder of such Restricted Securities shall be entitled to transfer
such Restricted Securities in accordance with the terms of the notice delivered
by the holder to the Company. Each certificate evidencing the Restricted
Securities transferred as above provided shall bear the appropriate restrictive
legend set forth in Section 7.2 above, except that such certificate need not
bear such restrictive legend if such legend is no longer required in the opinion
of counsel or "no-action" letter referred to above is to the further effect that
such legend is not required in order to establish compliance with any provisions
of the Securities Act or applicable state securities laws or if the transaction
is made, to the Company's reasonable satisfaction, in compliance with Rule 144.
SECTION 7.4. REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. If at any time after the earlier
of (x) two (2) years from the initial issuance of Shares pursuant to the
Purchase Agreement, or (y) the closing of the First Public Offering, the Company
shall receive from Initiating Holders a written request that the Company effect
a registration with respect to all or a part of the Registrable Securities, the
Company will, without limiting any other rights under this Section 7:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its diligent best
efforts to effect such registration (including, without
limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued
under the Securities Act) as may be so requested and as would
permit or facilitate the sale and distribution of all or such
portion of such Registrable Securities as are specified in
such request, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request given by
such Holder or Holders within ten (10) days after receipt of
such written notice from the Company; provided that the
Company shall not be obligated to effect, or to take any
action to effect, any such registration pursuant to this
Section 7.4:
(A) after the Company has effected one (1)
such registration pursuant to this Section 7.4 and such
registration has been declared or ordered effective and has
remained in effect for one hundred twenty (120) days
thereafter; or
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<PAGE>
(B) if the request for registration does
not request the registration of Registrable Securities with a
proposed public offering price of $10,000,000 or more; or
(C) If the Company shall furnish to such
Holders a certificate signed by the President of the Company,
stating that in the good faith judgment of the Board of
Directors of the Company it would be seriously detrimental to
the Company and its shareholders for such Registration
Statement to be filed at the date filing would be required, in
which case the Company shall have an additional period of not
more than 30 days within which to file such registration
statement; provided, however, that the Company shall not use
this right more than once in any 12 month period.
Subject to Section 7.4(a)(ii), the Company shall file a
registration statement on Commission Form S-1 covering the Registrable
Securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Initiating Holders.
The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions of Section 7.4(b) below,
include other securities of the Company which are held by officers or directors
of the Company or which are held by parties who, by virtue of agreements with
the Company, are entitled to include their securities in any such registration.
(b) UNDERWRITING. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to this Section 7.4 and the Company shall include such information in
the written notice referred to in Section 7.4(a)(i) above. The right of any
Holder to registration pursuant to this Section 7.4 shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein.
If officers or directors of the Company holding other
securities of the Company shall request inclusion in any registration pursuant
to this Section 7.4, or if holders of securities of the Company who are
entitled, by contract with the Company, to have securities included in such
registration (the "Other Shareholders") request such inclusion, the Initiating
Holders shall, on behalf of all Holders, offer to include the securities of such
officers, directors and Other Shareholders in the underwriting and may condition
such offer on their acceptance of all applicable provisions of this Section 7.
The Company shall (together with all Holders, officers, directors and Other
Shareholders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected for such underwriting by a majority
in interest of the Initiating Holders and reasonably acceptable to the Company.
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Notwithstanding any other provision of this Section 7.4, if
the representative of the underwriter or underwriters advises the Initiating
Holders in writing that marketing factors make it advisable to impose a
limitation on the number of shares to be underwritten, the securities of the
Company (other than Registrable Securities) held by officers or directors of the
Company and by Other Shareholders shall be excluded from such registration to
the extent so required by such limitation and if a limitation of the number of
shares is still required, the Initiating Holders shall so advise all Holders of
Registrable Securities whose securities would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities that may be included
in the registration and underwriting shall be allocated among all such Holders
in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such persons at the time of filing the
registration statement. No Registrable Securities or any other securities
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration.
If any Holder of Registrable Securities, officer, director or
Other Shareholder above disapproves of the terms of the underwriting, such party
may elect to withdraw therefrom by written notice to the Company, the
underwriter and the Initiating Holders. The securities so withdrawn shall also
be withdrawn from registration.
If the underwriter has not limited the number of Registrable
Securities or other securities to be underwritten, the Company may include its
securities for its own account in such registration if the underwriter so agrees
and if the number of Registrable Securities and other securities which would
otherwise have been included in such registration and underwriting will not
thereby be limited.
SECTION 7.5. COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If the Company shall determine to
register any of its securities either for its own account or the account of a
security holder or holders exercising their respective demand registration
rights, other than a registration on Commission Forms S-4 or S-8, or a
registration relating solely to employee benefit plans, or a registration
relating solely to a Commission Rule 145 transaction, or a registration on any
registration form which does not permit secondary sales, the Company will:
(i) promptly give to each Holder written notice thereof
(which shall include a list of the jurisdictions in
which the Company intends to attempt to qualify such
securities under the applicable blue sky or other
state securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other
compliance), and in any underwriting involved
therein, all the Registrable Securities specified in
a written request or requests, made by any Holder
within ten (10) days after receipt of the written
notice from
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the Company described in clause (i) above, except as
set forth in Section 7.5(b) below; provided, however,
that if at any time after giving written notice of
its intention to register any securities and prior to
the effective date of the registration statement
filed in connection with such registration, the
Company shall determine for any reason not to
register or to delay registration of such securities,
the Company may, at its election, give written notice
of such determination to each Holder of Registrable
Securities and, thereupon, (i) in the case of a
determination not to register, shall be relieved of
its obligation to register any Registrable Securities
in connection with such registration (but not from
its obligation to pay the Registration Expenses in
connection therewith) and (ii) in the case of a
determination to delay registering, shall be
permitted to delay registering any Registrable
Securities, for the same period as the delay in
registering such other securities.
(b) UNDERWRITING. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the written notice given pursuant
to Section 7.5(a)(i). In such event, the right of any Holder to registration
pursuant to Section 7.5 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company, directors and officers and the Other Shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for underwriting by
the Company.
Notwithstanding any other provision of this Section 7.5, if
the underwriter determines that marketing factors require a limitation on the
number of shares to be underwritten, the underwriter may (subject to the
allocation priority set forth below) exclude from such registration and
underwriting some or all of the Registrable Securities which would otherwise be
underwritten pursuant hereto. The Company shall so advise all holders of
securities requesting registration, and the number of shares of securities that
are entitled to be included in the registration and underwriting shall be
allocated in the following manner: The number of shares that may be included in
the registration and underwriting on behalf of such Holders, directors and
officers and Other Shareholders shall be allocated among such Holders, directors
and officers and Other Shareholders in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities and other securities held by
such persons at the time of filing the registration statement, provided,
however, that the underwriter's limitation shall not apply to Holders unless it
also applies in the same proportion to the Company's other Shareholders. In
addition, the Company hereby covenants and agrees not to grant registration
rights similar to those contained in Section 7.5 to any other party that will
provide such party with preferential terms and conditions with respect to
underwriters' limitations.
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If any Holder of Registrable Securities or any officer,
director or Other Shareholder disapproves of the terms of any such underwriting,
such party may elect to withdraw therefrom by written notice to the Company and
the underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
SECTION 7.6. REGISTRATION ON FORM S-3. The Company shall take
reasonable actions to qualify for the use of Form S-3 or any comparable or
successor form or forms of the Commission within twelve (12) months of its First
Public Offering; and to that end the Company shall take reasonable actions to
register (whether or not required by law to do so) the Common Stock under the
Exchange Act, in accordance with the provisions of the Exchange Act following
the effective date of the registration of Equity Securities of the Company on
Form S-1. At any time when the Company is qualified for the use of Form S-3, in
addition to the rights contained in the foregoing provisions of this Section 7,
and provided that at such time the Holders continue to hold at least ten percent
(10%) of the Registrable Securities initially issuable to them upon conversion
of the Shares initially acquired by them pursuant to the Purchase Agreement, the
Holders of Registrable Securities shall have the right to request registrations
on Form S-3 (by written request stating the number of shares of Registrable
Securities to be disposed of and the intended method of disposition of such
shares by such Holder or Holders), subject only to the following:
(i) No request made under this Section 7.6 shall require
a registration statement requested therein to become
effective prior to ninety (90) days after the
effective date of a registration statement filed by
the Company covering the First Public Offering; and
(ii) The Company shall not be required to effect a
registration pursuant to this Section 7.6 unless (a)
the Registrable Securities requested to be registered
pursuant to this Section 7.6 have a proposed public
offering price of $500,000 or more; and (b) the
Company has not completed a registration on Form S-3
within the preceding twelve (12) month period.
The Company shall give notice to all Holders of Registrable
Securities of the receipt of a request for registration pursuant to this Section
7.6 and shall provide a reasonable opportunity for other Holders to participate
in the registration, and, if the intended method of disposition specified as
aforesaid is an underwritten public offering, participation by the Company and
other holders of Common Stock shall be on the basis set forth in Section 7.4(b)
above. Subject to the foregoing, the Company will use its best efforts to effect
promptly the registration of all shares of Registrable Securities on Form S-3 to
the extent requested by the Holder or Holders thereof for purposes of
disposition.
SECTION 7.7. EXPENSES OF REGISTRATION. The Company shall bear all
Registration Expenses incurred in connection with any registration,
qualification and compliance by the Company pursuant to Sections 7.4, 7.5 and
7.6 hereof. All Selling Expenses shall be borne by
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the holders of the securities so registered pro rata on the basis of the number
of their shares so registered. Notwithstanding anything to the contrary above,
the Company shall not be required to pay for any expenses of any registration
proceeding under Section 7.4 if the registration request is subsequently
withdrawn at the request of the Initiating Holder or Holders of a majority of
the Registrable Securities to have been registered, and the Holders of
Registrable Securities to have been registered shall bear all such expenses pro
rata on the basis of the Registrable Securities to have been registered.
Notwithstanding the preceding sentence, however, (a) if at the time of the
withdrawal, the Holders have learned of a materially adverse change in the
condition, business or prospects of the Company from that known to the Holders
at the time of their request, then the Company shall be required to pay said
expenses, and (b) the Holders electing to withdraw a registration may specify in
the notice of withdrawal that the withdrawn registration is to be treated as a
registration declared effective and in effect for 120 days for purposes of
determining the number of registrations effected pursuant to Section 7.4, in
which case the Company shall be required to pay said expenses.
SECTION 7.8. REGISTRATION PROCEDURES. In the case of each registration
effected by the Company pursuant to this Section 7, the Company will keep each
Holder advised in writing as to the initiation of each registration and as to
the completion thereof. Except as provided in Section 7.6, at its expense, the
Company will:
(a) keep such registration effective for a period of one
hundred twenty (120) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs, provided, however, that such 120-day period shall be extended for
a period of time equal to the period the Holder refrains from selling any
securities included in such registration in accordance with the provisions of
Section 7.14 hereof;
(b) furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request; and
(c) Use its best efforts to register or qualify the
Registrable Securities under the securities or blue-sky laws of such
jurisdictions as any Holder may request; provided, however, that the Company
shall not be obligated to register or qualify such Registrable Securities in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in order to effect such registration,
qualification or compliance, unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act or
applicable rules or regulations thereunder; and
(d) To the extent the Company then is able to meet the
applicable listing standards, use its best efforts to cause the Common Shares to
be listed on a national securities exchange or the Nasdaq National Market
System.
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<PAGE>
SECTION 7.9. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company, with respect to each registration,
qualification and compliance effected pursuant to this Section 7, will indemnify
and hold harmless each Holder, each of its officers, directors and partners, and
each party controlling such Holder, and each underwriter, if any, and each party
who controls any underwriter, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each of its officers, directors and partners, and
each party controlling such Holder, each such underwriter and each party who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case (i) to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission based
solely upon written information furnished to the Company by such Holder or
underwriter, as the case may be, and stated to be specifically for use therein
or (ii) to any particular Holder, officer, director or partner or other party
controlling such Holder, or underwriter or party controlling an underwriter to
the extent that any such claim, loss, damage or liability arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in any final, preliminary or summary prospectus if such
untrue statement or alleged untrue statement or omission or alleged omission is
completely corrected in an amendment or supplement to such prospectus provided
to, and which the relevant Holder or underwriter or its controlling persons
fails to deliver prior to or concurrently with the sales of the Registrable
Securities to the person or entity asserting such claim, loss, damage or
liability.
(b) Each Holder and Other Shareholder will, if Registrable
Securities held by such party are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify and hold
harmless the Company, each of its directors and officers and each underwriter,
if any, of the Company's securities covered by such a registration statement,
each party who controls the Company or such underwriter, each other such Holder
and Other Shareholder and each of their respective officers, directors and
partners, and each party controlling such Holder or Other Shareholder, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and such
Holders, Other Shareholders, directors, officers, partners, parties,
underwriters or control persons for any legal or any other
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<PAGE>
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document solely in reliance upon and in
conformity with written information furnished to the Company by such Holder or
Other Shareholder and stated to be specifically for use therein; provided,
however, that the obligations of such Holders and Other Shareholders hereunder
shall be limited to an amount equal to the proceeds to each such Holder or Other
Shareholder of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section
7.9 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have been
advised by counsel that actual or potential differing interests or defenses
exist or may exist between the Indemnifying Party and the Indemnified Party, in
which case such expense shall be paid by the Indemnifying Party), and provided
further that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 7 except to the extent such failure to give notice shall materially
adversely affect the Indemnifying Party in the defense of any claim or
litigation. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. If the defense of any claim or resulting litigation is not assumed
by the Indemnifying Party, the Indemnifying Party will not be subject to any
liability for any settlement made without its consent, but such consent may not
be unreasonably withheld; provided that an Indemnifying Party shall not be
deemed unreasonable in withholding consent to any settlement involving the
imposition of equitable remedies or involving the imposition of any material
obligations on such Indemnifying Party other than financial obligations for
which such Indemnified Party will be indemnified hereunder.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
holder of Restricted Securities exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 7.9 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 7.9 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling holder
or any such controlling person in circumstances for which indemnification is
provided
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under this Section 7.9; then, and in each such case, the Company and such holder
will contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion so that
such holder is responsible for the portion represented by the percentage that
the public offering price of its Restricted Securities offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, and the Company is responsible for the
remaining portion; provided, however, that, in any such case, (A) no such holder
will be required to contribute any amount in excess of the public offering price
of all such Restricted Securities offered by it pursuant to such registration
statement; and (B) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
SECTION 7.10. INFORMATION BY HOLDER. Each Holder of Registrable
Securities, and each Other Shareholder holding securities included in any
registration, shall furnish to the Company such information regarding such
Holder or Other Shareholder as the Company may reasonably request in writing and
as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Section 7.
SECTION 7.11. LIMITATIONS ON REGISTRATION OF ISSUES OF SECURITIES. From
and after the date of this Agreement, the Company shall not enter into any
agreement with any holder or prospective holder of any securities of the Company
giving such holder or prospective holder the right to require the Company to
initiate any registration of any securities of the Company that would provide
such holder or prospective holder with registration rights that are inconsistent
with or more favorable than the rights of the Holders set forth in this Section
7; provided that this Section 7.11 shall not limit the right of the Company to
enter into any agreements with any holder or prospective holder of any
securities of the Company giving such holder or prospective holder the right to
require the Company, upon any registration of any of its securities, to include,
among the securities which the Company is then registering, securities owned by
such holder and provided further that a majority of the Holders of the
Registrable Securities may waive the requirement that the Company not enter into
any agreement giving a holder of any securities of the Company the right to
require the Company to initiate registration of any securities of the Company.
Any right given by the Company to any holder or prospective holder of the
Company's securities in connection with the registration of securities shall be
conditioned such that it shall be (i) consistent with the provisions of this
Section 7 and with the rights of the Holders provided in this Agreement, and
(ii) require the inclusion of Registrable Securities (within the meaning of this
Agreement) in any registration required by any such holder or prospective holder
on the same basis as securities of Other Shareholders are required to be
included in registrations effected pursuant to Sections 7.4 and 7.5 of this
Agreement.
SECTION 7.12. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission, which may permit
the sale of the Restricted Securities to the public without registration, the
Company agrees to:
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(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act;
(b) 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
(c) So long as a Preferred Shareholder owns any Restricted
Securities, furnish to the Preferred Shareholders forthwith upon request a
written statement by the Company as to its compliance with the reporting
requirements of Rule 144 (at any time from and after ninety (90) days following
the effective date of the First Public Offering), and of the Securities Act and
the Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as a Preferred
Shareholder may reasonably request in availing itself of any rule or regulation
of the Commission allowing a Preferred Shareholder to sell any such securities
without registration.
SECTION 7.13. TRANSFER OF REGISTRATION RIGHTS. The rights to cause the
Company to register securities granted by the Company under this Section 7 may
be assigned by any Holder to a transferee or assignee, provided that the Company
is given written notice at the time of or within a reasonable time after said
transfer, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights are
being assigned, and provided further that the transferee or assignee of such
rights assumes the obligations of such Preferred Shareholder under this Section
7.
SECTION 7.14. "MARKET STAND-OFF" AGREEMENT. Each Holder of Registrable
Securities agrees, if requested by the managing underwriter of the First Public
Offering or of any other underwritten offering in which part of the Registrable
Securities are not sold, to enter into an agreement pursuant to which such
Holder agrees not to sell or otherwise transfer or dispose of any Common Stock
(or other securities) of the Company held by it during a period specified by
such underwriter, not to exceed one hundred eighty (180) days following the
effective date of the registration statement of the Company filed under the
Securities Act in connection with the First Public Offering or any subsequent
underwritten offering, provided that all Holders, Other Shareholders and
officers and directors of the Company enter into similar agreements.
Such agreement shall be in writing in a form satisfactory to the
Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of said period.
SECTION 8
MISCELLANEOUS PROVISIONS
SECTION 8.l. ASSIGNMENT OF RIGHTS. The provisions of this Agreement
shall be binding upon and inure to the benefit of any successor or assign of any
party hereto.
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<PAGE>
SECTION 8.2. DURATION OF AGREEMENT. Unless sooner terminated in
accordance with the provisions of this Agreement, the rights and obligations of
each Shareholder under this Agreement shall terminate as to such Shareholder
when the Group of which it is a member has transferred all Equity Securities
owned by such Group in accordance with this Agreement.
SECTION 8.3. ENFORCEMENT. The parties hereto agree that the remedy at
law for any breach of this Agreement is inadequate and that should any dispute
arise concerning any matter hereunder, this Agreement shall be enforceable in a
court of equity by an injunction or a decree of specific performance. Such
remedies shall, however, be cumulative and not exclusive, and shall be in
addition to any other remedies that the parties hereto may have.
SECTION 8.4. SEVERABILITY OF PROVISIONS. If any one or more provisions
of this Agreement shall be declared invalid or unenforceable, the same shall not
affect the validity or enforceability of any other provisions of this Agreement.
SECTION 8.5. AMENDMENTS. Neither this Agreement nor any term hereof may
be amended, waived, discharged, or terminated, except by written instrument
signed by the Company and Preferred Shareholders holding greater than two-thirds
of the voting Equity Securities held by the Preferred Shareholders; provided,
however, that (i) the provisions of Section 2 may not be amended without the
consent of SI, (ii) the provisions of Section 3, may not be amended without the
consent of Common Shareholders holding greater than fifty percent (50%) of the
voting Equity Securities held by the Common Shareholders; (iii) the periods set
forth in Section 6 may not be extended without the consent of each and every
Shareholder; (iv) this Section may not be amended without the consent of each
and every Shareholder and the Company; (v) the obligations of any Shareholder
may not be increased without the consent of such Shareholder and (vi) additional
Preferred Shareholders may be added to Schedule I from time to time if such
Preferred Shareholders agree in writing to be bound by the terms of this
Agreement and are approved by SI. Notwithstanding the foregoing, the execution
of a joinder or similar agreement by which a transferee of a Shareholder agrees
to be bound by and become a party to this Agreement in the manner contemplated
by this Agreement shall not be deemed an amendment.
