STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of April 5, 1999 between
HealthGate Data Corp., a Delaware corporation (the "Company"), GE Capital Equity
Investments, Inc., a Delaware corporation (the "Purchaser"), and ▇▇▇▇▇▇▇▇▇
Science, Ltd., an English company ("▇▇▇▇▇▇▇▇▇"). Except as otherwise indicated,
capitalized terms used herein are defined in Section 7 hereof.
WHEREAS, the Company desires to sell to the Purchaser and ▇▇▇▇▇▇▇▇▇
shares of its Series E Redeemable Convertible Preferred Stock, $.01 par value
("Series E Preferred"), upon the terms and conditions contained herein; and
WHEREAS, the Purchaser and ▇▇▇▇▇▇▇▇▇ desire to purchase shares of
Series E Preferred Stock;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. AUTHORIZATION OF THE PREFERRED STOCK. The Company has, or
before each of the respective Closings (as defined in Section 2) will have,
duly authorized the sale and issuance of, pursuant to the terms of this
Agreement, 720,757 shares of its Series E Preferred, having the rights,
restrictions, privileges and preferences set forth in the Amendment to the
Amended and Restated Certificate of Incorporation of the Company in the form
set forth in EXHIBIT A attached hereto (the "Amendment to the Certificate of
Incorporation"). As used herein, "Certificate of Incorporation" shall mean
the Company's Amended and Restated Certificate of Incorporation, as amended
by all prior amendments to the Amended and Restated Certificate of
Incorporation and by the Amendment to the Certificate of Incorporation. The
Series E Preferred is convertible into shares of the Company's Common Stock
as provided in the Amendment to the Certificate of Incorporation. The Company
has, or before the Initial Closing (as defined in Section 2.1) will have,
adopted and filed the Amendment to the Certificate of Incorporation with the
Secretary of State of the State of Delaware.
2. PURCHASE AND SALE OF SERIES E PREFERRED. At the Initial
Closing, the Company will (i) sell to the Purchaser, and the Purchaser will
purchase from the Company, 87,364 shares of Series E Preferred at a price of
U.S. $11.4463 per share, for the total purchase price of U.S. $999,994.55
(the "Initial Shares") and (ii) issue to ▇▇▇▇▇▇▇▇▇ 174,729 shares of Series E
Preferred (the "Conversion Shares") in exchange for the delivery by ▇▇▇▇▇▇▇▇▇
to the Company of its Convertible Bridge Promissory Note dated September 29,
1998 in the original principal amount of $2 million (the "Note"). Following
and subject to the satisfaction, or waiver by the Purchaser, of the
conditions to the Second Closing (as defined in Section 2.1) set forth in
Section 3, at the Second Closing, the Company will (i) sell to the Purchaser,
and the Purchaser will purchase from the Company 458,664 shares of Series E
Preferred at a price of U.S. $11.4463 per share, for the total purchase price
of $5,250,005.74 (the "Additional Shares" and collectively with the Initial
Shares, the "GE Shares").
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2.1 THE CLOSINGS. The closing of the purchase and sale of
the Initial Shares (the "Initial Closing") and the conversion of the Note
into Conversion Shares will take place at the offices of the Company's
counsel, Rich, May, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇▇, at 10:00 a.m. on the first business day after all conditions
to the obligation of the Purchaser or ▇▇▇▇▇▇▇▇▇, as the case may be, to
purchase the shares to be purchased by it at the Initial Closing (other than
conditions to be satisfied at the Initial Closing) have been satisfied, or
waived by the Purchaser or ▇▇▇▇▇▇▇▇▇, as the case may be, or at such other
place or on such other date as may be mutually agreeable to the Company,
▇▇▇▇▇▇▇▇▇ and the Purchaser (the "Initial Closing Date"). The closing of the
purchase and sale of the Additional Shares (the "Second Closing" and
collectively with the Initial Closing, the "Closings") will take place at the
offices of the Company's counsel, Rich, May, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C., ▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇, at 10:00 a.m. on the first business
day after all the conditions to the obligation of the Purchaser to purchase
the Additional Shares (other than conditions to be satisfied at the Second
Closing) have been satisfied, or waived by the Purchaser (the "Second Closing
Date" and collectively with the Initial Closing Date, the "Closing Dates").
At the Initial Closing, the Company will deliver to (i) the Purchaser a
certificate or certificates evidencing the Initial Shares to be purchased by
the Purchaser, registered in the Purchaser's name, against payment by wire
transfer of immediately available funds to the Company's account of U.S.
$999,994.55 and (ii) ▇▇▇▇▇▇▇▇▇ a certificate or certificates evidencing the
Conversion Shares to be converted by ▇▇▇▇▇▇▇▇▇, registered in Blackwell's
name, against the return and cancellation of the Note. At the Second Closing,
the Company will deliver to the Purchaser a certificate or certificates
evidencing the Additional Shares to be purchased by the Purchaser, registered
in the Purchaser's name, against payment by wire transfer of immediately
available funds to the Company's account of U.S. $5,250,005.74.
3. CONDITIONS OF THE PURCHASER'S AND BLACKWELL'S OBLIGATION AT THE
INITIAL CLOSING. The obligation of the Purchaser and ▇▇▇▇▇▇▇▇▇ to purchase
and pay for the Initial Shares and Conversion Shares, respectively, is
subject to the satisfaction or waiver by the Purchaser or ▇▇▇▇▇▇▇▇▇, as the
case may be, on the date of the Initial Closing of the following conditions:
3.1 REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in Section 6 hereof will be true, complete and
correct in all material respects at and as of the Initial Closing as though
then made.
3.2 AMENDMENT OF THE COMPANY'S CERTIFICATE OF
INCORPORATION. The Company's Certificate of Incorporation will be amended
to include the provisions set forth in EXHIBIT A attached hereto, will be in
full force and effect at the Initial Closing as so amended and will not have
been further amended or modified.
3.3 REGISTRATION AGREEMENT AND STOCKHOLDERS AGREEMENT.
The Company, ▇▇▇▇▇▇▇▇▇ and the Purchaser will have entered into a
Registration Agreement, in substantially the form set forth in EXHIBIT B
attached hereto (the "Registration Agreement"), and the Registration
Agreement will be in full force and effect as of the Initial Closing and the
Company shall have obtained requisite consents and waivers from the
stockholders of the Company who are entitled to registration rights. The
Company, the Purchaser, ▇▇▇▇▇▇▇▇▇ and the other parties thereto will have
entered into an amended Stockholders Agreement, in substantially the form set
forth in EXHIBIT F attached hereto (the "Stockholders Agreement").
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3.4 OPINION OF THE COMPANY'S COUNSEL. The Purchaser and
▇▇▇▇▇▇▇▇▇ will have received from Rich, May, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C.,
counsel for the Company, its opinion, which shall be in the form set forth in
EXHIBIT C attached hereto and which will be addressed to the Purchaser and
▇▇▇▇▇▇▇▇▇ and dated the date of the Initial Closing.
3.5 CLOSING DOCUMENTS. The Company will have delivered
to the Purchaser and ▇▇▇▇▇▇▇▇▇ all of the following documents:
(i) an Officer's Certificate, dated the date of the
Initial Closing, stating that the conditions specified in
Section 1 and Sections 3.1 through 3.3, inclusive, have been
fully satisfied;
(ii) certified copies of the resolutions (a) duly
adopted by the Company's board of directors authorizing the
execution, delivery and performance of this Agreement, the
Stockholders Agreement, the Registration Agreement and each of
the other agreements contemplated hereby, the Certificate of
Incorporation, the issuance and sale of the Series E
Preferred, the reservation for issuance upon conversion of the
Series E Preferred of an additional 720,757 shares of Common
Stock, and all other transactions contemplated by this
Agreement and (b) duly adopted by the Company's stockholders
approving the Amendment to Certificate of Incorporation;
(iii) certified copies of the Certificate of
Incorporation and the Company's bylaws, each as in effect as
of the Initial Closing; and
(iv) such other documents relating to the
transactions contemplated by this Agreement as the Purchaser
or its counsel may reasonably request.
3.6 PROCEEDINGS. All corporate and other proceedings
taken or required to be taken in connection with the transactions
contemplated hereby to be consummated at or prior to the Initial Closing and
all documents incident thereto will be reasonably satisfactory in form and
substance to the Purchaser and the Purchaser's counsel.
3.7 COMPLIANCE WITH LAWS. No statute, rule, regulation,
order or decree shall be in effect which prohibits the consummation of the
transactions to be performed at the Initial Closing.
3.8 GOVERNMENTAL OR THIRD PARTY CONSENTS. Any consents,
approvals or filings of or with any governmental authority or third party
required in connection with the transactions contemplated by this Agreement
will have been obtained or made. All consents and waivers required to be
obtained from any stockholders of the Company in connection with the
transactions contemplated hereby shall have been obtained.
3.9 MATERIAL ADVERSE EVENTS. There will not have occurred
any event or events which, singly or in the aggregate, have or would
reasonably be expected to have a material adverse effect on the business,
assets, financial condition, results of operations or prospects of the
Company and its Subsidiaries.
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3.10 PETRA CAPITAL LOAN. The Loan and Security Agreement
dated as of March 16, 1998, by and between the Company and Petra Capital,
L.L.C. shall have been amended to permit the issuance of "Senior Debt" in an
amount equal to the Company's stockholders' equity and to delete the
requirement that ▇▇▇▇▇▇▇ ▇▇▇▇▇ remain Chief Executive Officer of the Company.
The Registration Rights Agreement dated as of March 26, 1998, by and between
the Company and Petra Capital, L.L.C. shall have been amended to prohibit any
sale or disposition of shares of capital stock of the Company by Petra
Capital for 180 days following the consummation of a Public Offering.
3.11 AMENDMENT TO PURCHASE AGREEMENTS. The Company
shall have entered into an amendment to the Purchase Agreements between the
Company and certain of its stockholders, in the form attached hereto as
EXHIBIT E.
3.12 INTEREST ON ▇▇▇▇▇▇▇▇▇ NOTE. In connection with the
exchange of the Note for the Conversion Shares, the Company shall pay to
▇▇▇▇▇▇▇▇▇ all interest accrued on the Note in cash concurrently with the
INITIAL Closing.
3.13 SIMULTANEOUS CLOSING. The purchase by the Purchaser
of the Initial Shares and by ▇▇▇▇▇▇▇▇▇ of the Conversion Shares shall occur
simultaneously.
CONDITIONS OF THE COMPANY'S OBLIGATION AT THE INITIAL
CLOSING. The obligation of the Company to issue and sell Series E Preferred
Stock at the Initial Closing is subject to the satisfaction on or before the
date of the Initial Closing of the following conditions:
3.14 REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Purchaser contained in Section 8.4 hereof will be true
and correct in all material respects at and as of the Initial Closing as
though then made.
3.15 STOCKHOLDERS AGREEMENT. The Company, the Purchaser,
▇▇▇▇▇▇▇▇▇ and the other parties thereto will have entered into the
Stockholders Agreement substantially in the form attached hereto as EXHIBIT F.
3.16 AMENDMENT TO PURCHASE AGREEMENT. The Company shall
have entered into an amendment to the Purchase Agreements between the Company
and certain of its stockholders, in the form attached hereto as EXHIBIT E.
