UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 10, 2017
CONNECTURE, INC.
(Exact name of registrant as specified in its charter)
Delaware |
|
001-36778 |
|
58-2488736 |
(State or other jurisdiction of incorporation) |
|
(Commission File Number) |
|
(I.R.S Employer Identification No.) |
18500 West Corporate Drive, Suite 250
Brookfield, WI 53045
(Address of principal executive offices, including zip code)
(262) 432-8282
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):
☐ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 1.01 Entry into a Material Definitive Agreement.
Series B Preferred Stock
On March 10, 2017, Connecture, Inc. (the “Company”) entered into an Investment Agreement (the “Investment Agreement”) with Francisco Partners IV, L.P., Francisco Partners IV-A, L.P. (collectively, “Francisco Partners”) and Chrysalis Ventures II, L.P. (“Chrysalis” and collectively with Francisco Partners, the “Investors”), pursuant to which the Company issued and sold as of such date (the “Closing”) to the Investors an aggregate of 17,500 shares of the Company’s newly created Series B Convertible Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”), at a purchase price of $1,000 per share, for an aggregate purchase price of $17,500,000 (the “Financing”).
Under the terms of the Investment Agreement, the Series B Preferred Stock issued and purchased in the Financing, and the shares of the Company’s common stock (the “Common Stock”) issuable upon conversion of the Series B Preferred Stock (the “Conversion Shares”), were issued in a transaction not involving any public offering and will not be registered under the Securities Act of 1933, as amended (the “Securities Act”). However, in connection with the Closing of the Financing, the Company entered into an Investor Rights Agreement with the Investors (the “Investor Rights Agreement”) whereby the Company granted the Investors rights with respect to registration of the Series B Preferred Stock and the Conversion Shares.
Each of the material agreements relating to the Financing is summarized below.
The terms of the Financing were negotiated by a special committee of independent directors of the Board. In addition, because Ezra Perlman, a member of the Company’s Board of Directors (the “Board”), is a Co-President of the managing companies of Francisco Partners and David A. Jones, Jr., the chairman of the Board, is a member of the general partner of Chrysalis, the Financing constituted a related party transaction and was reviewed and approved by the Audit Committee of the Board.
Investment Agreement
As described above, on March 10, 2017, the Company and the Investors entered into the Investment Agreement, pursuant to which the Company sold and issued to the Investors, and the Investors purchased from the Company, 17,500 shares of newly designated Series B Preferred Stock at a purchase price of $1,000 per share. The Investment Agreement contained customary representations and warranties by the Company. The Investment Agreement is filed as Exhibit 10.1 to this Current Report on Form 8‑K and incorporated into this Item 1.01 by reference, and the foregoing summary of the Investment Agreement is qualified in its entirety by reference to Exhibit 10.1.
Certificate of Designations
Immediately prior to the Closing on March 10, 2017, the Company filed a Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock (the “Certificate of Designations”) with the Secretary of State of Delaware. Pursuant to the Certificate of Designations, 17,500 shares of the Company’s preferred stock were designated as Series B Preferred Stock. The shares of Series B Preferred Stock, among other things:
|
• |
|
have a stated value of $1,000.00 (the “Stated Value”) and a conversion price of $1.91 (the consolidated closing bid price of a share of Common Stock on the Nasdaq Global Market as of March 9, 2017 and immediately prior to the Closing), subject to certain customary adjustments; |
|
• |
|
will be convertible into such number of shares of Common Stock equal to the Stated Value plus all accrued and unpaid dividends thereon, divided by the conversion price then in effect; |
|
• |
|
will be entitled to vote with the Common Stock on an as-converted basis; |
|
• |
|
will be entitled to dividends at the annual rate of 15.0% (which will increase in certain circumstances, but in no event will be more than 20.0% annually), payable quarterly in kind; provided that the Company may elect to pay such dividends in cash following the second anniversary of the Closing; |
|
• |
|
upon any liquidation, will be entitled to receive, on a pari passu basis with the Company’s existing Series A Convertible Preferred Stock (the “Series A Preferred Stock”) and prior to any payments in respect of the Common Stock, an amount equal to (a) the greater of (i) the Stated Value and (ii) such amount as would have been payable had all shares of Series B Preferred Stock been converted into Common Stock immediately prior to a liquidation plus (b) any accrued but unpaid dividends on the Series B Preferred Stock; |
|
• |
|
beginning on the second anniversary of the Closing, may be forced by the Company to convert into shares of Common Stock if the closing price of the Common Stock is at least 175% of the then-applicable conversion price of the Series B Preferred Stock for 45 consecutive trading days when there was a minimum average trading volume of at least 75,000 shares for 40 of such 45 trading days; and |
|
• |
|
will be redeemable (i) at the option of the Investors after May 2, 2023, (ii) at the option of the Investors in the event of a Fundamental Change (as that term is defined in the Certificate of Designations) of the Company, or (iii) at the option of the Company in the event of a Fundamental Change. |
The Certificate of Designations is filed as Exhibit 3.1 to this Current Report on Form 8-K and incorporated into this Item 1.01 by reference, and the foregoing summary of the Certificate of Designations is qualified in its entirety by reference to Exhibit 3.1.
Investor Rights Agreement
In connection with the execution of the Investment Agreement, at Closing, the Company entered into an Investor Rights Agreement with the Investors, granting the Investors the right to require the Company to file with the Securities and Exchange Commission a registration statement to register for resale the Investors’ shares of Series B Preferred Stock and any Conversion Shares (collectively, the “Registrable Securities”). The Investors were granted the right to request three underwritten offerings per year and were granted unlimited “piggy-back” registration rights with respect to the Registrable Securities. The obligation to register the Registrable Securities continues until those securities have been sold by the holders of the registration rights, may be sold without limitation under Rule 144 or, in the case of the Series B Preferred Stock, have been redeemed.
The Investor Rights Agreement also provides that for so long as Francisco Partners owns at least 10% of the aggregate shares of Series B Preferred Stock, Series A Preferred Stock and Common Stock (collectively, the “Securities”) that it held as of the Closing, it can: (i) for so long as it holds at least 5% of the aggregate outstanding Securities of the Company (on an as-converted basis) designate a proportionate share of the Board based upon its percentage ownership of the Company’s outstanding Securities on an as-converted basis, rounded up to the nearest whole director, which designees shall be entitled to serve on each committee of the Board, subject to applicable legal and Nasdaq requirements, and (ii) if no director designated by Francisco Partners is serving on the Board, designate one Board observer. As of the Closing, Francisco Partners held, on an as-converted basis, approximately 56% of the Company’s outstanding Securities.
In connection with Francisco Partners’ rights with respect to the designation of directors, a new committee of the Board (the “Investor Committee”) was formed as of the Closing, which Investor Committee has the sole authority to effect the exercise of Francisco Partners’ rights with respect to the designation of directors by increasing the size of the Board and appointing directors designated by Francisco Partners to fill vacancies on the Board and committees thereof. Only directors designated by Francisco Partners will serve on the Investor Committee, which as of the Closing consists solely of Ezra Perlman. In addition, as of the Closing, the size of the Board was increased from seven to eight directors, with the eighth seat initially vacant and to be filled by a Francisco Partners designated director appointed to the Board by the Investor Committee. The rights granted to Francisco Partners with respect to the designation of directors supersede all similar prior rights granted to Francisco Partners pursuant to the Investor Rights Agreement entered into as of May 2, 2016 in connection with the closing of the issuance of the Series A Preferred Stock.
The Investor Rights Agreement is filed as Exhibit 4.1 to this Current Report on Form 8-K and incorporated into this Item 1.01 by reference, and the foregoing summary of the Investment Agreement is qualified in its entirety by reference to Exhibit 4.1.
Credit Facility Amendment
On March 10, 2017, the Company and its wholly owned subsidiary, DestinationRx, Inc., (collectively the “Borrowers”) entered into Amendment No. 2 to the Amended and Restated Credit Agreement (the “Amendment”) with Wells Fargo Bank, National Association, as administrative agent for the lenders named therein (the “Agent”).
The Amendment amended the Borrowers’ existing Amended and Restated Credit Agreement with the Agent, dated June 8, 2016, (the “Amended Credit Facility”), to among other things (i) defer scheduled Term Loan principal repayments until March 31, 2018, at which time quarterly principal repayments of $1.3 million will resume through March 31, 2021; (ii) replace the existing covenants with (a) a trailing twelve month covenant of negative $12.0 million as of December 31, 2016 and a quarterly building EBITDA covenant through December 31, 2017 and a trailing twelve month EBITDA from March 31, 2018 forward, as defined in the Amendment, and (b) a minimum liquidity requirement of $1.5 million at all times from March 1, 2017 through March 31, 2018, and
$15.0 million thereafter; and (iii) provide for an incremental 2.50% per annum paid-in-kind interest on all obligations from March 10, 2017 through the maturity date, which shall increase the outstanding principal balance of the Term Loan.
The Amendment is filed as Exhibit 10.2 to this Current Report on Form 8-K and incorporated into this Item 1.01 by reference, and the foregoing summary of the Amendment is qualified in its entirety by reference to Exhibit 10.2.
Item 2.02 |
Results of Operations and Financial Condition |
On March 14, 2017, the Company issued a press release regarding its financial results for the fourth quarter and fiscal year ended December 31, 2016. A copy of the Company’s press release is attached hereto as Exhibit 99.1.
The information furnished in this Current Report under Item 2.02 and Exhibit 99.1 attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 3.02 |
Unregistered Sales of Equity Securities. |
The information disclosed in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 3.02. The sale and issuance of the Series B Preferred Stock to the Investors at the Closing, and the issuance of shares of Common Stock upon exercise and conversion thereof, have been determined to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. The Investors have represented that they are accredited investors, as that term is defined in Regulation D, and that they are acquiring the securities for investment purposes only and not with a view to or in connection with any distribution thereof.
Item 3.03 |
Material Modification of Rights of Security Holders. |
The information disclosed in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 3.03.
Item 5.01 |
Changes in Control of Registrant |
The information disclosed in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 5.01. At the Closing, Francisco Partners paid an aggregate of $16.5 million for its shares of Series B Preferred Stock. Prior to the Closing, Francisco Partners beneficially owned approximately 44% of the Company’s voting securities and was entitled to designate one member of the Board. Immediately following the Closing, Francisco Partners beneficially owned approximately 56% of the Company’s voting securities as set forth above and had the right to designate a proportional share of the Board. As a result, a change in control of the Company may be deemed to have occurred.
Item 5.03 |
Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year |
The information about the Certificate of Designations contained in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 5.03.
Item 8.01 |
Other Events |
As noted above, in connection with the Closing, the Board approved an increase in the size of the Board from seven to eight directors, with the newly created seat initially remaining vacant. In addition, the Board formed the Investor Committee, with the authority and responsibility to, among other items, fill the newly created vacancy on the Board. An additional Current Report on Form 8-K will be filed if and when such vacancy is filled. The charter of the Investor Committee adopted by the Board in connection with the Closing is attached hereto as Exhibit 99.2.
(d) |
Exhibits |
||
|
|
|
|
Exhibit |
|
Description |
|
|
|
||
3.1 |
|
Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock |
|
|
|
||
4.1 |
|
Investor Rights Agreement dated March 10, 2017, among the Company and the Investors |
|
|
|
||
10.1 |
|
Investment Agreement dated March 10, 2017, among the Company and the Investors |
|
|
|
|
|
10.2 |
|
Amendment No. 2 to the Amended and Restated Credit Agreement, dated March 10, 2017, among Wells Fargo Bank, National Association, as administrative agent for the lenders named therein, the Company and DestinationRx, Inc. |
|
|
|
|
|
99.1 |
|
Press Release dated March 14, 2017 |
|
|
|
|
|
99.2 |
|
Charter of the Investor Committee of the Board |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
CONNECTURE, INC. |
|
|
|
Date: March 14, 2017 |
|
/s/ Vincent E. Estrada |
|
|
Vincent E. Estrada Chief Financial Officer |
Exhibit 3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
CONNECTURE, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Connecture, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), hereby certifies that, pursuant to authority vested in the Board of Directors of the Corporation by Article IV of the Sixth Amended and Restated Certificate of Incorporation of the Corporation (the “Certificate of Incorporation”), the following resolutions were adopted on March 7, 2017 by the Board of Directors of the Corporation (the “Board”) pursuant to Section 151 of the Delaware General Corporation Law:
“RESOLVED that, pursuant to authority vested in the Board of Directors of the Corporation by Article IV of the Certificate of Incorporation, out of the total authorized number of 5,000,000 shares of preferred stock, par value $0.001 per share, there shall be designated a series of 17,500 shares which shall be issued in and constitute a single series to be known as “Series B Convertible Preferred Stock” (hereinafter called the “Series B Preferred Stock” and together with the Corporation’s Series A Convertible Preferred Stock (the “Series A Preferred Stock”), the “Preferred Stock”). The shares of Series B Preferred Stock shall have the voting powers, designations, preferences and other special rights, and the qualifications, limitations and restrictions thereof, set forth below:
1.Certain Definitions.
