Shareholders Agreement - EarthWeb Inc., EarthWeb LLC, Global Network Partners LLC, Warburg, Pincus & Co., Jack D. Hidary, Murray Hidary and Nova Spivack
TABLE OF CONTENTS
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ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION............................. 2
1.1. Definitions...................................................... 2
1.2. Rules of Construction............................................ 10
1.3. Certain Consents, Waivers, Etc................................... 11
ARTICLE II BOARD OF DIRECTORS; ETC....................................... 11
2.1. Board of Directors; Etc.......................................... 11
2.2. Covenants of the Company......................................... 13
2.3. Covenants of the Parent and GNP.................................. 15
ARTICLE III CO-SALE RIGHTS; "CLAW-BACK" OPTIONS.......................... 16
3.1. Co-Sale Rights................................................... 16
3.2. "Claw-Back" Options to Purchase.................................. 17
ARTICLE IV PREEMPTIVE RIGHTS AND RIGHTS OF FIRST REFUSAL................. 20
4.1. Preemptive Rights for New Securities............................. 20
4.2. Rights to Purchase Securities of Parent and GNP.................. 22
ARTICLE V MANAGEMENT AND CONTROL......................................... 23
ARTICLE VI
MISCELLANEOUS............................................................ 23
6.1. Issuances of Securities.......................................... 23
6.2. Joinder Agreement; Certain Transfers............................. 24
6.3. Governing Law; Etc............................................... 24
6.4. Duration of Agreement............................................ 25
6.5. Severability..................................................... 25
6.6. Iniunctive Relief................................................ 25
6.7. Binding Effect................................................... 26
6.8. Amendment; Modification; Waiver.................................. 26
6.9. Counterparts..................................................... 26
6.10. Notices.......................................................... 26
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EXHIBITS AND SCHEDULES
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Exhibit A - Charter
Exhibit B - Joinder Agreement
Schedule I - Shareholders
Schedule II - Initial Directors
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AMENDED AND RESTATED SHAREHOLDERS
AGREEMENT dated as of June 24,
1997, among EARTHWEB INC., a
Delaware corporation (the
"Company"), and the SHAREHOLDERS
(as defined herein).
This Amended and Restated Shareholders Agreement (this
"Agreement"), amends and restates in its entirety the Shareholders Agreement
dated as of October 25, 1996 (the "Original Shareholders Agreement"), among the
Company (as successor-by-merger to EarthWeb Inc., a New York corporation) and
the Shareholders, and is being entered into in connection with the execution and
delivery of the Purchase Agreement and Amendment (as defined below).
In connection with the foregoing, the parties are entering into
this Agreement in order to provide for the continuity of the business, policies
and affairs of the Company.
ACCORDINGLY, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1. DEFINITIONS.
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Capitalized terms used in this Agreement have the meanings
ascribed to them below or in the other locations specified below:
"Acceptance Notice" has the meaning set forth in Section 4.1(b).
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"Additional Option" has the meaning set forth in Section 3.2(b).
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"Additional Option Period" has the meaning set forth in Section
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3.2(b).
"Additional Preferred Shares" means, collectively, the 598,086
shares of Series B Preferred Stock purchased by Warburg pursuant to the Purchase
Agreement and Amendment (subject to proportionate adjustment in the event of any
stock dividend or distribution paid in shares of Series B Preferred Stock or
stock split, reverse stock split or combination or other similar pro rata
recapitalization event affecting the Series B Preferred Stock).
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"Affiliate" means, with respect to any specified Person, (1) any other
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Person who, directly or indirectly, owns or controls, is under common ownership
or control with, or is owned or controlled by, such specified Person, (2) any
other Person who is a director, officer or partner or is, directly or
indirectly, the beneficial owner of ten percent (10%) or more of any class of
equity securities, of the specified Person or a Person described in clause (1)
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above, (3) another Person of whom the specified Person is a director, officer or
partner or is, directly or indirectly, the beneficial owner of ten percent (10%)
or more of any class of equity securities, (4) another Person in whom the
specified Person has a substantial beneficial interest or as to whom the
specified Person serves as trustee or in a similar capacity, or (5) any relative
or spouse of the specified Person or any of the foregoing Persons, any relative
of such spouse or any spouse of any such relative. As used in this definition,
the term "control" means the possession, directly or indirectly, of the power to
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direct the management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.
"Arbitration Procedure" means the following procedure to determine the
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Market Value of a security or the Fair Value of any property other than a
security (the "valuation amount"), if applicable. The valuation amount shall be
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determined by an investment banking firm of national recognition, which firm
shall be reasonably acceptable to the Company and the Requisite Investors. If
the Company and the Requisite Investors are unable to agree upon an acceptable
investment banking firm within ten (10) days after the date on which either the
Company or the Requisite Investors proposed that one be selected, the investment
banking firm will be selected by an arbitrator located in the City of New York,
New York, selected by the American Arbitration Association (or if such
organization ceases to exist, the arbitrator shall be chosen by a court of
competent jurisdiction). The arbitrator shall select the investment banking
firm (within ten (10) days of his appointment) from a list, jointly prepared by
the Company and the Requisite Investors, of not more than six investment banking
firms of national standing in the United States, of which no more than three may
be named by the Company and no more than three may be named by the Requisite
Investors. The arbitrator may consider, within the ten-day period allotted,
arguments from the Company and the Requisite Investors regarding which
investment banking firm to choose, but the selection by the arbitrator shall be
made in its sole discretion from the list of six. The determination by such
investment banking firm of the valuation amount shall be final and binding upon
the Company and the Requisite Investors. The Company shall pay one-half the
fees and expenses of the investment banking firms and arbitrators (if any) used
to determine the valuation amount, and the Investors shall, ratably based on the
number of shares of Common Stock and Common Stock Equivalents held by each of
them, pay the other half of such fees and expenses. If required by any such
investment banking firm or arbitrator, the Company shall execute a retainer and
engagement letter containing reasonable terms and conditions, including
customary provisions concerning the rights of indemnification and contribution
by the Company in favor of such investment banking firm or arbitrator and its
officers, directors, partners, employees, agents and Affiliates (other than for
claims resulting from such firm's or arbitrator's gross negligence, bad faith or
willful misconduct), and each of the Company and the Investors shall, if
reasonably requested by any such investment banking firm or arbitrator, waive
all claims each of them may have against such firm or arbitrator (other than any
such claim arising out of such firm's or arbitrator's gross negligence, bad
faith or willful misconduct).
"Board" has the meaning set forth in Section 2.1(a)(i).
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"Business Day" means any day that is not a Saturday, Sunday, legal
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holiday or other day on which banks are required to be closed in New York, New
York.
"Change of Control" means the occurrence of any fact, event or
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condition that results in the Founders and their respective Permitted
Transferees, taken together as a group, (i) ceasing to own, beneficially and of
record (and in the case of the Parent, through record ownership by GNP), at
least 51% of the outstanding Membership Interests in the Parent or GNP, (ii)
ceasing to control the Board of Managers of the Parent or GNP or (iii) otherwise
ceasing to control the Parent or GNP.
"Certificate of Incorporation" means the Certificate of Incorporation
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of the Company as filed with the Secretary of State of Delaware, as the same may
be amended and restated and in effect from time to time, a true and complete
copy of which as in effect on the date hereof is attached hereto as Exhibit A
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hereto.
"Commission" means the Securities and Exchange Commission, or any
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other federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, $.0l par value, of the Company
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of any class.
"Common Stock Equivalent" means the right to acquire, whether or not
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immediately exercisable, one share of Common Stock, whether evidenced by an
option, warrant, convertible security or other instrument or agreement;
provided, however, that the rights of GNP (and its permitted assigns) to acquire
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securities of the Company from Warburg or its transferees pursuant to Section
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3.2 shall not constitute Common Stock Equivalents held by GNP (or its permitted
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assigns) for purposes of this Agreement, the Stock Purchase Agreement or the
Certificate of Incorporation.
"Company" has the meaning given to it in the caption to this
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Agreement.
"Competitor" means any Person that owns, manages or operates any line
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of business that manufactures, markets or sells products or services similar to
those of the Company.
"Convertible Preferred Stock" means, collectively, the Series A
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Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock.
"Designated Directors" has the meaning set forth in Section 2.1 (b)
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(iii).
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"Documents" means this Agreement, the Stock Purchase Agreement, the
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Purchase Agreement and Amendment, the Certificate of Incorporation, the
Registration Rights Agreement and the Intercompany Services Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
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or any successor federal statute then in force, and the rules and regulations
promulgated thereunder, all as the same may from time to time be in effect.