3.17 PROCEEDINGS. All corporate and other proceedings
taken or required to be taken in connection with the transactions
contemplated hereby to be consummated at or prior to the Initial Closing and
all documents incident thereto will be reasonably satisfactory in form and
substance to the Company and the Company's counsel.
3.18 GOVERNMENTAL OR THIRD PARTY CONSENTS. Any consents,
approvals or filings of or with any governmental authority or third party
required in connection with the transactions contemplated by this Agreement
will have been obtained or made. All consents and waivers required to be
obtained from any stockholders of the Company in connection with the
transactions contemplated hereby shall have been obtained.
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CONDITIONS OF THE PURCHASER'S OBLIGATION AT THE SECOND
CLOSING. The obligation of the Purchaser to purchase and pay for the
Additional Shares at the Second Closing is subject to the satisfaction or
waiver by the Purchaser, on the date of the Second Closing, of each of the
conditions set forth in Section 3.1 through 3.11 as though each such
condition referred to the date of the Second Closing and of the following
additional conditions:
3.19 NEJM AGREEMENTS. Agreements by and between the NEW
ENGLAND JOURNAL OF MEDICINE ("NEJM") and the Company, as summarized in the
term sheet dated as of February 17, 1999, to host and distribute online the
NEJM and related consumer content ("NEJM Agreements"), will have been
executed on terms reasonably satisfactory to the Purchaser, and such
agreements will be in full force and effect.
4. COVENANTS. The rights of the Purchaser and ▇▇▇▇▇▇▇▇▇ under
Article 4 (other than Sections 4.1(vii), 4.3 (last sentence thereof), 4.8 and
4.11) shall terminate at such time as the Purchaser or ▇▇▇▇▇▇▇▇▇,
respectively, no longer owns any shares of Series E Preferred.
4.1 FINANCIAL STATEMENTS AND OTHER INFORMATION. The
Company will deliver to the Purchaser (so long as the Purchaser holds any
Series E Preferred) and to ▇▇▇▇▇▇▇▇▇ (so long as ▇▇▇▇▇▇▇▇▇ holds any Series E
Preferred) and to each transferee of the Purchaser or ▇▇▇▇▇▇▇▇▇ who has
acquired and holds 100,000 shares of Series E Preferred (a "Qualified
Transferee")
(i) as soon as available but in any event within 30
days after the end of each monthly accounting period in each
fiscal year, (a) unaudited consolidated statements of income
and cash flows and changes in consolidated financial position
of the Company and its Subsidiaries for such monthly period
and for the period from the beginning of the fiscal year to
the end of such monthly period and consolidated balance sheets
of the Company and its Subsidiaries as of the end of such
monthly period, setting forth in each case comparisons to the
annual budget and to the corresponding period in the preceding
fiscal year, all prepared in accordance with generally
accepted accounting principles, consistently applied, and (b)
a management summary of the month's events including new
business development, material legal matters, bookings,
backlogs, staffing levels, and sales projections;
(ii) accompanying the statements referred to in
subparagraph (i), an Officer's Certificate stating that there
is no Event of Noncompliance in existence and that there has
occurred no event of default under any other material
agreement to which the Company or any of its Subsidiaries is a
party or, if any Event of Noncompliance or any such event of
default exists, specifying the nature and period of existence
thereof, and what actions the Company and its Subsidiaries
have taken and propose to take with respect thereto;
(iii) as soon as practicable and in any event within
90 days after the end of each fiscal year, audited
consolidated statements of income and cash flows and changes
in financial position of the Company and its Subsidiaries for
such fiscal year, and consolidated balance sheets of the
Company and its Subsidiaries as of the
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end of such fiscal year, setting forth in each case
comparisons to the preceding fiscal year, all prepared in
accordance with generally accepted accounting principles,
consistently applied, and accompanied by, with respect to the
consolidated portions of such statements, an audit opinion by
a Big Five public accounting firm selected by the Company;
(iv) promptly upon receipt thereof, a copy of the
annual management letter of the Company's independent
accountants to the Company's board of directors and any
additional reports, management letters or other detailed
information concerning significant aspects of the Company's
operations and financial affairs given to the Company by its
independent accountants (and not otherwise contained in other
materials provided hereunder);
(v) at least 30 days prior to the end of each fiscal
year, an annual operating budget prepared on a monthly basis
for the Company and its Subsidiaries for the succeeding fiscal
year (displaying anticipated statements of income, changes in
financial position and balance sheets) and an annual budget
for capital expenditures of the Company and its Subsidiaries,
which budgets shall be approved by the Company's board of
directors, and promptly upon preparation thereof any other
significant budgets which the Company prepares, and any
revisions of such annual or other budgets;
(vi) promptly (but in any event within five business
days) after the discovery or receipt of notice of any Event of
Noncompliance, any event of default under any material
agreement to which it or any of its Subsidiaries is a party,
or any other material adverse event or circumstance affecting
the Company or any Subsidiary (including the filing of any
material litigation against the Company or any Subsidiary
which, if determined adversely, would have a material adverse
effect on the business, assets, financial condition, results
of operations or prospects of the Company and its Subsidiaries
taken as a whole), an Officer's Certificate specifying the
nature and period of existence thereof and what actions the
Company and its Subsidiaries have taken and propose to take
with respect thereto;
(vii) promptly upon transmission thereof, copies of
the Company's Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q, Reports on Form 8-K and Annual Reports to
Stockholders filed with the Securities and Exchange
Commission; and
(viii) with reasonable promptness, such other
information and financial data concerning the Company as any
Person entitled to receive materials under this Section 4.1
may reasonably request.
Except as otherwise required by law or judicial order or decree or by any
governmental regulatory agency or authority, the Purchaser and each Person
receiving information regarding the Company pursuant to Sections 4.1 or 4.2 will
use commercially reasonable efforts to maintain the confidentiality of all
nonpublic information obtained by it hereunder which the Company has reasonably
designated as proprietary or confidential in nature; provided that each such
Person may
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disclose any financial information regarding the Company and its Subsidiaries
in connection with the transfer of Series E Preferred or Underlying Common
Stock if such Person's transferee agrees in writing to be bound by the
provisions hereof. As a condition to disclosure of such information to any
Person other than the Purchaser, the Company may request receipt of written
confirmation by such Person that such Person will abide by the foregoing
confidentiality provisions.
4.2 INSPECTION OF PROPERTY. The Company will permit any
representatives designated by any Person (so long as such Person holds
100,000 shares of Series E Preferred) upon reasonable notice and during
normal business hours, to (i) visit and inspect any of the properties of the
Company, (ii) examine the corporate and financial records of the Company and
make copies thereof or extracts therefrom and (iii) discuss the affairs,
finances and accounts of the Company and its Subsidiaries with the directors,
officers, key employees and independent accountants of the Company, in each
case subject to the confidentiality provisions of the last subsection of
Section 4.1 and provided that such visits, inspections, examinations and
discussions will be at such Person's expense and will not unreasonably
interfere with the Company's normal business operations and that the Company
will not be required to disclose hereunder any technical proprietary
information relating to its business.
4.3 BOARD OF DIRECTORS. At or prior to each of the
respective Closings, the Company will have caused stockholders (including the
Purchaser) to enter into the Stockholders Agreement in the form of Exhibit F
attached hereto providing for, INTER ALIA, (i) fixing the number of directors
of the Company at seven and (ii) electing a designee of the Purchaser as a
director of the Company. Effective with the closing of the Public Offering,
unless otherwise agreed by the Purchaser, the Company shall cause its Board
of Directors to nominate, and shall recommend for election as a Class III
director of the Company, one designee of the Purchaser.
4.4 RESTRICTIONS. The Company will not, without the
consent of holders of at least 66-2/3% of the Series E Preferred, from and
after the date hereof:
(i) redeem, purchase or otherwise acquire, or permit any
Subsidiary to redeem, purchase or otherwise acquire, any of the
Company's equity securities or any securities exercisable for,
exchangeable for or convertible into such equity securities, except
pursuant to the terms and provisions of the Certificate of
Incorporation, and except for the repurchase of Common Stock from
employees under agreements requiring such employees to sell their
shares of Common Stock to the Company upon termination of employment;
(ii) unless approved by the Company's board of directors,
make, or permit any Subsidiary to make, any loans or advances to,
guarantees for the benefit of, or Investments in, any Person (other
than a wholly-owned Subsidiary), except for (a) advances to employees
in the ordinary course of business and (b) Investments having a stated
maturity no greater than one year from the date the Company makes such
Investment in obligations of the United States government or any agency
thereof or obligations guaranteed by the United States government,
certificates of deposit of commercial banks having combined capital and
surplus of at least $50 million, commercial paper with a rating of at
least "Prime-1" according to ▇▇▇▇▇'▇ Investors Service, Inc. or
money-market funds with assets of at least $25 million;
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(iii) liquidate or dissolve or effect a recapitalization or
reorganization in any form of transaction (except as otherwise
permitted by this Agreement);
(iv) enter into, or permit any of its Subsidiaries to enter
into, any agreement or instrument, which by its terms would restrict
the Company's ability to perform any of its obligations pursuant to the
terms of this Agreement, the Registration Agreement, the Certificate of
Incorporation, the Stockholders Agreement or the Company's bylaws
(including, without limitation, all obligations relating to making
redemptions of the Series E Preferred);
(v) except as contemplated by this Agreement, (a) make any
amendment to the Certificate of Incorporation or the Company's bylaws,
unless such amendment is approved by a majority of the Company's board
of directors, or (b) file any resolution of the board of directors or a
certificate of designation with the Secretary of State of the State of
Delaware containing any provisions which would adversely affect the
rights of the holders of the Series E Preferred or the Underlying
Common Stock under this Agreement, the Certificate of Incorporation,
the Company's bylaws, the Stockholders Agreement or the Registration
Agreement or (c) issue any Series E Preferred to any person other than
the Purchaser or its nominee or transferee;
(vi) directly or indirectly, or permit any Subsidiary to
directly or indirectly, enter into, amend or terminate any contract,
arrangement or transaction with a Related Party, except for the payment
of salary and benefits entered into in the ordinary course of business;
(vii) increase the compensation paid to any of the Company's
officers, except pursuant to any employment agreement or arrangement as
in existence as of the Initial Closing, or enter into any new or
amended employment agreement or arrangement with any officer of the
Company, unless such increase, agreement or arrangement is approved by
a majority of the disinterested members of the Compensation Committee
of the Company;
(viii) increase the authorized size of its board of directors
above seven members;
(ix) incur, assume or otherwise suffer to exist any Debt
except (x) Debt reflected on the Company's and its Subsidiaries'
unaudited consolidated balance sheet dated as of December 31, 1998 and
delivered to the Purchaser and ▇▇▇▇▇▇▇▇▇ in connection with the
issuance of Series E Preferred, or (y) "Senior Debt" (as defined in the
Loan and Security Agreement by and between the Company and Petra
Capital, LLC, dated March 26, 1998) in an amount up to the amount of
the Company's stockholders' equity (for purposes of this Agreement,
"Debt" means, without duplication, (a) all obligations for borrowed
money and all obligations evidenced by bonds, debentures, notes or
other similar instruments on which interest charges are customarily
paid, (b) all obligations, contingent of otherwise, relative to the
face amount of all letters of credit, whether or not drawn, and
banker's acceptances issued for the account of the Company or its
Subsidiaries, (c) all capitalized lease obligations (to the extent
required by generally accepted accounting principles to be included on
the balance sheets) and (d) all obligations (contingent or otherwise)
to
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guarantee, purchase or otherwise acquire, or otherwise assure a
creditor against loss in respect of, Debt of another person);
(x) sell, lease or exchange, or permit any Subsidiary to
sell, lease or exchange, any assets of the Company and/or any
Subsidiary representing in the aggregate more than 10% of the Company's
Consolidated Net Worth, except for sales in the ordinary course of
business;
(xi) acquire (including pursuant to a merger or
consolidation), or permit any Subsidiary to acquire, all or any
substantial portion of the business or assets of any Person, where the
acquisition involves an aggregate consideration of more than $2
million, unless (i) such transaction has been approved by the holders
of 66 2/3% of the outstanding shares of Series E Preferred and (ii)
after giving effect to such transaction or series of transactions, the
Company would be in compliance with the covenants set forth in Section
4.4 hereof;
(xii) declare, pay or set aside any dividends or
distributions on any class of stock; or
(xiii) engage in any business or line of business other than
the hosting, development and provision of interactive health and
wellness information solutions and related electronic commerce.