As used in this Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock of Connecture, Inc. (the “Certification of Designations”), the following terms shall have the respective meanings set forth below:
“Affiliate”, as applied to any Person, means any other Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such Person; provided that the following Persons shall not be deemed to be Affiliates of a Holder or any of its Affiliates: (a) the Corporation and its subsidiaries and (b) any portfolio company in which such Holder or any of its Affiliates has an investment (whether debt or equity) or any of such portfolio companies’ controlled Affiliates, so long as, in the case of this clause (b), such Person shall not have been acting on behalf of or at the direction of such Holder or any of its Affiliates or received any confidential
information about the Corporation or its subsidiaries from or on behalf of such Holder (it being acknowledged and agreed that an employee of such Holder or its Affiliates that is a director or officer of such portfolio company or its controlled Affiliates shall not be deemed to have received such confidential information solely by reason of such individual serving on the board or similar governing body of such portfolio company). For the purposes of this definition, “control”, when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
“Approved Stock Plan” means any employee benefit plan, equity incentive plan or other issuance, employment agreement or option grant or similar agreement which has been approved by the Board, pursuant to which the Corporation’s securities may be issued to any employee, consultant, officer or director for services provided to the Corporation. For the avoidance of doubt, Approved Stock Plan shall include all shares reserved for issuance pursuant to such Approved Stock Plan, and any increases to such share reserve that occur automatically or by shareholder approval on or after the Series B Closing Date.
“Bloomberg” means Bloomberg Financial Markets and its successors.
“Business Day” means any day except a Saturday, a Sunday or other day on which the U.S. Securities and Exchange Commission or banking institutions in New York, New York are authorized or required by law, regulation or executive order to be closed.
“Closing Price” of the Common Stock on any date of determination means the closing sale price or, if no closing sale price is reported, the last reported sale price, of shares of Common Stock on the NASDAQ Global Market on such date. If the Common Stock is not traded on the NASDAQ Global Market on any date of determination, the Closing Price of the Common Stock on such date of determination means the closing sale price as reported in the composite transactions for the principal United States securities exchange or automated quotation system on which the Common Stock is so listed or quoted, or, if no closing sale price is reported, the last reported sale price on the principal United States securities exchange or automated quotation system on which the Common Stock is so listed or quoted, or if the Common Stock is not so listed or quoted on a United States securities exchange or automated quotation system, the last quoted bid price for the Common Stock in the over-the-counter market as reported by OTC Market Group, Inc. or any similar organization, or, if that bid price is not available, the market price of the Common Stock on that date as determined by an Independent Financial Advisor retained by the Corporation for such purpose.
“Common Stock” means the common stock, par value $0.001 per share, of the Corporation, including the stock into which the Series B Preferred Stock is convertible, and any securities into which the Common Stock may be reclassified.
-2-
“Common Stock Equivalents” means any securities of the Corporation or its subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“Conversion Shares” means the shares of Common Stock into which the Series B Preferred Stock is convertible.
“Convertible Securities” means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.
“Exempt Transaction” means (x) a transaction described in item (ii) of the definition of Fundamental Change in which less than ten percent (10%) of the consideration payable to the Corporation’s stockholders is cash or (y) a transaction described in items (iv) or (v) of the definition of Fundamental Change.
“Fundamental Change” means the occurrence of any of the following events: (i) a “person” or “group” within the meaning of Section 13(d) of the Exchange Act, other than the Corporation, files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the direct or indirect “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act, of Common Stock representing more than 50% of the voting securities of the Corporation or the Corporation otherwise becomes aware of such ownership; (ii) the consummation of (a) any recapitalization, reclassification or change of the Common Stock (other than a change only in par value, from par value to no par value or from no par value to par value, or changes resulting from a subdivision or combination of Common Stock) as a result of which the Common Stock would be converted into, or exchanged for, or represent solely the right to receive, cash, stock, other securities, other property or assets or (b) any share exchange, consolidation or merger of the Corporation pursuant to which the Common Stock will be converted into, or exchanged for, or represent solely the right to receive, cash, stock, other securities, other property or assets; (iii) the Corporation sells all or substantially all of its assets; (iv) the stockholders of the Corporation approve or the Corporation otherwise adopts any plan or proposal for the liquidation, dissolution or winding-up of the Corporation; or (v) the Common Stock ceases to be listed on any of the New York Stock Exchange, the NASDAQ Global Select Market or the NASDAQ Global Market (or any of their respective successors) or another U.S. national securities exchange; provided, however, that a transaction or transactions described in clause (ii) above will not constitute a Fundamental Change if the holders of all classes of Common Stock immediately prior to such transaction own, directly or indirectly, more than 50% of all classes of Common Stock of the continuing or surviving corporation; provided,
-3-
further, that the occurrence of an event described in clause (i) that arises as a result of the issuance of Series B Preferred Stock pursuant to the Series B Investment Agreement will not constitute a Fundamental Change.
“Holder” or “Holders” means the holder or holders of the Series B Preferred Stock.
“Independent Financial Advisor” means an accounting, appraisal, investment banking firm or consultant of nationally recognized standing; provided, however, that such firm or consultant is not an Affiliate of the Corporation and is reasonably acceptable to the Required Series B Holders.
“Junior Securities” means the Common Stock and all other Common Stock Equivalents of the Corporation other than those securities which are explicitly senior or pari passu to the Series B Preferred Stock in dividend rights or liquidation preference, which includes, for the avoidance of doubt, the Series A Preferred Stock.
“Mandatory Series B Conversion Price” means 175% of the Series B Conversion Price.
“Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.
“Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, an association, joint stock company, an estate, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.
“Principal Market” means The NASDAQ Global Market.
“Qualified Trading Day” means any Trading Day on which the volume of shares of Common Stock traded is equal to or greater than 75,000 shares (as adjusted for stock splits, reverse stock splits and similar transactions).
“Required Series B Holders” means, as of any date, the holders of at least a majority of the Series B Preferred Stock outstanding as of such date.
“Series B Closing Date” means the date of the closing of the purchase and sale of the Series B Preferred Stock pursuant to Section 2.02 of the Series B Investment Agreement.
“Series B Conversion Price” means $1.91, subject to adjustment as provided herein.
-4-
“Series B Conversion Rate” means, as of any date, the rate determined by dividing the Series B Stated Value by the Series B Conversion Price in effect on such date.
“Series B Dividend Increase Event” means any failure by the Corporation to (i) pay the Series B Preferred Dividends when due, (ii) redeem a Holder’s Series B Preferred Stock pursuant to Section 16 when required, (iii) effect conversion of a Holder’s Series B Preferred Stock pursuant to Section 4 or 5 when required, (iv) notify Holders in the event of a Fundamental Change, (v) comply with the anti-dilution provisions of Section 7, (vi) comply with the notice provision of Section 9 or (vii) comply with the protective provisions set forth in Section 15.
“Series B Investment Agreement” means that certain investment agreement, dated on or about March 10, 2017, by and among the Corporation and each of the investors party thereto.
“Series B Investor Rights Agreement” means that certain investor rights agreement, dated on or about March 10, 2017, by and among the Corporation and each of the investors party thereto.
“Series B Liquidation Preference” means an amount per share equal to (i) the greater of (A) the Series B Stated Value and (B) such amount as would have been payable had all shares of Series B Preferred Stock been converted into Common Stock immediately prior to a Liquidation plus (ii) any accrued but unpaid Series B Preferred Dividends, Additional Series B Dividends and Series B Registration Default Dividends thereon.
“Series B Registration Default Dividends” means all amounts, if any, payable pursuant to Section 3.12 of the Series B Investor Rights Agreement.
“Series B Stated Value” means $1,000.00 per share, subject to increase as set forth in Section 2(a) below.
“Trading Day” means any day on which the Common Stock are traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock are then traded; provided that “Trading Day” shall not include any day on which the Common Stock are scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock are suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time).
-5-
“Weighted Average Price” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by OTC Markets LLC. If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Corporation and the applicable Holder. If the Corporation and the applicable Holder are unable to agree upon the fair market value of such security, then the Weighted Average Price will be determined by an Independent Financial Advisor retained by the Corporation for such purpose. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.
(a)From and after the Series B Closing Date, each Holder of Series B Preferred Stock, in preference and priority to the holders of all other classes or series of stock other than the Series A Preferred Stock, shall be entitled to receive, with respect to each share, or fraction of a share, of Series B Preferred Stock then outstanding and held by such Holder, dividends accruing on a daily basis, commencing from the date of issuance of such share of Series B Preferred Stock, at the rate of fifteen percent (15%) per annum of the Series B Stated Value per whole share (or proportion thereof with respect to fractional shares) of Series B Preferred Stock (the “Series B Preferred Dividends”). The Series B Preferred Dividends shall be cumulative, whether or not earned or declared, and shall be paid quarterly in arrears on the last day of March, June, September and December in each year, commencing March 31, 2017. The Series B Preferred Dividends shall be accreted to, and increase, the outstanding Series B Stated Value; provided, however, that following the second anniversary of the Series B Closing Date, the Series B Preferred Dividends may, at the Corporation’s option, be paid in cash and, if not so paid in cash, shall automatically be accreted to, and increase, the outstanding Series B Stated Value. The Series B Preferred Dividends shall be paid pari passu with any dividends payable upon the Series A Preferred Stock.
-6-
(b)Upon the occurrence and during the continuance of a Series B Dividend Increase Event (the date of such Series B Dividend Increase Event being referred to as the “Additional Series B Dividend Accrual Date”), each Holder of then-outstanding shares of Series B Preferred Stock will thereafter be entitled to receive cash dividends accruing on a daily basis from the Additional Series B Dividend Accrual Date, through and including the date on which such dividends are paid, at the annual rate of four percent (4%) per annum of the Series B Stated Value per share of Series B Preferred Stock. The cash dividends provided for in this Section 2(b) are hereinafter referred to as “Additional Series B Dividends.” The Additional Series B Dividends shall be in addition to, and not a substitute for or payment in lieu of, the Series B Preferred Dividends. The Additional Series B Dividends shall increase by one percent (1%) upon each sixth-month anniversary of the Series B Dividend Increase Event, provided, however, that in no event shall the Series B Preferred Dividends and Additional Series B Dividends collectively exceed twenty percent (20%) per annum. The Additional Series B Dividends shall be cumulative, whether or not earned or declared, and shall be paid quarterly in arrears on the dividend payment dates for Series B Preferred Dividends set forth in Section 2(a) above if not paid prior. Any unpaid Additional Series B Dividends shall compound quarterly.
(c)Series B Registration Default Dividends will accrue on the Series B Preferred Stock to the extent provided in the Series B Investor Rights Agreement and the Corporation’s obligation to pay any such Series B Registration Default Dividends will be deemed to be obligations under this Certificate of Designations with the same force and effect as if the relevant provisions of the Series B Investor Rights Agreement were reproduced in this Certificate of Designations. In the event that the Corporation is required to pay Series B Registration Default Dividends pursuant to the Series B Investor Rights Agreement, the Corporation shall provide written notice (“Series B Registration Default Notice”) to the Holders of its obligation to pay Series B Registration Default Dividends no later than fifteen (15) days prior to the proposed payment date for the Series B Registration Default Dividends, and the Series B Registration Default Notice shall set forth the amount of Series B Registration Default Dividends to be paid by the Corporation on such payment date. In no event shall Series B Registration Default Dividends accrue at a rate in excess of 0.50% per annum of the Series B Stated Value per share of Series B Preferred Stock, regardless of the number of events or circumstances giving rise to requirements to pay such Series B Registration Default Dividends. Unless the context requires otherwise, all references to Series B Preferred Dividends in this Certificate of Designations will include any Series B Registration Default Dividends payable pursuant to this Section 2(c) and the Series B Investor Rights Agreement. Such Series B Registration Default Dividends that are payable shall be payable in cash in arrears on each dividend payment date following accrual set forth in Section 2(a) above at the same time and in the same manner (except in cash only) as the Series B Preferred Dividends.
-7-
(d)In the event that the Corporation shall at any time pay a dividend on or make a distribution in respect of the Common Stock (whether in cash, in kind or in other property) or any other class or series of capital stock of the Corporation, the Corporation shall, at the same time and on the same terms, pay or distribute to each Holder a dividend (or distribution) equal to the dividend that would have been payable to such Holder if the shares, or fraction of a share, of Series B Preferred Stock held by such Holder had been converted into Common Stock on the date of determination of holders of Common Stock entitled to receive such dividend or distribution.
(e)Except as otherwise provided herein, if at any time the Corporation pays less than the total amount of dividends then accumulated with respect to the Series B Preferred Stock, such payment shall be distributed pro rata among the Holders entitled thereto based upon the Series B Stated Value on all shares of Series B Preferred Stock held by each such Holder.
3.Liquidation. Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), after the satisfaction in full of the debts of the Corporation, the Holders of the Series B Preferred Stock shall receive, pari passu with the holders of the Series A Preferred Stock, from the net assets of the Corporation the Series B Liquidation Preference multiplied by the number of shares of Series B Preferred Stock held by such Holders, before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders of the Series B Preferred Stock shall be ratably distributed among such Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. The Corporation shall mail written notice of any such Liquidation not less than 45 days prior to the payment date stated therein, to each Holder. For the avoidance of doubt, subsections (i), (ii), (iii) and (v) of the definition of Fundamental Change shall not be deemed a Liquidation.
4.Right of the Holders to Convert.