SECTION 8.6. NOTICES.
(a) All notices and other communications required or permitted
hereunder shall be in writing and (unless otherwise expressly provided on
Schedule I or Schedule II attached hereto) shall be mailed by registered or
certified mail, postage prepaid, or delivered either by hand or by overnight
courier or messenger, or sent via telex, telecopier, computer mail or other
electronic means, addressed (i) if to a Shareholder, as indicated on Schedule I
or Schedule II, or at such other address as such Shareholder shall have
furnished in writing to the party initiating the notice or communication, or
(ii) if to the Company, to Five Clock Tower Place, Suite 440, Maynard,
Massachusetts 01754, or at such other address as the Company shall have
furnished in writing to the party initiating the notice or communication.
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<PAGE>
(b) Any notice or other communications so addressed and
mailed, postage prepaid, by registered or certified mail (in each case, with
return receipt requested) shall be deemed to be delivered and given when so
mailed. Any notice so addressed and otherwise delivered shall be deemed to be
given when actually received by the addressee.
SECTION 8.7. GOVERNING LAW. This Agreement shall be construed in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Connecticut.
SECTION 8.8. ENTIRE AGREEMENT. All prior understandings and agreements
between the parties hereto with respect to the transactions contemplated hereby
are merged in this Agreement, and this Agreement reflects all the understandings
with respect to such transactions. Nothing herein contained shall be construed
to obligate the Shareholders to make any additional investment in the Company or
to constitute the Shareholders as partners.
SECTION 8.9. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which when so executed and delivered shall constitute a
complete and original instrument but all of which together shall constitute one
and the same agreement, and it shall not be necessary when making proof of this
Agreement or any counterpart thereof to account for any other counterpart.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
signed by its duly authorized officer or partner, as the case may be, as of the
date and year first above written.
SOFTLOCK.COM, INC.
By: /s/ Douglas R. Johnson
---------------------------------
Name:
Title: /s/ Executive VP and CFO
/s/ Jonathan Schull
Jonathan Schull
/s/ Keith Loris
Keith Loris
SI VENTURE FUND II, L.P.
By: SI Venture Management II, L.L.C.
its General Partner
By: /s/ N. Adam Rin
---------------------------------
its Managing Member
By: SI VENTURE MANAGEMENT II, L.L.C.,
its General Partner
By: /s/ N. Adam Rin
---------------------------------
its Managing Member
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APEX INVESTMENT FUND IV, L.P.
By: Apex Management IV, L.L.C.,
its General Partner
By: /s/ George M. Middlemas
---------------------------------------
George M. Middlemas
APEX STRATEGIC PARTNERS IV, LLC
By: Apex Management IV, LLC, Manager
By: /s/ George M. Middlemas
------------------------------------
George M. Middlemas, Managing Member
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<PAGE>
<PAGE>
Exhibit 99.3
================================================================================
SERIES A PREFERRED STOCK
PURCHASE AGREEMENT
BY AND AMONG
THE PURCHASERS LISTED ON SCHEDULE 1 HERETO,
SOFTLOCK.COM, INC.
AND
SOFTLOCK SERVICES, INC.
DATED AS OF DECEMBER 30, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
SECTION 1 - AUTHORIZATION, PURCHASE AND SALE OF THE SHARES
1.1 Authorization of the Shares................................................................1
1.2 Sale and Purchase of the Shares............................................................1
1.3 Certain Defined Terms......................................................................1
SECTION 2 - CLOSING, PAYMENT AND DELIVERY
2.1 Closings...................................................................................2
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 Organization and Standing; Articles and By-laws............................................3
3.2 Corporate Power............................................................................3
3.3 Subsidiaries...............................................................................3
3.4 Capitalization.............................................................................4
3.5 Authorization..............................................................................4
3.6 Contracts; Insurance.......................................................................5
3.7 SEC Documents..............................................................................6
3.8 Absence of Undisclosed Liabilities.........................................................7
3.9 Absence of Certain Changes.................................................................7
3.10 Taxes ...................................................................................8
3.11 Transactions with Affiliates...............................................................9
3.12 Litigation.................................................................................9
3.13 Consents9
3.14 Title to Properties; Liens and Encumbrances................................................9
3.15 Leases ...................................................................................9
3.16 Franchises, Licenses, Trademarks,
Patents and Other Rights................................................................10
3.17 Issuance Taxes............................................................................11
3.18 Offering11
3.19 Compliance with Other Instruments.........................................................11
3.20 Employees.................................................................................12
3.21 Business of the Company...................................................................13
3.22 Use of Proceeds...........................................................................13
3.23 Applicability of, and Compliance With, Other Laws.........................................14
3.24 Indebtedness..............................................................................15
3.25 Condition of Properties...................................................................16
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3.26 Insurance Coverage........................................................................16
3.27 Registration Rights.......................................................................16
3.28 Illegal or Unauthorized Payments; Political Contributions................................16
3.29 Disclosure................................................................................17
SECTION 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER
4.1 Organization; Good Standing; Power and Authority; Binding Obligation......................17
4.2 Purchase Entirely for Own Account, Etc....................................................17
4.3 Disclosure................................................................................18
4.4 Accredited Investor.......................................................................18
4.5 Restricted Securities.....................................................................18
4.6 Legends 19
SECTION 5 - CONDITIONS TO CLOSING OF PURCHASER
5.1 Representations and Warranties Correct....................................................19
5.2 Performance...............................................................................19
5.3 Compliance Certificate....................................................................19
5.4 Opinion of Company's Counsel..............................................................19
5.5 Good Standing Certificates................................................................20
5.6 Legal Investment..........................................................................20
5.7 Qualifications............................................................................20
5.8 Amendment of Certificate and Filing of Certificate........................................20
5.9 Proceedings and Documents.................................................................20
5.10 Provisions of By-Laws.....................................................................20
5.11 Shareholders' and Rights Agreement........................................................20
5.12 Minimum Purchase..........................................................................20
SECTION 6 - CONDITIONS TO CLOSING OF COMPANY
6.1 Representations and Warranties Correct...............................................21
6.2 Performance..........................................................................21
6.3 Legal Investment.....................................................................21
6.4 Qualifications.......................................................................21
6.5 Proceedings and Documents............................................................21
6.6 Shareholders' and Rights Agreement...................................................21
6.7 Delivery of Bridge Financing Transaction Documents...................................21
6.8 Statement of Accredited Investor.....................................................21
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<PAGE>
SECTION 7 - COVENANTS OF THE COMPANY
7.1 Basic Financial Information..........................................................22
7.2 Additional Information and Rights....................................................23
7.3 Prompt Payment of Taxes, etc.........................................................24
7.4 Maintenance of Properties and Leases.................................................25
7.5 Insurance............................................................................25
7.6 Accounts and Records.................................................................25
7.7 Compliance with Requirements of Governmental Authorities.............................25
7.8 Maintenance of Corporate Existence, etc..............................................26
7.9 Availability of Common Stock for Conversion..........................................26
7.10 Proprietary Information Agreement, and
Key Employee Agreement.............................................................26
7.11 Use of Proceeds......................................................................27
7.12 Compliance by Subsidiaries...........................................................27
7.13 Expenses of Board Members............................................................27
7.14 Securities Law Filings...............................................................27
SECTION 8 - NEGATIVE COVENANTS
8.1 Sale/Purchase of Assets; Merger......................................................27
8.2 Future Registration Rights...........................................................28
8.3 Changes in Type of Business..........................................................28
8.4 Dividends and Distributions..........................................................29
8.5 Purchase of Equity Securities........................................................29
8.6 Conflicting Agreements...............................................................29
8.7 Amendment of Charter Documents.......................................................29
8.8 Related Party Transactions...........................................................29
8.9 Subsidiaries.........................................................................29
8.10 Fiscal Year..........................................................................29
8.11 Business Plan........................................................................29
8.12 Amendment of Other Agreements........................................................29
8.13 Employee Stock Plans.................................................................29
8.14 Liens .............................................................................30
8.15 Investments..........................................................................30
8.16 Purchases and Sales..................................................................30
8.17 Leases .............................................................................30
8.18 Indebtedness.........................................................................31
8.19 Loans, Guarantees....................................................................31
8.20 Issuance of Equity Securities........................................................31
8.21 License of Listed Rights and Intellectual Property...................................31
8.22 Compliance by Subsidiaries...........................................................31
SECTION 9 - DEFINITIONS..........................................................................31
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<PAGE>
SECTION 10 - MISCELLANEOUS
10.1 Governing Law.............................................................................35
10.2 Survival35
10.3 Successors and Assigns....................................................................35
10.4 Entire Agreement; Amendment...............................................................36
10.5 Notices, etc..............................................................................36
10.6 Delays or Omissions.......................................................................36
10.7 Rights; Severability......................................................................37
10.8 Agent's Fees and Services.................................................................37
10.9 Legal Fees and Expenses...................................................................37
10.10 Titles and Subtitles......................................................................37
10.11 Counterparts..............................................................................37
</TABLE>
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<PAGE>
SCHEDULES AND EXHIBITS
----------------------
SCHEDULE 1 - Schedule of Purchasers
SCHEDULE 2 - Disclosure Schedules
EXHIBIT A - Amended and Restated Certificate of Incorporation
EXHIBIT B - Form of Proprietary Information Agreement
EXHIBIT C - Form of Opinion of Counsel
EXHIBIT D - Shareholders' and Rights Agreement
EXHIBIT E Statement of Accredited Investor
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<PAGE>
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of the 30th day of December, 1999, by and among SoftLock.com,
Inc. (the "Company"), a Delaware corporation having offices at Five Clock Tower
Place, Suite 440, Maynard, Massachusetts, SoftLock Services, Inc. ("Subsidiary")
a Delaware corporation having offices at Five Clock Tower Place, Suite 440,
Maynard, Massachusetts, and each of the parties listed on Schedule 1 hereto (the
"Schedule of Purchasers"). The parties listed on the Schedule of Purchasers are
hereinafter referred to collectively as the "Purchasers".
WHEREAS, the Company desires to issue and sell, and the Purchasers
desire to purchase, certain securities of the Company;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the Company, Subsidiary and the
Purchasers (in the case of the Purchasers, severally and not jointly), hereby
agree as follows:
SECTION 1
AUTHORIZATION, PURCHASE AND SALE OF THE SHARES
----------------------------------------------
1.1 AUTHORIZATION OF THE SHARES. The Company has, or before the First
Closing (as defined in Section 2.1 hereof) will have, authorized the designation
of Series A Preferred Stock, par value $0.01 per share (the "Series A
Preferred"), having the rights, privileges and preferences as set forth in the
Certificate of Designation of the Series A Preferred Stock (the "Certificate"),
the form of which is attached to this Agreement as Exhibit A, and the issuance
and sale under this Agreement of 36,765 shares of the Series A Preferred (the
"Shares").
1.2 SALE AND PURCHASE OF THE SHARES. Upon and subject to the terms and
conditions of this Agreement and in reliance upon the representations,
warranties and agreements contained herein, at the Closing the Company will
issue and sell to the Purchasers, and each Purchaser will purchase from the
Company at the applicable Closing, that number of Shares set forth opposite each
such Purchaser's name on the Schedule of Purchasers.
1.3 CERTAIN DEFINED TERMS. Certain capitalized terms used in this
Agreement shall have the respective meanings ascribed to them in Section 9
hereof.
SECTION 2
CLOSING, PAYMENT AND DELIVERY
2.1 CLOSINGS.
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(A) FIRST CLOSING DATE AND PLACE OF FIRST CLOSING. The first closing of
the purchase and sale of certain of the Shares (the "First Closing") shall be
held on the date (the "First Closing Date") of, and immediately following, the
final execution and delivery of at least one counterpart of this Agreement by
the Company, Subsidiary and the Purchasers listed on the initial Schedule of
Purchasers, or such other date as shall have been agreed to by the Company and
the Purchaser(s) participating in such First Closing. The place of the First
Closing (including the place of delivery to the Purchaser(s) by the Company of
the certificates evidencing the Shares being purchased and the place of payment
to the Company by such Purchaser(s) of the purchase price therefor) shall be at
the offices of Shipman & Goodwin LLP, One American Row, Hartford, CT 06103-2819,
or such other place as shall have been agreed to by the Company and the
Purchaser(s) participating in such First Closing.
(B) SUBSEQUENT CLOSING DATE(S) AND PLACE OF CLOSING. Subsequent
closings of the purchase and sale of certain additional Shares (each a
"Subsequent Closing") to additional Purchaser(s) shall be held on a date (each a
"Subsequent Closing Date") following the First Closing Date, by execution of a
supplement to this Agreement evidencing the agreement of any such additional
Purchaser to be bound by this Agreement and the addition of such Purchaser's
name, address, facsimile number, number of Shares purchased and Purchase Price
therefor to the Schedule of Purchasers. Each additional Purchaser shall, as a
condition to the purchase of the Shares, become a party to the Shareholders
Agreement as a Preferred Shareholder thereunder. SI Venture Fund II, L.P. ("SI")
shall have the right to approve any additional Purchaser not included on the
Schedule of Purchasers as of the First Closing Date. The place of any Subsequent
Closing (including the place of delivery to the Purchaser(s) by the Company of
the certificates evidencing the Shares being purchased in such Subsequent
Closing and the place of payment to the Company by the participating
Purchaser(s) of the purchase price therefor) shall be at the offices of McGuire,
Woods, Battle & Boothe LLP, 1750 Tysons Blvd., Suite 1800, Tysons Corner,
McLean, Virginia 22102-3915, or such other place as shall have been agreed to by
the Company and the Purchaser(s) participating in such Subsequent Closing. The
First Closing and any Subsequent Closing shall each be deemed a "Closing" and
the First Closing Date and any Subsequent Closing Date shall each be deemed a
"Closing Date" for purposes of this Agreement. The Company covenants and agrees
that it shall not issue or sell any shares of the Series A Preferred except
pursuant to the terms of this Section 2.1 or pursuant to the warrants issued in
connection with the Bridge Financing Transaction.
(C) CLOSING PAYMENT AND DELIVERY. At any Closing, the Purchaser(s)
participating in such Closing will pay to the Company, in cash or by check or
wire transfer, and, in the case of SI, by the additional surrender and
conversion of the Bridge Note, the amount set forth opposite such Purchaser's
name on the Schedule of Purchasers; and the Company will deliver to such
Purchaser a certificate or certificates registered in such Purchaser's name for
the number of Shares set forth opposite such Purchaser's name on the Schedule of
Purchasers.
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SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
Except as expressly set forth (with reference to a paragraph in this
Section 3) on Schedule 2 (the "Disclosure Schedules") hereto, the Company and
Subsidiary jointly and severally represent and warrant to the Purchasers as of
the Closing Date as follows:
3.1 ORGANIZATION AND STANDING; ARTICLES AND BY-LAWS.
(A) The Company and Subsidiary each is a corporation duly organized,
validly existing and in good standing under the laws of its state of
organization and are qualified, licensed or domesticated as a foreign
corporation in each jurisdiction wherein the nature of its activities or
properties owned or leased by each makes such qualification, licensing or
domestication necessary. The Disclosure Schedules set forth the jurisdictions in
which the Company and/or Subsidiary is qualified, licensed or domesticated as a
foreign corporation. The Company and Subsidiary each has all requisite power,
governmental licenses, authorization consents and approvals to own the
properties owned by it and to conduct the business as it is being conducted by
it and as contemplated by the business plan (the "Plan") prepared by the
Company, a true and correct copy of which has been given to the Purchasers and
special counsel for the Purchasers. The Disclosure Schedules set forth all
jurisdictions in which the Company or Subsidiary owns or leases property or
engages in any activity which under applicable law makes qualification or
license as a foreign corporation necessary.
(B) The Company has furnished special counsel for the Purchasers with
true, correct and complete copies of the Company's and Subsidiary's Certificate
of Incorporation and By-Laws, and all amendments thereto through and including
the Closing Date and copies of the minutes of all Board of Directors, Committees
of the Board of Directors and stockholders meetings of the Company and
Subsidiary. Prior to the Closing, the Company shall have properly filed and
recorded the Certificate with the Secretary of the State of Delaware. Neither
the Company nor Subsidiary is in breach of any of the provisions of its
Certificate of Incorporation or its By-Laws
3.2 CORPORATE POWER. The Company and Subsidiary each has all requisite
corporate power to enter into this Agreement and each of the Financing Documents
to which it is a party and will have on the Closing Date all requisite corporate
power to sell the Shares (with respect to the Company) and to carry out and
perform its obligations under the terms of this Agreement and each of the
Financing Documents to which it is a party.
3.3 SUBSIDIARIES. Except as set forth in the Disclosure Schedules,
neither the Company nor Subsidiary has any Other Subsidiaries and does not own
of record or beneficially any capital stock or equity interest or investment in
any corporation, partnership, association or business entity. The Company is the
sole owner of all securities of Subsidiary.
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3.4 CAPITALIZATION. The Disclosure Schedules contain a true and correct
list of all securities of the Company and Subsidiary (including the amounts
thereof) outstanding immediately prior to the Closing, and the holders of any
interest exceeding five percent (5%) of the amount of such issued securities and
the number of securities held by the Company's management and directors.
Immediately prior to the Closing, the Company's authorized capital stock will
consist of (a) Fifty Million (50,000,000) shares of Common Stock, par value
$0.01 per share ("Common Stock") of which 12,819,582 shares were issued and
outstanding as of December 23, 1999, and (b) 5,000,000 shares of preferred
stock, of which 40,000 shares shall be designated Series A Preferred Stock and
none of which shall be issued and outstanding prior to the Closing. Upon
consummation of the Closing, all issued and outstanding shares of capital stock
of the Company will have been duly authorized and validly issued, fully paid and
nonassessable, owned of record and beneficially by the shareholders, and,
subject in part to the truth and accuracy of the Purchasers' representations set
forth in this Agreement, will have been offered issued, sold and delivered by
the Company in compliance with applicable federal and state securities laws.
Except as set forth in the Disclosure Schedules and the Shareholders' and Rights
Agreement, there are no outstanding preemptive or other preferential rights,
conversion rights or other rights, options, warrants (excluding any warrants
issued pursuant to the Bridge Financing Transaction) or agreements granted or
issued by or binding upon the Company for the purchase or acquisition of any
shares of its capital stock. The Company holds no shares of its capital stock in
its treasury.
3.5 AUTHORIZATION.
(A) All action on the part of the Company, Subsidiary, their respective
directors and shareholders, necessary for the authorization, execution, delivery
and performance by the Company and Subsidiary, as applicable, of this Agreement
and each of the Financing Documents and for the consummation of the transactions
contemplated herein and therein, and for the authorization, issuance and
delivery of the Shares and of the Conversion Shares has been taken or will be
taken prior to the Closing.
This Agreement and each of the Financing Documents is a valid and
binding obligation of the Company and Subsidiary parties hereto and thereto,
enforceable in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws of
general application affecting enforcement of creditors' rights generally. The
execution and delivery by the Company and Subsidiary, as applicable, of this
Agreement and each of the Financing Documents, and compliance herewith and
therewith, and the issuance and sale of the Shares and the Conversion Shares
will not, with or without notice or the passage of time or both, result in any
violation of and will not conflict with, or result in a breach of any of the
terms of, or constitute a default under any provision of, any state or federal
law to which the Company or Subsidiary is subject, the Certificate of
Incorporation or By-Laws of the Company or Subsidiary as amended, or any
mortgage, indenture, agreement, instrument, judgment, decree, order, rule or
regulation or other restriction to which the Company or Subsidiary is a party or
by which it or any of its property is bound, or may be affected, or result in
the creation of any mortgage, pledge, lien, encumbrance or charge upon any of
the properties or assets of the Company or Subsidiary pursuant to any such term
or give any other person or entity the right to accelerate the time for
performance of any obligation of the Company or Subsidiary. Except as
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set forth in the Shareholders' and Rights Agreement, no shareholder has any
preemptive rights or rights of first refusal by reason of or in connection with
the issuance of the Shares. The Shares, when issued in compliance with the
provisions of this Agreement, will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances. The Conversion
Shares have been duly and validly reserved (and are in addition to any other
shares reserved for any other purpose) and are not subject to any preemptive
rights or rights of first refusal and, upon such issuance, will be validly
issued, fully paid and nonassessable.