4.5 EQUITY SECURITY RESTRICTIONS.
(i) The Company will not, without the consent of holders of
at least 66-2/3% of the Series E Preferred outstanding, authorize,
issue or enter into any agreement providing for the issuance
(contingent or otherwise) of any notes or debt securities containing
equity features (including, without limitation, any notes or debt
securities convertible into or exchangeable or exercisable for equity
securities, issued in connection with the issuance of equity securities
or containing profit participation features), or any equity securities
(or any securities convertible into, or exchangeable or exercisable
for, any equity securities) ranking senior as to dividends or upon
liquidation to the Common Stock.
(ii) Except as expressly contemplated by this Agreement, the
Company will not authorize, issue or enter into any agreement providing
for the issuance (contingent or otherwise) of any New Securities (or
any securities convertible into, or exchangeable or exercisable for,
any New Securities) unless:
(A) The Company delivers written notice (the "Right
of First Offer Notice") of such proposed issue to the holders
of Series E Preferred (i) at least 15 days prior to such
proposed issue or to the execution of any agreement to issue
any such securities, if the aggregate offering price of such
proposed issue shall be $2.5 million or less, or (ii) at least
30 days prior to such proposed issue or to the execution of
any agreement to issue any such securities, if the aggregate
offering price of such proposed issue shall be more than $2.5
million. The Right of First Offer Notice will set forth in
reasonable detail the terms and conditions of such
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proposed issue, and will be deemed to be an offer to the
holders of Series E Preferred to purchase on a pro rata basis
based on the number of shares of Series E Preferred owned by
each such holder any or all of the securities described in the
Right of First Offer Notice, at the same price and on the same
terms as those set forth in the Right of First Offer Notice;
(B) The holders of Series E Preferred shall be
entitled to purchase on a pro rata basis based on the number
of shares of Series E Preferred owned by each such holder such
amount of the securities described in the Right of First Offer
Notice as shall be set forth in a notice to the Company in
writing (i) within 15 days after receipt of the Right of First
Offer Notice, if the aggregate offering price of such proposed
issue shall be $2.5 million or less, or (ii) within 30 days
after receipt of the Right of First Offer Notice, if the
aggregate offering price of such proposed issue shall be more
than $2.5 million. The holders of Series E Preferred shall
have until the later of (1) 30 days (50 days in the case of an
issue in excess of $2.5 million) after the date of the Right
of First Offer Notice and (2) 10 days after the receipt of all
required governmental and third party consents and approvals
to consummate the purchase of such amount of the securities
described in the Right of First Offer Notice as it timely
elected to purchase; and
(C) If any Series E Preferred holder declines to
exercise its rights under this paragraph (ii) in whole or in
part, the other Series E Preferred holders shall be entitled
to purchase on a pro rata basis based on the number of shares
of Series E Preferred owned by each such holder such amount of
securities declined by such Series E Preferred holder. Once
all the Series E Preferred holders exercise or decline to
exercise their rights under this paragraph (ii), the Company
shall be entitled, subject to paragraph (iii) below and
without limiting the rights of the holders of Series E
Preferred under any other provision of this Agreement, the
Certificate of Incorporation or by-laws of the Company, the
Shareholders Agreement or the Registration Rights Agreement,
to issue the securities not purchased by the holders of Series
E Preferred on the terms and conditions set forth in the Right
of First Offer Notice (and in no event on terms less favorable
to the Company), but no later than 90 days after the date of
the Right of First Offer Notice.
(iii) Except as expressly contemplated by this Agreement and
subject to the rights of the holders of Series E Preferred under
paragraph (ii) above, the Company will not authorize, issue or enter
into any agreement providing for the issuance (contingent or otherwise)
of any New Securities (or any securities convertible into, or
exchangeable or exercisable for, any New Securities) unless:
(A) The Company delivers written notice (the "Equity
Notice") of such issue or agreement to issue to the holders of
Series E Preferred and each Qualified Transferee at least 15
days prior to such proposed issue, but in any event not more
than 15 days after entering into any agreement to issue any
such securities. The Equity Notice will set forth in
reasonable detail the terms and conditions of such proposed
issue, and will be deemed to be an offer to the holders of
Series E Preferred and each Qualified Transferee to purchase
their respective Allotments (as
- 10 -
defined in (B) below) of the securities described in the
Equity Notice, at the same price and on the same terms as
those set forth in the Equity Notice;
(B) Each holder of Series E Preferred and each
Qualified Transferee shall be entitled to purchase up to the
amount of the securities described in the Equity Notice equal
to the product of (i) the number that results from dividing
the number of shares of Underlying Common Stock held by such
holder of Series E Preferred or Qualified Transferee
immediately prior to the proposed issue by the number of
shares of Common Stock outstanding on a Fully Diluted Basis
immediately prior to the proposed issue, and (ii) the number
of such securities proposed to be issued by the Company, after
subtracting any of such securities purchased by the holders of
Series E Preferred pursuant to paragraph (ii) above (its
"Allotment");
(C) Each holder of Series E Preferred and each
Qualified Transferee shall inform the Company in writing
within 15 days after receipt of the Equity Notice whether it
elects to purchase all or any part of its Allotment, and shall
have until the latest of (i) the closing of the sale of the
securities described in the Equity Notice, (ii) 30 days after
the date of the Equity Notice and (iii) 10 days after the
receipt of all required governmental and third party consents
and approvals to consummate the purchase of such part of its
Allotment as it timely elected to purchase;
(iv) The provisions of Sections 4.5(ii) and (iii) shall not
apply to New Securities issued (i) pursuant to the acquisition of
another corporation or other entity by the Company by merger, share
exchange, purchase of substantially all of the assets, or
reorganization, (ii) to employees, consultants, officers or directors
pursuant to an equity incentive plan approved by the Board, (iii) in
amounts less than $500,000 in any single transaction (a "Minor
Transaction") where the purchase price is not less than the then
applicable Conversion Price per share (as defined in the Amendment to
the Certificate of Incorporation); provided that the aggregate amount
of all Minor Transactions shall not exceed $1.5 million or (iv) in a
Public Offering.
(v) The Company shall not issue the 108,935 shares of Series E
Preferred Stock that will remain authorized but unissued under the
Amendment to the Certificate of Incorporation upon the issuance of
720,757 shares of Series E Preferred Stock pursuant to this Purchase
Agreement.
4.6 AFFIRMATIVE COVENANTS. The Company will, and will
cause each Subsidiary to:
(i) at all times cause to be done all things reasonably
necessary to maintain, preserve and renew its corporate existence and
all material licenses, authorizations and permits necessary to the
conduct of its businesses;
(ii) maintain and keep its properties in good repair, working
order and condition, ordinary wear and tear excepted, and from time to
time make all necessary or desirable
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repairs, renewals and replacements, so that its businesses may be
properly and advantageously conducted at all times, except where the
failure to so comply would not have a material adverse effect on the
business, assets, financial condition, results of operations or
prospects of the Company and its Subsidiaries taken as a whole;
(iii) pay and discharge when payable all taxes, assessments
and governmental charges imposed upon its properties or upon the income
or profits therefrom (in each case before the same become delinquent
and before penalties accrue thereon) and all claims for labor,
materials or supplies which if unpaid might by law become a lien upon
any of its property, to the extent to which the failure to so pay or
discharge might reasonably be expected to have a material adverse
effect upon the business, assets, financial condition, results of
operations or prospects of the Company and its Subsidiaries taken as a
whole, unless and to the extent that the same are being contested in
good faith and by appropriate proceedings and adequate reserves (as
determined in accordance with generally accepted accounting principles,
consistently applied) have been established on its books with respect
thereto;
(iv) comply with all other obligations which it incurs
pursuant to any contract or agreement, whether oral or written, express
or implied, as such obligations become due to the extent to which the
failure to so comply might reasonably be expected to have a material
adverse effect upon the business, assets, financial condition, results
of operations or prospects of the Company and its Subsidiaries taken as
a whole, unless and to the extent that the same are being contested in
good faith and by appropriate proceedings and adequate reserves (as
determined in accordance with generally accepted accounting principles,
consistently applied) have been established on its books with respect
thereto;
(v) comply with all applicable laws, rules, regulations and
orders of all domestic and foreign governmental authorities, including,
without limitation, the Foreign Corrupt Practices Act and environmental
laws or regulations or requirements, the violation of which might
reasonably be expected to have a material adverse effect upon the
business, assets, financial condition, results of operations or
prospects of the Company and its Subsidiaries taken as a whole;
(vi) apply for and use its best efforts to continue in force
with responsible insurance companies adequate insurance covering risks
of such types and in such amounts as are customary for corporations of
similar size engaged in similar lines of business and, without limiting
the foregoing, maintain "key man" life insurance covering ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇ (so long as such individual is an employee of the Company) and
naming the Company as beneficiary in the amount of $1,000,000 for such
policy, the proceeds of which will be available for general corporate
purposes of the Company; and
(vii) maintain proper books of record and account which fairly
present its financial condition and results of operations and make
provisions on its financial statements for all such proper reserves as
in each case are required in accordance with generally accepted
accounting principles, consistently applied.
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4.7 COMPLIANCE WITH AGREEMENTS. The Company will use its
best efforts to perform and observe (i) all of its obligations to each holder
of the Series E Preferred and all of its obligations to each holder of the
Underlying Common Stock set forth in the Certificate of Incorporation (as
amended prior to the Initial Closing) and the Company's bylaws and (ii) all
of its obligations to each holder of Registrable Securities set forth in the
Registration Agreement.
4.8 CURRENT PUBLIC INFORMATION. At all times after the
Company has filed a registration statement with the Securities and Exchange
Commission pursuant to the requirements of either the Securities Act or the
Securities Exchange Act, the Company will file all reports required to be
filed by it under the Securities Act and the Securities Exchange Act and the
rules and regulations adopted by the Securities and Exchange Commission
thereunder, and will take such further action as any holder or holders of
Restricted Securities may reasonably request, all to the extent required to
enable such holders to sell Restricted Securities pursuant to Rule 144
adopted by the Securities and Exchange Commission under the Securities Act
(as such rule may be amended from time to time) or any similar rule or
regulation hereafter adopted by the Securities and Exchange Commission.