(a)At any time from and after the Series B Closing Date, each Holder shall have the right, at such Holder’s option, subject to the conversion procedures set forth in Section 6, to convert each share of such Holder’s Series B Preferred Stock at any time into that number of shares of Common Stock determined by dividing (i) the sum of (x) the Series B Stated Value of such share of Series B Preferred Stock and (y) any accrued and unpaid dividends (including, for the avoidance of doubt, any Series B Preferred Dividends, Additional Series B Dividends and Series B Registration Default Dividends) in respect of the Series B Preferred Stock up to but not including the Conversion Date (as defined below) by (ii) the Series B Conversion Price. The right of conversion may be exercised as to all or any portion of such Holder’s Series B Preferred Stock from time to time; provided that, in each case, no right of conversion may be exercised by a Holder in respect of fewer than 1,000 shares of Series B Preferred Stock (unless such conversion relates to all shares of Series B Preferred Stock held by such Holder).
-8-
(b)Any shares of Common Stock issued upon conversion of Series B Preferred Stock shall be duly authorized, validly issued, fully paid and nonassessable.
5.Mandatory Conversion by the Corporation.
(a)At any time after the second anniversary of the Series B Closing Date, if (i) the shares of Common Stock underlying the Series B Preferred Stock are registered for resale under the Securities Act of 1933, as amended, (ii) the Weighted Average Price per share of Common Stock was greater than the Mandatory Series B Conversion Price for at least forty-five (45) consecutive Trading Days, of which forty (40) of the forty-five (45) consecutive Trading Days are each Qualified Trading Days, and (iii) no Series B Dividend Increase Event under clause (ii) or (iii) (with respect to Section 4) has occurred and is continuing, the Corporation may elect to convert (a “Mandatory Series B Conversion”) all, but not less than all, of the outstanding shares of Series B Preferred Stock into shares of Common Stock (the date selected by the Corporation for any Mandatory Series B Conversion pursuant to this Section 5(a), the “Mandatory Series B Conversion Date”). In the case of a Mandatory Series B Conversion, each share of Series B Preferred Stock then outstanding shall be converted into that number of shares of Common Stock determined by dividing (i) the sum of (x) the Series B Stated Value of such share of Series B Preferred Stock and (y) any accrued and unpaid dividends (including, for the avoidance of doubt, any Series B Preferred Dividends, Additional Series B Dividends and Series B Registration Default Dividends) in respect of the Series B Preferred Stock up to but not including the Mandatory Series B Conversion Date by (ii) the Series B Conversion Price.
(b)If the Corporation elects to affect a Mandatory Series B Conversion, the Corporation shall, within three (3) Business Days following the completion of the applicable forty-five (45) Trading Day period referred to above, provide notice of Mandatory Series B Conversion to each Holder (such notice, a “Notice of Mandatory Series B Conversion”). The Mandatory Series B Conversion Date selected by the Corporation shall be no less than ten (10) Business Days and no more than twenty (20) Business Days after the date on which the Corporation provides the Notice of Mandatory Series B Conversion to the Holders. The Notice of Mandatory Series B Conversion shall state, as appropriate: (i) the Mandatory Series B Conversion Date selected by the Corporation; and (ii) the Series B Conversion Rate as in effect on the Mandatory Series B Conversion Date and the number of shares of Common Stock to be issued to such Holder upon conversion of each share of Series B Preferred Stock held by such Holder.
(c)Any shares of Common Stock issued upon conversion of Series B Preferred Stock shall be duly authorized, validly issued, fully paid and nonassessable.
6.Conversion Procedures and Effect of Conversion.
(a)Conversion Procedure. A Holder must do each of the following in order to convert shares of Series B Preferred Stock pursuant to this Section 6(a): (i) in the case of a conversion pursuant to Section 4(a), complete and manually sign the conversion
-9-
notice in the form attached hereto as Exhibit A (the “Conversion Notice”) (which Conversion Notice may be conditioned on the completion of a Fundamental Change or other corporate transaction as specified in such Conversion Notice), and deliver such notice to the Corporation; (ii) deliver to the Corporation the certificate or certificates (if any) representing the shares of Series B Preferred Stock to be converted; (iii) if required, furnish appropriate endorsements and transfer documents; and (iv) if required, pay any stock transfer, documentary, stamp or similar taxes not payable by the Corporation pursuant to Section 12. The foregoing clauses (ii), (iii) and (iv) shall be the only conditions applicable to the Holders in respect of the issuance of shares of Common Stock to the Holders in the event of a Mandatory Series B Conversion pursuant to Section 5.
The “Conversion Date” means (A) with respect to conversion of any shares of Series B Preferred Stock at the option of any Holder pursuant to Section 4(a), the date on which such Holder complies with the procedures in this Section 6(a) and (B) with respect to a Mandatory Series B Conversion pursuant to Section 5(a), the Mandatory Series B Conversion Date.
(b)Effect of Conversion. Effective immediately prior to the close of business on the Conversion Date applicable to any shares of Series B Preferred Stock, Series B Preferred Dividends, Additional Series B Dividends and Series B Registration Default Dividends thereon shall no longer accrue or be declared on any such shares of Series B Preferred Stock, and on conversion, such shares of Series B Preferred Stock shall cease to be outstanding.
(c)Record Holder of Underlying Securities as of Conversion Date. The Person or Persons entitled to receive the Common Stock issuable upon conversion of Series B Preferred Stock on a Conversion Date shall be treated for all purposes as the record holder(s) of such shares of Common Stock as of the close of business on such Conversion Date. As promptly as practicable on or after the Conversion Date and compliance by the applicable Holder with the relevant procedures contained in Section 6(a) (and in any event no later than three (3) Trading Days thereafter), the Corporation shall issue the number of whole shares of Common Stock issuable upon conversion. Such delivery of shares of Common Stock shall be made, at the option of the Corporation, in certificated form or by book-entry. Any such certificate or certificates shall be delivered by the Corporation to the appropriate Holder on a book-entry basis or by mailing certificates evidencing the shares to the Holders at their respective addresses as set forth in the Conversion Notice (in the case of a conversion pursuant to Section 4(a)) or in the records of the Corporation (in the case of a Mandatory Series B Conversion). In the event that a Holder shall not by written notice designate the name in which shares of Common Stock to be delivered upon conversion of shares of Series B Preferred Stock should be registered, or the manner in which such shares should be delivered, the Corporation shall be entitled to register and deliver such shares in the name of the Holder and in the manner shown on the records of the Corporation.
-10-
(d)Failure to Convert. If the Corporation shall fail for any reason or no reason to issue to a Holder of Series B Preferred Stock a certificate representing the Conversion Shares within three (3) Business Days after the Conversion Date or Mandatory Series B Conversion Date, as applicable, and register such shares of Common Stock on the Corporation’s share register or to credit the Holder’s balance account with the DTC for such number of shares of Common Stock to which the Holder is entitled upon such conversion, and if on or after the Conversion Date the Holder purchases, or another Person purchases on the Holder’s behalf or for the Holder’s account (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such conversion that the Holder anticipated receiving from the Corporation (a “Buy-In”), then the Corporation shall pay in cash to the Holder (for costs incurred either directly by such Holder or on behalf of a third party) the amount by which the total purchase price paid for Common Stock as a result of the Buy-In (including brokerage commissions, if any) exceeds the proceeds received by such Holder as a result of the sale to which such Buy-In relates. The Holder shall provide the Corporation written notice indicating the amounts payable to the Holder in respect of the Buy-In.
(e)No Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series B Preferred Stock into Common Stock. In the event a fractional share of Common Stock would be issued on conversion, the number of shares of Common Stock to be issued shall be rounded down to the nearest whole share.
7.Adjustment of Conversion Price. The Series B Conversion Price and the number of Conversion Shares shall be adjusted from time to time as follows:
(a)If the Corporation at any time on or after the Series B Closing Date subdivides (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Series B Conversion Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Conversion Shares will be proportionately increased. If the Corporation at any time on or after the Series B Closing Date combines (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Series B Conversion Price in effect immediately prior to such combination will be proportionately increased and the number of Conversion Shares will be proportionately decreased. Any adjustment under this Section 7(a) shall become effective at the close of business on the date the subdivision or combination becomes effective.
(b)If any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights or phantom stock rights), then the Board will make an appropriate adjustment in the Series B Conversion Price and the number of Conversion Shares so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 7(b) will increase or decrease the Series B Conversion Price or increase or decrease the number of Conversion Shares as otherwise determined pursuant to this Section 7 or to the extent the Holders participate in a dividend or distribution event pursuant to Section 2(d).
-11-
(c)Adjustment for Merger or Reorganization, Etc. If there shall occur any reorganization, recapitalization, consolidation or merger involving the Corporation in which the Common Stock is converted into or exchanged for securities, cash or other property (excluding a merger solely for the purpose of changing the Corporation’s jurisdiction of incorporation), then, following any such reorganization, recapitalization, consolidation or merger, in each case pursuant to which shares of Common Stock would be converted into or exchanged for, or would constitute solely the right to receive, cash, securities or other property, each share of Series B Preferred Stock shall be convertible into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of Series B Preferred Stock immediately prior to such reorganization, recapitalization, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board) shall be made in the application of the provisions in this Section 7 set forth with respect to the rights and interest thereafter of the Holders, to the end that the provisions set forth in this Section 7 (including provisions with respect to changes in and other adjustments of the Series B Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the Series B Preferred Stock. In the event holders of Common Stock have the opportunity to elect the form of consideration to be received in any transaction described by this Section 7, the Corporation shall make adequate provision whereby the Holders shall have a reasonable opportunity to determine the form of consideration into which all of the Series B Preferred Stock, treated as a single class, shall be convertible from and after the effective date of such transaction. The determination: (i) will be made by Holders representing a plurality of shares of Series B Preferred Stock participating in such determination, (ii) will be subject to any limitations to which all of the holders of Common Stock are subject, including, but not limited to, pro rata reductions applicable to any portion of the consideration payable in such transaction and (iii) will be conducted in such a manner as to be completed by the date which is the earlier of: (1) the deadline for elections to be made by holders of Common Stock, and (2) two Trading Days prior to the anticipated effective date of such transaction.
8.Purchase Rights. In addition to any adjustments pursuant to Section 7 above, if at any time the Corporation grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of the Holder’s Series B Preferred Stock (without regard to any limitations on the conversion thereof) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
-12-
9.Notices. Upon any adjustment of the Series B Conversion Price or the number of Conversion Shares, then, and in each such case the Corporation shall give written notice thereof by first class mail, postage prepaid, addressed to each Holder of Series B Preferred Stock at the address of such Holder as shown on the books of the Corporation, which notice shall state the Series B Conversion Price resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. In addition, in case at any time:
(1) the Corporation shall declare any dividend upon its Common Stock payable in cash or stock or make any other distribution to the holders of its Common Stock;
(2) the Corporation shall offer for subscription pro rata to the holders of its Common Stock any additional shares of such stock of any class or other rights;
(3) there shall be any capital reorganization or reclassification of the capital stock of the Corporation, or a consolidation or merger of the Corporation with, or a sale of all or substantially all its assets to, another corporation;
(4) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; or
(5) there shall be any Fundamental Change;
then, in any one or more of said cases, the Corporation shall give, by first class mail, postage prepaid, addressed to each Holder at the address of such Holder as shown on the books of the Corporation, (a) at least fifteen (15) days prior written notice of the date on which the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, Fundamental Change, dissolution, liquidation or winding up, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, Fundamental Change, dissolution, liquidation or winding up, at least fifteen (15) days prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, Fundamental Change, dissolution, liquidation or winding up, as the case may be.
10.Stock to be Reserved. The Corporation will at all times reserve and keep available out of its authorized but unissued Common Stock solely for the purpose of issuance upon the conversion of the Series B Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares or fractions of shares of Series B Preferred Stock. All shares of
-13-
Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all liens, duties and charges arising out of or by reason of the issue thereof (including, without limitation, in respect of taxes), shall be approved for listing on the NASDAQ Global Market if shares of Common Stock generally are so listed (or any other national securities exchange on which the Common Stock is listed) and, without limiting the generality of the foregoing, the Corporation covenants that it will from time to time take all such action as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the effective Series B Conversion Price. The Corporation will take all such action within its control as may be necessary on its part to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the Common Stock of the Corporation may be listed. The Corporation will not take any action which results in any adjustment of the Series B Conversion Price if after such action the total number of shares of Common Stock issued and outstanding and thereafter issuable upon exercise of all Options and conversion of Convertible Securities, including upon conversion of the Series B Preferred Stock, would exceed the total number of shares of such class of Common Stock then authorized by the Corporation’s Certificate of Incorporation.
11.Effect of Reacquisition of Shares Upon Redemption, Repurchase, Conversion or Otherwise. Shares of Series B Preferred Stock that have been issued and reacquired in any manner, whether by redemption, repurchase or otherwise or upon any conversion of shares of Series B Preferred Stock to Common Stock, shall thereupon be retired and shall have the status of authorized and unissued shares of preferred stock of the Corporation undesignated as to series, and may be redesignated as any series of preferred stock of the Corporation and reissued.
12.Issue Taxes and Fees. The issuance of certificates, if any, for shares of Common Stock upon conversion of the Series B Preferred Stock shall be made without charge to the holders thereof for any (a) issuance tax, stamp tax, transfer tax, duty or charge in respect thereof, provided that the Corporation shall not be required to pay any tax, duty or charge which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Series B Preferred Stock which is being converted or (b) fees (including fees of the transfer agent or The Depository Trust Company).
13.Closing of Books. The Corporation will at no time close its transfer books against the transfer of any Series B Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series B Preferred Stock in any manner which interferes with the timely conversion of such Series B Preferred Stock; provided, however, nothing herein shall be construed to prevent the Corporation from setting record dates for the holders of its securities.