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"Equivalent Price" means, with respect to any share of Convertible
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Preferred Stock proposed to be sold, the Equivalent Price for a share of Common
Stock shall equal the amount payable in respect of such share of Convertible
Preferred Stock divided by the number of Common Stock Equivalents represented by
such share of Convertible Preferred Stock.
"Excluded Securities" has the meaning given to it in the Certificate
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of Incorporation.
"Excepted Securities" has the meaning given to it Section 4.1(d).
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"Fair Value" means, with respect to any Security, its Market Value,
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and with respect to any property or assets other than cash or Securities, the
fair value thereof determined in good faith jointly by the Company and the
Requisite Investors; provided, however, that if the parties are not able to
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agree within a reasonable period of time (not to exceed ten (10) days) what
amount constitutes Fair Value, then the Fair Value will be determined pursuant
to the Arbitration Procedure.
"Founder Directors" has the meaning set forth in Section 2. 1 (b)
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(ii).
"Founders" means Jack D. Hidary, Murray Hidary and Nova Spivack.
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"Fully Diluted Basis" means a calculation of the number of shares of
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Common Stock outstanding which includes, in addition to the shares of Common
Stock then issued and outstanding, the aggregate number of shares of Common
Stock issuable upon the exercise, conversion or exchange of all options
(including all options issuable under the Stock Plan), warrants, Convertible
Preferred Stock and any other Security of the Company exercisable or
exchangeable for or convertible into Common Stock.
"Fundamental Documents" means the documents by which any Person (other
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than an individual) establishes its legal existence or which govern its internal
affairs. For example, the "Fundamental Documents" of a corporation would be its
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charter (e.g. certificate or articles of incorporation) and by-laws.
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"GNP" means Global Network Partners LLC, a New York limited liability
---
company.
"GNP Operating Agreement" means the Amended and Restated Operating
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Agreement of GNP dated as of January 1, 1995, as amended and in effect on the
date hereof, a true and complete copy of which is attached to the Stock Purchase
Agreement as Annex III to Exhibit 3.1.
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"Governmental Authority" means any domestic or foreign government or
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political subdivision thereof, whether on a federal, state or local level and
whether executive, legislative or judicial in nature, including any agency,
authority, board, bureau, commission, court, department or other instrumentality
thereof.
"Identified Shareholder" means, collectively, the Parent, GNP and any
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other Person who is or becomes a holder of securities of the Company and who is
a director, officer or
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employee of, or consultant to, the Company, and any other Person who becomes a
party to this Agreement as an Identified Shareholder pursuant to Article VI, and
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any Transferee of Securities held by any such Person.
"Initial Option" has the meaning set forth in Section 3.2(a).
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"Initial Option Period" has the meaning set forth in Section 3.2(a).
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"Initial Preferred Shares" means 488,278 shares of Series A Preferred
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Stock purchased by Warburg under the Stock Purchase Agreement on the Series A
Closing Date (as defined in the Stock Purchase Agreement) (subject to
proportionate adjustment in the event of any stock dividend or distribution paid
in shares of Series A Preferred Stock or stock split, reverse stock split or
combination or other similar pro rata recapitalization event affecting the
Series A Preferred Stock).
"Intercompany Services Agreement" means the Intercompany Services
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Agreement dated as of October 25, 1996, among the Company, GNP and the other
parties thereto.
"Investors" means, collectively, Warburg, and every other Person who
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after the date hereof becomes a party to this Agreement as an "Investor"
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pursuant to a Joinder Agreement executed and delivered pursuant to Article VI.
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"Investor Directors" has the meaning set forth in Section 2.1(b)(i).
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"Joinder Agreement" means a joinder agreement in substantially the
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form attached hereto as Exhibit B.
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"Majority of the Entire Board" means a majority of the total number of
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directors then constituting the entire Board, including vacancies.
"Market Value" means, as to any security, the average of the closing
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prices of such security's sales on the principal national securities exchange on
which such security may at the time be listed, or, if there have been no sales
on such exchange on any day, the average of the highest bid and lowest asked
prices on such exchange at the end of such day, or, if on any day such security
is not so listed, the average of the representative bid and asked prices quoted
in the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any
day such security is not quoted in the NASDAQ System, the average of the highest
bid and lowest asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated ("NQBI"), or any
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similar or successor organization; in each such case averaged over a period of
21 days consisting of the day as of which "Market Value" is being determined and
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the 20 consecutive business days prior to such day, or, if there have been no
bid or asked prices in the domestic over-the-counter market reported by NQBI,
the fair market value thereof determined in good faith jointly by the Company
and the Requisite Investors; provided, however, that if the Company and the
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Requisite Investors are not able to agree within a reasonable period of time
(not to exceed ten (10) days) what amount constitutes the Market Value thereof,
then the Market Value thereof shall be determined pursuant to the Arbitration
Procedure.
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"Membership Interest" has the meaning ascribed to it in the Parent
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Operating Agreement, in the case of a Membership Interest in the Parent, or in
the GNP Operating Agreement, in the case of a Membership Interest in GNP.
"Notice of Transfer" has the meaning set forth in Section 4.2 (a).
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"Offer" has the meaning set forth in Section 4.2(a).
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"Offerees" has the meaning set forth in Section 4.2(a).
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"Offered Securities" has the meaning set forth in Section 4.1(a).
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"Original Cost" means, with respect to any share of any series of
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Convertible Preferred Stock held by an Investor as of any particular date, the
amount originally paid by such Investor for such share when it was originally
issued. In the event of any change (by way of any stock dividend or
distribution payable in shares of such series of Convertible Preferred Stock, or
stock split, reverse stock split or combination or other pro rata
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recapitalization event affecting such series of Convertible Preferred Stock) in
the number or kind of shares of such series of Convertible Preferred Stock, the
Original Cost of the shares of such series of Convertible Preferred Stock
immediately prior to such change shall be ratably adjusted among such shares of
such series of Convertible Preferred Stock immediately after such change.
"Other Shareholders" has the meaning set forth in Section 3.1(a).
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"Parent" means EarthWeb LLC, a New York limited liability company.
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"Parent/GNP Agreement" means, with respect to the Parent or GNP, all
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agreements and instruments governing the organization and internal affairs of
such Person or the voting or transfer of membership interests in such Person and
any other securities issued by such Person.
"Parent Operating Agreement" means the Parent's Amended and Restated
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Operating Agreement dated as of November 5, 1995, as amended and in effect on
the date hereof, a true and complete copy of which is attached to the Stock
Purchase Agreement as Annex II to Exhibit 3.1.
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"Participating Percentage" means, at any time with respect to any
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Investor to whom an offer or deemed offer to acquire or sell securities is made
hereunder and accepted by such Investor, the fraction, expressed as a
percentage, the numerator of which is the total number of shares of Common Stock
and Common Stock Equivalents held by such Investor at such time and the
denominator of which is the total number of shares of Common Stock and Common
Stock Equivalents that are held by all Investors at such time to whom such offer
is made or deemed hereunder and who have accepted such offer.
"Permitted Transfer" means any Transfer by a Shareholder (i) to the
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spouse or any lineal ancestor or descendant of such Shareholder, (ii) to any
trust for the benefit of such Shareholder or the spouse or lineal ancestor or
descendant of such Shareholder, (iii) to the estate of such Shareholder or (iv)
a Transfer by a Founder of his interest in GNP to another Founder;
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provided, however, that in each case such Permitted Transfer is made in
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accordance with Article VI and (A) such Transferee agrees in writing to be bound
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by this Agreement in the same capacity and to the same extent as the Transferor
and (B) such Transfer would constitute a Permitted Transfer by the original
holder of the securities to be Transferred.
"Person" shall be construed as broadly as possible and shall include
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an individual or natural person, a partnership (including a limited liability
partnership), a corporation, an association, a joint stock company, a limited
liability company, a trust, a joint venture, an unincorporated organization and
a Governmental Authority.
"Preemptive Offer" has the meaning set forth in Section 4. 1 (a).
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"Preemptive Period" has the meaning set forth in Section 4. 1 (a).
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"Proportionate Percentage" means, with respect to any Shareholder, the
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fraction, expressed as a percentage, the numerator of which is the total number
of shares of Common Stock and Common Stock Equivalents held by such Shareholder
and the denominator of which is the total number of shares of Common Stock and
Common Stock Equivalents existing at the time of determination that are held by
all Shareholders.