4.9 RESERVATION OF COMMON STOCK. The Company will at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of issuance upon the conversion of the
Series E Preferred, the number of shares of Common Stock issuable upon the
conversion of all outstanding Series E Preferred. All shares of Series E
Preferred and Common Stock which are so issuable will, when issued, be duly
and validly issued, fully paid and nonassessable and free from all taxes,
liens and charges. The Company will take all such actions as may be necessary
to assure that all such shares of Series E Preferred and Common Stock may be
so issued without violation of any applicable law or governmental regulation
or any requirements of any domestic securities exchange upon which shares of
stock may be listed (except for official notice of issuance which will be
promptly transmitted by the Company upon issuance).
4.10 PROPRIETARY RIGHTS. The Company will, and will cause
each Subsidiary to, use its best efforts to possess and maintain all material
Proprietary Rights which the Company deems necessary to the conduct of their
respective businesses and own all right, title and interest in and to, or
have a valid license or right for, all material Proprietary Rights used by
the Company or any Subsidiary in the conduct of their respective businesses.
4.11 PUBLIC DISCLOSURES. The Company will not, nor will it
permit any Subsidiary to, disclose the Purchaser's name or identity as an
investor in the Company in any press release or other public announcement or
in any document or material filed with any governmental entity, without the
prior written consent of the Purchaser, unless such disclosure is required by
applicable law or governmental regulations or by order of a court of
competent jurisdiction in which case prior to making such disclosure the
Company will use reasonable efforts to give written notice to the Purchaser
describing in reasonable detail the proposed content of such disclosure and
will permit the Purchaser to review and comment upon the form and substance
of such disclosure.
4.12 USE OF PROCEEDS. The proceeds received by the Company
in connection with the sale of the Shares will be used by the Company for
general corporate purposes, including for working capital, acquisitions and
debt reduction.
- 13 -
4.13 CONTENT RESTRICTIONS. Neither the Company nor any of
its Subsidiaries will host, display, provide or aggregate non-healthcare
information on its proprietary and customer websites that might be considered
pornographic, lewd or obscene in nature. The Purchaser and ▇▇▇▇▇▇▇▇▇
acknowledge that future issues of "Healthy Sexuality" which are consistent
with the format, content and tone of issues prior to the date of this
Agreement shall not constitute a breach of this Section 4.13.
4.14 STATUS OF DIVIDENDS.
(i) The Company will not (i) in any income tax return or
claim for refund of income tax or other submission to the Internal Revenue
Service claim a deduction in respect of amounts paid or payable under the
Series E Preferred, whether as interest or pursuant to any other statutory
provision or regulation now in effect or hereafter enacted or adopted, except
to the extent that any such deduction shall not, in the opinion of counsel
satisfactory to the Purchaser, operate to jeopardize the availability to the
Purchaser of the dividends received deduction (the "Dividends Received
Deduction") provided by Section 243(a)(l) of the Code, or any successor
provision or any similar or corresponding provision under federal law
(collectively, the "Dividends Deduction Laws"), (ii) in any report to
stockholders, or to any governmental body having jurisdiction over the
Company, including, without limitation, any reports or returns required by
Section 6042 of the Code, or otherwise, treat the Series E Preferred other
than as equity capital or the dividends paid thereon other than as dividends
paid on equity capital unless required to do so by a governmental body having
jurisdiction over the accounts of the Company or by a change in application
or interpretation of or a change in generally accepted accounting principles
required as a result of action by an authoritative accounting
standards-setting body, or (iii) except to the extent permitted in clause (i)
above, take any action which would result in the dividends paid by the
Company on the Series E Preferred out of the Company's current or accumulated
earnings and profits being ineligible for the Dividends Received Deduction
provided by any Dividends Deduction Laws. Except as contemplated by the
preceding clause (a)(iii), in the event that the Company has reasonable cause
to believe that dividends paid by the Company on the Series E Preferred out
of the Company's current or accumulated earnings and profits will not be
treated as eligible for the Dividends Received Deduction provided by any
Dividends Deduction Laws, or any successor provision, the Company will at the
Purchaser's request join with the Purchaser in the submission to the Internal
Revenue Service of a request for a ruling that dividends paid on the Series E
Preferred will be so eligible for federal income tax purposes. The expenses
of each party incurred in connection with any such submission will be borne
by such party; provided that the Company agrees that it will pay all expenses
reasonably incurred in connection with any such submission necessitated or
caused by a breach of this Agreement by the Company.
(ii) Notwithstanding the foregoing, nothing contained
herein shall be deemed to preclude the Company from claiming a deduction with
respect to such dividends (i) if the Code shall be hereafter amended or
regulations shall be hereafter promulgated to make it clear that dividends on
the Series E Preferred should not be treated as dividends for federal income
tax purposes, or (ii) in the absence of such an amendment or promulgation and
after a submission by the Purchaser (in which the Company shall join if so
requested pursuant to this section) of a request for ruling or technical
advice, if the Internal Revenue Service shall rule or advise that dividends
on the Series E Preferred should not be treated as dividends for federal
income tax
- 14 -
purposes or (iii) to avoid the running of the statute of
limitations with respect to the taxable year for which the deduction is
claimed, if the Internal Revenue Service provides formal or informal notice
to the Company upon audit or otherwise that such dividends on the Series E
Preferred should not be treated as dividends for Federal income tax purposes.
(iii) In the event (i) of a Final Determination (as defined
below) that, due to any reason other than an act or failure to act of the
Purchaser, dividends on the Series E Preferred are not eligible for the
Dividends Received Deduction, (ii) any Dividends Deduction Laws or any
corresponding state or local laws are amended to reduce below 70% or eliminate
or otherwise limit the Dividends Received Deduction available to the Purchaser
below 70%, or (iii) dividends on the Series E Preferred do not constitute, in
whole or in part, a dividend for federal income tax purposes, the Company shall
pay to the Purchaser with respect to each such dividend payment, no later than
the Payment Due Time (as defined below), an additional payment (the "Gross-Up
Payment") such that the net amount of such Gross-Up Payment retained by the
Purchaser after payment by the Purchaser of any federal, state and local income
tax actually imposed upon such Gross-Up Payment shall equal the sum of (A) the
excess of (x) the federal, state, and local income tax payable by the Purchaser
with respect to such dividend in its taxable year in which the dividend was paid
over (y) the federal, state and local income tax which would have been payable
by the Purchaser in its taxable year in which the dividend was paid if the event
described in (i), (ii) or (iii) had not occurred and (B) any interest or
penalties actually payable by the Purchaser with respect to the amount referred
to in subclause (x) above to the Internal Revenue Service or any other
applicable taxing authority by reason of such events. The calculation required
pursuant to the preceding sentence shall be made assuming that the Purchaser
pays taxes at the highest marginal federal income tax rate in effect during such
year, unless the Purchaser is subject to the tax imposed by Section 55 of the
Code in such year in which case such calculation will be made by considering its
actual federal income tax position for such year.
(iv) A "Final Determination" with respect to a federal tax
liability shall mean (i) a decision, judgment, decree or other order by any
court of competent jurisdiction, which decision, judgment, decree or other order
has become final, or (ii) a closing agreement entered into under Section 7121
(or any successor to such Section) of the Code or any other settlement agreement
entered into in connection with an administrative or judicial proceeding and
consented to by the Purchaser. The "Payment Due Time" shall mean 5:00 p.m.
Eastern time, of the day two banking days before the date on which expires the
period allowed by applicable law for timely payment of the tax liability imposed
on the related dividend payment.
4.15 ERISA. Neither the Company nor any Subsidiary shall
incur any material liability with respect to retiree medical or death
benefits or unfunded benefits payable after termination of employment. All
employee benefit plans and arrangements maintained or contributed to by the
Company, any Subsidiary or any ERISA Affiliate shall be maintained in
compliance in all material respects with all applicable law, including any
reporting requirements. With respect to any plan maintained by or contributed
to by the Company or any Subsidiary, neither the Company nor any Subsidiary
will fail to make any contribution due from it under the terms of such plan
or as required by law. An "ERISA Affiliate" for purposes of this Section is
any trade or business, whether or not incorporated, which, together with the
Company, is under common control, as described in Section 414(b) or (c) of
the Code.
- 15 -
4.16 BEST EFFORTS. The Company will take or cause to be
taken all actions and make or cause to be made all filings necessary or
appropriate in connection with the communication of the transactions
contemplated by this agreement and the performance of the Company's
obligations hereunder.
5. TRANSFER OF RESTRICTED SECURITIES.
(i) Restricted Securities are transferable pursuant to (a)
public offerings registered under the Securities Act, (b) Rule 144 of
the Securities and Exchange Commission (or any similar rule then in
force) if such rule is available, (c) to any Affiliate of the Purchaser
or ▇▇▇▇▇▇▇▇▇ and (d) subject to the conditions specified in
subparagraph (ii) below, any other legally available means of transfer;
(ii) In connection with the transfer of any Restricted
Securities (other than a transfer described in Section 5(i)(a), (b) or
(c) above), the holder thereto will deliver written notice to the
Company describing in reasonable detail the transfer or proposed
transfer, together with an opinion of counsel which (to the Company's
reasonable satisfaction) is knowledgeable in securities law matters (an
"Approved Counsel") to the effect that such transfer of Restricted
Securities may be effected without registration of such Restricted
Securities under the Securities Act. In addition, if the holder of the
Restricted Securities delivers to the Company an opinion of an Approved
Counsel that no subsequent transfer of such Restricted Securities will
require registration under the Securities Act, the Company will
promptly upon such contemplated transfer deliver new certificates for
such Restricted Securities which do not bear the Securities Act legend
set forth in Section 8.4. If the Company is not required to deliver new
certificates for such Restricted Securities not bearing such legend,
the holder thereof will not transfer the same until the prospective
transferee has confirmed to the Company in writing its agreement to be
bound by the conditions contained in this Section and Section 8.4.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
As a material inducement to the Purchaser to enter into this Agreement and
purchase the Series E Preferred and to ▇▇▇▇▇▇▇▇▇ to exchange its $2,000,000 note
for the Series E Preferred, the Company hereby represents and warrants to
Purchaser and ▇▇▇▇▇▇▇▇▇ as of the date of this Agreement and as of each of the
respective Closing Dates (unless made as of a specific date) that:
6.1 ORGANIZATION AND CORPORATE POWER. Each of the
Company and its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it
is incorporated and is duly qualified to do business in every jurisdiction in
which its ownership of property or its conduct of business requires it to
qualify. The Company has all requisite corporate power and authority and all
material licenses, permits and authorizations necessary to own and operate
its properties, to carry on its business as now conducted and presently
proposed to be conducted and to carry out the transactions contemplated by
this Agreement. The copies of the Company's and each Subsidiary's charter
documents and bylaws, which have been furnished to the Purchaser's counsel,
reflect all amendments made thereto at any time prior to the date of this
Agreement and are correct and complete.