14.Voting. In addition to any class voting rights provided by law and this Certificate of Designation, the Holders of Series B Preferred Stock shall have the right to vote together with the holders of Series A Preferred Stock and Common Stock as a single class on any matter on which the holders of Common Stock are entitled to vote (including
-14-
the election of directors). With respect to the voting rights of the Holders of the Series B Preferred Stock, each Holder of Series B Preferred Stock shall be entitled to cast one vote for each share of Common Stock that would be issuable to such Holder upon the conversion of all the shares of Series B Preferred Stock held by such Holder on the record date for the determination of stockholders entitled to vote at a conversion rate the numerator of which is the Stated Value for each share of Series B Preferred Stock (as adjusted for any subdivision by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise, as contemplated in Section 7 hereof, occurring prior to such record date) and the denominator of which is the Series B Conversion Price (which Series B Conversion Price, solely for purposes of this Section 14, shall not be less than $1.91 (the Closing Price of the Common Stock on March 9, 2017)).
15.Certain Restrictions. In addition to any other vote of the Holders required by law or by the Certificate of Incorporation, without the prior consent of the Required Series B Holders, given in person or by proxy, either in writing or at a special meeting called for that purpose, at which meeting the holders of the shares of such Series B Preferred Stock shall vote together as a class, the Corporation will not:
(a)(x) authorize, create, designate, establish or issue (whether by merger or otherwise) (i) an increased number of shares of Series B Preferred Stock, or (ii) any other class or series of capital stock ranking senior to or on parity with the Series B Preferred Stock as to dividends or upon liquidation or (y) reclassify any shares of Common Stock into shares having any preference or priority as to dividends or upon liquidation superior to or on parity with any such preference or priority of Series B Preferred Stock;
(b)amend, restate, alter or repeal any of the rights, powers or preferences of the Series B Preferred Stock;
(c)amend, restate, alter or repeal the Certificate of Incorporation in a manner which would adversely affect a Holder’s ability to (i) transfer its shares of Series B Preferred Stock or Common Stock to any person or (ii) convert its shares of Series B Preferred Stock into Common Stock;
(d)directly or indirectly, declare or pay any dividend or distribution on, or directly or indirectly purchase, redeem, repurchase or otherwise acquire or permit any subsidiary of the Corporation to redeem, repurchase or acquire, any Junior Securities if (i) after giving effect to such action, the Corporation would not have sufficient funds legally available to redeem all outstanding shares of Series B Preferred Stock for an amount equal to the aggregate Series B Liquidation Preference of such shares or (ii) there are any accrued and unpaid Series B Preferred Dividends, Additional Series B Dividends or Series B Registration Default Dividends;
(e)incur any indebtedness for borrowed money, other than indebtedness (i) incurred in the ordinary course of business or (ii) procured from secured lenders of the Corporation holding outstanding indebtedness of the Corporation as of the
-15-
Series B Closing Date in an aggregate amount not to exceed the maximum authorized amount of credit available pursuant to the terms of credit agreement with such secured lender as in effect on the Series B Closing Date; or
(f)agree to do any of the foregoing.
(a)From and after May 2, 2023, each Holder shall have the right, at the Holder’s option, to require the Corporation to redeem all or any portion of such Holder’s shares of Series B Preferred Stock at a per share price equal to the Series B Liquidation Preference in effect on the Redemption Date (the “Series B Redemption Price”) by delivery of written notice to the Corporation (the “Redemption Request”) at least thirty (30) days prior to the proposed date of redemption (the “Redemption Date”) set forth in the Redemption Request.
(b)Promptly following receipt of a Redemption Request under Section 16(a) and no later than twenty (20) days prior to a Redemption Date contemplated thereby, the Corporation shall mail a notice of optional redemption by first-class mail, postage prepaid to each Holder (other than the Holder(s) who submitted the applicable Redemption Request), which notice shall state (i) the applicable Redemption Date and the applicable Series B Redemption Price and (ii) the date upon which the redemption right terminates, which shall be not earlier than seven (7) Business Days prior to the applicable Redemption Date. Any Holder may then, in its sole discretion, exercise its redemption right (without waiver of any other redemption rights herein) with respect to all or any portion of the shares of Series B Preferred Stock (the “Redemption Securities”) beneficially owned by such Holder by delivery to the Corporation of a written notice no less than seven (7) Business Days prior to the applicable Redemption Date stating (x) that such Holder is exercising the right of redemption described herein and (y) the number of shares of the Redemption Securities with respect to which such Holder is exercising its redemption right.
(c)In the event of a Fundamental Change, unless waived by the Required Series B Holders, each Holder shall have the right, at the Holder’s option, to require the Corporation to redeem all or any portion of such Holder’s shares of Series B Preferred Stock at a price equal to the Series B Redemption Price by delivery of a Redemption Request at least thirty (30) days prior to the Redemption Date set forth in the Redemption Request.
(d)In the event of a Fundamental Change other than an Exempt Transaction, the Corporation shall have the right, at the Corporation’s option, to redeem all or any portion of the outstanding shares of Series B Preferred Stock at a price equal to the Series B Redemption Price by delivery of written notice to the Holders (the “Redemption Notice”) at least thirty (30) days prior to the Redemption Date set forth in such Redemption Notice. Such Redemption Notice shall set forth the number of shares of Series B Preferred Stock being redeemed, the Series B Redemption Price and the Redemption Date.
-16-
(e)The Corporation shall pay the applicable Series B Redemption Price in cash on the later of (i) the Redemption Date and (ii) upon the receipt of surrender of the certificates, if any, representing the shares of Series B Preferred Stock to be redeemed (properly endorsed or assigned for transfer, if the Corporation shall so reasonably require, and letters of transmittal and instructions therefor on reasonable terms as are included in the notice sent by the Corporation); provided, that if such certificates are lost, stolen or destroyed, the Corporation may require the applicable Holder to execute an agreement reasonably satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection therewith, prior to paying such Series B Redemption Price.
(f)Shares of Series B Preferred Stock to be redeemed on the Redemption Date, as the case may be, will from and after the Redemption Date, no longer be deemed to be outstanding; and all powers, designations, preferences and other rights of the holder thereof as a holder of shares of Series B Preferred Stock (except the right to receive from the Corporation the applicable Series B Redemption Price) shall cease and terminate with respect to such shares; provided, that in the event that a share of Series B Preferred Stock is not redeemed due to a default in payment by the Corporation or because the Corporation is otherwise unable to pay the applicable Series B Redemption Price in cash in full, such share of Series B Preferred Stock will remain outstanding and will be entitled to all of the powers, designations, preferences and other rights as provided herein.
(g)Any redemption of shares of Series B Preferred Stock pursuant to this Section 16 (such redemption, the “Redemption”) shall be payable out of any cash legally available therefor. At the time of the Redemption, the Corporation shall take all actions required or permitted under Delaware law to permit the Redemption and to make funds legally available for such Redemption. To the extent that the Corporation has insufficient funds to redeem all of the shares of Series B Preferred Stock upon the Redemption, the Corporation shall use available funds to redeem a pro rata portion of such shares of Series B Preferred Stock (and a pro rata portion of shares of Series A Preferred Stock if redemption of such shares is required on the same date), to the extent permissible under Delaware law.
17.Corporate Opportunities. Notwithstanding anything contained in this Certificate of Designations, each Holder may freely offer to any other Person or effect on behalf of itself or any other Person any other investment or business opportunity or prospective economic advantage (which may include investments or activities relating to competitors of the Corporation), including those competitive with the business of the Corporation, or other transactions in which the Corporation, its subsidiaries, any Holder or any other stockholder of the Corporation may have an interest or expectancy, including as a result of any fiduciary duties applicable to such Person, in each case without any prior notification or approval of the Corporation or its Board or stockholders.
18.No Impairment. The Corporation will not, through any reorganization, transfer of assets, consolidation, merger, scheme or arrangement, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or
-17-
performance of any of the terms to be observed or performed hereunder by the Corporation but will at all time in good faith assist in the carrying out of all the provisions herein and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights and liquidation preferences granted hereunder of the Holders against impairment. Without limiting the generality of the foregoing, the Corporation (i) shall not increase the par value of any shares of Common Stock receivable upon conversion of the Series B Preferred Stock above the Series B Conversion Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock upon conversion of the Series B Preferred Stock, and (iii) shall, so long as any shares or fraction of a share of Series B Preferred Stock remain outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Series B Preferred Stock, 100% of the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock then outstanding (without regard to any limitations on conversion).
19.No Waiver. Except as otherwise modified or provided for herein, the Holders shall also be entitled to, and shall not be deemed to have waived, any other applicable rights granted to such Holders under the Delaware General Corporation Law.
20.No Preemptive Rights. No Holder of any shares of Series B Preferred Stock shall have any preemptive right to subscribe to any issue of the same or other capital stock of the Corporation.
21.Amendment; Waiver. Any term of the Series B Preferred Stock may be amended or waived (including the adjustment provisions included in Section 7 hereof) upon the written consent of the Corporation and the Holders of at least 66% of the Series B Preferred Stock then outstanding.
22.Action By Holders. Any action or consent to be taken or given by the holders of the Series B Preferred Stock may be given either at a meeting of the Holders of the Series B Preferred Stock called and held for such purpose or by written consent.
23.Fractional Shares. Series B Preferred Stock may be issued in fractions of a share that shall entitle each Holder, in proportion to such Holder’s fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series B Preferred Stock.
-18-
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designations, Preferences and Rights this 10th day of March, 2017.
CONNECTURE, INC. |
||
|
|
|
By: |
|
/s/ Vincent E. Estrada |
Name: |
|
Vincent E. Estrada |
Title: |
|
Chief Financial Officer |
[Signature Page to Connecture, Inc. Certificate of Designations, Preferences and Rights]
Exhibit A
FORM OF
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF
SERIES B PREFERRED STOCK)
The undersigned hereby elects to convert the number of shares of Series B Convertible Preferred Stock, par value $0.001 per share (“Series B Preferred Stock”), of Connecture, Inc., a Delaware corporation (the “Corporation”), indicated below into shares of common stock, par value $0.001 per share (“Common Stock”), of the Corporation according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as may be required by the Corporation. No fee will be charged to the Holders for any conversion, except as described in the Corporation’s Certificate of Designations, Preferences and Rights classifying the Series B Preferred Stock (the “Certificate of Designations”).
Conversion calculations:
Date to Effect Conversion: |
|
|
|
Number of shares of Series B Preferred Stock owned prior to Conversion: |
|
|
|
Number of shares of Series B Preferred Stock to be Converted: |
|
|
|
Applicable Series B Conversion Rate: |
|
|
|
Number of shares of Series B Preferred Stock subsequent to Conversion: |
|
|
|
Address for Delivery: |
|
|
|
OR |
|
|
|
DWAC Instruction: |
|
Broker No.: |
|
Account No. |
|
Capitalized terms used but not defined herein have the respective meaning assigned thereto in the Certificate of Designations.
[HOLDER] |
|
|
|
By: |
|
Name: |
|
Title: |
|
-21-
Exhibit 4.1
INVESTOR RIGHTS AGREEMENT
Dated as of March 10, 2017
by and among
CONNECTURE, INC.,
FRANCISCO PARTNERS IV, L.P.,
FRANCISCO PARTNERS IV-A, L.P.
and
CHRYSALIS VENTURES II, L.P.
|
|
|
|
Page |
|
|
|
|
|
|
|
ARTICLE I |
|
|
|
|
Definitions |
|
|
SECTION 1.01. |
|
Definitions |
|
1 |
|
|
ARTICLE II |
|
|
|
|
Corporate Governance |
|
|
SECTION 2.01. |
|
Actions at the Closing |
|
9 |
SECTION 2.02. |
|
Committee Composition. |
|
10 |
SECTION 2.03. |
|
Investor Director; Observer. |
|
11 |
SECTION 2.04. |
|
Step-Downs of Investor Board Rights. |
|
13 |
SECTION 2.05. |
|
Director Qualifications |
|
14 |
SECTION 2.06. |
|
Investor Consent |
|
15 |
SECTION 2.07. |
|
Corporate Opportunities |
|
16 |
SECTION 2.08. |
|
Board Obligations |
|
16 |
|
|
ARTICLE III |
|
|
|
|
Registration Rights |
|
|
SECTION 3.01. |
|
Registration |
|
16 |
SECTION 3.02. |
|
Piggyback Registration |
|
19 |
SECTION 3.03. |
|
Registration Procedures |
|
21 |
SECTION 3.04. |
|
Suspension |
|
25 |
SECTION 3.05. |
|
Expenses of Registration |
|
26 |
SECTION 3.06. |
|
Information by Holders |
|
26 |
SECTION 3.07. |
|
Rule 144 Reporting |
|
27 |
SECTION 3.08. |
|
Holdback Agreement |
|
28 |
SECTION 3.09. |
|
Indemnification |
|
28 |
SECTION 3.10. |
|
Transfer of Registration Rights |
|
31 |
SECTION 3.11. |
|
Termination of Registration Rights |
|
31 |
SECTION 3.12. |
|
Registration Default |
|
32 |
|
|
ARTICLE IV |
|
|
|
|
Limitations on Transfers |
|
|
SECTION 4.01. |
|
Limitation on Transfer of Series B Preferred Stock |
|
33 |
SECTION 4.02. |
|
Permitted Transfers |
|
33 |
SECTION 4.03. |
|
Legend |
|
34 |
|
|
ARTICLE V |
|
|
|
|
Additional Agreements |
|
|
SECTION 5.01. |
|
Information and Access |
|
35 |
SECTION 5.02. |
|
Confidentiality |
|
36 |
SECTION 5.03. |
|
Section 16 Matters |
|
37 |
|
|
ARTICLE VI |
|
|
|
|
Miscellaneous |
|
|
SECTION 6.01. |
|
Notices |
|
38 |
SECTION 6.02. |
|
Amendments; Waivers |
|
39 |
SECTION 6.03. |
|
Counterparts and Facsimile |
|
39 |
|
Governing Law; Specific Enforcement; Submission to Jurisdiction; Waiver of Jury Trial |
|
40 |
|
SECTION 6.05. |
|
Interpretation |
|
41 |
SECTION 6.06. |
|
Severability |
|
42 |
SECTION 6.07. |
|
No Third-Party Beneficiaries |
|
42 |
SECTION 6.08. |
|
Assignment |
|
42 |
SECTION 6.09. |
|
Termination |
|
43 |
SECTION 6.10. |
|
Entire Agreement, etc. |
|
43 |
ii
INVESTOR RIGHTS AGREEMENT, dated as of March 10, 2017 (this “Agreement”), by and among Connecture, Inc., a Delaware corporation (the “Company”), Francisco Partners IV, L.P., a Cayman Islands limited partnership, Francisco Partners IV-A, L.P., a Cayman Islands limited partnership (together with Francisco Partners IV, L.P., the “FP Investors”), and, solely for purposes of Articles III, IV and VI and Section 5.03 (and related definitions) hereof, Chrysalis Ventures II, L.P., a Delaware limited partnership (“Chrysalis” and, together with the FP Investors, the “Investors” and each, an “Investor”).