"Public Offering" means the consummation of a firm commitment public
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offering of Common Stock pursuant to an effective registration statement under
the Securities Act, except that a Public Offering shall not include an offering
made in connection with a business acquisition or an employee benefit plan.
"Public Sale" means any sale, occurring simultaneously with or after a
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Public Offering, of securities of the Company to the public pursuant to an
offering registered under the Securities Act or to the public through a broker,
dealer or market maker (pursuant to the provisions of Rule 144 or otherwise).
"Purchase Agreement and Amendment" means the Purchase Agreement and
--------------------------------
Amendment dated as of June 24, 1997, among the Company, the Parent and Warburg.
"Qualified Public Offering" has the meaning given to it in the
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Certificate of Incorporation.
"Refused Securities" has the meaning set forth in Section 4.1(c).
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"Reincorporation" has the meaning set forth in Section 2.1(a)(ii).
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"Requisite Investors" means those Investors who or which hold in the
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aggregate in excess of 50% of the outstanding shares of Common Stock and Common
Stock Equivalents held by all Investors at the time in question.
"Requisite Shareholders" means those Shareholders who or which hold in
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the aggregate in excess of 50% of the outstanding shares of Common Stock and
Common Stock Equivalents held by all Shareholders at the time in question.
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"Rule 144" means Rule 144 under the Securities Act or any successor or
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similar rule as may be entered by the Commission from time to time, but shall
not include Rule 144A.
"Rule 144A" means Rule 144A under the Securities Act or any successor
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or similar rule as may be entered by the Commission from time to time, but shall
not include Rule 144.
"Sale Notice" has the meaning set forth in Section 3.1(a).
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"Sale of the Company" means any sale of the Company to one or more
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third party purchasers who or which are not Affiliates of the Company, whether
by way of (i) the sale or other disposition of all or substantially all of the
assets of the Company, (ii) the merger or consolidation of the Company with or
into another Person or (iii) the sale or other transfer of greater than a
majority of the capital stock of the Company.
"Securities Act" means the Securities Act of 1933, as amended, or any
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successor federal statute, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder, all as the same shall be in effect
from time to time.
"Series A Preferred Stock" means the Company's Series A Convertible
------------------------
Preferred Stock, $.01 par value.
"Series B Preferred Stock" means the Company's Series B Convertible
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Preferred Stock, $.01 par value.
"Series C Preferred Stock" means the Company's Series C Convertible
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Preferred Stock, $.0l par value.
"Shareholders" means the holders, directly or indirectly through one
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or more other Persons, of either Convertible Preferred Stock, Common Stock or
Common Stock Equivalents, in each case, who or which are parties hereto, and
shall include any other Person who hereafter becomes a party to this Agreement
as a Shareholder, an Identified Shareholder or an Investor pursuant to a Joinder
Agreement executed and delivered pursuant to Article VI. For the avoidance of
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doubt, each of the Parent and GNP is a Shareholder for so long as it has a
direct or indirect ownership interest in the Common Stock.
"Stock" means the Convertible Preferred Stock, the Common Stock and
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any and all other capital stock or equity Securities (including derivative
Securities therefor) of the Company.
"Stock Plan" means the Company's 1996 Stock Plan as adopted and in
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effect on the date hereof.
"Stock Purchase Agreement" means the Stock Purchase Agreement dated as
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of October 25, 1996, among the Company, the Parent and Warburg, as amended by
the Purchase Agreement and Amendment and as the same may hereafter be further
amended or restated.
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"Strategic Investor" means a Person who or which, at the time in
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question, has made, or is simultaneously making, a financial investment in the
Company in order to receive from the Company goods, services, technology,
expertise or other value in addition to a monetary return on such financial
investment.
"Subsidiary" means any Person (other than an individual) with respect
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to which a specified Person (or Subsidiary thereof) has the power to vote or
direct the voting of sufficient securities to elect a majority of the board of
directors, if a corporation, or other Persons performing similar functions.
"Tag-Along Notice" has the meaning set forth in Section 3.1(b).
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"Transfer" of a security shall be construed broadly and shall include
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any issuance, sale, assignment, transfer, participation, gift, bequest,
distribution, or other disposition thereof, or any pledge or hypothecation
thereof, placement of a lien thereon or grant of a security interest therein or
other encumbrance thereon, in each case whether voluntary or involuntary or by
operation of law or otherwise.
"Transferee" means a Person acquiring securities through a Transfer.
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"Transferor" means a Person Transferring securities.
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"Transferring Shareholder" has the meaning set forth in Section 3. 1
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(a) .
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"Warburg" means Warburg, Pincus Ventures, L.P., a Delaware limited
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partnership.
1.2. RULES OF CONSTRUCTION.
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The use in this Agreement of the term "including" means "including,
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without limitation". The words "herein", "hereof", "hereunder" and other words
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of similar import refer to this Agreement as a whole, including the schedules
and exhibits, as the same may from time to time be amended, modified,
supplemented or restated, and not to any particular section, subsection,
paragraph, subparagraph or clause contained in this Agreement. All references
to sections, schedules and exhibits mean the sections of this Agreement and the
schedules and exhibits attached to this Agreement, except where otherwise
stated. The title of and the section and subsection headings in this Agreement
are for convenience of reference only and shall not govern or affect the
interpretation of any of the terms or provisions of this Agreement. The use
herein of the masculine, feminine or neuter forms shall also denote the other
forms, as in each case the context may require. Where specific language is used
to clarify by example a general statement contained herein, such specific
language shall not be deemed to modify, limit or restrict in any manner the
construction of the general statement to which it relates. The language used in
this Agreement has been chosen by the parties to express their mutual intent,
and no rule of strict construction shall be applied against any party.
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1.3. CERTAIN CONSENTS, WAIVERS, ETC.
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Whenever any action, event or condition relating to this Agreement
shall require or permit the consent or approval of (i) the Requisite Investors,
such consent or approval shall be deemed to have been duly given hereunder by
the Requisite Investors if such action, event or condition shall have been
consented to or approved by any Investor Director, or (ii) GNP or the Founders,
such consent or approval shall be deemed to have been duly given hereunder by
GNP or the Founders if such action, event or condition shall have been consented
to or approved by any Founder Director.
ARTICLE II
BOARD OF DIRECTORS; ETC.
2.1. BOARD OF DIRECTORS; ETC.
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(a) Number of Directors; Etc.
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Each Shareholder shall from time to time take such action, in his
capacity as a shareholder of the Company, including the voting, in person or by
proxy, of the securities owned or controlled by such Shareholder and entitled to
vote, as may be necessary to:
(i) cause the Company to be managed by a board of directors (the
"Board") consisting of (A) seven (7) directors nominated pursuant to
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this Section 2.1, unless sub-clause (B) becomes applicable, or (B)
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at such time as the Investors both (1) hold in the aggregate
shares of Common Stock and Common Stock Equivalents equal to the
number of shares of Common Stock and Common Stock Equivalents held by
the Parent, and (2) have invested additional funds in the purchase of
equity of the Company in excess of the funds invested in the purchase
of shares of Series A Preferred Stock and Series B Preferred Stock
outstanding on the date of this Agreement (with such clauses (1) and
(2) being satisfied in any order), eight (8) directors nominated
pursuant to this Section 2.1; and
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(ii) cause the By-laws of the Company to be amended, as soon as
possible following the date hereof, to provide for the creation of a
Compensation Committee of the Board consisting of three members, one
of whom shall be a Founder Director (as hereinafter defined), one of
whom shall be an Investor Director (as hereinafter defined), and one
of whom shall be a Designated Director (as hereinafter defined).
(b) Election of Directors.
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Promptly after the execution of this Agreement and at any time
and from time to time thereafter that directors of the Company are to be
elected, each Shareholder shall, in his capacity as a shareholder of the
Company, vote, in person or by proxy, all of the securities issued by the
Company and owned or controlled by such Shareholder and entitled to vote at any
annual
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or special meeting of the Shareholders of the Company called for the purpose of
voting on the election of directors, or to execute a written consent in lieu
thereof, and take all such other action as may be necessary to provide for the
election of the directors nominated as follows:
(i) two (2) directors nominated by Warburg (each, an "Investor
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Director," and all of them collectively, the "Investor Directors"),
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or if sub-clause (B) of clause (i) of Section 2.1(a) becomes
applicable, three (3) directors nominated by Warburg (each, an
"Investor Director," and all of them collectively, the "Founder
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Directors");
(ii) three (3) directors nominated by GNP (each, a "Founder
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Director," and all of them collectively, the "Founder Directors"); and
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(iii) two (2) directors nominated by GNP and Warburg jointly
(each, a "Designated Director," and all of them collectively, the
-------------------
"Designated Directors").