(B) The execution, delivery and performance of this Agreement and each
of the Financing Documents, and the consummation of the transactions
contemplated hereby and thereby require no governmental or judicial approval to
be obtained by the Company or Subsidiary, except for post-sale filings with the
Securities and Exchange Commission (the "Commission") and, as required under
state law, state securities commissions, which filings will be carried out in a
timely fashion.
3.6 CONTRACTS; INSURANCE. The Disclosure Schedules set forth a true and
correct list of all material contracts, obligations, commitments, agreements,
plans and the like, whether written or oral, and all administrative, judicial
and similar orders to which the Company and/or Subsidiary is a party or by which
it or any of its properties is bound, including, without limitation, the
following:
(A) Any employment, bonus or consulting agreement, pension, profit
sharing, deferred compensation, stock bonus, retirement, stock option, stock
purchase, phantom stock or similar plan, or agreement evidencing rights to
purchase securities, phantom stock or similar plan of the Company or Subsidiary
or any agreement among shareholders of the Company or Subsidiary;
(B) Other than the documents related to the Bridge Financing
Transaction, any loan or other agreement, note, indenture or instrument relating
to, or evidencing, indebtedness for borrowed money, or mortgaging, pledging or
granting or creating a lien or security interest or other encumbrance on any
property of the Company or Subsidiary or any agreement or instrument evidencing
any guaranty by the Company or Subsidiary of payment or performance by any other
party;
(C) Any material agreement with any dealer, sales representative,
broker or other distributor, jobber, advertiser or sales agency;
(D) Any agreement with any labor union or collective bargaining
organization or any other labor agreement;
(E) Any contract for the furnishing, purchase or lease of machinery,
equipment, goods or services (including, without limitation, any agreement with
processors and subcontractors) in an amount in excess of $10,000 per year;
(F) Other than the documents related to the Bridge Financing
Transaction, any indenture, agreement or other document (including private
placement brochures) relating to the future sale or repurchase of securities;
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(G) Other than the documents related to the Bridge Financing
Transaction, any agreement to register under the Securities Act of 1933, as
amended (the "Securities Act"), any of the securities of the Company;
(H) Any joint venture contract or arrangement or other agreement
involving a sharing of profits or expenses;
(I) Any agreement (other than distributorship agreements or similar
agreements providing for the distribution of the Company's or Subsidiary's
products with dealers, distributors and sales representatives of the Company or
Subsidiary) limiting the freedom of the Company or Subsidiary to compete in any
line of business or in any geographic area or with any party; and
(J) Any agreement providing for disposition of any line of business,
assets or securities of the Company or Subsidiary, or any agreement with respect
to the acquisition of any line of business, assets or shares of any other
business, any agreement of merger or consolidation or letter of intent with
respect to the foregoing.
A copy of each contract and commitment listed on the Disclosure
Schedules has been delivered to special counsel for the Purchasers. The Company
and Subsidiary each has complied with all material provisions of each such
contract and commitment. No event has occurred and no condition exists which,
with notice or the passage of time or both, would constitute a material default
under any such contract or commitment. To the Company's and Subsidiary's
knowledge, no party to such contract or commitment has threatened to terminate
its obligations thereunder.
3.7 SEC DOCUMENTS. The Company has filed all required reports,
schedules, forms, statements and other documents with the Commission (any of the
foregoing are referred to herein as the "SEC Documents"). As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act, or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as the case may be, and the rules and regulations of the
Commission promulgated thereunder applicable to such SEC Documents, and to the
Company's and Subsidiary's knowledge, none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. Except to
the extent that information contained in any SEC Document has been revised or
superseded by a later-filed SEC Document, to the Company's and Subsidiary's
knowledge, none of the SEC Documents currently contains any untrue statement of
a material fact at the time that it was made or omits to state any material fact
required to be stated therein or necessary in order to make the statements
therein as of the date thereof, in light of the circumstances under which they
were made, not misleading. The financial statements of the Company and
Subsidiary included in the SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the case of
unaudited statements, as permitted by Form 10-QSB of the Commission) applied on
a
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consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present the consolidated financial position of the
Company, Subsidiary and their consolidated subsidiaries as of the dates thereof
and the consolidated results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments). All of the SEC Documents have been provided to the
Purchasers. As used in this Agreement, "Balance Sheet" shall mean the unaudited,
consolidated balance sheet of the Company and Subsidiary as of November 30,
1999, provided to the Purchasers and "Financial Statements" shall mean the
unaudited, consolidated financial statements of the Company and Subsidiary as of
and for the eleven (11) months ended November 30, 1999 as provided to the
Purchasers.
3.8 ABSENCE OF UNDISCLOSED LIABILITIES. Neither the Company nor
Subsidiary knows of, any liabilities (fixed or contingent, including without
limitation any tax liabilities due or to become due), which, either individually
or in the aggregate, are material and not disclosed on the Balance Sheet.
3.9 ABSENCE OF CERTAIN CHANGES. Except as set forth on the Disclosure
Schedules and except for the Bridge Financing Transaction, since the date of the
Balance Sheet, there has not been:
(A) Any change in the condition, assets, liabilities, prospects or
business of the Company or Subsidiary from that shown on the Balance Sheet
which, either individually or in the aggregate, has been or is reasonably likely
to be materially adverse;
(B) Any damage to, or destruction or loss of, any of the properties or
assets of the Company or Subsidiary (whether or not covered by insurance)
materially adversely affecting the business or plans of the Company or
Subsidiary or the Technology;
(C) Any declaration, setting aside or payment or other distribution in
respect of any of the Company's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of such stock (or any warrant,
option or other right with respect to such stock) by the Company or Subsidiary
or any repayment of Company or Subsidiary debt held by any Related Party or by
an Affiliate;
(D) Any organizational activity, collective bargaining activity, labor
dispute or labor trouble;
(E) Any event or condition of any character, which, either individually
or in the aggregate, materially adversely affects the business, operations or
plans of the Company or Subsidiary;
(F) Any action taken or entered into by the Company or Subsidiary
involving any transaction other than in the usual and ordinary course of
business, except this Agreement and the Bridge Financing Transaction;
(G) Any wage or salary increase made or granted, or entered into by the
Company or Subsidiary involving any employment agreement with an officer or key
employee other than any agreement set forth in the Disclosure Schedules;
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(H) Any disclosure to any person of any material trade secrets, except
for disclosures made to persons subject to valid and enforceable confidentiality
agreements; or
(I) Any material disposition of assets outside the ordinary course of
business.
3.10 TAXES. The Company and Subsidiary has each filed or will file
within the time prescribed by law (including extensions of time approved by any
appropriate taxing authority) all tax returns and reports required to be filed
with the United States Internal Revenue Service and with the States of Delaware,
Massachusetts and New York, and (except to the extent that the failure to file
would not have a material adverse effect on the condition or operations of the
Company or Subsidiary) with all other jurisdictions where such filing is
required by law; and the Company and Subsidiary has paid, or made adequate
provision in the Balance Sheet for the payment of, all taxes, interest,
penalties, assessments or deficiencies due in connection therewith. Neither the
Company nor Subsidiary has ever had any tax deficiency proposed or assessed
against it and neither the Company nor Subsidiary has executed any waiver of any
statute of limitations on the assessment or collection of any tax or
governmental charge. None of the Company's or Subsidiary's federal income tax
returns nor any state income, sales or franchise tax returns has ever been
audited by governmental authorities. No tax audit, action, suit, proceeding,
investigation or claim is now pending nor, to the best of the Company's and
Subsidiary's knowledge after reasonable inquiry, threatened against the Company
or Subsidiary, and no issue or question has been raised (and is currently
pending) by any taxing authority in connection with any of the Company's or
Subsidiary's tax returns or reports.
The Company and Subsidiary each has withheld or collected from each
payment made to each of their employees, the amount of all taxes (including, but
not limited to, federal income taxes, Federal Insurance Contribution Act taxes
and Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or
authorized depositaries.
3.11 TRANSACTIONS WITH AFFILIATES. Except as set forth on the
Disclosure Schedule, there is no loan, lease or other continuing transaction
between the Company or Subsidiary and any Related Party and/or Affiliate.
3.12 LITIGATION. Except as set forth on the Disclosure Schedule, there
is neither pending nor threatened any action, suit, proceeding or claim, whether
or not purportedly on behalf of the Company or Subsidiary, to which the Company,
Subsidiary or any employee of the Company or Subsidiary is or may be named as a
party or to which the Company's, Subsidiary's or any such person's property is
or may be subject. Except as set forth on the Disclosure Schedule, to the
Company's and Subsidiary's knowledge and belief, there is no basis for any such
action, suit, proceeding or claim, in which an unfavorable outcome, ruling or
finding in any such matter or for all such matters, taken as a whole, might have
a material adverse effect on the condition, financial or otherwise, operations
or prospects of the Company or Subsidiary or on the Technology. Except as set
forth on the Disclosure Schedule, the Company and Subsidiary have no knowledge
of any unasserted claim, the assertion of which is likely
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and which, if asserted, will seek damages, an injunction or other legal,
equitable, monetary or nonmonetary relief which if granted would have a material
adverse effect on the condition, financial or otherwise, operations or prospects
of the Company or Subsidiary.
3.13 CONSENTS. No consent, approval or authorization of, or
designation, declaration or filing with, any governmental authority on the part
of the Company or Subsidiary, including qualification under applicable state
securities laws of the offer and sale of the Shares and of the issuance of the
Conversion Shares, is required in connection with the valid execution and
delivery of this Agreement, the offer, sale or issuance of the Shares, the
conversion of the Shares into Common Stock or the issuance of the Conversion
Shares, or the consummation of any other transaction contemplated on the Closing
Date by this Agreement or any of the Financing Documents, except the filing of
the Certificate with the Secretary of the State of Delaware, which filing has
been made and is effective as of the date hereof.
3.14 TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. Except as set forth
on the Disclosure Schedule, the Company and Subsidiary each has good and
marketable title to all its properties and assets, free from all mortgages,
pledges, liens, security interests, conditional sale agreements, encumbrances or
charges.
3.15 LEASES. Set forth on the Disclosure Schedules is a correct and
complete list of all leases (including, with respect to each lease, the material
provisions of such lease, including the term, the amount of rent called for and
a description of the leased property) under which the Company or Subsidiary is a
lessee, other than personal property requiring rental payments of less than
$10,000 per year. The Company and Subsidiary each enjoys peaceful and
undisturbed possession under all such leases, all of such leases are valid and
subsisting and none of them is in default in any respect, and to the knowledge
of the Company and Subsidiary, no event has occurred and no condition exists
which, with notice or the passage of time or both, would constitute such a
default.
3.16 FRANCHISES, LICENSES, TRADEMARKS, PATENTS AND OTHER RIGHTS.
(A) All (i) franchises, permits, licenses and other similar authority,
(ii) patents, patent applications, patent rights, service marks, trademarks,
trademark applications, trademark rights, trade names, trade name rights and
copyrights (whether registered or not), and (iii) know-how, technology and trade
secrets, which, in any case, are owned, possessed or used by any employee of the
Company or Subsidiary, or which any employee has the right to own, possess or
use, and which in any way are or may be usable now or in the future for the
conduct of the Company's and Subsidiary's business as now conducted or as
planned to be conducted, have been duly and validly transferred in full to the
Company or Subsidiary. The documents and instruments evidencing such transfer
are listed in the Disclosure Schedules, and a copy thereof has been delivered to
special counsel for the Purchasers.
(B) The Company and Subsidiary each has all franchises, permits,
licenses and other similar authority, necessary for the conduct of its business
as now being conducted by it and believes it can obtain any similar authority
necessary for the conduct of its business as planned to be conducted, and it
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is not in violation, nor will the transactions contemplated by this Agreement
cause a violation of the terms or provisions of any such franchise, permit,
license or other similar authority.
(C) The Disclosure Schedules list all patents, patent applications,
patent rights, trademarks, trademark applications, trademark rights, trade
names, trade name rights, service marks and copyrights (whether registered or
not) owned or possessed by the Company and Subsidiary (collectively, the "Listed
Rights"). The Listed Rights comprise all the patents, patent applications,
patent rights, trademarks, trademark applications, trademark rights, trade
names, trade name rights, service marks and copyrights (whether registered or
not) necessary to the conduct of the Company's and Subsidiary's business as now
being conducted, and the Company and Subsidiary believe that the Company and
Subsidiary can obtain any such rights necessary for the conduct of their
business as planned to be conducted. The Company and Subsidiary each has and
possesses the know-how, technology and trade secrets not included in the Listed
Rights (such know-how, technology and trade secrets being collectively called
the "Intellectual Property") which they believe to be necessary (i) to conduct
the Company's and Subsidiary's business as now being conducted and (ii) with
additional know-how, technology and trade secrets which the Company and
Subsidiary plan to develop or acquire, for the conduct of their business as
planned to be conducted. (The Listed Rights and the Intellectual Property
collectively constitute the "Technology".) Except as set forth on the Disclosure
Schedule, there is neither pending, nor, to the best of the Company's and
Subsidiary's knowledge and belief, threatened, any claim or litigation against
the Company or Subsidiary contesting the validity or right to use any of the
Listed Rights or any of the Intellectual Property, nor is the Company or
Subsidiary aware of any basis therefor, and neither the Company nor Subsidiary
has received any notice of infringement upon or conflict with any asserted right
of others. To the Company's and Subsidiary's knowledge and belief, no person,
corporation or other entity is infringing or violating the Listed Rights or any
of the Intellectual Property. Except as described in the Disclosure Schedules,
neither the Company nor Subsidiary is under any obligation to compensate others
for the use of any Listed Right or any Intellectual Property, nor has the
Company or Subsidiary granted any license or other right to use, in any manner,
any of the Listed Rights or Intellectual Property, whether or not requiring the
payment of royalties.
(D) Except as set forth on the Disclosure Schedule, to the Company's
and Subsidiary's knowledge, all computer software owned, licensed or used by the
Company or Subsidiary: (i) includes Year 2000 date data century recognition,
calculations which accommodate same century and multi-century formulas and date
values, correct date sort ordering (if date sorting is an included function),
and date data interface values that reflect the century; (ii) will not cause an
abnormal abend or abort within the application on account of date data properly
entered into the application or result in the generation of incorrect values or
invalid outputs involving such date; (iii) provides that all date related user
interface functionalities and data fields include the indication of the correct
century, and (iv) include four digit year format and recognize and correctly
process dates for leap years.
3.17 ISSUANCE TAXES. All taxes imposed by any state in connection with
the issuance, sale and delivery of the Shares shall have been fully paid, and
all laws imposing such taxes shall have been fully complied with, prior to the
Closing Date.
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3.18 OFFERING. Except as set forth on the Disclosure Schedule and in
the Company's SEC Documents, within the past six (6) months, the Company has
not, either directly or through any agent, offered any of the Shares or any
preferred security or securities similar to the Shares for sale to, or solicited
any offers to buy the Shares or any part thereof or any such similar preferred
security or securities from, or otherwise approached or negotiated in respect
thereof with, any party or parties other than the Purchasers or institutional or
other sophisticated investors, each of which was offered all or a portion of the
Shares at private sale for investment.
Subject in part to the truth and accuracy of the Purchasers'
representations set forth in this Agreement, the offer, sale and issuance of the
Shares as contemplated by this Agreement are exempt from the registration
requirements of the Securities Act, and all state securities laws, and neither
the Company nor anyone acting on its behalf will take any action hereafter that
would cause the loss of such exemption.
3.19 COMPLIANCE WITH OTHER INSTRUMENTS. Neither the Company nor
Subsidiary is in violation of any term of its Certificate of Incorporation or
By-Laws. Neither the Company, Subsidiary, nor any of their property is in
violation of any term of any mortgage, indenture, contract, agreement,
instrument, judgment, decree, order, statute, rule or regulation to which the
Company, Subsidiary or any of such property is subject, a violation of which
would materially adversely affect the Company's or Subsidiary's condition,
financial or otherwise, or operations.
3.20 EMPLOYEES.
(A) To the Company's and Subsidiary's knowledge, no employee of the
Company or Subsidiary and no Related Party is, or is now expected to be, in
violation of any term of any employment contract, patent disclosure agreement,
non-competition agreement, or any other contract or agreement with any prior
employer or any other person, corporation, or other entity or any restrictive
covenant in such an agreement, or any obligation imposed by common law or
otherwise, relating to the right of any such employee or Related Party to be
employed by the Company, Subsidiary or companies similarly situated because of
the nature of the business conducted or to be conducted by the Company, or
Subsidiary or companies similarly situated or relating to the use of trade
secrets or proprietary information of others, and the continued employment of
the Company's or Subsidiary's employees and/or Related Parties does not subject
the Company, Subsidiary or any Purchaser to any liability for any such
violation.
(B) Each of the Company's and Subsidiary's other present or former
employees who has had access to proprietary information of the Company or
Subsidiary has executed a Softlock.com Non-Disclosure And Solicitation,
Confidentiality and Assignment of Intellectual Property Agreement ("Proprietary
Information Agreement") to the effect and in substantially the form provided to
the Purchasers and special counsel for the Purchasers, a copy of which is set
forth in Exhibit B hereto. The Disclosure Schedules set forth a complete list of
the name and position of each person who has executed a Proprietary Information
Agreement. To the Company's and Subsidiary's knowledge and belief, no employee
or former employee of the Company or Subsidiary is, or to the Company's and
Subsidiary's
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knowledge and belief now is expected to be, in violation of the terms of the
aforesaid agreement or of any other obligation relating to the use of
confidential or proprietary information of the Company or Subsidiary. Each of
such Proprietary Information Agreements remains in full force and effect.
(C) The Disclosure Schedules set forth the current compensation of each
officer or director of the Company and Subsidiary, and of each employee being
paid (or to whom the Company or Subsidiary has agreed to pay) annual salary at a
rate of $120,000 per year or more.
(D) To the knowledge of the Company and Subsidiary, except as set forth
on the Disclosure Schedule, no officer or key employee of the Company or
Subsidiary has any present intent of terminating such officer's or key
employee's employment with the Company or Subsidiary.
(E) The Company and Subsidiary each complies in all material respects
with all laws regarding employment, wages, hours, equal opportunity, collective
bargaining and payment of Social Security and other taxes. The Company and
Subsidiary each is in compliance in all material respects with all applicable
foreign, federal, state and local laws and regulations regarding occupational
safety and health standards and has received no complaints from any foreign,
federal, state or local agency or regulatory body alleging violations of any
such laws and regulations.
(F) Except as set forth on the Disclosure Schedules hereto, the
employment of all persons and officers employed by the Company and Subsidiary is
terminable at will without any penalty or severance obligation of any kind on
the part of the employer. All sums due for employee compensation and benefits
and all vacation time owing to any employees of the Company and Subsidiary have
been duly and adequately accrued on the accounting records of the Company. All
employees of the Company and Subsidiary are either United States citizens or
resident aliens specifically authorized to engage in employment in the United
States in accordance with all applicable laws.
(G) Neither the Company nor Subsidiary has experienced, nor does it
know or have reasonable grounds to know of any basis for, any strike, labor
troubles or strife, work stoppages, slow downs, or other interference with or
impairment of its business. Neither the Company nor Subsidiary has experienced,
nor does it know or have reasonable grounds to know of, any union or collective
bargaining organization efforts or negotiations, or requests for negotiations,
for any representation or any labor contract relating to any employees of the
Company or Subsidiary.