WHEREAS, the Company and the Investors are parties to an Investment Agreement, dated as of the date hereof (the “Investment Agreement”), pursuant to which on the date hereof the Company issued, sold and delivered to the Investors, and the Investors purchased and acquired from the Company, pursuant to the terms and subject to the conditions set forth therein, an aggregate of 17,500 shares of the Company’s Series B Convertible Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”), having the designation, powers, preferences and rights, and the qualifications, limitations and restrictions, as specified in the Certificate of Amendment of the Company’s Certificate of Incorporation filed with the Department of State of the State of Delaware on the date hereof, providing for the designation of the Series B Preferred Stock (the “Series B Certificate of Designations”); and
WHEREAS, the Company and the Investors desire to establish in this Agreement certain terms and conditions concerning the rights of and restrictions on the Investors with respect to the Investors’ ownership of the Series B Preferred Stock and other capital stock of the Company, and it is a condition of the closing of the transactions contemplated by the Investment Agreement that the Company and the Investors execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:
SECTION 1.01.Definitions. As used in this Agreement (including the recitals hereto), the following terms shall have the following meanings:
“5.0% Aggregate Beneficial Ownership Requirement” means that the FP Investor Parties beneficially own, on any date of determination, shares of Series A Preferred Stock, shares of Series B Preferred Stock and/or shares of Common Stock that represent, in the aggregate and on an as converted basis, at least 5.0% of the aggregate number of outstanding shares of Common Stock (including the Series A Preferred Stock and Series B Preferred Stock on an as converted basis) of the Company.
1
“10.0% Beneficial Ownership Requirement” means that the FP Investor Parties continue to beneficially own at all times shares of Series A Preferred Stock, shares of Series B Preferred Stock and/or shares of Common Stock that represent, in the aggregate and on an as converted basis, at least 10.0% of the number of shares of Common Stock beneficially owned by the FP Investor Parties, on an as converted basis, as of the Closing.
“Adverse Disclosure” means public disclosure of material non-public information that, in the good faith judgment of the Company (after consultation with legal counsel): (a) would be required to be made in any registration statement filed with the SEC by the Company so that such registration statement would not be materially misleading; (b) would not be required to be made at such time but for the filing, effectiveness or continued use of such registration statement; and (c) the Company has a bona fide business purpose for not disclosing publicly.
“Affiliate” means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such specified Person; provided that the following Persons shall not be deemed to be Affiliates of an Investor or any of its Affiliates: (a) the Company and its Subsidiaries and (b) any portfolio company in which such Investor or any of its Affiliates has an investment (whether debt or equity) or any of such portfolio companies’ controlled Affiliates, so long as, in the case of this clause (b), such Person shall not have been acting on behalf of or at the direction of such Investor or any of its Affiliates or received any Confidential Information from or on behalf of such Investor (it being acknowledged and agreed that an employee of such Investor or its Affiliates that is a director or officer of such portfolio company or its controlled Affiliates shall not be deemed to have received Confidential Information solely by reason of such individual serving on the board or similar governing body of such portfolio company). For the purposes of this definition, “control”, when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
Any Person shall be deemed to “beneficially own”, to have “beneficial ownership” of, or to be “beneficially owning” any securities (which securities shall also be deemed “beneficially owned” by such Person) that such Person is deemed to “beneficially own” within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the date hereof; provided that any Person shall be deemed to beneficially own any securities that such Person has the right to acquire, whether or not such right is exercisable immediately, within 60 days or otherwise (including assuming conversion of all Series A Preferred Stock and Series B Preferred Stock, if any, owned by such Person into shares of Common Stock).
“Board” means the board of directors of the Company.
2
“Business Day” means any day except a Saturday, a Sunday or other day on which the SEC or banking institutions in New York, New York are authorized or required by law, regulation or executive order to be closed.
“Bylaws” means the Amended and Restated Bylaws of the Company as of the Signing Date, as the same shall be amended, modified or supplemented between the Signing Date and Closing in accordance with the Investment Agreement, and as may be amended, modified or supplemented from and after the Closing in compliance with this Agreement.
“Capital Stock” means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) stock issued by the Company.
“Certificate of Incorporation” means the Sixth Amended and Restated Certificate of Incorporation of the Company, as amended by the Series A Certificate of Designations, as amended by the Series B Certificate of Designations, as the same may be further amended from time to time in compliance with this Agreement and the Investment Agreement.
“Closing” means the closing of the Purchase.
“Closing Date” means the date on which the Closing occurs.
“Committee Qualification Requirements” means, with respect to each committee of the Board, the requirements for service on such committee generally applicable to all of the members of such committee (and not, for the avoidance of doubt, requirements applicable to a director fulfilling a particular function) as set forth in (a) any applicable Law, (b) the NASDAQ Stock Market Rules, (c) the Corporate Governance Guidelines and (d) such committee’s charter, in the case of clauses (c) and (d), as publicly disclosed and as in effect prior to the Signing Date, and as may be amended, modified or supplemented from and after the Closing in compliance with this Agreement.
“Common Stock” means the common stock, par value $0.001 per share, of the Company and any Capital Stock issued in exchange for or as a result of the conversion of such Common Stock.
“Competitor” means those Persons identified by the Board in its good faith judgment as directly and actively engaged in the operation of a web-based consumer shopping, enrollment and retention platform for health insurance distribution or similar business competitive with the Company; provided that “Competitor” shall not include any financial institution, conglomerate, private equity firm, hedge fund, mutual fund, sovereign wealth fund, family office or other institutional investors or similar entity or any Affiliate thereof which owns, is under common control with, or has an equity or debt interest in, any portfolio company or Affiliate that is a Competitor (other than any such portfolio company or Affiliate that is a Competitor).
3
“Conversion Shares” means the Common Stock issuable upon the conversion or exchange of (i) the shares of Series B Preferred Stock and (ii) any Common Stock issuable as a dividend on the shares of Series B Preferred Stock.
“Corporate Governance Guidelines” means the corporate governance guidelines of the Company applicable to all members of the Board or of such Board committee, as applicable, as publicly disclosed and as in effect prior to the Signing Date, as the same shall be amended, modified or supplemented between the Signing Date and Closing in accordance with the Investment Agreement, and as may be amended, modified or supplemented from and after the Closing in accordance with this Agreement.
“Director” means a member of the Board.
“Director Qualification Standards” means (a) any requirements generally applicable to all of the Directors (and not, for the avoidance of doubt, requirements applicable to a director fulfilling a particular function) regarding service as a Director of the Company under applicable Law or the rules and regulations of NASDAQ and (b) any additional qualification standards generally applicable to all Directors (and not, for the avoidance of doubt, requirements applicable to a director fulfilling a particular function) established by the Board for eligibility of individuals to serve as Directors as in effect and publicly disclosed prior to the Signing Date, as the same may be amended, modified or supplemented from and after the Closing in accordance with this Agreement.
“Equity Security” means (a) any Common Stock, Series A Preferred Stock, Series B Preferred Stock or other Voting Stock, (b) any securities of the Company convertible into or exchangeable for Common Stock, Series A Preferred Stock, Series B Preferred Stock or other Voting Stock or (c) any options, rights or warrants (or any similar securities) issued by the Company to acquire Common Stock, Series A Preferred Stock, Series B Preferred Stock or other Voting Stock.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Fall-Away of Investor Board Rights” means the first day on which the 10.0% Beneficial Ownership Requirement is not satisfied.
“FP Investor Party” or “FP Investor Parties”, as applicable, means, collectively, the FP Investors and their respective Affiliates and any investment fund managed or controlled by any FP Investor or its Affiliates to whom (a) shares of Series B Preferred Stock or Common Stock are transferred pursuant to and in accordance with Section 4.02 or (b) shares of Series A Preferred Stock or Common Stock are transferred pursuant to and in accordance with Section 4.02 of that certain Investment Agreement dated as of March 11, 2016, among the parties hereto.
“Governmental Entity” means any federal, state, provincial, local or foreign governmental, administrative or regulatory (including any stock exchange) authority, agency, court, instrumentality, binding arbitration body, commission or other entity or self-regulatory organization.
4
“Investor Director Designee” means any individual designated in writing by the FP Investor Parties to be designated, appointed or elected to the Board pursuant to Section 2.01(b) or 2.03, as applicable. For the avoidance of doubt, each of the Initial Investor Director Designees shall be considered an Investor Director Designee for all purposes of this Agreement.
“Investor Director” means any member of the Board who was designated, appointed or elected to the Board pursuant to Section 2.01(b) or 2.03 as the Investor Director Designee.
“Judgment” means any judgment, writ, stipulation, award, injunction, determination, order or decree of any Governmental Entity.
“Laws” means all federal, national, state, or local statutes, laws (including common laws), ordinances, rules, requirements, directives or regulations of any Governmental Entity, together with any decision or approval of, or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Entity.
“Material Company Breach” means the Company materially breaches any provision of any Transaction Document and fails to cure such breach, in the event such breach is curable, within five (5) days following written notice thereof from any Investor.
“NASDAQ” means the NASDAQ Global Market and its successors.
“National Securities Exchange” means the NYSE or NASDAQ.
“Nominating Committee” means the Nominating and Corporate Governance Committee of the Board or any successor committee thereto.
“NYSE” means the New York Stock Exchange and its successors.
“Other Director” means a Director that is not designated by the FP Investor Parties.
“Person” means any individual, estate, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Entity or other entity.
5
“Prohibited Transferee” means those Competitors of the Company identified by the Company by prior written notice to the Investors on the date hereof and Affiliates of such Competitors that are either identified in such notice or are clearly identifiable on the basis of such Affiliates’ names, which list of Prohibited Transferees may be updated by the Company on the last day of each fiscal quarter by written notice to the Investors on such date in the manner contemplated in Section 6.01, with such updated list taking effect on the date of receipt of such notice, provided that it shall take effect on the 20th day of the following calendar month with respect to a particular Competitor if the transferring holder had been in contact with such Competitor prior to the date of receipt of such notice regarding such transfer (i.e., January 20 if notice of updated list sent on December 31), it being understood and agreed that the identification of any Person as a Prohibited Transferee after the Closing Date shall not apply to retroactively disqualify any Person that has previously acquired (or acquires prior to the 20th day of the following calendar month if the transferring holder had been in contact with such Person prior to the date of receipt of notice of the updated list regarding such transfer) any shares of Series B Preferred Stock (including any Conversion Shares) or beneficial interest therein so long as such Person was not a Prohibited Transferee at the time it became the holder of such shares of Series B Preferred Stock or beneficial interest therein. The list of Prohibited Transferees shall be made available upon request to the Investors and their transferees and their respective prospective transferees.
“Purchase” means the purchase of Series B Preferred Stock by the Investors pursuant to the Investment Agreement.
“register”, “registered” and “registration” shall refer to a registration effected by preparing and filing a registration statement with the SEC in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement by the SEC or the automatic effectiveness of such registration statement, as applicable.
“Registrable Securities” means all shares of Series B Preferred Stock and all Conversion Shares; provided, however, that such securities shall cease to be Registrable Securities when (a) a registration statement relating to all such securities shall have been declared effective by the SEC and all such securities shall have been disposed of by an Investor pursuant to such registration statement, (b) all such securities are freely tradeable by an Investor pursuant to Rule 144 promulgated under the Securities Act within one three-month period without registration, or (c) in the case of Series B Preferred Stock, all such securities have been converted into Common Stock or redeemed in accordance with their terms and are no longer outstanding.