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(c) Removal of Directors.
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At all times, any Person or group of Persons having the right to
nominate or elect a director pursuant to this Agreement shall have the right to
require the removal, with or without cause, of such director. In the event that
any Shareholder or group of Shareholders acting as described in this Section 2.1
-----------
shall, in accordance with its or their rights specified therein, require the
removal of any director or directors with respect to whom they have such right,
then each of the other Shareholders hereby agrees to join with such acting
Shareholders in recommending such removal as described above, and in causing the
Company either to promptly hold a special meeting of shareholders and to vote,
in person or by proxy, all of its Securities issued by the Company and entitled
to vote at such meeting or to execute a written consent in lieu thereof, as the
case may be, in favor of such removal.
(d) Vacancies.
---------
If a vacancy is created on the Board by reason of the death, removal
(in accordance with Section 2.1(c)) or resignation of any director, each of the
--------------
Shareholders shall, in its capacity as a shareholder of the Company, vote, in
person or by proxy all of the Securities issued by the Company and owned or
controlled by such Shareholder and entitled to vote at any annual or special
meeting of the shareholders of the Company called for the purpose of voting on
the election of directors, or to execute a written consent in lieu thereof, and
take all such other action as may be necessary, to elect, or use its best
efforts to cause the remaining directors to elect, a person to fill such vacancy
who is nominated by the Person or Persons entitled to make such nomination, and,
if applicable, is approved by the Person or Persons entitled to approve such
nominee. Such election shall occur upon the earlier of the first meeting of the
Board, or the next presentation of a written consent of directors in lieu of a
meeting, after such vacancy occurs. In the event the remaining directors fail
to select a director to fill any such vacancy within such period or in the event
such directors fill such vacancy other than in accordance with the nomination
and selection procedures set forth in Section 2.1(b), each Shareholder shall, in
--------------
his capacity as a shareholder of the Company, use his best efforts to cause the
Company either to
12
<PAGE>
promptly hold a special meeting of shareholders or to execute a written consent
in lieu thereof and vote all of his Stock entitled to vote at such meeting, in
person or by proxy, or pursuant to such written consent of shareholders, in
favor of the individual Person or Persons nominated and selected in accordance
with Section 2.1(b) hereof to fill such vacancy and, if necessary, in favor
--------------
of removing any director elected to fill such vacancy other than in accordance
with the nomination and selection procedures of Section 2.1(b).
-------
(e) Required Removal.
----------------
Concurrently with the consummation of any sale of Securities of the
Company which would cause a Shareholder who or which has the right to nominate a
member of the Board to no longer have a direct or indirect ownership interest in
the Company, such Shareholder shall, upon the prior written request of the
Requisite Shareholders, deliver the resignations of the member(s) of the Board
who are such Shareholder's nominee or nominees.
(f) Notice of Elections, Etc.
-------------------------
The Company shall provide to each party entitled to nominate directors
hereunder 15 days prior written notice of any intended mailing of notice to
shareholders for a meeting at which directors are to be elected, and any party
entitled to nominate directors pursuant to this Section 2.1 shall notify the
-----------
Company in writing, prior to such mailing, of the individual Person(s) nominated
by it or them as its or their nominee(s) for election as director(s). If any
Shareholder entitled to nominate members of the Board hereunder fails to give
notice to the Company as set forth in this Section 2.1(f), it shall be deemed
--------------
that the nominee of such party then serving as a member of the Board shall be
its nominee for reelection.
2.2. Covenants of the Company.
---- ------------------------
Without the approval of the Requisite Investors and GNP (except as to
GNP in the case of clause (i) below), the Company shall not, and the Company
----------
shall not permit any of its Subsidiaries to, take any of the following actions:
(i) the dismissal or appointment of the Chief Executive Officer of the
Company or such Subsidiary (it being understood and agreed by the parties
hereto that, as of the date of this Agreement, Mr. Jack D. Hidary is the
Chief Executive officer of the Company and shall be appointed as such by
the Board at its first meeting occurring on or subsequent to the date of
this Agreement in which action is taken to appoint officers of the
Company);
(ii) except for (A) the issuance and sale of shares of Convertible
Preferred Stack to Investors pursuant to, and as expressly contemplated by,
the Documents, and (B) the issuance and sale of Excluded Securities, any
financing or series of related financings involving the sale by the Company
or any of its Subsidiaries of equity securities to any Person or Persons
other than Strategic Investors, or of debt securities to any Person or
Persons including Strategic Investors, resulting in aggregate proceeds to
the Company for all such securities (determined with respect to any such
securities at the time of their issuance) greater than $2,000,000;
provided, however, that in the event the
-------- -------
13
<PAGE>
Company requests Warburg to exercise the Series C Option under the Purchase
Agreement and Amendment and thereafter Warburg neither (A) exercises the
---
Series C Option for the full amount of Series C Preferred Stock that the
Company has requested Warburg to purchase nor (B) otherwise invests
additional funds in the purchase of equity of the Company in an amount
equal to the aggregate purchase price of the Series C Preferred Stock that
the Company has requested Warburg to purchase, then the Company shall not
be required under this clause (ii) or under clause (iii) below to obtain
the consent of the Requisite Investors for the sale or sales of equity
securities to one or more Strategic Investors in an amount up to or equal
to the difference between the amount the Company has requested from Warburg
and the amount (if any) actually invested by Warburg pursuant to such
request, on terms not materially more favorable to such Strategic Investor
than those contained in the Series C option (but nothing contained in this
proviso shall eliminate any other consent requirement under this Section
2.2);
(iii) any financing or series of related financings involving the
sale by the Company or any of its Subsidiaries to Strategic Investors of
equity securities that by their terms are directly or indirectly
exchangeable or exercisable for, or convertible into, that number of shares
of Common Stock that, when taken together with all prior financings
pursuant to this clause (iii) on a cumulative basis, exceeds ten percent
(10%) of the number of shares of Common Stock issued and outstanding on the
date of determination (determined on a Fully Diluted Basis);
(iv) any issuance, sale or transfer of any securities of any
Subsidiary of the Company to any Person other than the Company;
(v) any merger, recapitalization, reorganization, liquidation or
winding up of the Company or any of its Subsidiaries or the sale of all or
substantially all of the assets of the Company and its Subsidiaries taken
as a whole;
(vi) any sale or other disposition of assets of the Company or any of
its Subsidiaries with an aggregate Fair Value greater than $250,000 that is
outside the ordinary course of business of the Company or such Subsidiary;
(vii) any declaration or payment of (or setting aside of funds for
the payment of) dividends, distributions or other payments on or with
respect to any equity security of the Company or any of its Subsidiaries
(other than pursuant to the express terms of the Certificate of
Incorporation with respect to the redemption of the Convertible Preferred
Stock);
(viii) any amendment to the Fundamental Documents of the Company or
any of its Subsidiaries (other than any such amendment required to
consummate a financing transaction contemplated by clause (ii) or (iii)
----------- -----
above that does not require the consent or approval of the Requisite
Investors or GNP pursuant to such clause (ii) or (iii) above; provided,
----------- ----- --------
however, that nothing
-------
14
<PAGE>
contained herein shall eliminate or otherwise affect any other consent,
approval or waiver requirement for any such amendment under any such
Fundamental Document, other Document or applicable law) or to the
employment agreement for the Company's Chief Executive Officer);
(ix) an increase in the number of shares of Common Stock reserved for
issuance pursuant to the Stock Plan 15% of the aggregate number of shares
of Common Stock and outstanding on the date of determination (determined on
a Fully Diluted Basis); and
(x) make any election under Section 341(f) of the Internal Revenue
Code of 1986, as amended (or any successor statue).