- 16 -
6.2 CAPITAL STOCK AND RELATED MATTERS. As of each of the
respective Closings and immediately thereafter, the authorized capital stock
of the Company will consist of (i) 1,000 shares of Series A Convertible
Preferred Stock, $.01 par value (the "Series A Preferred"), 1,000 of which
are issued and outstanding, (ii) 1,000 shares of Series B Convertible
Preferred Stock, $.01 par value (the "Series B Preferred"), 1,000 of which
are issued and outstanding, (iii) 1,000 shares of the Series C Convertible
Preferred Stock, $.01 par value (the "Series C Preferred"), 1,000 of which
are issued and outstanding, (iv) 1,667 shares of the Series D Convertible
Preferred Stock, $.01 par value (the "Series D Preferred"), 1,667 of which
are issued and outstanding, (v) 829,692 shares of Series E Preferred, none of
which are issued and outstanding prior to the Initial Closing and (vi)
20,000,000 shares of Common Stock, of which 1,146,895 shares are issued and
outstanding, 304,950 shares have been reserved for issuance upon conversion
of the Series A Preferred and 399,400 shares have been reserved for issuance
upon conversion of the Series B Preferred and 138,650 shares have been
reserved for issuance upon conversion of the Series C Preferred and 335,100
shares have been reserved for issuance upon conversion of the Series D
Preferred and 720,757 shares have been reserved for issuance by all necessary
corporate action upon conversion of the Series E Preferred. The 720,757
shares of Common Stock reserved for issuance upon conversion of the Series E
Preferred will represent, as of each Closing, in excess of 18.6% of the
Company's Common Stock and options on a Fully-Diluted Basis, as set forth in
EXHIBIT D hereto. As of each Closing, neither the Company nor any Subsidiary
will have outstanding any stock or securities convertible or exchangeable for
any shares of its capital stock, nor will it have outstanding any rights or
options to subscribe for or to purchase its capital stock or any stock or
securities convertible into or exchangeable for its capital stock, except for
the Series A Preferred, the Series B Preferred, the Series C Preferred, the
Series D Preferred, and the Series E Preferred and except for the Option
Shares and shares, or any options, rights or warrants to purchase shares, of
capital stock of the Company issued to members of the board of directors,
employees, consultants and advisors of the Company as more fully set forth on
SCHEDULE 6.2 attached hereto. As of each Closing, neither the Company nor any
Subsidiary will be subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock,
except pursuant to the Certificate of Incorporation. As of each Closing, all
of the outstanding shares of the Company's capital stock will be validly
issued, fully paid and nonassessable.
6.3 SUBSIDIARIES. Except as set forth on SCHEDULE 6.3
attached hereto, the Company does not own or hold any rights to acquire any
shares of stock or any other security or interest in any other Person.
6.4 AUTHORIZATION: NO BREACH. The execution, delivery and
performance of this Agreement, the Registration Agreement, the Stockholders
Agreement, and all other agreements contemplated hereby and thereby, the
transactions contemplated hereby and thereby and the filing of the Amendment
to the Amended and Restated Certificate of Incorporation have been duly
authorized by the Company and are within the corporate power and authority of
the Company. This Agreement, the Registration Agreement, the Stockholders
Agreement and all other agreements contemplated hereby have been duly
executed and delivered by the Company and each constitutes a valid and
binding obligation of the Company, enforceable in accordance with its terms;
except that such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally. The execution and delivery by the
Company of this Agreement, the Registration Agreement, the Stockholders
Agreement and all other agreements contemplated hereby and thereby, the
offering, sale and
- 17 -
issuance of the Series E Preferred hereunder, the issuance of the Common
Stock upon conversion of the Series E Preferred, the filing of the Amendment
to the Certificate of Incorporation and the fulfillment of and compliance
with the respective terms hereof and thereof by the Company, do not and will
not (i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, (iii) result in the creation
of any lien, security interest, charge or encumbrance upon the Company's or
any Subsidiary's capital stock or assets pursuant to, (iv) give any third
party the right to accelerate any obligation under, (v) result in a violation
of, or (vi) require any authorization, consent, approval, exemption or other
action by or notice to any court or administrative or governmental body
pursuant to, the Certificate of Incorporation or bylaws of the Company or any
Subsidiary, or any law, statute, rule or regulation to which the Company or
any Subsidiary is subject, or any agreement, instrument, order, judgment or
decree to which the Company or any Subsidiary is subject.
6.5 FINANCIAL STATEMENTS; BOOKS AND RECORDS. Attached
hereto as SCHEDULE 6.5 are the audited consolidated balance sheets of the
Company and its Subsidiaries as of December 31, 1996 and 1995 and the
unaudited consolidated balance sheets of the Company and its Subsidiaries as
of December 31, 1997 and December 31, 1998 (the December 31, 1998 balance
sheet being referred to herein as the "Latest Balance Sheet"), and the
related audited consolidated statements of income and cash flows for each of
the years ended December 31, 1996 and 1995 and the unaudited consolidated
statements of income and cash flows for the years ended December 31, 1997 and
December 31, 1998. Such financial statements (including the notes thereto, if
any) were prepared in accordance with GAAP, are accurate and complete in all
material respects, are in accordance with the books and records of the
Company, and in the case of unaudited statements, subject to changes
resulting from normal year end adjustments (none of which would, alone or in
the aggregate, be materially adverse to the Company's and its Subsidiaries'
financial condition). All the books, records and accounts of the Company and
its Subsidiaries are in all material respects true and complete, are
maintained in accordance with good business practice and all laws applicable
to its business, and accurately present and reflect in all material respects
all of the transactions therein described. The Company has previously
delivered to the Purchaser true, correct and complete texts of all of the
minutes relating to meetings of the stockholders, board of directors and
committees of the board of directors of the Company and each Subsidiary since
their respective dates of incorporation. The audited consolidated balance
sheets of the Company as of December 31, 1997 and December 31, 1998 and the
audited consolidated statements of income and cash flows for the years ended
December 31, 1997 and December 31, 1998 will be consistent in all material
respects with the unaudited consolidated financial statements of the Company
as of and for the same period. The Company shall provide to the Purchaser and
▇▇▇▇▇▇▇▇▇ its audited consolidated balance sheets as of December 31, 1998 and
its audited consolidated statements of income and cash flows for the year
ended December 31, 1998 within 30 days of the Initial Closing.
Notwithstanding the foregoing, the unaudited financial statements do not
presently reflect any non-cash compensation charges relating to stock option
grants to employees and consultants. Audited financial statements for the
years ended December 31, 1997 and December 31, 1998 will include such
non-cash compensation charges.
6.6 ABSENCE OF UNDISCLOSED LIABILITIES. Neither the
Company nor any of its Subsidiaries has any material obligation or liability
(whether accrued, absolute, contingent, unliquidated or otherwise, whether or
not known to the Company, whether due or to become due) arising out of
transactions entered into at or
- 18 -
prior to each Closing, or any action or inaction at or prior to each Closing,
or any state of facts existing at or prior to each Closing, other than: (i)
liabilities set forth on the Latest Balance Sheet (including the notes
thereto), (ii) liabilities and obligations which have arisen after the date
of the Latest Balance Sheet in the ordinary course of business (none of which
is a liability resulting from breach of contract, breach of warranty, tort,
infringement, claim or lawsuit) or in connection with the transactions
described in this Agreement and (iii) other liabilities and obligations
expressly disclosed in the other Schedules to this Agreement.
6.7 NO MATERIAL ADVERSE CHANGE. Since January 1, 1998,
there has been no material adverse change in the Company's business, assets,
financial condition, results of operations, prospects, employee relations,
customer relations or otherwise.
6.8 ABSENCE OF CERTAIN DEVELOPMENTS.
(i) Except as set forth on SCHEDULE 6.8 or except as
expressly contemplated by this Agreement, since January 1, 1998,
neither the Company nor any Subsidiary has:
(a) issued any bonds or other debt securities or
any equity securities;
(b) borrowed any amount or incurred or become
subject to any liabilities, except current liabilities incurred in the
ordinary course of business and liabilities under contracts entered
into in the ordinary course of business;
(c) discharged or satisfied any lien or encumbrance
or paid any obligation or liability, other than current liabilities
paid in the ordinary course of business;
(d) declared or made any payment or distribution of
cash or other property to its stockholders with respect to its stock or
purchased or redeemed any shares of its capital stock;
(e) mortgaged or pledged any of its properties or
assets or subjected them to any lien, security interest, charge or
other encumbrance, except liens for current property taxes not yet due
and payable;
(f) sold, assigned or transferred any of its
tangible assets, except in the ordinary course of business, or
cancelled any debts or claims;
(g) sold, assigned or transferred any patents,
trademarks, service marks, trade names, copyrights, trade secrets or
other intangible assets, or disclosed any proprietary confidential
information to any Person;
(h) suffered any extraordinary losses or waived any
rights of material value, whether or not in the ordinary course of
business or consistent with past practice;
(i) made capital expenditures or commitments
therefor that aggregate in excess of $100,000;
- 19 -
(j) entered into any other transaction other than in
the ordinary course of business or entered into any other material
transaction, whether or not in the ordinary course of business;
(k) made any loans or advances to, guarantees for
the benefit of, or any Investments in, any officer, director, employee
or stockholder of the Company or any Persons in excess of $25,000;
(l) made any charitable contributions or pledges;
(m) suffered any damage, destruction or casualty
loss exceeding in the aggregate $50,000, whether or not covered by
insurance; or
(n) made any Investment in or taken steps to
incorporate any Subsidiary.
(ii) Neither the Company nor any Subsidiary has at any time
made any payment for political contributions or made any bribes,
kickback payments or other illegal payments.
6.9 ASSETS. The Company and each Subsidiary have good and
marketable title to, or a valid and subsisting leasehold interest in, the
properties and assets used by them, located on their premises or shown on the
Latest Balance Sheet or acquired thereafter, free and clear of all liens,
security interests, charges and encumbrances, except as disclosed on the
Latest Balance Sheet (including the notes thereto) or SCHEDULE 6.9. The
Company's and each Subsidiary's buildings, equipment and other tangible
assets are in good operating condition in all material respects and are fit
for use in the ordinary course of business.
6.10 TAX MATTERS. The Company and each Subsidiary have
filed or caused to be filed all tax returns which they are required to file;
all such returns are true and correct in all material respects; the Company
and each Subsidiary have paid all taxes owed by them or which they are
obligated to withhold from amounts owing to any employee, creditor or third
party; neither the Company nor any Subsidiary has waived any statute of
limitations with respect to taxes or agreed to any extension of time with
respect to a tax assessment or deficiency; the assessment of any additional
taxes for periods for which returns have been filed is not expected; and
there are no material unresolved questions or claims concerning the Company's
or any Subsidiary's tax liability. The Company and its Subsidiaries have paid
or caused to be paid, or have established reserves that the Company
reasonably believes to be adequate, for all federal income tax liabilities
and state income tax liabilities applicable to the Company or any of its
Subsidiaries for all fiscal years which have not been examined and reported
on by the taxing authorities. For the purpose of this Agreement, "tax" or
"taxes" means any federal, state, local or foreign income, gross receipts,
windfall profits, severance, property, production, sales, use, transfer,
gains, license, excise, employment, payroll, withholding, value added,
estimated, alternative or add on minimum tax, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional
amount imposed by any governmental authority.