6
“Registration Expenses” means (a) all expenses incurred by the Company in complying with Sections 3.01 or 3.02, including all registration, qualification, listing and filing fees, expenses incurred by the Company in connection with any roadshow related to such registration and offering, auditor fees, printing expenses, escrow fees, and fees and disbursements of counsel for the Company, blue sky fees and expenses; (b) reasonable, documented out-of-pocket fees and expenses of one outside legal counsel to the Investors and all Holders retained in connection with registrations contemplated hereby; and (c) reasonable, documented out-of-pocket fees and expenses for any local counsel necessary to effect a registration contemplated hereby, if applicable; provided, however, that Registration Expenses shall not be deemed to include any Selling Expenses.
“Related Investment Funds” means (a) any current or potential private equity funds, parallel investment funds, co-investment funds, successor investment funds and other investment vehicles and managed accounts under direct or indirect common management, governance or control and other similar investment management relationships with, any Investor or its Affiliates and (b) any current or potential limited partners or members of each Person described in clause (a).
“Representatives” means, with respect to any Person, the directors, officers, employees, investment bankers, financial advisors, attorneys, accountants, consultants or other advisors, agents or representatives of such Person or any of its Affiliates.
“Rule 144” means Rule 144 promulgated under the Securities Act and any successor provision.
“SEC” means the U.S. Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Selling Expenses” means (a) all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by any Investor holding Registrable Securities and (b) the fees and expenses of any counsel to such Investor (other than such fees and expenses expressly included in Registration Expenses).
“Series A Preferred Stock” means the Company’s Series A Convertible Preferred Stock, par value $0.001 per share, having the designation, powers, preferences and rights, and the qualifications, limitations and restrictions, as specified in the Certificate of Amendment of the Company’s Certificate of Incorporation filed with the Department of State of the State of Delaware on April 29, 2016, providing for the designation of the Series A Preferred Stock (the “Series A Certificate of Designations”).
“Shelf Registration” means a Resale Shelf Registration or a Subsequent Shelf Registration, as applicable.
7
“Signing Date” means the date hereof.
“Subsidiary” means, with respect to any Person, another Person, an amount of the voting securities, other voting rights or voting partnership interests of which is sufficient to elect at least a majority of its board of directors or other governing body (or, if there are no such voting interests, more than 50% of the equity interests of which) is owned directly or indirectly by such first Person.
“Transaction Documents” has the meaning set forth in the Investment Agreement.
“Underwriter” means a securities dealer who purchases any Registrable Securities as a principal in connection with a distribution of such Registrable Securities and not as part of such dealer’s market-making activities.
“Voting Stock” means the Common Stock, the Series A Preferred Stock, the Series B Preferred Stock and any other Capital Stock of the Company having the right to vote generally in any election of Directors.
(a) In addition to the terms defined in Section 1.01(a), the following terms have the meanings assigned thereto in the Sections set forth below:
Term |
Section |
Action |
6.04(c) |
Agreement |
Preamble |
Chrysalis |
Preamble |
Company |
Preamble |
Company Indemnified Parties |
3.09(a) |
Confidential Information |
5.02 |
Effectiveness Period |
3.01(b) |
FINRA |
3.03(a)(xiv) |
FP Investors |
Preamble |
Holder Indemnified Parties |
3.09(b) |
Holders |
3.01(a) |
Indemnified Party |
3.09(c) |
Indemnifying Party |
3.09(c) |
Initial Investor Director Designee |
2.01(b)(ii) |
Interruption Period |
3.03(b) |
Investment Agreement |
Recitals |
Investor |
Preamble |
Investor Related Parties |
2.07 |
Investor Transactions |
2.07 |
Lead Independent Director |
2.02(b) |
Losses |
3.08 |
Observer |
2.02(b) |
8
Term |
Section |
Offering Persons |
3.03(a)(xv) |
Piggyback Registration Statement |
3.02(b) |
Piggyback Request |
3.02(b) |
Registration Default |
3.12 |
Resale Shelf Registration Statement |
3.01(a) |
Restricted Period |
4.01(a) |
Series B Preferred Stock |
Recitals |
Series B Certificate of Designations |
Recitals |
Shelf Offering |
3.01(g) |
Subsequent Holder Notice |
3.01(e) |
Subsequent Shelf Registration |
3.01(c) |
Take-Down Notice |
3.01(g) |
Transfer |
4.01(a) |
Underwritten Offering |
3.01(f)(i) |
Underwritten Offering Notice |
3.01(f)(i) |
ARTICLE II
Corporate Governance
SECTION 2.01.Actions at the Closing. The Company and the Board shall take all necessary action to cause, effective as of the Closing:
(a) the size of the Board to be increased to 8 members;
(b) the Board to include two members to be designated by the FP Investor Parties, one of whom shall be a Class II Director whose term expires at the 2019 annual meeting of the Company’s stockholders and the other of whom shall be a Class I Director whose term expires at the 2018 annual meeting of the Company’s stockholders (the “Initial Investor Director Designees”); and
(c) the Board to establish a committee of the Board, the sole members of which are the Initial Investor Director Designees, and the charter of which will provide that only Investor Directors may be members and amendment of such charter requires the approval of the Investor Directors, which committee shall have sole authority to approve or ratify increasing the size of the Board pursuant to Section 2.03(b), increasing the size of any committee of the Board pursuant to Section 2.02(a), filling vacancies on the Board with respect to any vacancies created as a result of an increase in the size of the Board pursuant to Section 2.03(b), any vacancy due to one or more Initial Investor Director Designees not being members of the Board as of the Closing, or any vacancy filled by the removal or resignation of any Investor Director, to the extent that any such approval or ratification is required. The committee of the Board required pursuant to this Section 2.01(c) shall remain in existence for so long as the FP Investor Parties are entitled to designate Investor Directors pursuant to Section 2.03, and upon the termination of such rights, such committee shall automatically dissolve, with all rights delegated to such committee returned to the Board.
9
SECTION 2.02.Committee Composition.
(a) Unless and until there has occurred a Fall-Away of Investor Board Rights, for so long as the 5.0% Aggregate Beneficial Ownership Requirement is satisfied, the FP Investor Parties shall have the right to designate up to such number of Investor Directors to serve on each committee of the Board such that the aggregate number of Investor Directors on such committee will equal the product of (x) the percentage of the total voting power for the regular election of directors of the Company beneficially owned by the FP Investor Parties and (y) the number of Directors then on such committee; provided, however, that such product shall be rounded up to the nearest whole number of Directors, and to remove and/or replace such Investor Directors, and the Company shall cause the Board to promptly (and in any event within three Business Days of such request, unless otherwise mutually agreed) designate such Investor Directors to serve as members of such committees of the Board as the FP Investor Parties shall identify, and remove such Investor Directors as members of the committees of the Board as identified by the FP Investor Parties; provided, that the designation of any Investor Director shall in each case be subject to such Investor Director meeting the applicable Committee Qualification Requirements. The Company shall (i) if necessary, cause the Board, as promptly as reasonably practicable (and in any event within three Business Days of such designation), to increase the size of any committee by such number of Investor Director(s) and to fill the resulting vacancy with such Investor Director and (ii) automatically and without further action by the Board, include such Investor Director on such committee. Other than as required by the rules and regulations of the SEC and NASDAQ, the Company’s corporate governance guidelines applicable to all of the members of such committee or such committee’s charter, no Investor Director designated to the a committee of the Board pursuant to this Section 2.02 shall be removed from his or her position on such committee without the consent of the FP Investor Parties.
(b) If at any time an Investor Director does not meet the Committee Qualification Requirements, the FP Investor Parties shall have the right to select another Investor Director or one of the Other Directors, and the Board shall take all necessary action to appoint such other Investor Director or Other Director (subject to such other Investor Director’s or Other Director’s agreement to serve and such other Investor Director or Other Director meeting the Committee Qualification Requirements), to serve on such committee of the Board in place of the applicable Investor Director.
(c) Unless and until there has occurred a Fall-Away of Investor Board Rights, the FP Investor Parties shall have the right to designate any person (including, for the avoidance of doubt, the Investor Director, if any) to serve as a non-voting observer (an “Observer”) on each committee of the Board that does not include an Investor Director as a member, which Observer shall have the rights set forth in Section 2.03(c).
10
SECTION 2.03.Investor Director; Observer.
(a) Unless and until there has occurred a Fall-Away of Investor Board Rights, (i) for so long as the 5.0% Aggregate Beneficial Ownership Requirement is satisfied, the FP Investor Parties shall be entitled to designate up to such number of Persons to serve as Investor Directors such that the aggregate number of Investor Directors will equal the product of (x) the percentage of the total voting power for the regular election of directors of the Company beneficially owned by the FP Investor Parties and (y) the number of directors then on the Board; provided, however, that such product shall be rounded up to the nearest whole number of directors, subject to such Person’s satisfaction of the Director Qualification Standards and (ii) at any time that no Investor Director is a member of the Board, the FP Investor Parties shall be entitled to designate one (1) Observer to the Board.
(b) In the event that the FP Investor Parties designate any Investor Director Designee(s) pursuant to clause (a)(i) above, the Company shall (i) if necessary, cause the Board, as promptly as reasonably practicable (and in any event within three Business Days of such designation), to increase the size of the Board by such number of Investor Director Designee(s) and to fill the resulting vacancy with such Investor Director Designee(s), (ii) automatically and without further action by the Board, include such Investor Director Designee(s) on the Board, (iii) include such Investor Director Designee(s) in its slate of nominees for election to the Board at each annual or special meeting of the stockholders of the Company at which directors are to be elected and at which the seat held by such Investor Director Designee(s) is subject to election and (iv) recommend that the Company’s stockholders vote in favor of the election of such Investor Director Designee(s) at any such annual or special meeting of the Company’s stockholders and shall use its reasonable best efforts to cause such Investor Director Designee(s) to be elected by the stockholders, subject in each case to the Directors’ fiduciary duties. The Company and the Board shall take all necessary actions to ensure that, at all times when the Investor Director Designee is eligible to be designated, appointed or nominated, there are sufficient vacancies on the Board to permit such designation. For the avoidance of doubt, the FP Investor Parties shall not be required to comply with the advance notice provisions generally applicable to the nomination of Directors by the Company so long as the FP Investor Parties provide reasonable advance notice to the Company of the Director Designee prior to the mailing of the proxy statement by the Company (provided, that the Company shall provide reasonable advance notice to the FP Investor Parties of the expected mailing date).
(c) In the event that the FP Investor Parties designate an Observer pursuant to Section 2.03(a) or an Observer of a Board committee pursuant to Section 2.02(c), such Observer shall (i) have the right to receive (when and as received by the Directors of the Board or members of such committee) due notice of and to attend (whether in person or by telephone) and participate in discussions at (but not vote on any matters on which the Directors are entitled to vote) all meetings of the Board and all meetings of committees of the Board, and (ii) have the right to receive copies of all documents and other information, including minutes, consents, business plans, presentation materials, budgets and financial information furnished generally to members
11
of the Board and all committees thereof when and as received by the members of the Board or committee thereof, as applicable; provided, however, that the Company reserves the right to exclude the Observer from access to any material or meeting or portion thereof upon the vote of a majority of the Directors or members of such committee, as applicable, if (x) such exclusion is reasonably necessary to preserve the attorney-client privilege, (y) the Company has received advice of legal counsel that if the Observer obtained such information it would result in a conflict of interest or (z) the Company has received advice of legal counsel that providing the Observer such information is prohibited under applicable Laws; provided, further, that at any time that the FP Investor Parties are not entitled to designate for nomination an Investor Director Designee pursuant to Section 2.03(a)(i) due to the FP Investor Parties’ failure to satisfy the 5.0% Aggregate Beneficial Ownership Requirement, the Company reserves the right to exclude the Observer on any committee of the Board from access to any committee material or committee meeting or portion thereof upon the vote of a majority of the members of such committee if, in the good faith reasonable judgment of such committee members, such exclusion is in the best interests of the Company and its stockholders; provided, further, that the Observer appointed, from time to time by the FP Investor Parties shall hold all Confidential Information disclosed at any meeting of the Board or in connection with any consent of the Board, in accordance with the provisions of Section 5.02. The Company shall use its good faith efforts to provide advance written notice to the Observer of any intent to withhold information from such Observer or to exclude such Observer from attending any meeting or portion thereof in accordance with this Section 2.03(c), together with a general description of the information or materials that has been withheld to the extent that providing such description is not reasonably expected to either jeopardize the attorney-client privilege to be preserved or result in the conflict to be avoided.
(d) Without the prior written consent of the FP Investor Parties, until such time as the Fall-Away of the Investor Board Rights has occurred, the Board shall not remove any Investor Director or Observer from his or her respective position (subject to Section 2.04). The FP Investor Parties shall have the sole right to remove any Investor Director or Observer at any time and to nominate, designate or appoint, as applicable, any replacement or successor thereof.
(e) If an Investor Director ceases to serve on the Board for any reason (other than pursuant to Section 2.04) during his or her term (until such time as there has occurred a Fall-Away of Investor Board Rights or the 5.0% Aggregate Beneficial Ownership Requirement is not satisfied), the vacancy created thereby shall be filled, and the Company shall cause the Board to fill such vacancy, with a new Investor Director Designee and appoint such Investor Director to any committee of the Board requested by the FP Parties in accordance with Section 2.02, subject to satisfaction of the applicable Committee Qualification Requirements.