2.3. COVENANTS OF THE PARENT AND GNP.
-------------------------------
(a) Without the prior approval of the Requisite Investors, neither the
Parent nor GNP shall, and the Founders shall use their best efforts to cause the
Parent and GNP not to, take any of the following actions:
(i) engage in any business or activity other than (A) owning (of
record and beneficially) securities issued by the Parent, in the case of
GNP, and by the Company, in the case of the Parent, and (B) making
investment in (i) direct obligations of the United States of America, or
obligations guaranteed as to principal and interest by the United States of
America, (ii) time deposits, bankers' acceptances and certificates of
deposit issued by any bank or trust company or, in the case of any
subsidiary bank of a bank holding company, a bank holding company, having
capital, surplus and undivided profits of at least $250,000,000, the short-
term deposits of which are given an Al or Pl rating by Standard & Poor's
Corporation or Moody's Investors Service, Inc., as applicable, (iii)
obligations of any bank or trust company or bank holding company described
in clause (ii) above, in respect of the repurchase of obligations of the
type described in clause (i) hereof, provided that such repurchase
obligations shall be fully secured by obligations of the type described in
said clause (i) and the possession of such obligations shall be transferred
to, and segregated from other obligations owned by, any such bank or trust
company or bank holding company, (iv) commercial paper given a rating of Al
or Pl by Standard & Poor's Corporation or Moody's Investors Service, Inc.,
as applicable and (v) securities of a class registered under Section 5 of
the Securities Act or Section 12 of the Exchange Act that are listed for
trading on a U.S. national securities exchange or the automated quotation
system maintained by the National Association of Securities Dealers and
that acquired in the open public market (provided, however, that the
aggregate amount of securities of any such class owned by the Parent and
GNP shall not equal or exceed 5% of the outstanding securities of such
class);
(ii) issue or sell any security of GNP to any Person who is not
already a member of GNP, or amend the Fundamental Documents of GNP to admit
any such Person as a member of GNP other than any such Person who may
15
<PAGE>
acquire a Membership Interest in GNP by transfer from an existing member of
GNP in a transaction pursuant to or in accordance with, or otherwise
expressly permitted by, the Fundamental Documents of GNP and Section 4.2
hereof; provided, however, that the consent of the Requisite Investors
-------- -------
shall not be required under this clause (ii) for the issuances and sales of
securities of GNP, or for sales of Common Stock by GNP, and the Transfer of
such shares of Common Stock by the Parent to GNP in order to enable GNP to
make any such sales, to non-Affiliates of the issuer and the Transferor in
arms length transactions during the period commencing October 25, 1996 and
ending on October 25, 1997, for aggregate consideration paid by the
purchasers and other acquirers for all such securities and shares of Common
Stock of not more than $2,000,000;
(iii) issue or sell any security of the Parent to any Person who is
not already a member of the Parent or GNP, or amend the Fundamental
Documents of the Parent to admit any such Person as a member of the Parent
other than any such Person who may acquire a Membership Interest in the
Parent by transfer from an existing member of the Parent in a transaction
pursuant to or in accordance with, or otherwise expressly permitted by, the
Fundamental Documents of the Parent and Section 4.2 hereof;
(iv) dissolve, liquidate or otherwise wind up the business or affairs
of the Parent or GNP;
(v) sell, assign, transfer or otherwise dispose of, or pledge,
encumber or otherwise hypothecate, in one or more related transactions, all
or substantially all of the assets of the Parent or GNP; or
(vi) permit any transfer of Membership Interests or any other
transaction or occurrence (including any amendment to the Fundamental
Documents of the Parent or GNP), if the effect of such Transfer or other
transaction would result in a Change of Control.
(b) Unless otherwise approved by the Requisite Investors, GNP shall cause
the Parent and the Company, and the Parent shall cause the Company, to perform
and comply with their respective obligations under the Documents in all material
respects.
ARTICLE III
CO-SALE RIGHTS; "CLAW-BACK" OPTIONS
3.1. CO-SALE RIGHTS.
--------------
(a) If at any time any Shareholder (the "Transferring Shareholder")
------------------------
proposes to Transfer any shares of Common Stock (other than Permitted
Transfers), then at least 90 days prior to the closing of such Transfer, such
Transferring Shareholder shall deliver a written notice (the "Sale Notice") to
-----------
the other Shareholders (the "Other Shareholders") offering the Investors
------------------
16
<PAGE>
the option to participate in such proposed Transfer. Such Sale Notice shall
specify in reasonable detail the identity of the prospective Transferee and the
terms and conditions of the Transfer.
(b) Any Other Shareholder may, within 15 days of the receipt of a Sale
Notice, give written notice (each, a "Tag-Along Notice") to the Transferring
----------------
Shareholder stating that such Other Shareholder wishes to participate in such
proposed Transfer and specifying the amount and class of Stock such Other
Shareholder desires to include in such proposed Transfer. Such Other Shareholder
shall include Common Stock unless such other Shareholder shall not then be
permitted to convert its Convertible Preferred Stock into Common Stock, in which
case such Other Shareholder shall be permitted to include Convertible Preferred
Stock which will be sold at the Equivalent Price.
(c) If none of the Other Shareholders gives the Transferring Shareholder a
timely Tag-Along Notice with respect to the Transfer proposed in the Sale
Notice, the Transferring Shareholder may thereafter transfer the shares
specified in the Sale Notice on substantially the same terms and conditions set
forth in the Sale Notice. If one or more Other Shareholders give the
Transferring Shareholder a timely Tag-Along Notice, then the Transferring
Shareholder shall use all reasonable efforts to cause each prospective
Transferee to agree to acquire all shares identified in all Tag-Along Notices
that are timely given to the Transferring Shareholder, upon the same terms and
conditions (or, if applicable, upon the same conditions and at the Equivalent
Price) as applicable to the Transferring Shareholder's shares. If such
prospective Transferee is unwilling or unable to acquire all shares proposed to
be included in such sale upon such terms, then the Transferring Shareholder may
elect either to cancel such proposed Transfer or to allocate the maximum number
of shares that each prospective Transferee is willing to purchase among the
Transferring Shareholder and the Other Shareholders giving timely Tag-Along
Notices in proportion to such Shareholders' (including the Transferring
Shareholder's) Proportionate Percentages. If any Other Shareholder elects to
sell any class of shares which is different from the class of shares specified
in the Sale Notice, then the Transferring Shareholder will use its best efforts
to cause the Transferee to permit the inclusion of such different class of
shares on the terms specified herein (including the Equivalent Price), and if
such Transferee is unwilling or unable to purchase such shares in accordance
with such terms, then the Transferring Shareholder shall cancel the proposed
Transfer.
(d) A proposed Transfer by a Shareholder of an interest in the Parent or
GNP shall be deemed a proposed Transfer of the shares of Common Stock indirectly
owned by virtue of the ownership of such interest and shall be subject to the
provisions of this Section 3.1, and all references in this Section 3.1 to the
shares of Common Stock proposed to be Transferred shall be deemed to be
references to shares of Common Stock indirectly owned by virtue of the ownership
of such interest (provided, however, that if such Transfer of an interest in the
Parent or GNP constitutes a Permitted Transfer, such Transfer shall be excepted
from this Section 3.1).
3.2. "CLAW-BACK" OPTIONS TO PURCHASE.
-------------------------------
(a) Warburg grants to GNP an option, subject to the terms and conditions
of the applicable provisions of this Section 3.2 (the "Initial Option"), to
----------- --------------
purchase up to that number of shares of Common Stock issued upon conversion of
the Initial Preferred Shares determined as provided below at a per share price
equal to the Original Cost paid by Warburg for an Initial
17
<PAGE>
Preferred Share. The Initial Option shall vest and become exercisable by GNP
only upon satisfaction of either of the following conditions:
(i) after the closing of a Qualified Public offering at a time when
Warburg is able to sell such shares of Common Stock free of any restriction
on resale (including, without limitation, any restrictions imposed by
federal or state securities laws, underwriters' lock ups or similar
agreements), the aggregate Market Value of such shares of Common Stock is
at least five times the aggregate Original Cost of, the Initial Preferred
Shares; or
(ii) the closing of a Sale of the Company occurs in which Warburg has
the right (through conversion of the Initial Preferred Shares or otherwise)
to receive for its Initial Preferred Shares, on a per share basis, cash,
cash equivalents, or securities registered under the Securities Act with a
Market Value of at least five times the Original Cost of an Initial
Preferred Share.