- 20 -
6.11 CONTRACTS AND COMMITMENTS.
(i) Except as set forth on SCHEDULE 6.11 or as expressly
contemplated by this Agreement, as of each Closing, neither the Company
nor any Subsidiary is a party to any written or oral:
(a) pension, profit sharing, stock option, employee
stock purchase or other plan providing for deferred or other
compensation to employees or any other employee benefit plan, or any
contract with any labor union;
(b) contract for the employment of any officer,
individual employee or other Person on a full-time, part-time,
consulting or other basis or contract relating to loans to officers,
directors or affiliates;
(c) agreement or indenture relating to the borrowing
of money or the mortgaging, pledging or otherwise placing a lien on any
material asset or material group of assets of the Company and its
Subsidiaries;
(d) guarantee of any obligation;
(e) contract under which the Company or Subsidiary
has advanced or loaned any Person amounts in the aggregate exceeding
$10,000;
(f) lease or agreement under which the Company or
any Subsidiary is lessee of or holds or operates any property, real or
personal, owned by any other party, except for any lease of real or
personal property under which the aggregate annual rental payments do
not exceed $100,000;
(g) lease or agreement under which the Company or
any Subsidiary is lessor of or permits any third party to hold or
operate any property, real or personal, owned or controlled by the
Company or any Subsidiary;
(h) contract or group of related contracts with the
same party or group of affiliated parties the performance of which
involves a consideration in excess of $100,000;
(i) assignment, license, indemnification or
agreement with respect to any intangible property (including, without
limitation, any patent, trademark, trade name, copyright, know-how,
trade secret or confidential information) other than in the ordinary
course of business;
(j) warranty agreement with respect to its services
rendered or its products sold or leased;
(k) agreement under which it has granted any Person
any registration rights (including piggyback rights);
- 21 -
(l) contract or agreement prohibiting it from freely
engaging in any business or competing anywhere in the world or imposing
any obligation of exclusivity upon the Company or any Subsidiary or
requiring the Company or any Subsidiary to provide preferred or most
favored nations terms to any client or customer;
(m) sales agency or brokerage agreement;
(n) agreement or arrangement with any Related Party;
(o) agreement imposing any indemnity obligation upon
the Company or any Subsidiary; or
(p) any other agreement which is material to its
operations and business prospects or involves a consideration in excess
of $100,000 annually.
(ii) The Company and each Subsidiary have performed all
material obligations required to be performed by them and are not in
default under or in material breach of nor in receipt of any claim of
default or breach under any material agreement or other material
instrument to which the Company or any Subsidiary is subject; no event
has occurred which with the passage of time or the giving of notice or
both would result in a material default, breach or event of
noncompliance under any material agreement or other material instrument
to which the Company or any Subsidiary is subject; neither the Company
nor any Subsidiary has any present expectation or intention of not
fully performing all such obligations; neither the Company nor any
Subsidiary has knowledge of any breach or anticipated breach by the
other parties to any contract or commitment to which it is a party.
6.12 PROPRIETARY RIGHTS. The Company and its Subsidiaries
possess all material Proprietary Rights necessary to the present and
contemplated conduct of their respective businesses and (i) the Company and
its Subsidiaries own all right, title, and interest in and to all of such
Proprietary Rights, (ii) there have been no claims made against the Company
or any Subsidiary for the assertion of the invalidity, abuse, misuse, or
unenforceability of any of such rights, and there are, to the best of the
Company's knowledge, no grounds for the same, (iii) neither the Company nor
any Subsidiary has received a notice of conflict with the asserted rights of
others within the last five years, and (iv) the conduct of the Company's and
each Subsidiary's business has not, to the best of the Company's knowledge,
infringed any such rights of others. Each employee or consultant of the
Company or any Subsidiary is a party to a confidentiality agreement relating
to the business of the Company and its Subsidiaries. Each technical employee
or consultant of the Company or any Subsidiary, excluding consultants who are
hired by the Company for their intellectual property expertise in a
particular topic distinct from the Company's business, is a party to an
invention assignment agreement relating to the business of the Company and
its Subsidiaries.
6.13 LITIGATION, ETC. Except as set forth in SCHEDULE
6.13, there are no actions, suits, proceedings, orders, investigations or
claims pending or, to the best of the Company's knowledge, threatened against
or affecting the Company or any Subsidiary at law or in equity, or before or
by any governmental department, commission, board, bureau, agency or
instrumentality; neither the Company nor any Subsidiary is subject to any
arbitration proceedings under collective bargaining agreements or otherwise
or, to the best of the Company's knowledge, any governmental
- 22 -
investigations or inquiries (including inquiries as to the qualification to
hold or receive any license or permit); and, to the best of the Company's
knowledge, there is no basis for any of the foregoing. Neither the Company
nor any of its Subsidiaries is in default in any material respect with
respect to any judgment, order, writ, injunction, decree or award.
6.14 BROKERAGE. Except for the fees of ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
previously disclosed to the Purchaser, there are no claims for brokerage
commissions, finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement binding upon the Company or any Subsidiary; provided, however, that
this representation excludes any claim arising out of or due to any action of
the Purchaser. The Company will pay, and hold the Purchaser harmless against,
any liability, loss or expense (including, without limitation, reasonable
attorneys' fees and out-of-pocket expenses) arising in connection with any
such claim.
6.15 GOVERNMENTAL CONSENT, ETC. No permit, consent,
approval or authorization of, or declaration to or filing with, any
governmental authority is required in connection with the valid execution,
delivery and performance by the Company of this Agreement or the other
agreements contemplated hereby, or the consummation by the Company of any
other transactions contemplated hereby or thereby.
6.16 INSURANCE. Each insurance policy maintained by the
Company with respect to its properties, assets and businesses is in full
force and effect. The Company is not in default with respect to its
obligations under any insurance policy maintained by it. The Company and its
Subsidiaries maintain insurance in such amounts (to the extent available in
the public market), including self-insurance, retainage and deductible
arrangements, and of such a character as is reasonable for companies of a
comparable size engaged in the same or similar business.
6.17 EMPLOYEES AND ERISA.
(i) The Company is not aware that any executive or key
employee of the Company or any Subsidiary or any group of employees of
the Company or any Subsidiary has any plans to terminate employment
with the Company or any Subsidiary, the Company and each Subsidiary
have complied in all material respects with all laws relating to the
employment of labor, including provisions thereof relating to wages,
hours, equal opportunity, collective bargaining and the payment of
social security and other taxes, and the Company is not aware that it
or any Subsidiary has any material labor relations problems.
(ii) Neither the Company, its Subsidiaries nor any of their
respective employees is a party to any consulting or employment
agreements containing any non-compete or confidentiality provisions
relating to the present or proposed business activities of the Company
and its Subsidiaries;
(iii) Neither the Company nor any Subsidiary presently
maintains or contributes to, or ever has maintained or contributed to,
any "employee benefit plan," as such term is defined in Section 3 of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), with respect to which the Company is required to file
Internal Revenue Service
- 23 -
Form 5500, and neither the Company nor any Subsidiary presently
contributes to or ever has contributed to any "multiemployer plan,"
as such term is defined in Section 3 of ERISA.
6.18 COMPLIANCE WITH LAWS. Neither the Company nor any
Subsidiary is in violation of any domestic or foreign law or any regulation
or requirement, including without limitation, the Foreign Corrupt Practices
Act, which violation might reasonably be expected to have a material adverse
effect upon the business, assets, financial condition, result of operations
or prospects of the Company and its Subsidiaries, and neither the Company nor
any Subsidiary has received notice of any such violation.
6.19 DISCLOSURE. Neither this Agreement nor any of the
schedules, attachments, written statements, documents, certificates or other
items prepared or supplied to the Purchaser by or on behalf of the Company
with respect to the transactions contemplated hereby contain any untrue
statement of a material fact or omit a material fact necessary to make each
statement contained herein or therein not misleading. There is no fact which
the Company has not disclosed to the Purchaser in writing and of which any of
its officers, directors or executive employees is aware and which could
reasonably be anticipated to have a material adverse effect upon the existing
or expected financial condition, operating results, assets, customer
relations, employee relations or business prospects of the Company and its
Subsidiaries.
6.20 POSSESSION OF FRANCHISES, LICENSES, ETC.
. The Company and its Subsidiaries possess all franchises, certificates,
licenses, permits and other authorizations from governmental or political
subdivisions or regulatory authorities that are necessary in any material
respect to the Company or any of its Subsidiaries for the ownership, maintenance
and operation of their respective properties and assets, and neither the Company
nor any of its Subsidiaries is in violation of any thereof in any material
respect.
6.21 HOLDING COMPANY ACT AND INVESTMENT COMPANY ACT.
Neither the Company nor any Subsidiary is: (i) a "public utility company" or
a "holding company," or an "affiliate" or a "subsidiary company" of a
"holding company," or an "affiliate" of such a "subsidiary company," as such
terms are defined in the Public Utility Holding Company Act of 1935, as
amended, or (ii) a "public utility," as defined in the Federal Power Act, as
amended, or (iii) an "investment company" or an "affiliated person" thereof
or an "affiliated person" of any such "affiliated person," as such terms are
defined in the Investment Company Act of 1940, as amended.
6.22 ENVIRONMENTAL AND OTHER REGULATIONS. The Company
and its Subsidiaries are in compliance with all applicable federal, state,
local and foreign laws and regulations relating to protection of the
environment and human health, and are in compliance in all material respects
with all other applicable federal, state, local and foreign laws and
regulations, including, without limitation, those relating to equal
employment opportunity and employment safety. There are no claims, notices,
civil, criminal or administrative actions, suits, hearings, investigations,
inquiries or proceedings pending or, to the best knowledge of the Company,
threatened against the Company or any Subsidiary that are based on or related
to any environmental matters, including any disposal of hazardous substances
at any place, or the failure to have any required environmental permits, and
- 24 -
there are no past or present conditions that are likely to give rise to any
liability or other obligations of the Company or any Subsidiary under any
environmental laws.
6.23 PROJECTIONS. All projections furnished in writing by
the Company (i) have been prepared by management of the Company after a
careful analysis of all material data, (ii) are based on reasonable
assumptions by management of the Company and (iii) represent the best
estimate by management of the Company, based upon current reasonable
assumptions, as to the financial performance of the Company and its
Subsidiaries for the periods indicated, but do not represent any guarantee or
assurance of the future financial results of the Company and its Subsidiaries.
6.24 YEAR 2000.
(i)(a) COMPANY'S PRODUCTS AND SERVICES:
(1) All of the Company's and its
Subsidiaries' Products and Services will be Year 2000
Compliant.
(2) If the Company or any Subsidiary is
obligated to repair or replace Products or Services previously
provided by the Company or any Subsidiary that are not Year
2000 Compliant in order to meet contractual obligations, to
avoid other liability, to avoid misrepresentations claims, or
to satisfy any other obligations or requirements, the Company
and its Subsidiaries will have repaired or replaced those
Products and Services to make them Year 2000 Compliant.
(b) COMPANY'S INTERNAL MIS SYSTEMS AND
FACILITIES. All of the Internal MIS Systems and Facilities
will be Year 2000 compliant.
(c) SUPPLIERS. All vendors of products or services
to the Company and its Subsidiaries, and their respective
products, services and operations, will be in all material
aspects Year 2000 Compliant. To the knowledge of the Company
after a reasonably diligent investigation, each such vendor
will continue to furnish its products or services to the
Company and its Subsidiaries, without interruption or material
delay, on and after January 1, 2000.
(ii) The Company has furnished the Purchaser with true,
correct and complete copies of any customer agreements and other
materials and correspondence in which Company has furnished (or could
be deemed to have furnished) assurances as to the performance and/or
functionality of the Company's and its Subsidiaries' Products or
Services on or after January 1, 2000.