3.21 BUSINESS OF THE COMPANY. Except as set forth on the Disclosure
Schedule, the Company and Subsidiary have no knowledge or belief that (i) there
is pending or threatened any claim or litigation against or affecting the
Company or Subsidiary contesting its right to manufacture, sell or use any
product or service presently manufactured, sold or used or planned to be
manufactured, sold or used by the Company or Subsidiary, or (ii) there exists,
or there is pending or planned, any statute, rule, law, regulation, standard or
code which would materially adversely affect the condition, financial or
otherwise, the operations or the prospects of the Company or Subsidiary. The
Company and Subsidiary currently intend to engage in the business of the general
type described in the Plan (the "Business").
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3.22 USE OF PROCEEDS. The Company and Subsidiary will use the proceeds
of the offering for working capital purposes. The Company and Subsidiary will
not use the proceeds of the offering for other business purposes. None of the
transactions contemplated in this Agreement (including, without limitation, the
use of the proceeds from the sale of the Shares) will violate or result in a
violation of Section 7 of the Exchange Act, or any regulations issued pursuant
thereto, including, without limitation, Regulations G, T and X of the Board of
Governors of the Federal Reserve System, 12 C.F.R., Chapter 11. Neither the
Company nor Subsidiary owns or intends to carry or purchase any "margin
security" within the meaning of said Regulation G, including margin securities
originally issued by it. None of the proceeds from the sale of the Shares will
be used to purchase or carry (or refinance any borrowing the proceeds of which
were used to purchase or carry) any "security" within the meaning of the
Securities Act.
3.23 APPLICABILITY OF, AND COMPLIANCE WITH, OTHER LAWS.
(A) Neither the Company nor Subsidiary has or makes contributions to
any pension plans, defined benefit plans or defined contribution plans for its
employees which are subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), except as set forth on the Disclosure Schedules.
With respect to such plans, if any, listed on the Disclosure Schedules, the
Company and Subsidiary is in compliance with the applicable provisions of ERISA.
Neither the Company nor Subsidiary has incurred any unremedied accumulated
funding deficiency within the meaning of ERISA or any unsatisfied liability to
the Pension Benefit Guaranty Corporation established under ERISA in connection
with any employee pension plan established or maintained by the Company or such
Subsidiary under the jurisdiction of ERISA. No Reportable Event or Prohibited
Transaction (as defined in Section 4043 of ERISA) has occurred with respect to
any plan administered by the Company or Subsidiary.
(B) The Company's and Subsidiary's employment practices and policies
comply in all material respects with (i) all applicable laws of the United
States and each applicable jurisdiction relating to equal employment
opportunity, and any rules, regulations, administrative orders and Executive
Orders relating thereto; and (ii) the applicable terms, relating to equal
opportunity, of any contract, agreement or grant the Company and Subsidiary has
with, from or relating (by way of subcontract or otherwise) to any other
contract, agreement or grant of, any federal or state governmental unit. Neither
the Company nor Subsidiary has been the subject of any charge of unfair labor
practices, employment discrimination made against it by the National Labor
Relations Board, the United States Equal Employment Opportunity Commission or
any other governmental unit, or is presently subject to any formal or informal
proceedings before, or investigations by, such Commission or governmental unit.
To the Company's and Subsidiary's knowledge, neither the Company, nor
Subsidiary, nor any employees of the Company or of Subsidiary, nor any Related
Parties are presently under investigation by any commission or governmental
agency for purposes of security clearance or otherwise.
(C) Neither the Company nor Subsidiary or any property owned or
occupied by the Company or Subsidiary is in material violation of any Federal or
State Environmental Law of any sort or in
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violation of any Federal or State "OSHA" law, so-called. The Disclosure
Schedules contain a list of all environmental permits held by the Company and
Subsidiary. Without limiting the foregoing:
(i) ENVIRONMENTAL PERMITS. The Company and Subsidiary each has
obtained all environmental, health and safety permits and governmental
authorizations (collectively, the "Environmental Permits") necessary
for the construction of their facilities or the conduct of their
operations, and all such Environmental Permits are in good standing and
the Company and Subsidiary each is in compliance with all terms and
conditions of the Environmental Permits. No notice to, approval of or
authorization or consent from any governmental or regulatory authority
is necessary for the transfer of or modification to any Environmental
Permit and the consummation of the transactions contemplated by this
Agreement will not violate, alter, impair or invalidate, in any
respect, any Environmental Permit.
(ii) ENVIRONMENTAL CLAIMS. There is no Environmental Claim
pending, threatened or likely to be threatened (a) against the Company
or Subsidiary, (b) to the Company's and Subsidiary's knowledge, against
any person or entity whose liability for any Environmental Claim the
Company or Subsidiary has or may have retained or assumed either
contractually or by operation of law, or (c) against any real or
personal property or operations which are now or have been previously
owned, leased, operated or managed, in whole or in part, by the Company
or Subsidiary; provided however that to the extent the Environmental
Claim is based on the liability of another person or entity that the
Company or Subsidiary has or may have retained or assumed either
contractually or by operation of law such representation and warranty
under this clause (c) is limited to the knowledge of the Company and
Subsidiary.
(iii) RELEASES. There have been no Releases of any Hazardous
Materials that would be likely to form the basis of any Environmental
Claim against the Company, Subsidiary or, to the Company's and
Subsidiary's knowledge, against any person or entity whose liability
for any Environmental Claim the Company or Subsidiary has or may have
retained or assumed either contractually or by operation of law.
(iv) ENVIRONMENTAL ASSESSMENTS. There are no environmental
reports, audits, investigations or assessments of the Company,
Subsidiary, or any real or personal property or operations which are
now or have been previously owned, leased, operated or managed, in
whole or in part, by the Company or Subsidiary.
(v) ENVIRONMENTAL DISCLOSURE. To the knowledge of the Company
and Subsidiary upon diligent review, the Company and Subsidiary have
disclosed to the Purchasers all relevant facts with respect to
potential or actual environmental liabilities of the Company and
Subsidiary.
(D) Neither the Company nor Subsidiary has violated any law or any
governmental law, rule, order or regulation or requirement which violation
through the date hereof has had or would reasonably be expected to have a
material adverse effect upon the financial condition, operating results, assets,
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operations or business prospects of the Company and Subsidiary and neither the
Company nor Subsidiary has received notice of any such violation.
3.24 INDEBTEDNESS. Other than the Bridge Financing Transaction, the
Disclosure Schedules contain a true and complete list, including the names of
the parties thereto and summary description of the terms thereof, of all debt
instruments, loan agreements, indentures, guaranties or other obligations,
whether written or oral, other than (a) obligations which may be terminated
without payment or penalty by the Company or Subsidiary upon not more than
thirty (30) days notice, (b) obligations which are otherwise disclosed in this
Agreement and (b) obligations for less than $10,000. Except for the Bridge
Financing Transaction, all of the aforesaid items were entered into in the
ordinary course of business, are valid and binding, in full force and effect and
are enforceable in accordance with their respective terms and there exists no
breach or default, or any event which with notice or lapse of time or both,
would constitute a breach or default by any party thereto. All of the Company's
and Subsidiary's Indebtedness which is required to be disclosed under generally
accepted accounting principles is disclosed on the Balance Sheet.
3.25 CONDITION OF PROPERTIES. All facilities, machinery, equipment,
fixtures, vehicles and other properties owned, leased or used by the Company and
Subsidiary are in good operating condition and repair, are reasonably fit and
usable for the purposes for which they are being used, are adequate and
sufficient for the Company's and Subsidiary's businesses and conform in all
material respects with all applicable ordinances, regulations and laws.
3.26 INSURANCE COVERAGE. Neither the Company nor Subsidiary has been
refused any insurance coverage sought or applied for, and the Company and
Subsidiary have no reason to believe that they will be unable to obtain one or
more policies of insurance issued by insurers of recognized responsibility,
insuring the Company, Subsidiary and their properties and business against such
losses and risks, and in such amounts, as are customary in the case of
corporations of established reputation engaged in the same or similar business
and similarly situated. The Disclosure Schedules set forth each insurance policy
(specifying the insurer, the amount of coverage, the type of insurance, the
policy number, and the expiration date), maintained by the Company and
Subsidiary relating to their properties, assets, business or personnel. Neither
the Company nor Subsidiary is in material default with respect to any provision
contained in any insurance policy, and neither the Company nor Subsidiary has
failed to give any notice or present any presently existing claims under any
insurance policy in due and timely fashion.
3.27 REGISTRATION RIGHTS. Other than under the Financing Documents or
the documents related to the Bridge Financing Transaction or as listed in the
Disclosure Schedules, neither the Company nor Subsidiary has agreed to register
under the Securities Act any of its authorized or outstanding securities.
3.28 ILLEGAL OR UNAUTHORIZED PAYMENTS; POLITICAL CONTRIBUTIONS. To the
Company's and Subsidiary's knowledge, neither the Company, Subsidiary nor any of
their officers, directors, employees, agents or other representatives of the
Company, Subsidiary or any other business entity or enterprise
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with which the Company or Subsidiary is or has been affiliated or associated,
has, directly or indirectly, made or authorized any payment, contribution or
gift of money, property, or services, whether or not in contravention of
applicable law, (a) as a kickback or bribe to any person or (b) to any political
organization, or the holder of or any aspirant to any elective or appointive
public office except for personal political contributions not involving the
direct or indirect use of funds of the Company or Subsidiary.
3.29 DISCLOSURE. Neither this Agreement, the Disclosure Schedules nor
other written statement furnished to the Purchasers or their counsel in
connection with the offer and sale of the Shares, contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained therein or herein not misleading in the light of the
circumstances under which they were made. The forecasts, projections, estimates
and other forward-looking matters furnished to the Purchasers were prepared on
the basis of the Company's and Subsidiary's best estimates. The Company and
Subsidiary do not have any reason to believe that any assumptions or statements
of opinion contained in such forecasts, projections, estimates or other
forward-looking matters are unreasonable or false.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Each of the Purchasers represents and warrants to the Company, as to
itself only, as follows:
4.1 ORGANIZATION; GOOD STANDING; POWER AND AUTHORITY; BINDING
OBLIGATION. It has full power and authority to enter into this Agreement, and is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and all action on its part necessary for the
authorization, execution and delivery of this Agreement and the Financing
Documents, the performance of all of its obligations hereunder, including,
without limitation, the payment of the purchase price for the Shares
contemplated by this Agreement, has been taken, and it has all the requisite
power and authority to enter into this Agreement and each of the Financing
Documents to which it is a party. This Agreement and each of the Financing
Documents to which it is a party has been duly executed and delivered by
Purchaser and constitutes its valid and legally binding obligation enforceable
against it in accordance with its terms, subject to the effect of any applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws affecting
creditors' rights generally, subject, as to enforceability, to the effect of
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and subject to the effect of
applicable securities laws as to rights of indemnification.
4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT, ETC. It is acquiring the Shares
solely for investment for its own account, not as a nominee or agent and not
with the view to, or for resale in connection with, any distribution thereof. It
has no present intention of selling, granting any participation in, or otherwise
distributing the Shares or the Conversion Shares. It does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations
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to any person with respect to the Shares or the Conversion Shares. It
understands that the Shares and the Conversion Shares have not been registered
under the Securities Act by reason of an exemption from the registration
provisions of the Securities Act, and that the Company's and Subsidiary's
reliance on such exemption is predicated in part upon its representations and
warranties set forth in this Section 4.
4.3. DISCLOSURE. It has received or reviewed all the information which
it has requested for the purposes of determining the merits of the purchase of
the Shares and the execution of this Agreement and the Financing Documents. It
also has received and reviewed a copy of the Company's consolidated, unaudited
financial statements for the period ended November 30, 1999, (the "Unaudited
Financials"). It has had an opportunity to ask questions and receive answers
from the Company and Subsidiary regarding such entities, their business,
operations and financial condition and the terms and conditions of the purchase
of the Shares, this Agreement and each of the Financing Documents to which it is
a party, and answers have been provided to its full satisfaction. It has fully
reviewed all corporate and governance documents of the Company and Subsidiary
provided to it, understands all relevant terms and has asked all questions and
received answers thereto to its full satisfaction. If deemed necessary by it, it
has consulted with a professional advisor who has provided it with advice
concerning these terms. IT ACKNOWLEDGES AND AGREES THAT THE PURCHASE OF THE
SHARES INVOLVES A HIGH DEGREE OF RISK, AND MAY RESULT IN A LOSS OF THE ENTIRE
AMOUNT INVESTED. IT FURTHER ACKNOWLEDGES AND AGREES THAT THERE IS NO PUBLIC
MARKET FOR THE SHARES. THERE IS NO ASSURANCE THAT THE COMPANY'S OR SUBSIDIARY'S
OPERATIONS WILL RESULT IN REVENUES OR BE PROFITABLE OR THAT A PUBLIC MARKET FOR
THE SHARES WILL DEVELOP AT ANY TIME.
4.4 ACCREDITED INVESTOR. It is an accredited investor as defined in
Rule 501(a) of Regulation D under the Securities Act. The information provided
by it on the Statement of Accredited Investor, attached hereto as EXHIBIT E, is
true and correct in all respects. It is capable of bearing the economic risk of
an investment in the purchase of the Shares, including the possible loss of its
entire investment. It has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of an investment
in the Shares and Conversion Shares offered hereby. It has not been organized
solely for the purpose of acquiring the Shares or Conversion Shares. It has not
construed the contents of this Agreement, any Financing Document or any
additional agreement with respect to the proposed purchase of the Shares or any
prior or subsequent communications from the Company or Subsidiary, or any of
their officers, employees or representatives, as investment, tax or legal advice
or as information necessarily applicable to its particular financial situation.
It has consulted its own financial advisor, tax advisor, legal counsel and
accountant, as necessary or desirable, as to matters concerning the purchase of
the Shares and Conversion Shares.
4.5 RESTRICTED SECURITIES. It understands that the Shares and the
Conversion Shares are "restricted securities" as defined in the Securities Act,
and that under federal and state securities laws the Shares and the Conversion
Shares may be resold without registration under the Securities Act only in
certain limited circumstances. It is familiar with Rule 144 promulgated by the
Commission under the Securities Act, and understands the resale limitations
imposed thereby and by the Securities Act generally. It also acknowledges that
the Shares and the Conversion Shares are subject to significant
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restrictions on transfer, pledge or hypothecation. It agrees that in no event
will it make a transfer or disposition of the Shares or the Conversion Shares
other than in compliance with all applicable securities laws.
4.6 Legends. It is understood that certificates or other evidence of
the Shares and the Conversion Shares may bear the following legend, as well as
any legend required by the laws of any state:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS.
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 THAT SUCH
REGISTRATION IS NOT REQUIRED PURSUANT TO A VALID EXEMPTION
THEREFROM UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE
SECURITIES LAWS."
SECTION 5
---------
CONDITIONS TO CLOSING OF PURCHASER
----------------------------------
The obligation of the Purchasers to purchase the Shares to be purchased
by them at the Closing is subject to the fulfillment to their satisfaction on or
prior to the Closing Date of each of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company and Subsidiary in Section 3 hereof, as qualified
by the Disclosure Schedules, shall be true and correct in all respects when
made, and shall be true and correct in all respects on the Closing Date.
5.2 PERFORMANCE. All covenants, agreements and conditions contained in
this Agreement (including those in Section 2.1) to be performed or complied with
by the Company and/or Subsidiary on or prior to the Closing Date shall have been
so performed or complied with in all material respects.
5.3 COMPLIANCE CERTIFICATE. The Company and Subsidiary shall have
executed and delivered to the Purchasers a certificate of the President or
Executive Vice President of the Company and Subsidiary, dated the Closing Date,
certifying to the fulfillment of the conditions specified in Sections 5.1 and
5.2 of this Agreement and such other matters as the Purchasers may reasonably
request.
5.4 OPINION OF COMPANY'S COUNSEL. The Purchasers shall have received an
opinion of counsel from McGuire, Woods, Battle & Boothe LLP, counsel to the
Company and Subsidiary, addressed to them, dated the Closing Date, to the effect
and in substantially the form set forth in Exhibit C.
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5.5 GOOD STANDING CERTIFICATES. The Company shall have delivered to the
Purchasers a certificate of recent date from the Secretary of State of the State
of the Company's and Subsidiary's state of incorporation with respect to the
Company's and Subsidiary's due incorporation, good standing, legal corporate
existence, due authorization to conduct business and the payment of all
franchise taxes, and, certificates from the Secretary of State in each
jurisdiction in which the Company or Subsidiary is required to be qualified to
do business with respect to the Company's or Subsidiary's good standing and due
authorization to conduct business therein and payment of all qualification fees.
5.6 LEGAL INVESTMENT. At the time of the Closing, the purchase of the
Shares to be purchased by the Purchasers hereunder shall be legally permitted by
all laws and regulations to which it and the Company and Subsidiary are subject.
5.7 QUALIFICATIONS. All authorizations, approvals, or permits of any
governmental authority or regulatory body that are required in connection with
the lawful issuance and sale of the Shares pursuant to this Agreement, the
conversion of the Shares into Common Stock and the issuance of such Common Stock
upon such conversion shall have been duly obtained and shall be effective on and
as of the Closing Date, including, if necessary, permits from applicable state
securities authorities, qualifying the offer and sale of the Shares and the
Conversion Shares.
5.8 AMENDMENT OF CERTIFICATE AND FILING OF CERTIFICATE. The Certificate
of Incorporation of the Company shall have been duly amended by the filing of
the Certificate with the Secretary of the State of Delaware.
5.9 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to the Purchasers and special counsel for the Purchasers.
5.10 PROVISIONS OF BY-LAWS. The By-Laws of the Company shall provide
that (a) a majority of the Directors constituting the Board shall constitute a
quorum for the transaction of any business at a meeting of the Board, and (b)
the holders of Shares which represent 15% or more of outstanding voting shares
of the Company can call special meetings of stockholders.
5.11 SHAREHOLDERS' AND RIGHTS AGREEMENT. The Company and the Purchasers
shall have executed and delivered a Shareholders' and Rights Agreement (the
"Shareholders' and Rights Agreement") to the effect and in substantially the
form set forth in Exhibit D hereto.
5.12 MINIMUM PURCHASE. As to the First Closing, this Agreement shall
have been entered into by Purchasers which in the aggregate are purchasing
Shares with an aggregate purchase price of at least $3,200,000.
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SECTION 6
CONDITIONS TO CLOSING OF COMPANY
--------------------------------
The Company's obligation to sell the Shares to be purchased at the
Closing is subject to the fulfillment to its satisfaction on or prior to the
Closing Date of each of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Purchasers pursuant to Section 4 hereof shall be true and
correct when made and shall be true and correct in all respects on the Closing
Date and with respect thereto, after giving effect to the purchase of the Shares
at the Closing.
6.2 PERFORMANCE. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Purchasers on or prior to
the Closing Date shall have been so performed or complied with in all material
respects.
6.3 LEGAL INVESTMENT. At the time of the Closing, the conditions set
forth in Sections 5.6 and 5.7 shall have occurred and the purchase of the Shares
to be purchased by the Purchasers hereunder shall be legally permitted by all
laws and regulations to which the Purchasers and the Company are subject.
6.4 QUALIFICATIONS. All authorizations, approvals, or permits of any
governmental authority or regulatory body that are required in connection with
the lawful issuance and sale of the Shares pursuant to this Agreement, the
conversion of the Shares into Common Stock and the issuance of such Common Stock
upon such conversion shall have been duly obtained and shall be effective on and
as of the Closing Date, including, if necessary, permits from applicable state
securities authorities, qualifying the offer and sale of the Shares and the
Conversion Shares.
6.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to the Company and the Subsidiary and their special counsel.
6.6 SHAREHOLDERS' AND RIGHTS AGREEMENT. The Company and the Purchasers
shall have executed and delivered the Shareholders' and Rights Agreement to the
effect and in substantially the form set forth in Exhibit D hereto.