Upon the satisfaction of either of the foregoing conditions, GNP may, at any
time during the Initial Option Period (as defined below), exercise such option
(which exercise shall become effective only upon (and not before) the
consummation of such Sale of the Company in the case of the vesting of such
Initial Option pursuant to clause (ii) of the second sentence of this Section
----------- -------
3.2(a)) by delivering written notice of exercise to Warburg specifying the
------
number of shares of Common Stock to be purchased. The number of shares that may
be purchased by GNP upon the exercise of the Initial Option shall be that number
that, after giving effect to such exercise, results in Warburg retaining shares
of Common Stock received upon the conversion of the Initial Preferred Shares
with an aggregate Market Value, taken together with the aggregate exercise price
payable by GNP to Warburg for the shares of Common Stock to be purchased upon
such exercise, of at least five times the aggregate Effective Per Share Price
for all of the Initial Preferred Shares; provided, however, that such number of
-------- --------
shares shall in no event exceed ten percent (10%) of the shares of Common Stock
receivable by Warburg upon conversion of the Initial Preferred Shares. As used
herein, the term "Initial Option Period" means either (A) in the case of the
---------------------
vesting of the Initial Option pursuant to clause (i) of the second sentence of
-----------
this Section 3.2(a), the 30-day period commencing on the date on which the
--------------
Initial Option first vests and becomes exercisable and ending at 5:00 p.m. New
York City time on the 30th calendar day thereafter, or (B) in the case of the
vesting of the Initial Option pursuant to clause (ii) of the second sentence of
-----------
this Section 3.2(a), the period commencing on the date on which the closing date
--------------
of such Sale of the Company is determined and ending at 5:00 p.m. on the last
business day immediately preceding the date of the closing of such Sale of the
Company.
(b) Warburg grants to GNP an additional option, subject to the
terms and conditions of the applicable provisions of this Section 3.2 (the
-----------
"Additional Option"), to purchase up to that number of shares of Common
-------------------
Stock issued upon conversion of the Additional Preferred Shares determined as
provided below at a per share price equal to the Original Cost paid by Warburg
for an Additional Preferred Share. The Additional Option shall vest and become
exercisable by GNP only upon satisfaction of either of the following conditions:
(i) after the closing of a Qualified Public Offering at a time when
Warburg is able to sell such shares of Common Stock free of any restriction
18
<PAGE>
on resale (including, without limitation, any restrictions imposed by
federal or state securities laws, underwriters, lock ups or similar
agreements), the aggregate Market Value of such shares of Common Stock is
at least five times the aggregate original Cost of the Additional Preferred
Shares; or
(ii) the closing of a Sale of the Company occurs in which Warburg has
the right (through conversion of the Additional Preferred Shares or
otherwise) to receive for its Additional Preferred Shares, on a per share
basis, cash, cash equivalents, or securities registered under the
Securities Act with a Market Value of at least five times the Original Cost
of an Additional Preferred Share.
Upon the satisfaction of either of the foregoing conditions, GNP may,
at any time during the Additional Option Period (as defined below), exercise
such option (which exercise shall become effective only upon (and not before)
the consummation of such Sale of the Company in the case of the vesting of such
Additional Option pursuant to clause (ii) of the second sentence of this Section
-------
3.2(b)) by delivering written notice of exercise to Warburg specifying the
------
number of shares of Common Stock to be purchased. The number of shares that may
be purchased by GNP upon the exercise of the Additional Option shall be that
number that, after giving effect to such exercise, results in Warburg retaining
shares of Common Stock received upon the conversion of the Additional Preferred
Shares with an aggregate Market Value, taken together with the aggregate
exercise price payable by GNP to Warburg for the shares of Common Stock to be
purchased upon such exercise, of at least five times the aggregate Original Cost
for all of the Additional Preferred Shares; provided, however, that such number
-------- -------
shall in no event exceed ten percent (10%) of the shares of Common Stock
received by Warburg upon conversion of the Additional Preferred Shares. As used
herein, the term "Additional Option Period" means either (A) in the case of the
------------------------
vesting of the Additional Option pursuant to clause (i) of the second sentence
----------
of this Section 3.2(b), the 30-day period commencing on the date on which the
--------------
Additional Option first vests and becomes exercisable and ending at 5:00 p.m.
New York City time on the 30th calendar day thereafter, or (B) in the case of
the vesting of the Additional Option pursuant to clause (ii) of the second
-----------
sentence of this Section 3.2(b), the period commencing on the date on which the
--------------
closing date of such Sale of the Company is determined and ending at 5:00 p.m.
on the last business day immediately preceding the date of the closing of such
Sale of the Company.
(c) The right of GNP to exercise the Initial Option and the Additional
Option and to purchase the shares of Common Stock contemplated thereby shall not
be assignable without the prior written consent of Warburg. Anything contained
herein to the contrary notwithstanding, each of the Initial Option and the
Additional Option shall terminate 30 days after the first date on which Warburg
is able to sell the shares of Common Stock covered by such option free of any
restriction on resale (including, without limitation, any restrictions imposed
by federal or state securities laws, underwriters' lock ups or similar
agreements). In the event that Warburg enters into any agreement restricting its
sale of shares of Common Stock issuable upon the conversion of the Initial
Preferred Shares or the Additional Preferred Shares, Warburg shall promptly
notify GNP thereof (including a summary of the transfer restrictions therein).
19
<PAGE>
(d) The closing of the sale of shares of Common Stock issuable upon
the conversion of Initial Preferred Shares shall take place either (i) in the
case of the vesting of the Initial Option pursuant to clause (i) of the
----------
second sentence of Section 3.2(a), on such date as shall be mutually
--------------
determined between Warburg and GNP (but in no event later than 30 days
following the exercise of such option), or (B) in the case of the vesting
of the Initial Option pursuant to clause (ii) of the second sentence of
-----------
Section 3.2(a), simultaneously with the consummation of such Sale of the
--------------
Company at the closing thereof. At the closing, Warburg shall deliver to GNP the
certificates for the shares of Common Stock being purchased from Warburg at such
closing, duly endorsed or accompanied by a duly executed stock power
transferring such shares to GNP, against Warburg's receipt from GNP of the
aggregate purchase price therefor in U.S. dollars in cash or by wire transfer of
immediately available funds. The sale and purchase of such shares at the closing
shall be without warranty or recourse to Warburg, except that Warburg shall
warrant to GNP that Warburg has good title to such shares free and clear of any
and all liens and encumbrances other than those arising under the Documents.
(e) The closing of the sale of shares of Common Stock issuable upon
the conversion of Additional Preferred Shares shall take place either (i)
in the case of the vesting of the Additional Option pursuant to clause (i)
----------
of the second sentence of Section 3.2(b), on such date as shall be mutually
--------------
determined between Warburg and GNP (but in no event later than 30 days
following the exercise of such option), or (B) in the case of the vesting
of the Additional Option pursuant to clause (ii) of the second sentence of
-----------
Section 3.2(b), immediately prior to the consummation of such Sale of the
--------------
Company at the closing thereof. At the closing, Warburg shall deliver to GNP the
certificates for the shares of Common Stock being purchased from Warburg at such
closing, duly endorsed or accompanied by a duly executed stock power
transferring such shares to GNP, against Warburg's receipt from GNP of the
aggregate purchase price therefor in U.S. dollars in cash or by wire transfer of
immediately available funds. The sale and purchase of such shares at the closing
shall be without warranty or recourse to Warburg, except that Warburg shall
warrant to GNP that Warburg has good title to such shares free and clear of any
and all liens and encumbrances other than those arising under the Documents.
ARTICLE IV
PREEMPTIVE RIGHTS AND RIGHTS OF FIRST REFUSAL
4.1. PREEMPTIVE RIGHTS FOR NEW SECURITIES.
------------------------------------
(a) Except in the case of Excepted Securities, the Company shall not issue
sell or exchange, agree to issue, sell or exchange, or reserve or set aside for
issuance, sale or exchange (i) any equity security of the Company, (ii) any debt
security of the Company which by its terms is convertible into or exchangeable
for any equity security of the Company, or (iii) any option, warrant or other
right to subscribe for, purchase or otherwise acquire any equity security or any
debt security referred to in clause (i) or (ii), unless in each case the Company
---------- ----
shall have first offered (the "Preemptive Offer") to sell such securities to the
----------------
Shareholders (the "Offered Securities") by delivery to such Shareholders of
------------------
written notice of such offer stating that the Company proposes to sell such
Offered Securities, the number or amount of the Offered Securities proposed to
be sold, the proposed purchase price therefor and any other terms and
20
<PAGE>
conditions of such offer. The Preemptive offer shall by its terms remain open
and irrevocable for a period of 20 days from the date it is delivered by the
Company (the "Preemptive Period").