(f) Unless and until there has occurred a Fall-Away of Investor Board Rights or the 5.0% Aggregate Beneficial Ownership Requirement is not satisfied, upon the written request of the FP Investor Parties, the Board shall cause the Company to call a special meeting of the holders of Series B Preferred Stock for the purpose of electing the Investor Directors at such time and location as the FP Investor Parties may reasonably request (subject to applicable Law), in addition to designation by written request of the FP Investor Parties.
12
(g) For the avoidance of doubt, the Investor Directors and Observer shall be entitled to travel and expense reimbursement for their reasonable and documented out-of-pocket expenses incurred in connection with travelling to and from meetings of the Board and/or any committee of the Board. In addition, (x) the Investor Directors shall be entitled to enter into a customary indemnification agreement with the Company on terms that are, in the event that the Company has entered into any such agreement with another non-employee Director, no less favorable than that provided to such other non-employee Director and in any event no less favorable than as in effect as of the Signing Date, and (y) the Company shall maintain in full force and effect directors’ and officers’ liability insurance containing terms that are reasonably satisfactory to the FP Investor Parties. Each Investor Director shall be covered as an insured director, in such a manner as to provide each Investor Director in his or her capacity as a Director with rights and benefits under all directors’ and officers’ insurance policies no less favorable than those provided to any other non-employee Directors. The Company acknowledges and agrees that the Company is the indemnitor of first resort with respect to any Investor Related Party who is an officer, director or other fiduciary of the Company and its Subsidiaries (i.e., its obligations to such Person are primary and any obligation of any other Persons to which such Investor Director or its Affiliates may have rights to advancement of expenses or to indemnification for the same expenses or liabilities incurred by such Investor Related Party are secondary).
(h) Unless and until there has occurred a Fall-Away of Investor Board Rights, for so long as the 5.0% Aggregate Beneficial Ownership Requirement is satisfied, and for so long as there is any Investor Director on the Board, a quorum of the Board shall require the Investor Director be present at such meeting of the Board.
SECTION 2.04.Step-Downs of Investor Board Rights.
(a) Following the occurrence of the Fall-Away of Investor Board Rights, if there are one or more Investor Directors then serving on the Board, then, at the written request of a majority of the Other Directors to the FP Investor Parties, Investor Directors equal in number to the number requested by the majority of the Other Directors and specified by the FP Investor Parties (or, if the FP Investor Parties fail to do so within five Business Days of such requirement not being satisfied, specified by a majority of the Other Directors), shall immediately resign, and the FP Investor Parties shall cause such Investor Directors to immediately resign, from his or her position as a member of the Board and the committees of the Board on which such Investor Director is then a member, in each case effective as of the receipt of such notice. For the avoidance of doubt, following the occurrence of the Fall-Away of Investor Board Rights or the 5.0% Aggregate Beneficial Ownership Requirement is no longer satisfied, the FP Investor Parties shall only have the right to designate an Observer in accordance with Sections 2.02(c) and 2.03(a)(ii).
13
(b) Following the occurrence of the Fall-Away of Investor Board Rights, at the written request of a majority of the Directors to the FP Investor Parties, the Observer of the Board shall immediately resign, and the FP Investor Parties shall cause such Observer to immediately resign, effective as of the receipt of such notice, and (ii) the FP Investor Parties shall no longer have any rights with respect to Investor Directors or Observers, including under Sections 2.01, 2.02, 2.03 and this 2.04.
(c) If prior to the Fall-Away of Investor Board Rights, the number of Investor Directors serving on the Board exceeds the number of Investor Directors that the FP Investor Parties are entitled to designate pursuant to Section 2.03(a) (the “Authorized Investor Directors”), then, at the written request of a majority of the Other Directors to the FP Investor Parties, Investor Directors equal in number to the number of Investor Directors serving in excess of the number of Authorized Investor Directors and specified by the FP Investor Parties (or, if the FP Investor Parties fail to do so within five Business Days of such requirement not being satisfied, specified by a majority of the Other Directors), shall immediately resign, and the FP Investor Parties shall cause such Investor Directors to immediately resign, from his or her position as a member of the Board and the committees of the Board on which such Investor Director is then a member, in each case effective as of the receipt of such notice.
(d) Following the resignation of an Investor Director pursuant to Section 2.04(a) or 2.04(b), the Board shall take all necessary action to reduce the size of the Board to eliminate the vacancy created by such resignation.
SECTION 2.05.Director Qualifications.
(a) Notwithstanding anything to the contrary in this Agreement or the Series B Certificate of Designations, the FP Investor Parties agree that, prior to and as a condition to the election to the Board of any Investor Director Designee, (x) such Investor Director Designee shall have satisfied the Director Qualification Standards (and the Company acknowledges and agrees that the Initial Investor Director Designees have satisfied such requirements as of the date hereof); provided that (1) no Investor Director Designee shall be eligible to serve on the Board if he or she has been involved in any of the events enumerated under Item 2(d) or (e) of Schedule 13D under the Exchange Act or Item 401(f) of Regulation S-K under the Securities Act (to the extent material to his or her ability or integrity to serve as a Director) or is subject to any Judgment prohibiting service as a director of any public company and (2) if any Investor Director Designee shall fail to satisfy the Director Qualification Standards or the requirements of the preceding clause (1), the FP Investor Parties agree that such Investor Director Designee shall not be nominated or elected to the Board, and the FP Investor Parties shall have the right to designate a replacement therefor (which replacement Investor Director Designee shall be subject to the requirements of this Section 2.05), (y) each Investor Director Designee shall (and the FP Investor Parties shall cause each Investor Director Designee to) make himself or herself reasonably available for an interview and to consent to such customary reference and background checks as the Nominating Committee may reasonably request to determine such Investor Director Designee’s eligibility to serve as a Director and compliance with the Director Qualification Standards and (z) each Investor Director Designee must provide to the Company:
14
(i) all information reasonably requested by the Company that is required to be or is customarily disclosed for Directors, candidates for Directors and their respective Affiliates in a proxy statement or other filings in accordance with applicable Law, any NASDAQ rules or listing standards or the Certificate of Incorporation or Bylaws or Corporate Governance Guidelines, in each case, relating to such Investor Director Designee’s nomination or election, as applicable, as a Director; and
(ii) all information reasonably requested by the Company in connection with assessing eligibility under the Director Qualification Standards and the Committee Qualification Requirements, in each case, relating to such Investor Director Designee’s nomination or election, as applicable, as a Director.
(b) No FP Investor Party shall be under any obligation to vote in the same manner as recommended by the Board or in any other manner, other than in its sole discretion; provided, that, until there has occurred a Fall-Away of Investor Board Rights, at each meeting of the stockholders of the Company and at every postponement or adjournment thereof, the FP Investor Parties shall take all reasonable actions such that all of the shares of Series B Preferred Stock and Common Stock beneficially owned, directly or indirectly, by the FP Investor Parties and entitled to vote at such meeting of stockholders are voted in favor of the Investor Director Designee.
SECTION 2.06.Investor Consent. Until the Fall-Away of Investor Board Rights, without the prior written consent of the FP Investor Parties, the Company shall not take (and the Board shall not authorize the Company to take) any of the following actions:
(a) increase the size of the Board other than pursuant to Section 2.03(b);
(b) increase the size of any committee of the Board other than pursuant to Section 2.02(a);
(c) fill any vacancy on the Board at a time when the FP Investor Parties do not have the maximum number of Investor Directors on the Board to which they are entitled under Section 2.03(a); or
(d) amend or alter the Director Qualification Standards, the Corporate Governance Guidelines, the policies set forth in any of the Company’s committee charters or any similar successor policies thereto, provisions of the Company’s Code of Conduct applicable to Directors, the insider trading policy applicable to Directors and any other Company rules, policies, guidelines, indemnification and exculpation applicable to Directors or Board committees, including in the Certificate of Incorporation or the Bylaws, in each case, in a manner that adversely affects in any material respect the rights of the FP Investor Parties set forth in this Agreement or the Series B Certificate of Designations or has a disproportionately adverse effect on the eligibility for office of the then sitting or proposed Investor Director relative to other then sitting Directors (in each case, other than as required by a change in applicable Law or the rules and regulations of NASDAQ after the Signing Date).
15
SECTION 2.07.Corporate Opportunities. Notwithstanding anything contained herein or in any other Transaction Document, but subject to Section 5.02, the FP Investor Parties, any of their respective Affiliates and any of their respective directors, officers, employees and consultants, including any Investor Director (collectively, the “Investor Related Parties”) may freely offer to any other Person or effect on behalf of itself or any other Person any other investment or business opportunity or prospective economic advantage (which may include investments or activities relating to competitors of the Company), including those competitive with the business of the Company, or other transactions in which the Company, its subsidiaries, any Director or any other stockholder may have an interest or expectancy, including as a result of any fiduciary duties applicable to such Person (“Investor Transactions”), in each case without any prior Company, Board or stockholder notification or approval; provided, that if the Company, to an Investor’s knowledge, is considering the same Investor Transaction, such Investor will promptly notify the Company of such Investor Related Party’s interest in such Investor Transaction and cause each Director that is an Investor Related Party to recuse, if requested by the Board, himself or herself from all Board discussions and activities relating to such Investor Transaction.
SECTION 2.08.Board Obligations. Any breach by the Board of its obligations under this Article II shall be deemed a breach by the Company of its obligations hereunder.
SECTION 2.09.No Other Rights. The rights afforded to the FP Investor Parties pursuant to this Article II shall supersede in their entirety the rights afforded to the FP Investor Parties pursuant to Article II of that certain Investor Rights Agreement, dated as of May 2, 2016 (the “Series A Investor Rights Agreement”) and shall constitute the only rights of the FP Investor Parties with respect to the subject matter hereof. Other than with respect to Article II of the Series A Investor Rights Agreement, this Agreement shall not supersede the Series A Investor Rights Agreement in any respect.
ARTICLE III
Registration Rights
Resale Shelf Registration Statement. Subject to the other applicable provisions of this Agreement, the Company shall prepare and file within 120 days after the date hereof a registration statement covering the sale or distribution from time to time by any Investor holding Registrable Securities (the “Holders”), on a delayed or continuous basis pursuant to Rule 415 of the Securities Act, of all of the Registrable Securities on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, then such registration shall be on another appropriate form and shall provide for the registration of such Registrable Securities for resale by the Holders in accordance with any reasonable method of distribution elected by the FP Investor Parties) (the “Resale Shelf Registration Statement”) and shall use its reasonable best efforts to cause such Resale Shelf Registration Statement to be declared effective by the SEC as promptly as reasonably practicable after the filing thereof (and in any event within 180 days after the date hereof).
16
(a) Effectiveness Period. Once declared effective, the Company shall, subject to the other applicable provisions of this Agreement, use its commercially reasonable efforts to cause the Resale Shelf Registration Statement to be continuously effective and usable until such time as there are no longer any Registrable Securities (the “Effectiveness Period”).
(b) Subsequent Shelf Registration. If any Shelf Registration ceases to be effective under the Securities Act for any reason at any time during the Effectiveness Period, the Company shall use its commercially reasonable efforts to as promptly as is reasonably practicable cause such Shelf Registration to again become effective under the Securities Act (including obtaining the prompt withdrawal of any order suspending the effectiveness of such Shelf Registration), and shall use its commercially reasonable efforts to as promptly as is reasonably practicable amend such Shelf Registration in a manner reasonably expected to result in the withdrawal of any order suspending the effectiveness of such Shelf Registration or file an additional registration statement (a “Subsequent Shelf Registration”) for an offering to be made on a delayed or continuous basis pursuant to Rule 415 of the Securities Act registering the resale from time to time by the Holders thereof of all securities that are Registrable Securities as of the time of such filing. If a Subsequent Shelf Registration is filed, the Company shall use its commercially reasonable efforts to (i) cause such Subsequent Shelf Registration to become effective under the Securities Act as promptly as is reasonably practicable after the filing thereof and (ii) keep such Subsequent Shelf Registration continuously effective and usable until the end of the Effectiveness Period. Any such Subsequent Shelf Registration shall be a registration statement on Form S-3 to the extent that the Company is eligible to use such form. Otherwise, such Subsequent Shelf Registration shall be on another appropriate form and shall provide for the registration of such Registrable Securities for resale by the Holders in accordance with any reasonable method of distribution elected by the FP Investor Parties.
(c) Supplements and Amendments. The Company shall supplement and amend any Shelf Registration if required by the Securities Act or the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration.
(d) Subsequent Holder Notice. If a Person entitled to the benefits of this Agreement becomes a Holder of Registrable Securities after a Shelf Registration becomes effective under the Securities Act, the Company shall, as promptly as is reasonably practicable following delivery of written notice to the Company of such Person becoming a Holder and requesting for its name to be included as a selling securityholder in the prospectus related to the Shelf Registration (a “Subsequent Holder Notice”):
(i) if required and permitted by applicable Law, file with the SEC a supplement to the related prospectus or a post-effective amendment to the Shelf Registration so that such Holder is named as a selling securityholder in the Shelf Registration and the related prospectus in such a manner as to permit such Holder to deliver a prospectus to purchasers of the Registrable Securities in accordance with applicable Law; provided, however, that the Company shall not be required to file more than one post-effective amendment or a supplement to the related prospectus for such purpose in any 30-day period;
17
(ii) if, pursuant to clause (i) above, the Company shall have filed a post-effective amendment to the Shelf Registration that is not automatically effective, use its commercially reasonable efforts to cause such post-effective amendment to become effective under the Securities Act as promptly as is reasonably practicable; and
(iii) notify such Holder as promptly as is reasonably practicable after the effectiveness under the Securities Act of any post-effective amendment filed pursuant to clause (i) above.