(iii) The Company has furnished the Purchaser with a
true, correct and complete copy of any internal investigations,
memoranda, budget plans, forecasts or reports concerning the Year 2000
Compliant status of the products, services, operations, systems,
supplies and facilities of the Company and its Subsidiaries and their
respective vendors.
- 25 -
(iv) The design of the products, services and other
item(s) at issue to ensure compliance with the foregoing warranties and
representations includes proper date/time data century recognition and
recognition of 1999 and 2000, calculations that accommodate single
century and multi-century formulae and date/time values before, on,
after, and spanning January 1, 2000, and date/time data interface
values that reflect the century, 1999, and 2000. In particular, but
without limitation, (i) no value for current date/time will cause any
error, interruption, or decreased performance in or for such
product(s), service(s), and other item(s), (ii) all manipulations of
date and time related data (including calculating, comparing,
sequencing, processing and outputting) will produce correct results for
all valid dates and times when used independently or in combination
with other products, services, and/or items, (iii) date/time elements
in interfaces and data storage will specify the century to eliminate
date ambiguity without human intervention, including leap year
calculations, (iv) where any date/time element is represented without a
century, the correct century will be unambiguous for all manipulations
involving that element, (v) authorization codes, passwords and zaps
(purge functions) will function normally and in the same manner during,
prior to, on, and after January 1, 2000, including the manner in which
they function with respect to expiration dates and CPU serial numbers,
and (vi) the Company's and its Subsidiaries' supply of the product(s),
service(s), and other item(s) will not be interrupted, delayed,
decreased, or otherwise affected by the advent of the year 2000.
6.25 CLOSING DATES. The representations and warranties of
the Company contained in this Section 6 and elsewhere in this Agreement and
all information contained in any exhibit, schedule or attachment hereto or in
any writing delivered by, or on behalf of, the Company to the Purchaser
(except for representations, warranties and information made as of a
specified date) will be true and correct in all material respects on the date
of each of the Closings as though then made.
7. DEFINITIONS. For the purposes of this Agreement, the following
terms have the meanings set forth below:
"AFFILIATE" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" means the Company's common stock, $.01 par
value per share, having the rights set forth in Article 4 of the Certificate of
Incorporation.
"CONSOLIDATED NET WORTH" means the consolidated stockholders'
equity of the Company determined in accordance with generally accepted
accounting principles consistently applied.
"CONVERTIBLE SECURITIES" means evidences of indebtedness,
capital shares or other securities which are convertible into or exchangeable
for, with or without payment of additional consideration, shares of Common
Stock, either immediately or upon the arrival of a specified date or the
happening of a specified event.
- 26 -
"EVENT OF NONCOMPLIANCE" means any instance of the Company's
failure, under the provisions of the Certificate of Incorporation, to perform
its obligations to the holders of Series A Preferred, Series B Preferred, Series
C Preferred or Series D Preferred.
"FACILITIES" means any facilities or equipment used by the
Company or its Subsidiaries in any location, including HVAC systems, mechanical
systems, elevators, security systems, fire suppression systems,
telecommunications systems, fax machines, copy machines, and equipment, whether
or not owned by the Company or its Subsidiaries.
"FULLY DILUTED BASIS" means the number of shares of Common
Stock outstanding, plus (x) the number of shares of Common Stock into which all
outstanding Convertible Securities of the Company would be convertible and (y)
the number of shares of Common Stock which would be issuable upon the exercise
of all warrants, rights or options to purchase shares of Common Stock then
outstanding.
"GAAP" means the generally accepted accounting principles in the
United States.
"INTERNAL MIS SYSTEMS" means any computer software and systems
(including hardware, firmware, operating system software, utilities, and
applications software) used in the ordinary course of business by or on behalf
of the Company or its Subsidiaries, including the Company's and its
Subsidiaries' payroll, accounting, billing/receivables, inventory, asset
tracking, customer service, human resources, and e-mail systems.
"INVESTMENT" as applied to any Person means (i) any direct or
indirect purchase or other acquisition by such Person of any note, stock,
securities or other ownership interest in any other Person and (ii) any capital
contribution by such Person to any other Person.
"NEW SECURITIES" mean any equity security of the Company other
than Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred or Series E Preferred or Common Stock outstanding on the date of this
Agreement or Common Stock issued on the conversion of any of the foregoing
series of Preferred Stock.
"OFFERING PRICE" means the price at which a share of the
Company's Common Stock will be offered at the Public Offering.
"OFFICER'S CERTIFICATE" means a certificate signed by the
Company's president or its chief financial officer, stating that (i) the officer
signing such certificate has made or has caused to be made such investigations
as are necessary in order to permit him to verify the accuracy of the
information set forth in such certificate and (ii) to the best of such officer's
knowledge, such certificate does not misstate any material fact and does not
omit to state any fact necessary to make the certificate not misleading.
"PERSON" means an individual, a partnership, a corporation,
limited liability company, limited liability partnership, an association, a
joint stock company, a trust, a joint venture, an unincorporated organization
and a governmental entity or any department, agency or political subdivision
thereof.
- 27 -
"PRODUCTS" means any products offered or furnished by the
Company or any of its Subsidiaries, or any predecessor in interest of the
Company or any of its Subsidiaries, currently or at any time in the past,
including without limitation each item of hardware, software, or firmware; any
system, equipment, or products consisting of or containing one or more thereof;
and any and all enhancements, upgrades, customizations, modifications, and
maintenance thereto.
"PROPRIETARY RIGHTS" means any patents, registered and common
law trademarks, service marks, trade names, copyrights, licenses and other
similar rights (including, without limitation, know-how, trade secrets and other
confidential information) and applications for each of the foregoing, if any.
"PUBLIC OFFERING" means the closing of a firm commitment for
an initial public offering underwritten by a nationally recognized investment
bank pursuant to an effective registration statement under the Securities Act
covering the offer and sale of the Company's Common Stock to the public at an
aggregate net offering price of not less than $20 million, an implied Company
equity value of at least $100,000,000 and an Offering Price that results in a
minimum annualized compounded rate of return of 20% to the Purchaser.
"RELATED PARTY" means any officer, director or beneficial
holder of 5% or more of the outstanding shares of capital stock of the Company,
any spouse, former spouse, child, parent, parent of a spouse, sibling or a
grandchild of any such officer, director or beneficial holder of the Company,
and any Affiliate of any of the foregoing persons.
"RESTRICTED SECURITIES" means (i) the Series E Preferred
issued hereunder, (ii) the Common Stock issued upon conversion of the Series E
Preferred and (iii) any securities issued with respect to the securities
referred to in clauses (i) or (ii) above by way of a stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Restricted
Securities, such securities will cease to be Restricted Securities when they
have (a) been effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (b) been transferred
pursuant to Rule 144 or become eligible for sale pursuant to Rule 144(k) (or any
similar rule then in force) under the Securities Act or (c) been otherwise
transferred and new certificates for them not bearing the Securities Act legend
set forth in Section 8.4 have been delivered by the Company in accordance with
Section 5(ii). Whenever any particular securities cease to be Restricted
Securities, the holder thereof will be entitled to receive from the Company,
without expense, new securities of like tenor not bearing a Securities Act
legend of the character set forth in Section 8.4.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
or any similar federal law then in force.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended, or any similar federal law then in force.
"SECURITIES AND EXCHANGE COMMISSION" includes any governmental
body or agency succeeding to the functions thereof.
- 29 -
"SERVICES" means any services offered or furnished by the
Company or any of its Subsidiaries, or any predecessor in interest of the
Company or any of its Subsidiaries, currently or at any time in the past.
"SUBSIDIARY" means any corporation of which the securities
having a majority of the ordinary voting power in electing the board of
directors are, at the time as of which any determination is being made, owned by
the Company either directly or through one or more Subsidiaries;
"UNDERLYING COMMON STOCK" means (i) the Common Stock issued or
issuable upon conversion of the Series E Preferred or upon exercise of the
Option or conversion of Series E Preferred received upon exercise of the Option
and (ii) any Common Stock issued or issuable with respect to the Common Stock
referred to in clause (i) above by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. Any Person who holds Series E Preferred will be deemed
to be the holder of the Underlying Common Stock obtainable upon conversion of
the Series E Preferred, regardless of any restriction on the conversion of the
Series E Preferred. As to any particular shares of Underlying Common Stock, such
shares will cease to be Underlying Common Stock when they have (a) been
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) been distributed to the
public pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act or (c) ceased to be Restricted Securities other than for the
reasons set forth in clauses (a) and (b).
"YEAR 2000 COMPLIANT" means that (1) the products, services,
or other item(s) at issue accurately process, provide and/or receive all
date/time data (including calculating, comparing, sequencing, processing and
outputting) within, from, into, and between centuries (including the twentieth
and twenty-first centuries and the years 1999 and 2000), including leap year
calculations, and (2) neither the performance nor the functionality nor the
Company's or any of its Subsidiaries' provision of the products, services, and
other item(s) at issue will be affected by any dates/times prior to, on, after,
or spanning January 1, 2000.
8. MISCELLANEOUS.
8.1 EXPENSES; INDEMNIFICATION.
(i) The Company agrees to pay the Purchaser for (a) all
reasonable outside legal and consulting fees of the Purchaser in
connection with this Agreement and the consummation of all transactions
contemplated hereby together with the costs and expenses described in
the immediately succeeding clause (b) of this paragraph (i), up to a
maximum amount of $65,000, (b) all costs and expenses of the Purchaser
in connection with the consummation of the transactions contemplated
hereby relating to due diligence, the preparation of documents and the
closing of such transactions, (c) all costs and expenses relating to
any future amendment or supplement to this Agreement or any of the
Securities (or any proposal by the Company for such amendment or
supplement) whether or not consummated or any waiver or consent with
respect thereto (or any proposal for such waiver or consent) whether or
not consummated, and (d) all costs and expenses of
- 29 -
the Purchaser or ▇▇▇▇▇▇▇▇▇ relating to the enforcement of the rights
granted under this Agreement, the agreements contemplated hereby and
the Certificate of Incorporation, if the Company is found to have
breached its obligations under any such agreement.
(ii) The Company further agrees to indemnify and save
harmless the Purchaser and ▇▇▇▇▇▇▇▇▇ and its respective officers,
directors, partners, employees, trustees and agents, each person who
controls the Purchaser or ▇▇▇▇▇▇▇▇▇ within the meaning of the
Securities Act or the Exchange Act, from and against any and all costs,
expenses, damages or other liabilities resulting from any breach of any
representation, warranty, covenant or agreement set forth in this
Agreement, and the agreements contemplated hereby by the Company or any
legal, administrative or other proceedings brought by any third party
arising out of the transactions contemplated hereby and thereby;
provided that, if and to the extent that such indemnification is
unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of such indemnified
liability which shall be permissible under applicable laws.