-----------------
(b) Each Shareholder shall have the option, exercisable at any time during
the Preemptive Period by delivering written notice to the Company (an
"Acceptance Notice"), to subscribe for (i) the number or amount of such Offered
-----------------
Securities up to its Proportionate Percentage of the total number or amount of
Offered Securities proposed to be issued and (ii) up to its Proportionate
Percentage of the Offered Securities not subscribed for by other Shareholders as
specified in its Acceptance Notice. Any Offered Securities not subscribed for by
a Shareholder (or not purchased by a defaulting Shareholder at the closing under
Section 4.1(c) below) shall be deemed to be re-offered to and accepted by the
--------------
Shareholders exercising their options specified in clause (ii) of the
-----------
immediately preceding sentence with respect to the lesser of (A) the amount
specified in their respective Acceptance Notices and (B) an amount equal to
their respective Proportionate Percentages with respect to such deemed offer.
Such deemed offer and acceptance procedures described in the immediately
preceding sentence shall be deemed to be repeated until either (x) all of the
Offered Securities are accepted by the Shareholders or (y) no Shareholder
desires to subscribe for more Offered Securities (it being understood and agreed
that the application of the foregoing clauses (x) and (y) may result in the
Shareholders, or any of them, having the right, but not any obligation, under
this Section 4.1 to accept and acquire up to and including all of the Offered
Securities on the terms contained in this Section 4.1). The Company shall notify
each Shareholder within five (5) days following the expiration of the Preemptive
Period (and as soon as possible in the case of the deemed re-offer of securities
not purchased by a defaulting Shareholder) of the number or amount of Offered
Securities which such Shareholder has subscribed to purchase.
(c) If Acceptance Notices are not given by the Shareholders for all of the
Offered Securities, the Company shall have 90 days from the expiration of the
Preemptive Period to sell all or any part of such Offered Securities as to which
Acceptance Notices have not been given by the Shareholders (the "Refused
-------
Securities") to any other Persons, but only upon terms and conditions in all
----------
respects, including unit price and interest rates, which are no more favorable,
in the aggregate, to such other Persons or less favorable to the Company than
those set forth in the Preemptive offer. Upon the closing, which shall include
full payment to the Company, of the sale to such other Persons of all the
Refused Securities, the Shareholders shall purchase from the Company, and the
Company shall sell to the Shareholders, the Offered Securities with respect to
which Acceptance Notices were delivered by the Shareholders, at the terms
specified in the Preemptive Offer (with all such sales and purchases occurring
simultaneously). In each case, any Offered Securities not purchased by the
Shareholders or any other Persons in accordance with this Section 4.1 may not be
-----------
sold or otherwise disposed of until they are again offered to the Shareholders
under the procedures specified in this Section 4.1.
-----------
(d) As used herein, the term "Excepted Securities" means (i) shares of
-------------------
Common Stock (or options therefor) issued, granted or sold to directors or
employees of, or consultants to, the Company under the Stock Plan, (ii) Common
Stock issued by the Company in a bona fide underwritten public offering
registered under the Securities Act, (iii) securities issued pursuant to the
conversion or exercise of convertible or exercisable securities, (iv) securities
issued in connection with a stock split or stock dividend or pursuant to a
reverse stock split or
21
<PAGE>
stock combination, and (v) all issuances of Convertible Preferred Stock pursuant
to the Stock Purchase Agreement and the Certificate of Incorporation.
4.2. RIGHTS TO PURCHASE SECURITIES OF PARENT AND GNP.
-----------------------------------------------
(a) In the event of any proposed Transfer by a Shareholder pursuant to a
bona fide offer of securities of the Parent or GNP to a Person who is not then
---------
a Member of or other holder of an interest in the Parent or GNP or which would
not constitute a Permitted Transfer if the Transferor were Transferring Common
Stock, such Transferor shall first deliver written notice simultaneously to the
Company and the Investors (the "Notice of Transfer"), which shall be
------------------
irrevocable for a period of 45 days after delivery thereof, offering (the
"Offer") to the Company and the Investors (the "Offerees") all of the
-----
securities proposed to be Transferred by the Transferor at the purchase price
and on the terms specified therein (which Notice of Transfer shall include all
relevant terms of the proposed Transfer). The Transferor shall also furnish to
the Company and the Investors such additional information relating to the
Transfer as they may reasonably request. The Company shall have the first right
and option, for a period of 30 days after delivery of the Notice of Transfer by
the Transferor, to accept all of the securities so offered at the purchase price
and on the terms stated in the Notice of Transfer. The Company shall, if it does
not elect to purchase all of the offered securities, immediately upon such
election deliver notice thereof to the Investors. Each Investor shall have the
right and option, for a period of 15 days after the expiration of the 30-day
period provided above, (x) to accept all or any portion of its Participating
Percentage of the securities so offered at the purchase price and on the terms
stated in the Notice of Transfer and (y) to offer, in any written notice of
acceptance, to purchase any securities not accepted by the other Investors, in
which case the securities not accepted by the other Investors shall be deemed on
the same terms and conditions to be reofferred from time to time during such 15-
day period to and accepted by the Investors who exercised their option under
this clause (y) pro rata in accordance with their respective Participating
---------- --------
Percentages (computed without including the Investors who have not
exercised their option to purchase securities under this clause (y)), until
----------
all such securities are fully subscribed or until all such Investors have
subscribed for all such offered securities which they desire to purchase.
(b) Transfers of securities under the terms of this Section 4.2 shall be
-----------
made at the offices of the Company on a mutually satisfactory Business Day
within 15 days after the expiration of the 45-day time period provided for
above. Delivery of certificates or other instruments evidencing such securities,
duly endorsed for transfer, shall be made on such date against payment of the
purchase price therefor.
(c) If the Company and the Investors shall not have accepted all of the
securities offered for sale pursuant to the Notice of Offer, then subject to
Section 4.2(f) below, the Transferor may Transfer to a third party that
--------------
number of the securities not accepted by the Company and the Investors at a
price and on such other terms and conditions not more favorable to such third
party than those contained in the original Notice of Transfer, at any time
within 180 days after the expiration of the offers required by Section 4.2(b).
--------------
In the event the securities are not Transferred by the Transferor on such
terms during such 180-day period, the restrictions of this Section 4.2 shall
-----------
again become effective to any applicable Transfer of securities by the
Transferor.
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<PAGE>
(d) The Transferor may specify in the Notice of Transfer that the Offer
mentioned therein is conditioned upon receipt from the Company and the
Investors, or any one of them, of written notices of binding acceptance with
respect to all securities mentioned in such Notice of Transfer, in which case
the Company and the Investors shall only have right to purchase all, and not
less than all, of the securities offered in such Notice of Transfer.
(e) In the event that the Company and/or the Investors do not purchase all
of the securities offered in the Notice of Transfer, the Transfer of such
unaccepted securities to the third-party Transferee shall be subject to the
provisions of Section 3.1 as if such Transfer were a Transfer of the Common
------------
Stock indirectly owned by virtue of the ownership of such securities to be
Transferred.
(f) In the event of purchase of any securities of or other interests in the
Parent or GNP by the Company or the Investors, effective provision shall be made
for the conversion or exchange of such securities for shares of Common Stock
indirectly owned by virtue of ownership of such securities, and the parties
hereto shall use their best efforts to provide for such conversion or exchange
on terms reasonably acceptable to the issuer of such securities, the Company,
and, if purchasing any of such securities, such Investors.
ARTICLE V
MANAGEMENT AND CONTROL
The business and affairs of the Company shall be managed, controlled
and operated in accordance with its Fundamental Documents and the Documents, as
the same may be amended from time to time, except that no Fundamental Documents
of the Company shall be amended in any manner that would conflict with, or be
inconsistent with, the provisions of any of the Documents, and, in the event of
a conflict between any of the Documents and any of the Fundamental Documents,
the provisions of the Documents shall control and the parties shall take actions
necessary to amend or modify the Fundamental Documents to eliminate or resolve
such conflict in accordance with this provision.
ARTICLE VI
MISCELLANEOUS
6.1. ISSUANCES OF SECURITIES.
------------ ----------
The Company shall not, without the prior written consent of the
Requisite Investors, issue or sell, or otherwise permit or record the Transfer
of, any security of the Company to any Person if such Person is (or as a result
of the issuance, sale or Transfer of such securities to such Person would
become) an Identified Shareholder unless, subject to the provisions of Section
-------
6.2(b), such Person (i) is already a party to this Agreement as an Identified
------
Shareholder hereunder or (ii) first executes and delivers to the Company a
Joinder Agreement, pursuant to which such Person will thereupon become a party
to, and be bound by and obligated
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<PAGE>
to comply with the terms and provisions of this Agreement as an Identified
Shareholder hereunder.