6.7 DELIVERY OF BRIDGE FINANCING TRANSACTION DOCUMENTS. SI Venture
Associates, L.L.C. shall have delivered to the Company the Bridge Note and the
Common Stock Purchase Default Warrant entered into in connection with the Bridge
Financing Transaction so that such documents may be marked cancelled or
satisfied and paid in full, as the case may be.
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6.8 STATEMENT OF ACCREDITED INVESTOR. The Purchasers shall have
executed and delivered to the Company and the Subsidiary a Statement of
Accredited Investor to the effect and in substantially the form set forth in
Exhibit E hereto.
SECTION 7
COVENANTS OF THE COMPANY
------------------------
The Company and Subsidiary hereby jointly and severally covenant and
agree, for the benefit of any Purchaser who owns 15% or more of the Shares sold
under this Agreement which remain outstanding and which have not been converted
to Common Stock:
7.1 BASIC FINANCIAL INFORMATION. The Company will furnish to each such
Purchaser the following reports:
(A) Within seven (7) days following the filing with the Commission,
copies of its reports filed on Form 10-K, Form 10-Q, Form 8-K or any successor
form or forms, its Form of Proxy and any other reports and financial statements
sent or made available to stockholders or directors or filed with the
Commission.
(B) Each set of financial statements delivered to a Purchaser pursuant
to Section 7.1 will be accompanied by a certificate of the Chief Financial
Officer of the Company setting forth:
(i) Covenant Compliance - any information required in order to
establish whether the Company, Subsidiary and their Other Subsidiaries
were in compliance with the requirements of this Section 7 during the
period covered by the income statement then being furnished; and
(ii) Event of Default - that the signer has reviewed the
relevant terms of this Agreement, the Certificate and the other
Financing Documents and have made, or caused to be made, under their
supervision, a review of the transactions and conditions of the
Company, Subsidiary and their Other Subsidiaries, if any, from the
beginning of the accounting period covered by the income statements
being delivered therewith to the date of the certificate and that such
review has not disclosed the existence during such period of any
condition or event which constitutes a breach or default under this
Agreement, the Certificate or any of the other Financing Documents or,
if any such condition or event existed or exists, specifying the nature
and period of existence thereof and what action the Company and
Subsidiary have taken or propose to take with respect thereto.
(iii) Notice of Material Litigation and Other Material Events
- any information regarding any litigation or other event that might
have a material adverse effect on the condition, financial or
otherwise, operations or prospects of the Company, Subsidiary or any
Other Subsidiary or on the Technology.
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7.2 ADDITIONAL INFORMATION AND RIGHTS.
The Company and Subsidiary will, for any such Purchaser:
(A) Permit such Purchaser (or its designated representative) to visit
and inspect any of the properties of the Company, Subsidiary and their Other
Subsidiaries, including its books of account, and to discuss its affairs,
finances and accounts with the Company's, Subsidiary's and their Other
Subsidiaries' officers and its independent public accountants, all during
ordinary business hours upon reasonable prior written notice to the Company and
as often as any such party may reasonably request. Any such visitation or
inspection shall be performed in a reasonable manner with a minimum of
disruption to the Company's and Subsidiary's business and with due regard to the
proprietary and confidential nature of any information received by it.
(B) Deliver the reports and data described below to such Purchaser:
(i) As soon as available (but in any event before the
commencement of its fiscal year except in the case of the Annual Plan
for fiscal year 2000 which shall be delivered no later than January 31,
2000) the Company's consolidated capital and operating expense budgets
and its operating plan (the "Annual Plan") approved by the Board
indicating, among other things, monthly income statements, balance
sheets and cash flow statements for the next fiscal year, all itemized
in reasonable detail, together with the underlying assumptions
therefor, plans for incurring indebtedness and projections regarding
other sources of funds; any material changes in such financial plan
shall be submitted as promptly as practicable after such changes have
been approved by the Board;
(ii) As soon as available, information and data on any
material adverse changes in or any event or condition which materially
adversely affects or could materially adversely affect the business,
operations, properties or plans of the Company, Subsidiary and/or any
Other Subsidiary;
(iii) Immediately upon becoming aware of any condition or
event which constitutes a breach of this Agreement, the Financing
Documents or any agreement contemplated hereby or thereby, written
notice specifying the nature and period of existence thereof and what
action the Company is taking or proposes to take with respect thereto;
(iv) With reasonable promptness, copies of audit response
letters, accountants' management letters and any other written reports
submitted to the Company by its independent public accountants in
connection with an annual or interim audit of the books of the Company,
Subsidiary or any of their Other Subsidiaries;
(v) Such other information and data with respect to the
Company, Subsidiary and their Other Subsidiaries as any such party may
from time to time reasonably request;
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(vi) Promptly after the commencement thereof, notice of all
actions, suits, claims, proceedings, investigations and inquiries of
the type described in Section 3.12 that could materially adversely
affect the Company, Subsidiary or any of their Other Subsidiaries;
(vii) Promptly upon sending, making available or filing the
same, all press releases, reports and financial statements that the
Company, Subsidiary or any of their Other Subsidiaries sends or makes
available to its stockholders or directors or files with the
Commission;
(viii) At the time of delivery to the Company's Board of
Directors, reports, minutes, consents, waivers or such other
information substantially similar to such reports, minutes, consents,
waivers or other information delivered to the members of the Company's
Board of Directors (such obligation being satisfied by delivery to such
Purchasers' board representative, if such Purchaser has a board
representative, for signature or consent) provided that each Purchaser
understands that it could be subject to fines, penalties and other
liabilities under applicable securities laws in the event of trading in
the Company's securities while in the possession of any material,
non-public information concerning the Company and agrees to abide by
these legal prohibitions on tipping and trading and each Purchaser
agrees to maintain the confidentiality of such information in
accordance with its applicable nondisclosure agreement with the
Company; and
(ix) Promptly, from time to time, such other information
regarding the business, prospects, financial condition, operations,
property or affairs of the Company, Subsidiary and their Other
Subsidiaries as such Purchaser reasonably may request.
7.3 PROMPT PAYMENT OF TAXES, ETC. The Company, Subsidiary and any Other
Subsidiary will promptly pay and discharge, or cause to be paid and discharged,
when due and payable, all lawful taxes, assessments and governmental charges or
levies imposed upon the income, profits, property or business of the Company,
Subsidiary or such Other Subsidiary; provided, however, that any such tax,
assessment, charge or levy need not be paid if the validity thereof shall at the
time be contested in good faith by appropriate proceedings, and provided,
further, that unless otherwise approved by the Board, the Company, Subsidiary
and any Other Subsidiary will pay all such taxes, assessments, charges or levies
forthwith upon the commencement of proceedings to foreclose any lien which may
have attached as security therefor. Unless otherwise approved by the Board, the
Company, Subsidiary and any Other Subsidiary will promptly pay or cause to be
paid when due, or in conformance with customary trade terms, all other
obligations incident to their operations.
7.4 MAINTENANCE OF PROPERTIES AND LEASES. The Company, Subsidiary and
each Other Subsidiary will keep their properties in good repair, working order
and condition, reasonable wear and tear excepted, and from time to time make all
needful and proper, or legally required, repairs, renewals, replacements,
additions and improvements thereto; and the Company, Subsidiary and each Other
Subsidiary will at all times comply with each provision of all leases to which
it is a party or under which it occupies, or has possession of, property if the
breach of such provision might have a material adverse
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effect on the condition, financial or otherwise, or operations of the
Company, Subsidiary or any Other Subsidiary.
7.5 INSURANCE. The Company, Subsidiary and any Other Subsidiary will
keep their assets which are of an insurable character insured by financially
sound and reputable insurers against loss or damage by fire, extended coverage
and explosion in amounts sufficient to prevent the Company, Subsidiary or any
Other Subsidiary from becoming a co-insurer. The Company, Subsidiary and any
Other Subsidiary will maintain for themselves with financially sound and
reputable insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated.
7.6 ACCOUNTS AND RECORDS. The Company, Subsidiary and any Other
Subsidiary will keep true records and books of account in which full, true and
correct entries will be made of all dealings or transactions in relation to
their business and affairs in accordance with generally accepted accounting
principles applied on a consistent basis.
7.7 COMPLIANCE WITH REQUIREMENTS OF GOVERNMENTAL AUTHORITIES. The
Company, Subsidiary and Other Subsidiaries shall duly observe and conform in all
material respects to all valid requirements of governmental authorities relating
to their conduct of their businesses or to their property or assets. Without
limiting the generality of the foregoing, the Company, Subsidiary and their
Other Subsidiaries will:
(A) Comply with all minimum funding requirements applicable to any
pension plans, employee benefit plans or employee contribution plans which are
subject to ERISA or to the Internal Revenue Code of 1986, as amended (the
"Code"), and comply in all other material respects with the provisions of ERISA
and the provisions of the Code applicable to such plans; and
(B) Comply in all material respects with all applicable laws of the
United States and of each applicable jurisdiction relating to equal employment
opportunity, any rules, regulations, administrative orders and Executive Orders
relating thereto and the applicable terms, relating to equal employment
opportunity, of any contract, agreement or grant the Company, Subsidiary or any
Other Subsidiary has with, from or relating (by way of subcontract or otherwise)
to any other contract, agreement or grant of, any federal or state governmental
unit; and keep all records required to be kept, and file all reports,
affirmative action plans and forms required to be filed, pursuant to any such
applicable law or the terms of any such government contract.
(C) So conduct its business that neither the Company, Subsidiary, any
Other Subsidiaries nor any property owned or occupied by any of them is in
material violation of any Federal or State Environmental Law of any sort or in
material violation of any Federal or State "OSHA" Law so-called.
7.8 MAINTENANCE OF CORPORATE EXISTENCE, ETC. The Company, Subsidiary
and each Other Subsidiary maintain in full force and effect its corporate
existence, rights, government approvals and
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franchises and all licenses and other rights to use patents, processes,
licenses, trademarks, trade names or copyrights owned or possessed by it and
deemed by it to be necessary to the conduct of its business.
7.9 AVAILABILITY OF COMMON STOCK FOR CONVERSION. The Company will, from
time to time, in accordance with the laws of the state of its incorporation,
increase the authorized amount of Common Stock if at any time the number of
shares of Common Stock remaining unissued and available for issuance shall be
insufficient to permit the conversion of all the then outstanding shares of the
Series A Preferred.
7.10 PROPRIETARY INFORMATION AGREEMENT, AND KEY EMPLOYEE AGREEMENT.
(A) The Company, Subsidiary and each Other Subsidiary will enter into a
Proprietary Information Agreement to the effect and in substantially the form of
Exhibit B hereto or as otherwise approved by the Board with each person
hereafter employed by any of them with access to confidential information
(B) At such time as the Board of Directors of the Company authorizes
the Company, Subsidiary or any Other Subsidiary to enter into an agreement or
other arrangement that would constitute consideration for such key employee
agreement, the Company, Subsidiary and each Other Subsidiary will require all
persons now or hereafter employed by the Company, Subsidiary or such Other
Subsidiary and designated as a "key person" by the Company's Board to execute a
key employee agreement in favor of the Company containing the non-competition
provisions approved by the Board and reasonably satisfactory to the Purchasers
as a condition to the entering into of such agreement or arrangement with the
key person.
(C) The Company, Subsidiary and each Other Subsidiary will cause all
technological developments, inventions, discoveries or improvements made by
employees of the Company, Subsidiary and such Other Subsidiary to be fully
documented in engineering notebooks in accordance with the best prevailing
industrial professional standards, and where possible and appropriate, cause all
employees to file and prosecute United States and foreign patent applications
relating to and protecting such developments.
7.11 USE OF PROCEEDS. The Company and Subsidiary will use the proceeds
from the sale of the Shares for the purposes described in Section 3.22 hereof.
7.12 COMPLIANCE BY SUBSIDIARIES. The Company and Subsidiary will each
cause any Other Subsidiary which it may now have and/or which it may organize or
acquire in the future to comply fully with all the terms and provisions of this
Section 7.
7.13 EXPENSES OF BOARD MEMBERS. The Company agrees to reimburse each of
the directors elected to the Company's Board by the Purchasers for their
reasonable and properly documented out-of-pocket travel and lodging expenses in
connection with attending Board meetings and performing their
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respective obligations and responsibilities as directors of the Company upon
receipt of an itemized invoice or expense report with appropriate receipts or
other evidence in support of such expenses.
7.14 SECURITIES LAW FILINGS. Based on the Purchaser's representations
and warranties made pursuant to this Agreement, the Company will make any
filings necessary to perfect in a timely fashion exemptions from (i) the
registration and prospectus delivery requirements of the Securities Act and (ii)
the registration or qualification requirements of all applicable securities or
blue sky laws of any state or other jurisdiction, for the issuance of the Shares
to the Purchasers.
SECTION 8
NEGATIVE COVENANTS
------------------
The Company and Subsidiary jointly and severally agree, for the benefit
of any Purchaser who holds 15% or more of the Shares sold under this Agreement
which have not been converted to Common Stock, that so long as less than 75% of
the Shares have been converted into Common Stock each of the Company, Subsidiary
and each of their Other Subsidiaries (unless the context otherwise requires)
will not do any of the following set forth in Sections 8.1 through 8.7 unless
the holders of a majority of the Shares sold under this Agreement which remain
outstanding and have not been converted to Common Stock otherwise agree in
writing, or any of the following set forth in Sections 8.8 through 8.21 without
the approval of a majority of the Board:
8.1 SALE/PURCHASE OF ASSETS; MERGER. Hereafter:
(A) Sell or otherwise dispose of the capital stock of
Subsidiary or any Other Subsidiary or of all or a substantial part of the
Company's assets or business or of all or a substantial part of the assets or
business of Subsidiary or any Other Subsidiary (whether by sale of assets,
exclusive license or otherwise);
(B) Purchase or otherwise acquire all or substantially
all of the capital stock of any corporation or equity interest in any other
entity or lend money to any person or entity, or purchase a substantial part of
the operating assets of any person or entity for a purchase price in excess of
the lower of (i) $5,000,000, and (ii) 20% of the Company's net revenues for the
twelve month period immediately preceding such purchase; or
(C) Consolidate with or merge into or with any other
person or entity or permit any other person or entity to consolidate with or
merge into it (except that Subsidiary may merge into the Company, and a 100%
Other Subsidiary may consolidate with or merge into Subsidiary or the Company or
into another 100% Other Subsidiary); provided that the foregoing restriction
does not apply to the merger of another corporation into the Company or
Subsidiary, if:
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(i) In the case of a merger into the Company, the Company is
the surviving corporation and more than 50% of the outstanding common
stock of the surviving corporation is owned by persons who prior to
such merger owned Common Stock of the Company;
(ii) In the case of a merger into Subsidiary, Subsidiary is
the surviving corporation, remains a 100% subsidiary of the Company and
more than 50% of the outstanding Common Stock of the Company after the
merger is owned by persons who prior to such merger owned Common Stock
of the Company
(iii) After giving effect to the proposed merger or
consolidation the surviving corporation will be engaged in
substantially the same lines of business; and
(iv) Immediately after the consummation of the transaction,
and after giving effect thereto, no default under this Agreement, the
Certificate or any other Financing Document would exist.
8.2 FUTURE REGISTRATION RIGHTS. Except as expressly permitted by the
Financing Documents and except for an underwriting agreement between the Company
and one or more professional underwriters of securities, the Company shall not
agree to register any Equity Securities under the Securities Act that will
provide such other Equity Securities with registration rights which are
preferential to or inconsistent with those granted to Purchasers under the
Shareholders and Rights Agreement.
8.3 CHANGES IN TYPE OF BUSINESS. Make any substantial change in the
character of its business. Any business activities related to repetitive locking
techniques or the distribution of electronic content will not constitute a
substantial change in the character of its business.
8.4 DIVIDENDS AND DISTRIBUTIONS. Directly or indirectly declare or pay
any dividends or make any distributions upon any of its Equity Securities other
than the Series A Preferred.
8.5 PURCHASE OF EQUITY SECURITIES. Directly or indirectly redeem,
purchase or otherwise acquire, any of the Company's, Subsidiary's or any Other
Subsidiary's Equity Securities except (a) as permitted by this Agreement, the
Shareholders' and Rights Agreement, and the Certificate or (b) from any employee
upon termination of employment, but subject to Board approval.
8.6 CONFLICTING AGREEMENTS. Become subject to any agreement or
instrument, which by its terms would (under any circumstances) restrict the
Company's, Subsidiary's or any Other Subsidiary's right to perform any of its
obligations pursuant to the terms of this Agreement or any agreement
contemplated hereby, the Certificate, the Financing Documents, or the Company's
By-laws (including, without limitation, all obligations relating to payment of
dividends on and making redemptions of the Series A Preferred and conversions of
the Series A Preferred).
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8.7 AMENDMENT OF CHARTER DOCUMENTS. Except as contemplated by this
Agreement, make any amendment to the Company's, Subsidiary's or any Other
Subsidiary's Certificate of Incorporation or make any amendment to the By-laws
that has not been approved by action of the Board of Directors in which the
director nominated by the holders of the Shares participated and assented.
8.8 RELATED PARTY TRANSACTIONS. Enter into any transaction with any
Related Party or Affiliate, except as otherwise expressly contemplated by this
Agreement or referred to in Section 3.11 hereto.
8.9 SUBSIDIARIES. Establish or acquire (a) any Other Subsidiaries other
than wholly-owned Other Subsidiaries or (b) any Other Subsidiaries organized
outside of the United States and its territorial possessions.
8.10 FISCAL YEAR. Change its fiscal year.
8.11 BUSINESS PLAN. Make any material changes in the Plan or the
Company's, Subsidiary's and their Other Subsidiaries' operation of the
Business.
8.12 AMENDMENT OF OTHER AGREEMENTS. Amend, modify or waive any
provision of any of the Financing Documents, fail to enforce the provisions of
any of the Financing Documents or avail itself of all rights and remedies
thereunder.
8.13 EMPLOYEE STOCK PLANS. Hereafter issue, sell, grant or award any
Equity Security or any option to acquire any Equity Security to officers,
directors, employees, consultants or advisors to the Company; provided, however
that this provision shall not limit the ability of the Board of Directors to
delegate authority to issue, sell, grant or award Equity Securities or options
to the Compensation Committee.
8.14 LIENS. Create, assume or permit, any Lien upon any of its
properties or assets, whether now owned or hereafter acquired, except (a) Liens
existing as of the date hereof as disclosed in Section 3.14 hereof, (b) any Lien
on any asset of a corporation existing at the time such corporation is merged
into or consolidated with the Company, Subsidiary or any Other Subsidiary and
not created in contemplation of such event, (c) any Lien existing on any asset
prior to the acquisition thereof by the Company, Subsidiary or any Other
Subsidiary and not created in contemplation of such event, (d) any Lien created
on any real property or equipment in connection with the leasing of such real
property or equipment, (e) Liens contemplated by the Annual Plan and (f)
Permitted Liens.
8.15 INVESTMENTS. Own, purchase or acquire any stock, obligations or
securities of, or any interest in, or make any capital contribution to, any
other Person, or own, purchase or acquire any property not used in the usual and
ordinary course of business, except that the Company, Subsidiary or any Other
Subsidiary may (a) own, purchase or acquire certificates of deposit in or
repurchase agreements from United States commercial banks having capital
resources in excess of $100,000,000 and obligations of the United States
Government or any agency thereof and obligations guaranteed by
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the United States Government, (b) invest in commercial paper rated at least
Prime 1 by Moody's Industrial Manual, (c) deposit funds in money market accounts
in financial institutions having capital resources in excess of $100,000,000 and
(d) make such investments as are approved by a majority of the Board.