(iii) The indemnified party under this Section 8.1 will,
promptly after the receipt of notice of the commencement of any action
against such indemnified party in respect of which indemnity may be
sought from the Company on account of an indemnity agreement contained
in this Section 8.1, notify the Company in writing of the commencement
thereof. The omission of any indemnified party so to notify the Company
of any such action shall not relieve the Company from any liability
which it may have to such indemnified party except to the extent the
Company shall have been prejudiced by the omission of such indemnified
party so to notify the Company, pursuant to this Section 8.1 In case
any such action shall be brought against any indemnified party and it
shall notify the Company of the commencement thereof, the Company shall
be entitled to participate therein and, to the extent that it may wish,
to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the Company to such
indemnified party of its election so to assume the defense thereof, the
Company will not be liable to such indemnified party under this Section
8.1 for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof nor for any
settlement thereof entered into without the consent of the Company;
provided that (i) if the Company shall elect not to assume the defense
of such claim or action or (ii) if the indemnified party reasonably
determines (x) that there may be a conflict between the positions of
the Company and of the indemnified party in defending such claim or
action or (y) that there may be legal defenses available to such
indemnified party different from or in addition to those available to
the Company, then separate counsel for the indemnified party shall be
entitled to participate in and conduct the defense, in the case of (i)
and (ii)(x), or such different defenses, in the case of (ii)(y), and
the Company shall be liable for any reasonable legal or other expenses
incurred by the indemnified party in connection with the defense.
8.2 REMEDIES. Each holder of Series E Preferred will have
all rights and remedies set forth in this Agreement and the Certificate of
Incorporation and all rights and remedies which such holders have been
granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any Person having any rights
under any
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provision of this Agreement will be entitled to enforce such rights
specifically, to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other rights granted by law.
8.3 TERMINATION; TERMINATION FEE. This Agreement may be
terminated by the Purchaser or the Company with respect to the Additional
Shares at any time after 60 days from the date of this Agreement if the
Second Closing has not theretofore occurred; provided that a party shall not
be entitled to terminate this Agreement as it relates to the Additional
Shares if the failure of the Second Closing to occur results from a breach of
this Agreement by such party. Without limiting the rights of the Purchaser to
receive a break-up fee pursuant to the Letter of Interest dated January 21,
1999 (the "Letter of Interest") if this Agreement is terminated, unless the
failure of the Second Closing to occur results from a breach of this
Agreement by the Purchaser, the Company shall pay the Purchaser a termination
fee of $125,000 (inclusive of all of the Purchaser's reasonable costs and
expenses incurred in connection with such transaction, including, but not
limited to, due diligence expenses and attorney's fees); provided that the
Company shall not be obligated to pay a termination fee hereunder if the
Company pays the break-up fee provided in the Letter of Interest. In the
event of any such termination, except as provided in this Section 8.3,
neither party shall have any obligation under this Agreement or arising from
such termination, except for willful breaches of this Agreement.
8.4 PURCHASER'S AND BLACKWELL'S INVESTMENT & OTHER
REPRESENTATIONS. Each of the Purchaser and ▇▇▇▇▇▇▇▇▇ (each, an
"Investor") hereby severally and not jointly represents and warrants as
follows:
(i) INVESTMENT. Such Investor is acquiring the Restricted
Securities purchased hereunder or acquired pursuant hereto for its own account
for investment and not with a view to, or for sale in connection with, any
public distribution thereof, nor with any present intention of distributing or
selling the same to the public; and the Purchaser is aware of the restrictions
and limitations affecting its right and ability to sell or transfer such
securities; provided that nothing contained herein will prevent such Investor
and subsequent holders of Restricted Securities from transferring such
securities in compliance with the provisions of Section 5 hereof.
(ii) AUTHORITY. Such Investor has full power and authority to
enter into and to perform this Agreement in accordance with its terms. Such
Investor has not been organized, reorganized or recapitalized specifically for
the purpose of investing in the Company.
(iii) ACCREDITED INVESTOR. Such Investor is an Accredited
Investor within the definition set forth in Securities Act Rule 501(a).
(iv) RESTRICTIVE LEGEND. Each certificate for Series E
Preferred will be imprinted with a legend in substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
transfer of the securities represented by this certificate is
subject to the conditions specified in the Purchase Agreement,
dated as of __________, 1999 between the issuer (the
"Company") and an investor, and the Company reserves the right
to refuse the transfer of such securities until such
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conditions have been fulfilled with respect to such transfer.
A copy of such conditions will be furnished by the Company to
the holder hereof upon written request and without charge."
"The voting rights and the transfer of the shares represented
by this certificate are subject to a Stockholders Agreement,
__________, 1999, by and among the issuer (the "Company"), the
holder and other stockholders of the Company. A copy of the
Stockholders Agreement will be furnished by the Company to the
holder hereof upon written request and without charge."
(v) ORGANIZATION AND CORPORATE POWER. Such Investor is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction or organization. Such Investor has all requisite corporate
power and authority to carry out the transactions contemplated by this
Agreement.
(vi) AUTHORIZATION; NO BREACH. The execution, delivery and
performance of this Agreement and all other agreements and the transactions
contemplated hereby have been duly authorized by such Investor. This Agreement
and all other agreements contemplated hereby each constitutes a valid and
binding obligation of such Investor, enforceable in accordance with its terms;
except as enforcement thereof may be limited by any applicable bankruptcy,
reorganization, insolvency, moratorium, or similar laws affecting rights of
creditors generally. The execution and delivery by such Investor of this
Agreement and all other agreements contemplated hereby and thereby and the
fulfillment of and compliance with the respective terms hereof and thereof by
such Investor, do not and will not (i) conflict with or result in a breach of
the terms, conditions or provisions of, (ii) result in a violation of, or (iii)
require any authorization, consent, approval, exemption or other action by or
notice to any court or administrative or governmental body pursuant to, the
charter or bylaws of such Investor, or any law, statute, rule or regulation to
which such Investor is subject, or any agreement, instrument, order, judgment or
decree to which such Investor is subject.
(vii) BROKERAGE. There are no claims for brokerage
commissions, finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement binding upon such Investor or any of its subsidiaries; provided,
however, that this representation excludes any claim arising out of or due to
any action of the Company. Such Investor will pay, and hold the Company harmless
against, any liability, loss or expense (including, without limitation,
reasonable attorneys' fees and out-of-pocket expenses) arising in connection
with any such claim.
(viii) GOVERNMENTAL CONSENT, ETC. No permit, consent, approval
or authorization of, or declaration to or filing with, any governmental
authority is required in connection with the execution, delivery and performance
by such Investor of this Agreement or the other agreements contemplated hereby,
or the consummation by such Investor of any other transactions contemplated
hereby or thereby.
(ix) RISK. Such Investor understands that the operation of
the Company's business is subject to numerous risks and that the Preferred
Stock is a speculative investment that involves a high degree of risk of loss
of the entire investment therein. Such Investor is cognizant of
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and understands such risks, including those set forth in the September 1998
Confidential Private Placement Memorandum under the caption "Risk Factors".
(x) DUE DILIGENCE. Such Investor has been allowed, upon
request, to examine any document or agreement listed in the Schedules hereto,
and has had the opportunity to obtain any information concerning the Company,
including the opportunity to ask questions of and receive answers from
authorized representatives of the Company concerning this investment.
(xi) CLOSING DATES. The representations and warranties of
such Investor contained in this Section 8.4 and elsewhere in this Agreement
will be true and correct in all material respects on the date of each of the
respective Closings as though then made.
8.5 CONSENT TO AMENDMENTS. Except as otherwise
expressly provided herein, the provisions of this Agreement may be amended
and the Company may take any action herein prohibited, or omit to perform any
act herein required to be performed by it, only if the Company has obtained
the written consent of the registered holders of not less than 66 2/3% of the
outstanding Series E Preferred; provided that if there is no Series E
Preferred outstanding, the provisions of this Agreement may be amended and
the Company may take any action herein prohibited, only if the Company has
obtained the written consent of the holders of not less than 66 2/3% of the
Underlying Common Stock. No other course of dealing between the Company and
the holder of any Series E Preferred or Underlying Common Stock or any delay
in exercising any rights hereunder or under the Certificate of Incorporation
will operate as a waiver of any rights of any such holders. For purposes of
this Agreement, shares of Series E Preferred and Underlying Common Stock held
by the Company or any Subsidiaries will not be deemed to be outstanding.
8.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein or made in writing by any
party in connection herewith shall survive the execution and delivery of this
Agreement and the issuance and delivery of the shares of Series E Preferred,
regardless of any investigation made by or on behalf of any party, but shall
expire upon the earlier of (i) a fully completed Public Offering by the
Company or (ii) two years after the date of each respective Closing.
8.7 SUCCESSORS AND ASSIGNS. Except as otherwise
expressly provided herein, all covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. This Agreement may be assigned by each Investor
to any transferee of any shares of Series E Preferred. This Agreement may not
be assigned by the Company.
8.8 SEVERABILITY. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement is held to
be prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any
of such which may be hereafter declared invalid, void or unenforceable.
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8.9 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more of the counterparts
have been signed by each party and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
8.10 DESCRIPTIVE HEADINGS. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a part
of this Agreement.
8.11 GOVERNING LAW; CONSENT TO JURISDICTION. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF
LAW. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE
OF NEW YORK AND OF THE UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE
COUNTY OF NEW YORK, FOR ANY ACTION, PROCEEDING OR INVESTIGATION IN ANY COURT
OR BEFORE ANY GOVERNMENTAL AUTHORITY ("LITIGATION") ARISING OUT OF OR
RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY (AND
AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN SUCH
COURTS), AND FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR
DOCUMENT BY U.S. REGISTERED MAIL TO ITS RESPECTIVE ADDRESS SET FORTH IN THIS
AGREEMENT SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY LITIGATION BROUGHT
AGAINST IT IN ANY SUCH COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY
LITIGATION ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY IN THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES OF
AMERICA, IN EACH CASE LOCATED IN THE COUNTY OF NEW YORK, AND HEREBY FURTHER
IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN
ANY SUCH COURT THAT ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE PARTIES IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHTS TO TRIAL BY JURY IN CONNECTION WITH ANY LITIGATION ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
8.12 PUBLICITY. Each of the parties hereto agrees that it
will make no statement regarding the transactions contemplated hereby which
is inconsistent with any press release agreed to by the parties hereto.
Notwithstanding the foregoing, each of the parties hereto may, in documents
required to be filed by it with any regulatory body, make such statements
with respect to the transactions contemplated hereby as each may be advised
is legally necessary upon advice of its counsel.
8.13 NOTICES. All notices, demands or other
communications to be given or delivered under or by reason of the provisions
of this Agreement will be in writing and will be deemed to have been given
when delivered personally or mailed by certified or registered mail,
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return receipt requested and postage prepaid, to the recipient. Such notices,
demands and other communications will be sent
To the Company:
HealthGate Data Corp.
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Chief Executive Officer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Rich, May, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
To Purchaser:
GE Capital Equity Investments, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇ ▇▇ ▇▇▇▇, Esq.
Fried, Frank, Harris, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
To ▇▇▇▇▇▇▇▇▇:
▇▇▇▇▇▇▇▇▇ Science, Ltd.
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇
▇▇▇ ▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Fax: ▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇
with a copy to:
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
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▇▇▇▇▇▇ & Dodge LLP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
- 36 -
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
HEALTHGATE DATA CORP. GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------- ------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chairman and President Title: Senior Vice President
▇▇▇▇▇▇▇▇▇ SCIENCE, LTD.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇. ▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇▇ ▇. ▇. ▇▇▇▇▇▇▇▇
Title: Executive Director
- 37 -