6.2. JOINDER AGREEMENT; CERTAIN TRANSFERS.
------------------------------------
(a) The provisions regarding Transfers of Stock contained in this Article
-------
VI shall apply to all shares of Stock now owned or hereafter acquired by a
Shareholder, including shares of Stock acquired by reason of original issuance,
dividend, distribution, exchange, conversion and acquisition of outstanding
shares of Stock from another Person, and such provisions shall apply to any
shares of Stock obtained by a Shareholder upon the exercise, exchange or
conversion of any option, warrant or other derivative security.
(b) Except for (i) transfers that constitute Public Sales and (ii) as
otherwise expressly provided by that certain Voting Trust Agreement dated as of
October 25, 1996, relating to the Stock Plan, no Shareholder shall Transfer any
shares to a Person not already a party to this Agreement as a Shareholder unless
and until such Person executes and delivers to the Company a Joinder Agreement,
pursuant to which such Person will thereupon become a party to, and be bound by
and obligated to comply with the terms and provisions of, this Agreement, as a
Shareholder hereunder. Any Person who executes a Joinder Agreement shall (i) be
designated an Investor if the Transferor was an Investor and the Transferee was
not the Company, an Identified Shareholder or an Affiliate of an Identified
Shareholder or (ii) be designated an Identified Shareholder in all other
instances. No Person who is not a Shareholder who acquires Stock in a Public
Sale shall be permitted or required to execute a Joinder Agreement.
(c) Notwithstanding any other provision of this Agreement to the contrary,
no Transfer of Shares shall be made to any Competitor without the prior written
consent of a Majority of the Entire Board (with each Member of the Board voting
regardless of any interest in such transaction).
6.3. GOVERNING LAW; ETC.
------------------
(a) All questions concerning the construction, interpretation and validity
of this Agreement shall be governed by and construed and enforced in accordance
with the domestic laws of the State of New York, without giving effect to any
choice or conflict of law provision or rule (whether in the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York. In furtherance of the foregoing,
the internal law of the State of New York will control the interpretation and
construction of this Agreement, even if under such jurisdiction's choice of law
or conflict of law analysis, the substantive law of some other jurisdiction
would ordinarily apply.
(b) The jurisdiction and venue in any action brought by any party hereto
pursuant to this Agreement shall exclusively lie in any federal or state court
located in the City of New York, New York. The parties further agree that such
exclusive jurisdiction and venue shall lie exclusively with such federal courts
if federal rules of jurisdiction permit such federal court to hear such action.
By execution and delivery of this Agreement, each party hereto irrevocably
submits to the jurisdiction of such courts for himself or itself and in respect
of his or its property with respect to such action. The parties irrevocably
agree that venue would be proper in any
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<PAGE>
such court and hereby waive any objection that any such court is an improper or
inconvenient forum for the resolution of such action. The parties further agree
that the mailing by certified or registered mail, return receipt requested, of
any process required by any such court shall constitute valid and lawful service
of process against them, without necessity for service by any other means
provided by statute or rule of court. The parties agree that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdiction by suit on the judgment or in any other manner provided by
applicable law.
(c) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE LAWS TO APPLY (RATHER THAN
ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS, EXCEPT WHERE THIS AGREEMENT EXPRESSLY
REQUIRES OTHERWISE FOR THE RESOLUTION OF ANY SUCH DISPUTE. THEREFORE, TO ACHIEVE
THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM (AND OF ARBITRATION
WHERE THIS AGREEMENT EXPRESSLY REQUIRES ARBITRATION), THE PARTIES HERETO WAIVE
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE
OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS.
6.4. DURATION OF AGREEMENT.
---------------------
The rights and obligations of the Company and each Shareholder under
this Agreement (other than the provisions of Section 3.2, which shall survive
-----------
until such time as GNP fully exercises its rights under such Section or, if
earlier, the expiration of the applicable option period) shall terminate on the
earliest to occur of the following: (a) immediately prior to the consummation of
a Qualified Public Offering; (b) immediately prior to the consummation of the
sale of all, or substantially all, of the assets of the Company and its
Subsidiaries taken as a whole; or (c) the consummation of the liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary.
6.5. SEVERABILITY.
------------
If any provisions of this Agreement shall be determined to be illegal or
unenforceable by any court of law, the remaining provisions shall be severable
and enforceable in accordance with their terms.
6.6. INJUNCTIVE RELIEF.
-----------------
It is acknowledged that it will be impossible to measure the damages that
would be suffered by the non-breaching party if any party fails to comply with
the provisions of this Agreement and that in the event of any such failure, the
non-breaching parties will not have an adequate remedy at law. The non-breaching
parties shall, therefore, be entitled to obtain specific performance of the
breaching party's obligations hereunder and to obtain immediate injunctive
relief. The breaching party shall not urge, as a defense to any proceeding for
such specific performance or injunctive relief, that the non-breaching parties
have an adequate remedy at law.
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<PAGE>
If any action at law or in equity is necessary to enforce or interpret the
terms of this Agreement, the prevailing party shall be entitled to reasonable
attorneys, fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
6.7. BINDING EFFECT.
--------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective permitted successors and assignees, legal
representatives and heirs. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. The administrator, executor or legal representative of any
deceased, juvenile or incapacitated Shareholder shall have the right to execute
and deliver all documents and perform all acts necessary to exercise and perform
the rights and obligations of such Shareholder under the terms of this
Agreement.
6.8. AMENDMENT; MODIFICATION; WAIVER.
-------------------------------
(a) Except as expressly set forth herein, the provisions of this Agreement
may only be amended or waived with the prior written consent of (i) the Company,
(ii) the Requisite Investors and (iii) the Requisite Shareholders; provided,
--------
however, that if any such amendment, modification, or waiver that would
-------
adversely affect the rights hereunder of any Shareholder, in its capacity
as a Shareholder, and which either are unique to such Shareholder or do not
similarly affect the rights hereunder of all Shareholders of the same series or
class, in their capacities as Shareholders of such series or class, such
amendment, modification or waiver shall not be effective as to such Shareholder
without its prior written consent.
(b) No course of dealing between the Company and the Shareholders (or any
of them) or any delay in exercising any rights hereunder will operate as a
waiver of any rights of any party to this Agreement. The failure of any party to
enforce any of the provisions of this Agreement will in no way be construed as a
waiver of such provisions and will not affect the right of such party thereafter
to enforce each and every provision of this Agreement in accordance with its
terms.
6.9. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which taken together shall
constitute one and the same instrument.
6.10. NOTICES.
-------
All notices, requests, consents and other communications hereunder to
any party shall be deemed to be sufficient if contained in a written instrument
and shall be deemed to have been duly given when delivered in Person, by telex,
telegram or telecopy, by overnight courier, or by first class registered or
certified mail, postage prepaid, addressed to such party at the address set
forth below or such other address as may hereafter be designated in writing by
the addressee to the sender:
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<PAGE>
If to the Company, to:
EarthWeb Inc.
3 Park Avenue, 33rd Floor
New York, New York 10016
Attention: President
Telephone: (212) 725-6550
Telecopy: (212) 725-6559
with a copy to:
Morrison & Foerster, LLP
1290 Avenue of the Americas, 41st Floor
New York, New York 10104
Attention: Joseph W. Bartlett, Esq.
Telephone: (212) 468-8000
Telecopy: (212) 468-7900
If to any Shareholder, at his or its address set forth on Schedule I
----------
hereto or, if none, in the books of the Company.
All such notices, requests, consents and other communications shall be
deemed to have been delivered (i) in the case of personal delivery, telex,
telegram or telecopy, on the date of such delivery, (ii) in the case of
overnight courier, on the next business day, and (iii) in the case of mailing,
on the third business day following such mailing.
* * *
IN WITNESS WHEREOF, the Company and the Shareholders have executed this
Shareholders Agreement in counterparts as of the date first above specified.
EARTHWEB INC.
/s/ Jack D. Hidary
By: ________________________________
Jack D. Hidary
President
EARTHWEB LLC
/s/ Jack D. Hidary
By: ________________________________
Jack D. Hidary
Authorized Signatory
27
<PAGE>
GLOBAL NETWORK PARTNERS LLC
/s/ Jack D. Hidary
By: ________________________________
Jack D. Hidary
Authorized Signatory
WARBURG, PINCUS VENTURES, L.P.
By: Warburg, Pincus & Co., its general
partner
/s/ Henry Kressel
By: ________________________________
Name: Henry Kressel
Title: Managing Director
/s/ Jack D. Hidary
___________________________
Jack D. Hidary
/s/ Murray Hidary
___________________________
Murray Hidary
/s/ Nova Spivack
____________________________
Nova Spivack
28