8.16 PURCHASES AND SALES. Hereafter, except as contemplated by the
Annual Plan:
(A) other than normal operating expenditures made as a part of the
ordinary course of business, purchase, directly or indirectly, any item (or
group of items) of real or personal property which has a purchase price in
excess of $75,000 or enter into any other transaction with respect to such item
(or group of items) which, under generally accepted accounting principles is or
should be treated as a purchase or capital expenditure for accounting purposes;
or
(B) (i) Pay or provide annual salary in excess of $120,000, or (ii)
increase the compensation of any person listed in part 3.20(d) of the Disclosure
Schedules and will not compensate any other officer, director or employee at an
annual salary of $120,000 per year or more.
8.17 LEASES. Enter into any leases or other rental agreements
(excluding capitalized leases) that are not within the scope of an Annual Plan
unless entered into in the ordinary course of business.
8.18 INDEBTEDNESS. Create, incur, issue, assume, guarantee or otherwise
become or remain directly or indirectly liable for any Indebtedness other than
as contemplated by the Annual Plan.
8.19 LOANS, GUARANTEES. Make any loan or advance to any person or
entity, including, without limitation, any employee or director of the Company,
Subsidiary or any Other Subsidiary, except advances for travel and entertainment
expenses, relocation costs and similar expenditures in the ordinary course of
business, as contemplated by the Annual Plan or under the terms of an employee
stock option plan or stock purchase agreement approved by the Board; or
guarantee, directly or indirectly, any Indebtedness except for trade accounts or
personal property leases of the Company, Subsidiary or any Other Subsidiary
arising in the ordinary course of business.
8.20 ISSUANCE OF EQUITY SECURITIES. Hereafter issue, sell, grant or
award or enter into any agreement or adopt any plan to issue, sell, grant or
award any Equity Security or option to acquire any Equity Security except to
officers, directors and employees of, and consultants or advisors to, the
Company, Subsidiary and Other Subsidiaries in compliance with Section 8.13
hereof.
8.21 LICENSE OF LISTED RIGHTS OR INTELLECTUAL PROPERTY. Not transfer,
assign or license any of its Listed Rights or Intellectual Property now owned or
hereafter acquired by it (except for licenses to Company's or Subsidiary's
customers in the ordinary course of business).
8.22 COMPLIANCE BY SUBSIDIARIES. The Company and Subsidiary will cause
any Other Subsidiary which either of them may now have and/or which either of
them may organize or acquire in the future to comply with all the terms and
provisions of this Section 8.
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SECTION 9
DEFINITIONS
-----------
As used in this Agreement or in the Financing Documents, capitalized
terms shall have the respective meanings set forth in this Agreement or set
forth below or in the Section of this Agreement referred to below:
AFFILIATE shall mean, as to any person, any other person, which
directly or indirectly controls, is controlled by or is under common control
with such person.
ANNUAL PLAN shall have the meaning ascribed to it in Section 7.2
hereof.
BALANCE SHEET shall have the meaning ascribed to it in Section 3.7
hereof.
BUSINESS shall have the meaning ascribed to it in Section 3.21 hereof.
BOARD shall mean the entire Board of Directors of the Company.
BRIDGE FINANCING TRANSACTION shall mean the transactions contemplated
by the Bridge Note, the Note and Warrant Purchase Agreement dated September 22,
1999 by and among the Company, Subsidiary and SI Venture Associates, L.L.C., the
Stock Purchase Warrant dated September 22, 1999 between the Company and SI
Venture Associates, L.L.C. (as assigned by SI Venture Associates, L.L.C. to SI
Venture Fund II, L.P.), the Common Stock Default Purchase Warrant dated
September 22, 1999 between the Company and SI Venture Associates, L.L.C. (as
assigned by SI Venture Associates, L.L.C. to SI Venture Fund II, L.P.) and the
Stock Purchase Warrant dated December 23, 1999 between the Company and SI
Venture Associates, L.L.C. (as assigned by SI Venture Associates, L.L.C. to SI
Venture Fund II, L.P.).
BRIDGE NOTE shall mean that certain Convertible Promissory Note dated
September 22, 1999, in the original principal amount of $500,000, issued by the
Company to SI Venture Associates, L.L.C. which note is being assigned by SI
Venture Associates, L.L.C. to SI Venture Fund II, L.P. and converted into Shares
upon the Closing.
CLOSING shall have the meaning ascribed to it in Section 2.1 hereof.
CLOSING DATE shall have the meaning ascribed to it in Section 2.1
hereof.
CODE shall have the meaning ascribed to it in Section 7.7 hereof.
COMMISSION shall have the meaning ascribed to it in Section 3.5 hereof.
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COMMON STOCK shall have the meaning ascribed to it in Section 3.4
hereof.
CONVERSION SHARES shall mean at any time, shares of Common Stock (i)
issued and then outstanding upon the conversion of the Series A Preferred, (ii)
issuable upon the conversion of the Series A Preferred, and (iii) issued and
then outstanding or issuable in respect of the Common Stock referred to in
clause (i) of this definition upon any stock split, stock dividend,
recapitalization or similar event.
ENVIRONMENTAL CLAIM shall mean any and all administrative, regulatory
or judicial actions, suits, demands, demand letters, directives, claims, liens,
investigations, proceedings or notices of compliance or violation (written or
oral) by any person or entity (including any governmental authority) alleging
potential liability (including, without limitation, potential liability for
enforcement, investigatory costs, cleanup costs, governmental response costs,
removal costs, remedial costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting from (a)
the presence, or Release or threatened Release into the environment, of any
Hazardous Material at any location, whether owned, operated, leased or managed
by the Company, Subsidiary or any Other Subsidiary; or (b) circumstances forming
the basis of any violation, or alleged violation, of any Environmental Law; or
(c) any and all claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
the presence or Release of any Hazardous Materials.
ENVIRONMENTAL LAWS shall mean all laws or orders relating to the
regulation or protection of human health, safety or the environment (including,
without limitation, ambient air, soil, surface water, ground water, wetlands,
land or subsurface strata), including, without limitation, laws and regulations
relating to Releases or threatened Releases of Hazardous Materials, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, recycling or handling of Hazardous Materials.
ENVIRONMENTAL PERMITS shall have the meaning ascribed to it in Section
3.23 hereof.
EQUITY SECURITIES shall mean any stock or similar security, including
without limitation securities containing equity features and securities
containing profit participation features, or any security convertible or
exchangeable, with or without consideration, into any stock or similar security,
or any security carrying any warrant or right to subscribe to or purchase any
stock or similar security, or any such warrant or right.
ERISA shall have the meaning ascribed to it in Section 3.23 hereof.
EXCHANGE ACT shall have the meaning ascribed to it in Section 3.7
hereof.
FINANCING DOCUMENTS shall mean collectively, the Certificate, the
Shareholders' and Rights Agreement, and all other documents set forth in any
other schedules or exhibits hereto under which, upon its execution thereof, the
Company, Subsidiary, any Other Subsidiary, or any Related Party shall
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have an obligation to any Purchaser, all in the respective forms thereof as
executed and as amended from time to time.
FINANCIAL STATEMENTS shall have the meaning ascribed to it in Section
3.7 hereof.
HAZARDOUS MATERIALS shall mean (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
above ground or underground storage tanks and compressors or other equipment
that contain polychlorinated biphenyls ("PCBs"); and (b) any chemicals,
materials or substances which are now defined as or included in the definition
of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic
pollutants," "pollutants," "contaminants" or words of similar import, under any
Environmental Law; and (c) any other chemical, material, substance or waste,
exposure to which is now prohibited, limited or regulated under any
Environmental Law.
INDEBTEDNESS shall mean any obligation of the Company, Subsidiary or
any Other Subsidiary, contingent or otherwise, which under generally accepted
accounting principles is required to be shown on the balance sheet of the
Company, Subsidiary or such Other Subsidiary as a liability. Any obligation
secured by a Lien on, or payable out of the proceeds of or production from,
property of the Company, Subsidiary or any Other Subsidiary shall be deemed to
be Indebtedness even though such obligation is not assumed by the Company,
Subsidiary or Other Subsidiary.
LISTED RIGHTS shall have the meaning ascribed to it in Section 3.16
hereof.
OTHER SUBSIDIARY shall mean any corporation, partnership, joint
venture, association or other business entity at least fifty percent (50%) of
the outstanding voting stock or voting interests of which is at the time owned
or controlled, directly or indirectly, by the Company, or by Subsidiary, or by
one or more of such Other Subsidiary entities or both.
PERMITTED LIENS shall mean (a) Liens for taxes and assessments or
governmental charges or levies not at the time due or in respect of which the
validity thereof shall currently be contested in good faith by appropriate
proceedings conducted with due diligence and for the payment of which the
Company, Subsidiary or Other Subsidiary has furnished adequate security; (b)
Liens in respect of pledges or deposits under workers' compensation laws or
similar legislation, carriers', warehousemen's, mechanics', laborers' and
materialmen's and similar Liens, if the obligations secured by such Liens are
not then delinquent or are being contested in good faith by appropriate
proceedings conducted with due diligence and for the payment of which the
Company, Subsidiary or Other Subsidiary has furnished adequate security; and (c)
statutory Liens incidental to the conduct of the business of the Company,
Subsidiary or any Other Subsidiary which were not incurred in connection with
the borrowing of money or the obtaining of advances or credits and which do not
in the aggregate materially detract from the value of its property or materially
impair the use thereof in the operation of its business; and (d) purchase money
liens or security interests securing the cost of acquisition of assets subject
to such liens or security interests.
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PERSON shall include all natural persons, corporations, business
trusts, associations, companies, partnerships, joint ventures and other entities
and governments, agencies and political subdivisions.
PLAN shall have the meaning ascribed to it in Section 3.1 hereof.
PROPRIETARY INFORMATION AGREEMENT shall have the meaning ascribed to it
in Section 3.20 hereof.
QUALIFIED PUBLIC OFFERING shall mean an underwritten public offering
pursuant to an effective registration statement under the Securities Act
covering the offering and sale of Common Stock for the account of the Company,
on a firm commitment basis, yielding aggregate proceeds to the Company of
$20,000,000 at a public offering price that is at least four times the then
effective "Conversion Price" of the Series A Preferred (as defined in the
Certificate).
RELATED PARTY shall mean any officer, director, employee or consultant
of the Company, Subsidiary or any Other Subsidiary or any holder of five percent
(5%) or more of any class of capital stock of the Company, Subsidiary or any
Other Subsidiary or any member of the immediate family of any such officer,
director, employee, consultant or shareholder or any Person controlled by any
such officer, director, employee, consultant or shareholder or a member of the
immediate family of any such officer, director, employee, consultant or
shareholder.
RELEASE shall mean any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, surface water, ground water or property.
SECURITIES ACT shall have the meaning ascribed to it in Section 3.6
hereof.
SERIES A PREFERRED shall have the meaning ascribed to it in Section 1.1
hereof.
SHAREHOLDERS' AND RIGHTS AGREEMENT shall have the meaning ascribed to
it in Section 5.11 hereof.
SHARES shall have the meaning ascribed to it in Section 1.1 hereof.
TECHNOLOGY shall have the meaning ascribed to it in Section 3.16
hereof.
SECTION 10
MISCELLANEOUS
-------------
10.1 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Connecticut. The
parties agree that any legal or equitable suit, action or proceeding arising out
of this Agreement may be instituted and prosecuted in any state or
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federal court in the State of Connecticut and for the purposes of this
Agreement, irrevocably submit to the jurisdiction of any such court in any such
suit, action or proceeding.
10.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser and
shall survive the Closing.
10.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto; provided, however, that the Company may not assign its rights
hereunder. Without limiting the generality of the foregoing, all
representations, covenants and agreements benefiting the Purchasers shall inure
to the benefit of any and all subsequent holders from time to time of the
Shares.
10.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement (including the
Schedules and Exhibits hereto) and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof. Except as otherwise expressly
provided herein, neither this Agreement nor any term hereof may be amended,
waived, discharged or terminated, except by a written instrument signed by the
Company and the holders of two-thirds or more of the Shares which have not been
converted to Common Stock, but in no event shall this paragraph be amended or
the obligation of any Purchaser hereunder increased, except upon the written
consent of such Purchaser.
10.5 NOTICES, ETC.
(A) All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by first-class, registered or
certified mail, postage prepaid, or delivered either by hand, overnight delivery
service, or by messenger, or sent via telex, telecopier, computer mail or other
electronic means, addressed (a) if to a Purchaser, at the address shown on the
Schedule of Purchasers, or at such other address as such Purchaser shall have
furnished to the Company in writing, or (b) if to any other holder of any Shares
or any Conversion Shares, at such address as such holder shall have furnished to
the Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder thereof who has so
furnished an address to the Company, or (c) if to the Company or Subsidiary,
Five Clock Tower Place, Suite 440, Maynard, Massachusetts 01754, or at such
other address as the Company shall have furnished to the Purchasers and each
such other holder in writing.
(B) Any notice or other communications so addressed and mailed, postage
prepaid, by registered or certified mail (in each case, with return receipt
requested) shall be deemed to be given when so mailed. Any notice so addressed
and otherwise delivered shall be deemed to be given when actually received by
the addressee.
10.6 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any holder of Shares, upon any breach or default of
the Company under this Agreement,
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<PAGE>
shall impair any such right, power or remedy of such holder nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in 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. Any waiver, permit,
consent or approval of any kind or character on the part of any holder of any
breach or default under this Agreement, or any waiver on the part of any holder
of any provisions or conditions of this Agreement must be made in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
10.7 RIGHTS; SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
10.8 AGENT'S FEES AND SERVICES.
(A) The Company represents and warrants that it has retained no finder
or broker or other person or firm in connection with the transactions
contemplated by this Agreement. The Company hereby agrees to indemnify and to
hold the Purchasers harmless of and from any liability for any commission or
compensation in the nature of an agent's fee to any broker, finder or other
person or firm (and the costs and expenses of defending against such liability
or asserted liability) arising from any act by the Company or any of its
employees or representatives.
(B) Each Purchaser represents and warrants as to itself only that it
has retained no finder or broker in connection with the transactions
contemplated by this Agreement. Each Purchaser hereby agrees to indemnify and to
hold the Company harmless of and from any liability for any commission or
compensation in the nature of an agent's fee to any broker, finder or other
person or firm (and the costs and expenses of defending against such liability
or asserted liability) arising from any act by such Purchaser or any of its
members, employees or representatives.
10.9 LEGAL FEES AND EXPENSES. The Company shall bear its own expenses
and legal fees incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby. On the First Closing Date (or if the First
Closing shall not take place, within thirty (30) days of receiving any statement
or invoice therefor), the Company will pay the reasonable legal fees and
out-of-pocket expenses of Shipman & Goodwin LLP, special counsel to the
Purchasers (which fees and expenses shall not exceed $30,000 less the invoice
for legal work in connection with the Bridge Financing Transaction without the
prior, written consent of the Company), with respect to this Agreement and the
transactions contemplated hereby.
10.10 TITLES AND SUBTITLES. The titles of the Sections and subsection's
of this Agreement are for convenience or reference only and are not to be
considered in construing this Agreement.
10.11 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which when so executed and delivered shall constitute a complete and
original instrument but all of which together shall
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<PAGE>
constitute one and the same agreement, and it shall not be necessary when making
proof of this Agreement or any counterpart thereof to account for any other
counterpart.
[Signatures on Following Page]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first written above.
SOFTLOCK COM., INC.
By: /s/ Douglas R. Johnson
-------------------------------
Name:
Title: /s/ Executive VP and CFO
SOFTLOCK SERVICES., INC.
By: /s/ Douglas R. Johnson
-------------------------------
Name:
Title: /s/ Executive VP and CFO
SI VENTURE FUND II, L.P.
By: SI VENTURE MANAGEMENT II, L.L.C.,
its General Partner
By: /s/ N. Adam Rin
-------------------------------
its Managing Member
APEX INVESTMENT FUND IV, L.P.
By: Apex Management IV, L.L.C.,
its General Partner
By: /s/ George M. Middlemas
-------------------------------
George M. Middlemas
APEX STRATEGIC PARTNERS IV, LLC
By: Apex Management IV, LLC, Manager
By: /s/ George M. Middlemas
-------------------------------
George M. Middlemas, Managing Member
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<PAGE>
SCHEDULE OF PURCHASERS
----------------------
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES PURCHASE PRICE
- ---------------- ------ --------------
<S> <C> <C>
SI Venture Fund II, L.P. 17,157 $1,750,014
12600Gateway Blvd.
Fort Myers, FL 33913
Facsimile (941) 561-4916
Apex Investment Fund IV, L.P. 14,260 $1,454,520
225 W. Washington Street, Suite 1450
Chicago, Illinois 60606
Telephone: (312) 857 2800
Facsimile: (312) 857 1800
Apex Strategic Partners IV, LLC 446 $ 45,492
225 W. Washington Street, Suite 1450
Chicago, Illinois 60606
Telephone: (312) 857 2800
Facsimile: (312) 857 1800
</TABLE>
-38-
Exhibit 99.4
CERTIFICATE OF DESIGNATION OF POWERS,
PREFERENCES AND RIGHTS OF THE SERIES A PREFERRED STOCK
OF
SOFTLOCK.COM, INC.
---------
ADOPTED IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW
SOFTLOCK.COM, INC., a Delaware corporation (the "Corporation"),
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
certifies that:
FIRST: The Board of Directors of the Corporation has duly adopted the
resolutions attached hereto as Appendix I providing for the issuance of a series
of its Preferred Stock to be designated "Series A Preferred Stock," and to
consist of 40,000 shares.
SECOND: The Certificate of Designation of the Series A Preferred Stock,
attached hereto as Appendix I has been duly adopted in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware by the directors of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Douglas Johnson, its Executive Vice President, this 29th day of
December, 1999.
/s/ Douglas R. Johnson
------------------------
Douglas Johnson
Executive Vice President
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<PAGE>
APPENDIX I
WHEREAS, the Amended and Restated Certificate of Incorporation (the
"Restated Certificate") of this Corporation provides for a class of its
authorized shares known as preferred stock, comprising 5,000,000 shares,
issuable from time to time in one or more series;
WHEREAS, the Board of Directors is authorized to fix or alter the
dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including any sinking fund provisions), redemption price or
prices and liquidation preferences of any wholly unissued series of preferred
stock, and the number of shares constituting any such series and the designation
thereof, or all or any of them; and
WHEREAS, it is now the desire of the Board of Directors, pursuant to
its authority as aforesaid, to fix the powers, preferences and rights of a
series of preferred stock designated the "Series A Preferred Stock."
NOW, THEREFORE, BE IT RESOLVED that the Board of Directors does hereby
provide for the issuance of a series of preferred stock of the Corporation,
consisting of 40,000 shares designated as "Series A Preferred Stock," and does
hereby fix and determine the relative powers, preferences and rights relating to
said Series A Preferred Stock as follows:
1. DESIGNATION. The series of Preferred Stock shall be designated the "Series A
Preferred Stock" ("Series A Preferred"). The Series A Preferred and any other
series of Preferred Stock authorized by the Board of Directors of this
Corporation are hereinafter referred to as "Preferred Stock" or "Preferred." The
number of shares constituting the Series A Preferred shall be 40,000.
2. DIVIDEND RATE AND RIGHTS.
Each holder of shares of Series A Preferred shall be entitled to
receive, out of funds legally available for the declaration of dividends, for
each share of Series A Preferred registered in his, her or its name on the stock
transfer books of the Corporation, annual dividends at a rate equal to $10.20
per annum (as calculated on the basis of a 365-day year) per share of Series A
Preferred (the "Dividend Rate"), if, when and as declared by the Corporation's
Board of Directors. Dividends on Series A Preferred shall accrue on each share
beginning on the date of issuance, shall accrue each quarter for the three (3)
months or, in the case of the quarter in which such share is issued, portion of
the three (3) months, then ended, and if not paid, shall be cumulative from the
date on which such quarterly dividend amount was due; provided, however, accrued
but unpaid dividends shall not bear interest.
Notwithstanding the foregoing, if (i) all shares of the Series A
Preferred are automatically converted into shares of Common Stock pursuant to
Section 3(b) hereof as a result of the closing of a Qualified Public Offering
(as defined herein), and (ii) the Corporation provides the holders of the Series
A Preferred with an opportunity (a "Registration Opportunity") to register all
of the
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<PAGE>
shares of Common Stock issuable upon such conversion of the Series A Preferred
in a secondary offering made pursuant to a registration statement declared
effective under the Securities Act of 1933, as amended (the "Securities Act"),
and if both (i) and (ii) occur within twenty-four (24) months of the date of the
first issuance of any shares of Series A Preferred (the "Initial Issuance
Date"), then the Series A Preferred Shareholders will not be entitled to the
payment of any dividends, either accrued or unaccrued.
Dividends paid on the Series A Preferred in an amount less than the
total amount of such dividends at the time accrued and payable on the Series A
Preferred shall be allocated pro rata on a share-by-share basis among all such
shares of Series A Preferred then outstanding.
Without the approval of the holders of a majority of the outstanding
shares of Series A Preferred, no dividend or other distribution shall be paid on
or declared or set apart for payment on any shares of the Common Stock of the
Corporation or any shares of any other class or series or issue of Preferred
Stock as long as any dividends payable on the Series A Preferred are in arrears.
The term "distribution" as used in this Section 2 and in Section 7
hereof shall include the transfer of cash or property without consideration,
whether by way of dividend or otherwise (except a dividend in shares of Common
Stock), or the purchase or redemption of shares of the Corporation (other than
from employees of the Corporation upon termination of employment or pursuant to
the Corporation's rights of first refusal, in each case upon approval of the
Board of Directors), for cash or property, including such transfer, purchase or
redemption by a subsidiary of the Corporation. The time of any distribution by
way of dividends shall be the date of declaration thereof, and the time of any
distribution by purchase or redemption of shares shall be the date on which cash
or property is transferred by the Corporation, whether or not pursuant to a
contract of an earlier date; provided that where a debt security is issued in
exchange for shares, the time of the distribution is the date when the
Corporation acquires the shares for such exchange.
The holders of the Corporation's Common Stock shall be entitled to
dividends when, as, and if declared by the Board of Directors, pro rata among
the holders thereof based upon the number of shares of Common Stock held by such
holder, subject to the dividend preferences set forth above for the Series A
Preferred.
3. CONVERSION INTO COMMON STOCK.
The holders of the Series A Preferred shall have conversion rights as follows
(the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred shall be
convertible, without the payment of any additional consideration by the holder
thereof, at the option of the holder thereof, at the office of the Corporation
or any transfer agent for the Series A Preferred, into such
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<PAGE>
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing $102.00 by the Conversion Price, determined as hereinafter provided,
in effect at the time of conversion. If more than one share of the Series A
Preferred shall be surrendered for conversion at the same time by the same
holder of record, the number of full shares that shall be issuable upon the
conversion thereof shall be computed on the basis of the total number of shares
of the Series A Preferred so surrendered. Each share of Series A Preferred shall
be so convertible at any time after the date of issuance of such share. The
price at which shares of Common Stock shall be deliverable upon conversion of
Series A Preferred without the payment of any additional consideration by the
holder thereof (the "Conversion Price") shall initially be $1.02 per share of
Common Stock. Such initial Conversion Price shall be subject to adjustment, in
order to adjust the number of shares of Common Stock into which the Series A
Preferred is convertible, as hereinafter provided.
(b) AUTOMATIC CONVERSION AT THE OPTION OF THE CORPORATION. Each share
of Series A Preferred shall automatically be converted into shares of Common
Stock at the then effective Conversion Price upon the first to occur of the
following: (i) the closing of a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act,
covering the offer and sale of Common Stock for the account of the Corporation
to the public at an aggregate offering price resulting in gross proceeds to the
Corporation as seller of not less than $20,000,000, before deducting
underwriting commissions, provided that the offering price per share of Common
Stock is not less than four (4) times the then effective Conversion Price (a
"Qualified Public Offering"), or (ii) election by holders of at least two-thirds
of the outstanding shares of Series A Preferred. In the event of an automatic
conversion of Series A Preferred pursuant to this Section 3(b), the party or
parties entitled to receive the Common Stock issuable upon such conversion of
the Series A Preferred shall not be deemed to have converted their Series A
Preferred until (i) immediately prior to the closing of a Qualified Public
Offering, or (ii) the receipt by the Secretary of the Corporation of a written
election by the holders of at least two-thirds of the then outstanding shares of
Series A Preferred, as applicable.
If the holders of shares of Series A Preferred are required to convert
the outstanding shares of Series A Preferred pursuant to this Section 3(b) at a
time when there are any accrued but unpaid dividends or other amounts due on or
in respect of such shares, such dividends and other amounts shall be paid in
full in cash by the Corporation in connection with such conversion, provided,
however, that (i) if such conversion results from the closing of a Qualified
Public Offering before the expiration of two years from the Initial Issuance
Date, then the Corporation shall be required to pay any accrued but unpaid
dividends to the holders of the Series A Preferred (such holders to be
determined as of the date of conversion of the Series A Preferred) on the second
anniversary of the Initial Issuance Date if a Registration Opportunity has not
occurred prior to such second anniversary; or (ii) if the Qualified Public
Offering occurs before the expiration of two years from the Initial Issuance
Date but after the occurrence of a Registration Opportunity, then the
Corporation will be relieved of any obligation to pay accrued but unpaid
dividends.
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<PAGE>
(c) MECHANICS OF CONVERSION. No fractional shares of Common Stock shall
be issued upon conversion of the Series A Preferred. In lieu of any fractional
share to which the holder would otherwise be entitled, the Corporation shall pay
cash equal to such fraction multiplied by the then effective Conversion Price.
Except in the case of a conversion pursuant to Section 3(b), before any holder
of Series A Preferred shall be entitled to convert the same into full shares of
Common Stock, he, she or it shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series A Preferred, and shall give written notice to the
Corporation at such office that he, she or it elects to convert the same. Upon
the date of a conversion pursuant to Section 3(b), any party entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder of such shares of Common Stock on such date
and all rights of such party as a holder of Series A Preferred shall cease,
whether or not such holder has surrendered the certificate or certificates for
such holder's shares of Series A Preferred. A holder surrendering his, her or
its certificate or certificates shall notify the Corporation of his, her or its
name or the name or names of his, her or its nominees in which he, she or it
wishes the certificate or certificates for shares of Common Stock to be issued.
If the person or persons in whose name any certificate for shares of Common
Stock issuable upon such conversion shall be other than the registered holder or
holders of the Series A Preferred being converted, the Corporation's obligation
under this Section 3(c) shall be subject to the payment and satisfaction by such
registered holder or holders of any and all transfer taxes in connection with
the conversion and issuance of such Common Stock. The Corporation shall, as soon
as practicable thereafter (and, in any event, within ten (l0) days of such
surrender), issue and deliver at such office to such holder of Series A
Preferred, or to his, her or its nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which he, she or it
shall be entitled as aforesaid, together with cash in lieu of any fraction of a
share. Except in the case of a conversion pursuant to Section 3(b), such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series A Preferred to be
converted, and the party or parties entitled to receive the shares of Common
Stock issuable upon conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such date.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES:
(i) Special Definitions. For purposes of this Section 3(d),
the following definitions shall apply:
(1) "Option" shall mean options, warrants or other
rights to subscribe for, purchase or otherwise acquire either
Common Stock or Convertible Securities.
(2) "Convertible Securities" shall mean any evidences
of indebtedness, shares (other than Common Stock and Series A
Preferred) of capital stock or other securities directly or
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<PAGE>
indirectly convertible into or exchangeable for Common Stock.
(3) "Additional Shares of Common Stock" shall mean
any or all shares of Common Stock issued (or, pursuant to
Section 3(d)(iii), deemed to be issued) by the Corporation
after the Initial Issuance Date, other than shares of Common
Stock issued or issuable:
(A) upon conversion of shares of Series A Preferred; or
(B) to employees, officers or directors of, or
consultants to, the Corporation pursuant to the
Corporation's 1998 Stock Plan (the "Plan"), provided
that the number of shares so issued or issuable shall
not exceed 5,000,000 (subject to adjustment upon a
stock split or similar change in capitalization in
accordance with the Plan) (the "Reserved Employee
Shares"); or
(C) to financial institutions in connection with
borrowing or lease financing arrangements of the
Corporation made with the approval of the entire
Board of Directors.
(ii) No Adjustment of Conversion Price. Subject to the
provisions of Section 3(d)(iii)(2) and Section 3(d)(vi) below, no
adjustment in the number of shares of Common Stock into which any
series of the Series A Preferred is convertible shall be made, by
adjustment in the Conversion Price of the Series A Preferred in respect
of the issuance of Additional Shares of Common Stock or otherwise,
unless the consideration per share for an Additional Share of Common
Stock issued or deemed to be issued by the Corporation is less than the
Conversion Price in effect on the date of, and immediately prior to,
the issue of such Additional Share of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of
Common Stock.
(1) Options and Convertible Securities. In the event
the Corporation at any time or from time to time after the
Initial Issuance Date shall issue any Options or Convertible
Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any
such Options or Convertible Securities, then the maximum
number of shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein for
a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been
fixed, as of the close of business on such record date,
provided that such Additional Shares of Common
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<PAGE>
Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section
3(d)(v) hereof) of such Additional Shares of Common Stock
would be less than the Conversion Price in effect on the date
of and immediately prior to such issue, or such record date,
as the case may be, and provided further that in any such case
in which Additional Shares of Common Stock are deemed to be
issued:
(A) no further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the
exercise of such Options or conversion or exchange of
such Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time, pursuant to
any provisions designed to protect against dilution,
or otherwise, for any increase or decrease in the
consideration payable to the Corporation, or increase
or decrease in the number of shares of Common Stock
issuable, upon the exercise, conversion or exchange
thereof, the applicable Conversion Price computed
upon the original issue thereof (or upon the
occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options or the
rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible
Securities which shall not have been exercised, the
Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments
based thereon, shall, upon such expiration, be
recomputed as if such Options or Convertible
Securities, as the case may be, were never issued;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Conversion
Price to an amount which exceeds the lower of (i) the
Conversion Price on the original date on which an
adjustment was made pursuant to this Section
3(d)(iii)(l), or (ii) the Conversion Price that would
have resulted from any issuance of Additional Shares
of Common Stock between such original adjustment date
and the date on which a readjustment is made pursuant
to clause (B) or (C) above;
(E) in the case of any Options which expire by their
terms not more than 30 days after the date of issue
thereof, no adjustment of the Conversion Price shall
be made until the expiration or exercise of all such
Options,
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<PAGE>
whereupon such adjustment shall be made in the same
manner provided in clause (C) above; and
(F) if such record date shall have been fixed and such
Options or Convertible Securities are not issued on
the date fixed therefor, the adjustment previously
made in the Conversion Price which became effective
on such record date shall be cancelled as of the
close of business on such record date, and thereafter
the Conversion Price shall be adjusted pursuant to
this Section 3(d)(iii) as of the actual date of their
issuance.
(2) STOCK DIVIDENDS, STOCK DISTRIBUTIONS AND
SUBDIVISIONS. In the event the Corporation at any time or from
time to time after the Initial Issuance Date for the Series A
Preferred shall declare or pay any dividend or make any other
distribution on the Common Stock payable in Common Stock, or
effect a subdivision of the outstanding shares of Common Stock
(by reclassification or otherwise than by payment of a
dividend in Common Stock), then and in any such event,
Additional Shares of Common Stock shall be deemed to have been
issued:
(A) in the case of any such dividend or distribution,
immediately after the close of business on the record
date for the determination of holders of any class of
securities entitled to receive such dividend or
distribution, or
(B) in the case of any such subdivision, at the close of
business on the date immediately prior to the date
upon which such corporate action becomes effective.
If such record date shall have been fixed and such
dividend shall not have been fully paid on the date
fixed for the payment thereof, the adjustment
previously made in the Conversion Price which became
effective on such record date shall be cancelled as
of the close of business on such record date, and
thereafter the Conversion Price shall be adjusted
pursuant to this Section 3(d)(iii) as of the time of
actual payment of such dividend.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation shall
issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Section 3(d)(iii)(1), but
excluding Additional Shares of Common Stock deemed to be issued
pursuant to Section 3(d)(iii)(2), which event is dealt with in Section
3(d)(vi) hereof) without consideration or for a consideration per share
less than the Conversion Price in effect on the date of and immediately
prior to such issue, then such Conversion Price shall be reduced,
concurrently with such issue, to the price determined by dividing (a)
the sum of (i) the product derived by multiplying the Conversion Price
in effect immediately prior to such issue or sale by the number of
shares of Common Stock
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<PAGE>
Deemed Outstanding (as defined below) immediately prior to such issue
or sale, plus (ii) the consideration, if any, received by the
Corporation upon such issue or sale, by (b) the number of shares of
Common Stock Deemed Outstanding immediately after such issue or sale.
"Common Stock Deemed Outstanding" means, at any given time, the number
of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock deemed to be outstanding assuming
exercise and/or conversion of the Convertible Securities, whether or
not such Convertible Securities are actually exercisable at such time.
As an example to illustrate the adjustment of the Conversion Price
under this Section 3(d)(iv) and assuming that the Corporation issues
Additional Shares of Common Stock in the amount of 3,000,000 shares of
Common Stock for total cash consideration of $2,250,000, the Conversion
Price in effect immediately prior to such issue or sale is $1.00, the
number of shares of Common Stock actually outstanding immediately prior
to such issue or sale is 15,000,000, the number of shares deemed
outstanding assuming exercise or conversion of the Convertible
Securities is 5,000,000, the Conversion Price (rounded to two decimal
places) would be reduced as follows:
($1.00 X 20,000,000) + $2,250,000
---------------------------------
23,000,000 = $.97
(v) Determination of Consideration. For purposes of this
Section 3(d), the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as
follows:
(1) Cash and Property: Such consideration shall:
(A) insofar as it consists of cash, be the aggregate
amount of cash received by the Corporation excluding
amounts paid or payable for accrued interest or
accrued dividends;
(B) insofar as it consists of property other than cash,
be computed at the fair value thereof at the time of
such issue, as determined in good faith by the Board
of Directors; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares of securities or
other assets of the Corporation for a single
undivided consideration, be the proportion of such
consideration so received allocable to such
Additional Shares of Common Stock, computed as
provided in clauses (A) and (B) above, as determined
in good faith by the Board of Directors.
(2) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for
Additional Shares of Common Stock deemed to have been issued
pursuant to Section 3(d)(iii)(l) shall be determined by
dividing
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(x) the total amount, if any, received or
receivable by the Corporation as
consideration for the issue of such Options
or Convertible Securities, plus the minimum
aggregate amount of additional consideration
(as set forth in the instruments relating
thereto, without regard to any provision
contained therein for a subsequent
adjustment of such consideration) payable to
the Corporation upon the exercise of such
Options or the conversion or exchange of
such Convertible Securities, or in the case
of Options for Convertible Securities, the
exercise of such Options for Convertible
Securities and the conversion or exchange of
such Convertible Securities, by
(y) the maximum number of shares of Common Stock
(as set forth in the instruments relating
thereto, without regard to any provision
contained therein for a subsequent
adjustment of such number) issuable upon the
exercise of such Options or the conversion
or exchange of such Convertible Securities.
(vi) ADJUSTMENT FOR STOCK DIVIDENDS, STOCK DISTRIBUTIONS,
SUBDIVISIONS, COMBINATIONS OR CONSOLIDATIONS OF COMMON STOCK.
(1) STOCK DIVIDENDS, STOCK DISTRIBUTIONS OR
SUBDIVISIONS. In the event the Corporation shall issue
Additional Shares of Common Stock pursuant to Section
3(d)(iii)(2) in a stock dividend, other stock distribution or
subdivision, the Conversion Price in effect immediately prior
to such stock dividend, stock distribution or subdivision
shall, concurrently with the effectiveness of such stock
dividend, stock distribution or subdivision, be
proportionately decreased to adjust equitably for such
dividend, distribution or subdivision.
(2) COMBINATIONS OR CONSOLIDATIONS. In the event the
outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock, the Conversion Price in
effect immediately prior to such combination or consolidation
shall, concurrently with the effectiveness of such combination
or consolidation, be proportionately increased to adjust
equitably for such combination or consolidation.
(vii) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of
any consolidation or merger of the Corporation with or into another
corporation or the conveyance of all or substantially all of the assets
of the Corporation to another corporation, or any proposed
reorganization or reclassification of the Corporation (except a
transaction for which provision for adjustment is otherwise made in
this Section 3), each share of Series A Preferred shall thereafter be
convertible into the number of shares
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of stock or other securities or property to which a holder of the
number of shares of Common Stock of the Corporation deliverable upon
conversion of such Series A Preferred would have been entitled upon
such consolidation, merger, conveyance, reorganization or
reclassification; and, in any such case, appropriate adjustment (as
determined by the Board of Directors) shall be made in the application
of the provisions herein set forth with respect to the rights and
interest thereafter of the holders of the Series A Preferred, to the
end that the provisions set forth herein (including provisions with
respect to changes in and other adjustments of the Conversion Price)
shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter
deliverable upon the conversion of the Series A Preferred. The
Corporation shall not effect any such consolidation, merger or sale
unless prior to or simultaneously with the consummation thereof the
successor corporation or purchaser, as the case may be, shall assume by
written instrument the obligation to deliver to the holder of the
Series A Preferred such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder is entitled to
receive.
Upon the occurrence of a consolidation or merger of the
Corporation with or into another corporation, or the conveyance of all
or substantially all of the assets of the Corporation to another
corporation (unless upon consummation thereof the holders of voting
securities of the Corporation own directly or indirectly more than
fifty percent (50%) of the voting power to elect directors of the
consolidated or surviving or acquiring corporation), each holder of
Series A Preferred shall have the option of electing treatment of its
shares of Series A Preferred under this Section 3(d)(vii) in lieu of
Section 4(d) hereof.
(viii) NO ADJUSTMENT IN CERTAIN CIRCUMSTANCES. Notwithstanding
anything to the contrary contained herein, there shall be no adjustment
pursuant to this Section 3(d)):
(1) if prior to the issuance of Additional Shares of
Common Stock, Options or Convertible Securities, the
Corporation receives written notice from the holders of
two-thirds of the then outstanding shares of Series A
Preferred agreeing that no such adjustment shall be made as
the result of such issuance; or
(2) with respect to shares of Common Stock issued or
issuable (x) as a dividend or distribution on Series A
Preferred or (y) by reason of a dividend, stock split,
split-up or other distribution on shares of Common Stock
described in the foregoing clause (x).
(e) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in the carrying out of all the provisions of
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this Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred against impairment.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 3,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any holder
of Series A Preferred, furnish or cause to be furnished to such holder a like
certificate setting forth (i) all such adjustments and readjustments theretofore
made, (ii) the Conversion Price at the time in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property which at such
time would be received upon the conversion of Series A Preferred.
(g) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is in the same amount per share as
cash dividends paid in previous quarters) or other distribution, the Corporation
shall mail to each holder of Series A Preferred at least ten (l0) days prior to
the date thereof, a notice specifying the date on which any such record is to be
taken for the purpose of such dividend or distribution.
(h) COMMON STOCK RESERVED. The Corporation shall reserve and at all
times keep available out of its authorized but unissued Common Stock, free from
preemptive or other preferential rights, restrictions, reservations,
dedications, allocations, options, other warrants and other rights under any
stock option, conversion option or similar agreement, such number of shares of
Common Stock as shall from time to time be sufficient to effect conversion of
the Series A Preferred.
(i) NO REISSUANCE OF SERIES A PREFERRED. Shares of Series A Preferred
that are converted into shares of Common Stock as provided herein shall not be
reissued.
(j) ISSUE TAX. The issuance of certificates for shares of Common Stock
upon conversion of Series A Preferred shall be made without charge to the
holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Series A Preferred which is being
converted.
(k) CLOSING OF BOOKS. The Corporation will at no time close its
transfer books against the transfer of any Series A Preferred or of any shares
of Common Stock issued or issuable upon the conversion of any shares of Series A
Preferred in any manner which interferes
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with the timely conversion of such Series A Preferred, except as may otherwise
be required to comply with applicable securities laws.
(l) DEFINITION OF COMMON STOCK. As used in this Section 3, the term
"Common Stock" shall mean and include the Corporation's authorized Common Stock,
par value $0.01 per share, as constituted on the date of filing of this
Certificate of Designation, and shall also include any capital stock of any
class of the Corporation thereafter authorized which shall neither be limited to
a fixed sum or percentage of par value in respect of the rights of the holders
thereof to participate in dividends nor entitled to a preference in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that the shares of Common
Stock receivable upon conversion of shares of Series A Preferred shall include
only shares designated as Common Stock of the Corporation on the date of filing
of this Certificate of Designation.
4. LIQUIDATION PREFERENCE.
(a) LIQUIDATION. In the event of any liquidation, dissolution or
winding up of the Corporation, each holder of shares of Series A Preferred shall
be entitled to receive, prior and in preference to any distribution of any of
the assets or surplus funds of the Corporation to the holders of the Common
Stock and any other series of preferred stock which is junior to the Series A
Preferred, by reason of his, her or its ownership thereof, an amount per share
of the Series A Preferred equal to $102.00 (plus any dividends which, pursuant
to Section 2 hereof, have accrued but remain unpaid at such time). After the
payment to such holders of such preferential amount, any remaining assets shall
be distributed to the holders of Common Stock. Notwithstanding the foregoing, if
the amount that the holders of Series A Preferred would receive in value if
converted to Common Stock in connection with a liquidation or deemed liquidation
is greater than $102.00 per share of Series A Preferred (plus any dividends
which, pursuant to Section 2 hereof, have accrued but remain unpaid at such
time), then the holders of Series A Preferred shall receive such greater amount
in lieu of such liquidation amount together with the holders of the
Corporation's Common Stock.
(b) PRO RATA DISTRIBUTION. If the assets or surplus funds to be
distributed to the holders of (i) the Series A Preferred under Section 4(a) and
(ii) the holders of any other series of Preferred Stock ranking on a parity with
the Series A Preferred Stock are insufficient to permit the payment to such
holders of their full preferential amount, the assets and surplus funds legally
available for distribution shall be distributed ratably among (i) the holders of
the Series A Preferred (to the extent provided in Section 4(a) hereof) and (ii)
the holders of such other series of Preferred Stock in proportion to the full
preferential amount each such holder is otherwise entitled to receive.
(c) SERIES A PREFERRED PRIORITY. All of the preferential amounts to be
paid to the holders of (i) the Series A Preferred under this Section 4 and (ii)
the holders of any other series of Preferred Stock ranking on a parity with the
Series A Preferred shall be paid or set apart for
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<PAGE>
payment before the payment or setting apart for payment of any amount for, or
the distribution of any assets of the Corporation to, the holders of the Common
Stock and any other series of Preferred Stock which is junior to the Series A
Preferred in connection with such liquidation, dissolution or winding up.
(d) CONSOLIDATION, MERGER, SALE OF ASSETS. A consolidation or merger of
the Corporation with or into another corporation, or a conveyance of all or
substantially all of the assets of the Corporation, shall be regarded as a
liquidation, dissolution or winding up of the affairs of the Corporation within
the meaning of Section 4(a) unless, upon consummation of such consolidation or
merger or sale of assets, the holders of voting securities of the Corporation
own directly or indirectly more than fifty percent (50%) of the voting power to
elect directors of the consolidated or surviving or acquiring corporation,
provided, however, that each holder of Series A Preferred shall have the right
to elect the benefits of the provisions of Section 3(d)(vii) hereof in lieu of
receiving payment in such liquidation, dissolution or winding up of the
Corporation pursuant to this Section 4. Any securities to be delivered to the
holders of the Series A Preferred Stock upon the closing of any such
consolidation, merger or sale shall be valued as follows:
(i) For securities not subject to restrictions on transfer
under an investment letter or other similar restrictions on free marketability:
(A) If traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of such securities on
such exchange over the 30-day period ending three (3) days prior to
such closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever
are applicable) over the 30-day period ending three (3) days prior to
such closing; and
(C) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the
Corporation and the holders of at least two-thirds (2/3's) of the
voting power of all then outstanding shares of Series A Preferred which
would be entitled to receive such securities or the same type of
securities.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the market value determined as above in subsection
(i) to reflect the approximate fair market value thereof, as mutually determined
by the Corporation and the holders of at least two-thirds (2/3's) of the voting
power of all then outstanding shares of Series A Preferred which would be
entitled to receive such securities or the same type of securities.
5. VOTING RIGHTS.
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<PAGE>
(a) NUMBER OF VOTES. Except as otherwise required by law and the
provisions of this Section 5, the holders of Series A Preferred and the holders
of the Common Stock shall be entitled to notice of any shareholders' meeting and
to vote together as a single class of capital stock upon any matter submitted to
shareholders of the Corporation for a vote, on the following basis:
(i) Holders of Common Stock shall have one vote per share; and
(ii) Holders of Series A Preferred shall have that number of
votes per share as is equal to the number of whole shares of Common
Stock into which each such share of Series A Preferred held by such
holder is convertible at the time of such vote.
(b) ELECTION OF DIRECTORS. Pursuant to the provisions of that certain
Shareholders' and Rights Agreement dated as of the Initial Issuance Date among
the Corporation and certain holders of Common Stock and Series A Preferred (a
copy of which is available for inspection at the principal office of the
Corporation), by resolution of the Board of Directors, the person designated to
serve as the representative of the holders of Series A Preferred has been
assigned to Class III. Except as otherwise required by law, the holders of the
Series A Preferred and the holders of Common Stock shall be entitled to vote
upon the election of directors on the following basis: (A) the holders of Series
A Preferred then issued and outstanding, voting separately as a class, shall, by
majority vote, elect one member of the Board of Directors as a Class III
director, subject to the provisions of that certain Shareholders' and Rights
Agreement, dated as of the Initial Issuance Date among the Corporation and
certain holders of Common Stock and Series A Preferred (a copy of which is
available for inspection at the principal office of the Corporation) and (B) the
holders of Common Stock then issued and outstanding, voting separately as a
class, shall, by majority vote, elect the remaining members of the Board of
Directors in accordance with the Delaware General Corporation Law and Section 5
of the Corporation's Certificate of Incorporation.
(c) QUORUMS. Except as otherwise required by law and so long as shares
of the Series A Preferred remain outstanding, the following shall constitute
quorums at meetings of shareholders:
(i) The presence in person, by teleconference or by proxy of
the holders of shares constituting a majority of the votes entitled to
vote thereat, calculated in accordance with Section 5(a) hereof, shall
constitute a quorum for the purpose of transaction of business at all
meetings of shareholders, except with respect to election of directors
under Section 5(b) hereof.
(ii) For the purpose of electing directors under Section 5(b)
hereof, (A) the presence in person, by teleconference or by proxy of
the holders of a majority of the shares of Series A Preferred entitled
to vote thereat shall constitute a quorum for the purpose of electing
that number of directors of the Board of Directors which such
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<PAGE>
shareholders are entitled to elect pursuant to Section 5(b) hereof; and
(B) the presence in person or by proxy of the holders of a majority of
the shares of Common Stock entitled to vote thereat shall constitute a
quorum for the purpose of electing that number of directors of the
Board of Directors which such shareholders are entitled to elect
pursuant to Section 5(b) hereof and Section 5 of the Corporation's
Certificate of Incorporation.
6. REDEMPTIONS
(a) CONDITIONS. (i) If, on the fourth anniversary of the Initial
Issuance Date (such fourth anniversary being referred to herein as the "Fourth
Anniversary Redemption Date"), there remain outstanding shares of Series A
Preferred, the holders of a majority of the then outstanding shares of Series A
Preferred may elect to have the Corporation redeem all (but not less than all)
of the outstanding shares of Series A Preferred at the Redemption Price per
share defined in paragraph (b) below, payable in cash in accordance with the
schedule set forth in paragraph (ii) below. The election to redeem shares of
Series A Preferred under this paragraph (a) shall be made at least thirty (30)
but no more than sixty (60) days prior to the Fourth Anniversary Redemption
Date.
(ii) Redemptions pursuant to this paragraph (a) shall be made
in two (2) equal installments on the Fourth Anniversary Redemption Date
and the fifth anniversary date of the Initial Issuance Date (the "Fifth
Anniversary Redemption Date" and together with the Fourth Anniversary
Redemption Date, the "Anniversary Redemption Dates"). The number of
shares of Series A Preferred Stock required to be redeemed on any
Anniversary Redemption Date shall be equal to the amount determined by
dividing (x) the aggregate number of shares of Series A Preferred Stock
outstanding immediately prior to the Anniversary Redemption Date by (y)
the number of remaining Anniversary Redemption Dates (including the
Anniversary Redemption Date to which such calculation applies). Any
redemption effected pursuant to this Section 6(a) shall be made on a
pro rata basis among the holders of the Series A Preferred Stock based
on the number of shares of Series A Preferred Stock then held by them.
A notice of redemption from the Corporation shall state the number of
shares of Series A Preferred to be redeemed.
(iii) Redemptions shall only be permitted to the extent
permitted under the General Corporation Law of Delaware. The
Corporation shall, to the fullest extent permitted by law, do all
things necessary to redeem the Series A Preferred and make the payments
therefor required by this Section 6. If in any given year in which
redemption is requested sufficient funds are not legally available for
such redemption on the Redemption Date to redeem all of the shares of
Series A Preferred then due to be redeemed, any and all such unredeemed
shares shall be carried forward and redeemed together with other shares
of Series A Preferred which are due to be redeemed, at such time and to
the extent that funds of the Corporation are legally available
therefor. The shares of Series A Preferred which are subject to
redemption but which have not been
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redeemed and as to which the Redemption Price is not paid or set aside
due to insufficient legally available funds shall continue to be
entitled to the dividend, conversion and other rights, preferences and
privileges of the Series A Preferred until such shares have been
redeemed and the Redemption Price has been paid or otherwise set aside
with respect thereto.
(b) REDEMPTION PRICE. The price at which such shares shall be redeemed
(the "Redemption Price") shall be the price equal to $102.00 plus any dividends
which, pursuant to Section 2 hereof, have accrued but remain unpaid at such
time.
(c) NOTICE. Notice of any requested redemption shall be given by
certified or registered mail (return receipt requested), postage prepaid. Any
notice given by the Corporation shall be addressed to each holder at the address
as it appears on the stock transfer books of the Corporation and shall specify
the Redemption Date and the number of shares requested to be redeemed. On or
after the Redemption Date as specified in any notice, the holder shall surrender
such holder's certificate for the number of shares to be redeemed as stated in
the notice to or from the Corporation. If less than all of the shares
represented by such certificates are redeemed, a new certificate shall forthwith
be issued for the unredeemed shares. Such certificates, if required, shall be
properly stamped for transfer and duly endorsed in blank or accompanied by
proper instruments of assignment and transfer thereof duly executed in blank. If
any holder of Series A Preferred shall fail to tender its shares of Series A
Preferred as provided above, the Corporation shall have the right to cancel said
shares upon its books and pay to such holder the Series A Redemption Price for
such shares. Any such cancelled shares shall for all purposes be considered to
have been redeemed as provided herein.
(d) DIVIDENDS AND CONVERSION AFTER REDEMPTION. From and after the
Redemption Date, no shares of the Series A Preferred to be redeemed on the
Redemption Date shall be entitled to any further accrual of any dividends
pursuant to Section 2 hereof or to the conversion provisions set forth in
Section 3 hereof, provided, however, that if the shares of Series A Preferred
are unable to be redeemed pursuant to Section 6(a)(iii) and continue to be
outstanding, such shares shall continue to be entitled to the accrual of
dividends and to the conversion provisions set forth in Section 3.
7. COVENANTS
Without limiting the rights of the holders of the Series A Preferred to
vote as a class, as required by law, so long as at least 27,574 shares of Series
A Preferred shall be outstanding, the Corporation shall not, without first
obtaining the affirmative vote or written consent of not less than a majority of
such outstanding shares of Series A Preferred:
(a) amend or repeal any provision of, or add any provision to, the
Corporation's Certificate of Incorporation or Bylaws that would amend or change
the rights, preferences, powers and privileges of the Series A Preferred;
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(b) reclassify any Common Stock into shares having any preference or
priority as to dividends or assets superior to or on a parity with any such
preference or priority of the Series A Preferred;
(c) apply any of its assets to the redemption, retirement, purchase or
other acquisition directly or indirectly, through subsidiaries or otherwise, of
any shares of Common Stock or any shares of any other class or series or issue
of Preferred Stock, or of Series A Preferred, except for (i) repurchases of
Common Stock from employees of the Corporation upon termination of employment,
pursuant to the Corporation's rights of first refusal, in each case pursuant to
specific authorization from the Board of Directors, and (ii) redemption of the
Series A Preferred pursuant to Section 6, above;
(d) consolidate or merge the Corporation or any subsidiary of the
Corporation into or with, or enter into a share exchange with, any other
corporation, partnership or other entity, other than any such transaction in
which the holders of the Corporation's voting capital stock immediately prior to
such transaction hold more than 50% of the voting equity securities of the
surviving entity;
(e) sell, lease, convey, encumber or otherwise dispose of all or
substantially all of the property or business of the Corporation or any
subsidiary of the Corporation;
(f) create, authorize or issue, directly or indirectly, any shares of
capital stock, having any preference or priority as to dividends or assets to,
or on a parity with, any such preference or priority of the Series A Preferred,
including, without limitation, by designation of additional series of Preferred
Stock pursuant to the authority otherwise vested in the Board of Directors by
the Certificate of Incorporation; or
(g) pay, set aside for payment or declare any dividend or other
distribution (as defined in Section 2 hereof) on any share of Common Stock or
any shares of any other class or series or issue of Preferred Stock unless all
dividends accumulated on the Series A Preferred shall have been either paid in
full or funds set aside for the payment thereof.
8. STOCK DIVIDENDS, STOCK DISTRIBUTIONS, SUBDIVISIONS, COMBINATIONS AND
CONSOLIDATIONS
In the event the Corporation shall issue additional shares of Series A Preferred
in a stock dividend, other stock distribution or subdivision, or in the event
the outstanding shares of Series A Preferred shall be combined or consolidated,
by reclassification or otherwise, into a lesser number of shares of Series A
Preferred, (i) the Dividend Rate set forth in Section 2 hereof, (ii) the dollar
amount set forth in the first sentence of Section 3(a) hereof, (iii) the dollar
amounts set forth in Section 4(a) hereof, (iv) the Redemption Price set forth in
Section 6(b) hereof, and (v) the number of shares set forth in the introductory
paragraph to Section 7, in each case in effect
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immediately prior to such event shall, concurrently therewith, be
proportionately decreased (in the case of a stock dividend, other stock
distribution or subdivision) or increased (in the case of a combination or
consolidation) in each such case to adjust equitably therefor.
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Exhibit 99.5
SUPPLEMENT TO
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS SUPPLEMENT (this "Supplement") TO THE SERIES A PREFERRED STOCK
PURCHASE AGREEMENT is made and entered into as of the 7th day of January, 2000,
by and among SoftLock.com, Inc. (the "Company"), a Delaware corporation having
offices at Five Clock Tower Place, Suite 440, Maynard, Massachusetts, SoftLock
Services, Inc. ("Subsidiary") a Delaware corporation having offices at Five
Clock Tower Place, Suite 440, Maynard, Massachusetts, and RSA Security Inc.
("RSA").
WHEREAS, the Company has entered into a Series A Preferred Stock
Purchase Agreement (the "Agreement") dated as of December 30, 1999 (the "First
Closing Date") by and among the Company, Subsidiary, and certain parties listed
on Schedule 1 thereto (the "Schedule of Purchasers"). All capitalized terms used
herein without definition shall have the meaning given in the Agreement.
WHEREAS, Section 2.1(b) of the Agreement contemplates that the purchase
and sale of additional Shares (as defined in the Agreement) to additional
Purchaser(s) shall be held on dates (each a "Subsequent Closing Date") following
the First Closing Date, by execution of a supplement to the Agreement evidencing
the agreement of any such additional Purchaser to be bound by this Agreement and
the addition of such Purchaser's name, address, facsimile number, number of
Shares purchased and Purchase Price therefor to the Schedule of Purchasers.
WHEREAS, the Company desires to issue and sell additional Shares under
the Agreement to RSA, and RSA desires to purchase the Shares and become a
Purchaser under the Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the Company, Subsidiary and RSA
hereby agree as follows:
1. Upon and subject to the terms and conditions of the Agreement and in
reliance upon the representations, warranties and agreements contained therein,
as of the date of this Supplement the Company will issue and sell to RSA, and
RSA will purchase from the Company that number of Shares set forth opposite
RSA's name on the attached revised Schedule of Purchasers.
2. RSA agrees to be bound by the Agreement and shall be deemed a
"Purchaser" under the Agreement.
3. RSA further agrees to become a party to the Shareholders and Rights
Agreement dated as of December 30, 1999 as a Preferred Shareholder thereunder by
executing the Agreement to be Bound attached hereto.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first written above.
SOFTLOCK COM., INC.
By: /s/ Douglas R. Johnson
-------------------------------
Name: Douglas R. Johnson
Title: Executive Vice President and
Chief Financial Officer
SOFTLOCK SERVICES., INC.
By: /s/ Douglas R. Johnson
-------------------------------
Name: Douglas R. Johnson
Title: Executive Vice President and
Chief Financial Officer
RSA SECURITY INC.
By: /s/ Charles R. Stuckey, Jr.
-------------------------------
Name: Charles R. Stuckey, Jr.
Title: CEO and Chairman
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REVISED SCHEDULE OF PURCHASERS
Name and Address Shares Purchase Price
SI Venture Fund II, L.P. 17,157 $1,750,014
12600Gateway Blvd.
Fort Myers, FL 33913
Facsimile (941) 561-4916
Apex Investment Fund IV, L.P. 14,260 $1,454,520
225 W. Washington Street,
Suite 1450
Chicago, Illinois 60606
Telephone: (312) 857 2800
Facsimile: (312) 857 1800
Apex Strategic Partners IV, LLC 446 $ 45,492
225 W. Washington Street,
Suite 1450
Chicago, Illinois 60606
Telephone: (312) 857 2800
Facsimile: (312) 857 1800
RSA Security Inc. 4,902 $ 500,004
36 Crosby Drive
Bedford, MA 01730
Telephone: (781) 301-5400
Facsimile: (781) 301-5420
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AGREEMENT TO BE BOUND
BY
SHAREHOLDERS' AND RIGHTS AGREEMENT
The undersigned hereby joins in and signifies adoption of and agrees to
be bound, as a Preferred Shareholder, by the terms and conditions of the
Shareholders' and Rights Agreement (the "Shareholders Agreement") dated as of
the 30th day of December, 1999, by and among SoftLock.com, Inc., (the
"Company"), a Delaware corporation, and the Shareholders listed on Schedule I
and Schedule II thereto and authorizes the attachment of this signature page to
a duplicate original of the Shareholders Agreement and the addition of its name
to Schedule I.
The undersigned acknowledges receipt of a copy of the Shareholders
Agreement. The undersigned acknowledges that it has read such Shareholders
Agreement and understands that by signing this document, it shall thereby assume
all of the duties and obligations of a Preferred Shareholder thereunder.
Capitalized terms used herein have the meanings set forth in the
Shareholders Agreement.
Dated: January 7, 2000 RSA Security Inc.
Number of Shares held: By: /s/ Charles R. Stuckey, Jr.
--------------------------------
Name: Charles R. Stuckey, Jr.
-------------------------------
4,902 Title: CEO and Chairman
-------------------------------
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