(i) Subject to any applicable restrictions on transfer in this Agreement or otherwise, any of the FP Investor Parties may, after the Resale Shelf Registration Statement becomes effective, deliver a written notice to the Company (the “Underwritten Offering Notice”) specifying that the sale of some or all of the Registrable Securities subject to the Shelf Registration is intended to be conducted through an underwritten offering (the “Underwritten Offering”); provided, however, that the FP Investor Parties may not, without the Company’s prior written consent, (x) launch more than three (3) Underwritten Offerings at the request of the FP Investor Parties within any three-hundred sixty-five (365) day period, (y) launch an Underwritten Offering the anticipated gross proceeds of which shall be less than $2,500,000 (unless the FP Investor Parties are proposing to sell all of their remaining Registrable Securities) or (z) launch any underwritten offering within the period commencing fourteen (14) days prior to and ending two (2) days following the Company’s scheduled earnings release date for any fiscal quarter or year.
(ii) In the event of an Underwritten Offering, the FP Investor Parties shall select the managing Underwriter or Underwriters to administer the Underwritten Offering; provided that the choice of such managing Underwriter(s) shall be subject to the consent of the Company, which is not to be unreasonably withheld, conditioned or delayed. In making the determination to consent to the FP Investor Parties’ choice of managing underwriter(s), the Company may take into account its business and strategic interests. The Company, the Investors and the Holders of Registrable Securities participating in the Underwritten Offering will enter into and perform its obligations under an underwriting agreement in customary form with the managing Underwriter or Underwriters selected for such offering.
(iii) The Company will not include in any Underwritten Offering pursuant to this Section 3.01(f) any securities that are not Registrable Securities without the prior written consent of the FP Investor Parties. If the managing Underwriter or Underwriters advise the Company and the Investors in writing that in its or their good faith opinion the number of Registrable Securities (and, if permitted hereunder, other securities requested to be included in such offering) exceeds the number of securities which can be sold in such offering in light of market conditions or is such so as to adversely affect the success of such offering, the Company will include in such offering only such number of securities that can be sold without adversely affecting the marketability of the offering, which securities will be so included in the following
18
order of priority: (A) first, the Registrable Securities that have been requested to be so included on the basis of the percentage of the Registrable Securities owned by such Holders and (B) second, any other securities of the Company that have been requested to be so included.
(f) Take-Down Notice. Subject to the other applicable provisions of this Agreement, at any time that any Shelf Registration is effective, if an Investor delivers a notice to the Company (a “Take-Down Notice”) stating that it intends to effect a sale or distribution of all or part of its Registrable Securities included by it on any Shelf Registration (a “Shelf Offering”) and stating the number of the Registrable Securities to be included in such Shelf Offering, then the Company shall amend, subject to the other applicable provisions of this Agreement, or supplement the Shelf Registration as may be necessary in order to enable such Registrable Securities to be sold and distributed pursuant to the Shelf Offering.
SECTION 3.02.Piggyback Registration.
Notice of Registration. If at any time or from time to time the Company proposes to file a registration statement under the Securities Act with respect to, or otherwise commence, a public offering of its Common Stock or securities convertible into, or exchangeable or exercisable for, Common Stock, whether or not for sale for its own account (other than any registration statement filed (i) on Form S-4, Form S-8 or any substitute or successor forms or (ii) filed to effectuate an exchange offer or any employee benefit or dividend reinvestment plan), the Company will promptly give to each Investor written notice of such filing or commencement, which notice shall be given, to the extent reasonably practicable, no later than five (5) Business Days prior to the filing date or commencement date (the “Piggyback Notice”) to each such Investor on behalf of the Holders of Registrable Securities.
(a) Right to Participate. The Piggyback Notice shall offer such Holders the opportunity to include (or cause to be included) in such registration statement and offering the number of shares of Registrable Securities as an Investor on behalf of any such Holder may request (each, a “Piggyback Registration Statement”). Subject to Section 3.02(c), the Company shall include in each Piggyback Registration Statement all Registrable Securities with respect to which the Company has received written requests for inclusion therein (each, a “Piggyback Request”) within five (5) Business Days after the date of the Piggyback Notice but in any event not later than one (1) Business Day prior to the filing date of a Piggyback Registration Statement. Such notice shall state the intended method of disposition of the Registrable Securities by such Holder. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. The Company shall not be required to maintain the effectiveness of a Piggyback Registration Statement beyond the earlier of (x) 180 days after the effective date thereof and (y) consummation of the distribution by the Holders of the Registrable Securities included in such registration statement.
19
(b) Underwriting. The right of any Holder to registration pursuant to Section 3.01(f) or this Section 3.02 shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided therein. If any of the securities to be registered pursuant to the registration giving rise to the rights under this Section 3.02 are to be sold in an underwritten offering, the Company shall use commercially reasonable efforts to cause the managing Underwriter or Underwriters of a proposed underwritten offering to permit Holders of Registrable Securities who have timely submitted a Piggyback Request in connection with such offering to include in such offering all Registrable Securities included in each Holder’s Piggyback Request on the same terms and subject to the same conditions as any other shares of capital stock, if any, of the Company included in the offering. Each Holder proposing to distribute its securities through a Piggyback Registration Statement shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement with the managing Underwriter or Underwriters selected for such underwriting by the Company or by the stockholders of the Company who have the right to select the Underwriters (such underwriting agreement to be in the form negotiated by the Company or such stockholders, as the case may be). Notwithstanding any other provision of this Section 3.02, if the managing Underwriter or Underwriters of a proposed underwritten offering with respect to which Holders have exercised their piggyback registration rights advise the Board that in its or their good faith opinion the number of Registrable Securities requested to be included in the offering thereby and all other securities proposed to be sold in the offering exceeds the number which can be sold in such underwritten offering in light of market conditions or is such as to adversely affect the success of such filing, the Registrable Securities and such other securities to be included in such underwritten offering shall be allocated, (i) first, (A) in the event such offering was initiated by the Company, up to the total number of securities that the Company has requested to be included in such registration for its own account and (B) in the event such offering was initiated by holders of securities (including the FP Investor Parties) who have exercised their demand registration rights, up to the total number of securities that such holders of such securities have requested to be included in such offering, allocated pro rata among such holders on the basis of the percentage of the Registrable Securities owned by such holders, (ii) second, the Registrable Securities of the Holders that have requested to participate in such underwritten offering, allocated pro rata among such Holders on the basis of the percentage of the Registrable Securities owned by such Holders; and (iii) third, any other securities of the Company that have been requested to be included in such offering. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the managing Underwriter or Underwriters, provided that such election is made prior to the earlier of (a) the effectiveness of the registration statement and (b) the time at which the offering price or the underwriter’s discount is determined with the managing Underwriter or Underwriters. Any securities excluded or withdrawn from such underwriting (i) may be substituted by securities held by the Holders to be included in such registration; or (ii) in the event the Holders elect not to substitute any shares, may be substituted by securities held by the Company to be included in such registration; or (iii) in the event that the Holders and the Company elect not to substitute any shares, shall be withdrawn from such registration.
20
(c) Right to Terminate Registration. The Company or the holders of securities who have caused Registrable Securities to be included in a registration statement pursuant to Section 3.01 or 3.02 to be filed as contemplated by this Section 3.02, as the case may be, shall have the right to have any registration initiated by it or them, as applicable, under this Section 3.02 terminated or withdrawn prior to the effectiveness thereof, whether or not any Holder has elected to include securities in such registration.
SECTION 3.03.Registration Procedures.
Subject to the other applicable provisions of this Agreement, in the case of each registration of Registrable Securities effected by the Company pursuant to Section 3.01 or Section 3.02, the Company will:
(i) prepare and promptly file with the SEC a registration statement with respect to such securities and use commercially reasonable efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby in accordance with the applicable provisions of this Agreement;
(ii) prepare and file with the SEC such amendments (including post-effective amendments) and supplements to such registration statement and the prospectus used in connection with such registration statement as (x) reasonably requested by any Holder (to the extent such request related to information relating to such Holder) or (y) may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement in accordance with the Investors’ intended method of distribution set forth in such registration statement and as may be necessary to keep the registration statement continuously effective for the period set forth in this Agreement;
(iii) respond promptly to any comments received from the SEC and, unless requested otherwise by the Holder who has initiated such registration, request acceleration of effectiveness promptly after it learns that the SEC will not review the registration statement or after it has satisfied comments received from the SEC;
(iv) furnish, (i) to the Investors’ legal counsel, copies of the registration statement and the prospectus included therein (including each preliminary prospectus), in each case including all exhibits thereto, proposed to be filed and provide such legal counsel a reasonable opportunity to review and comment on such registration statement and (ii) to the Investors and the Underwriters, such other documents as it may reasonably request in order to facilitate the disposition of Registrable Securities owned by it;
(v) if requested by the managing Underwriter or Underwriters, if any, or an Investor, promptly include in any prospectus supplement or post-effective amendment such information as the managing Underwriter or Underwriters, if any, or such Investor may reasonably request in order to permit the intended method of distribution of such securities and make all required filings of such prospectus supplement or post-
21
effective amendment as soon as reasonably practicable after the Company has received such request; provided, however, that the Company shall not be required to take any actions under this Section 3.03(a)(v) that are not, in the opinion of counsel for the Company, in compliance with applicable law;
(vi) in the event that the Registrable Securities are being offered in an Underwritten Offering, furnish to the Investors and to the Underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus and final prospectus as such Investors or Underwriters may reasonably request in order to facilitate the public offering or other disposition of such securities;
(vii) as promptly as reasonably practicable, use commercially reasonable efforts to notify the Investors at any time when (i) a prospectus relating thereto is required to be delivered under the Securities Act or of the Company’s discovery of the occurrence of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing, and, subject to Section 3.04, at the request of an Investor, prepare as promptly as is reasonably practicable and furnish to such Investor a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchaser of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing, (ii) any request by the SEC or any other regulatory body or other body having jurisdiction has been made for any amendment of or supplement to any registration statement or other document relating to such offering, or (iii) if for any other reason it shall be necessary to amend or supplement such registration statement or prospectus in order to comply with the Securities Act;
(viii) use reasonable best efforts to register and qualify (or exempt from such registration or qualification) the securities covered by such registration statement under such other securities or “blue sky” laws of such jurisdictions within the United States as shall be reasonably requested in writing by an Investor; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (A) qualify to do business in any jurisdictions where it would not otherwise be required to qualify but for this subsection or (B) file a general consent to service of process in any such states or jurisdictions;
(ix) in the event that the Registrable Securities are being offered in an underwritten public offering, enter into an underwriting agreement, in usual and customary form and otherwise in accordance with the applicable provisions of this Agreement;
22
(x) in connection with an Underwritten Offering, the Company shall cause its officers to use their commercially reasonable efforts to support the marketing of the Registrable Securities covered by such offering (including participation in “road shows” or other similar marketing efforts);
(xi) use commercially reasonable efforts to furnish, on the date that such Registrable Securities are delivered to the Underwriters for sale (if such securities are being sold through Underwriters) or, solely in the case of clause (A), (D) and (E), the pricing or closing date of the applicable offering or sale (in the case of an offering with the assistance of a broker, placement agent or other agent of the Holder): (A) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to the managing Underwriter or Underwriters in an underwritten public offering, addressed to the Underwriter or Underwriters (in the case of an underwritten offering) or, if requested, in form and substance as is customarily given to the broker, placement agent or other agent of the Holders assisting in the sale of the Registrable Securities addressed to such broker, placement agent or other agent, if any, (B) a “negative assurances letter”, dated such date, of the legal counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering; (C) a “cold comfort” and “bring-down” letter, dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to Underwriters in an underwritten public offering, addressed to the Underwriters, (D) customary certificates executed by authorized officers of the Company as may be requested by any Holder or any underwriter of such Registrable Securities, and (E) make available to the appropriate representatives of the underwriters, if any, and any Holder access to such information and personnel as is reasonable and customary to enable such parties to establish a due diligence defense under the Securities Act;
(xii) in the event that the Registrable Securities covered by such registration statement are shares of Common Stock or shares of capital stock of the Company in a series that are otherwise listed on a securities exchange, use commercially reasonable efforts to list the Registrable Securities covered by such registration statement with any securities exchange on which the Common Stock or such other shares of capital stock are then listed;
(xiii) provide a transfer agent and registrar for all such Registrable Securities and, if requested by Underwriter(s) or the Holder, a CUSIP/ISIN number for all such Registrable Securities, in each case not later than the effective date of such registration statement;
(xiv) in connection with a customary due diligence review, make available, during reasonable business hours, for inspection by the Investors, any Underwriter participating in any such disposition of Registrable Securities, if any, and any counsel or accountants retained by the Investors or Underwriter (collectively, the “Offering Persons”), at the offices where normally kept, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and cause the
23
officers, directors and employees of the Company and its subsidiaries to supply all information and participate in customary due diligence sessions in each case reasonably requested by any such representative, underwriter, counsel or accountant in connection with such Registration Statement; provided, however, that any information that is not generally publicly available at the time of delivery of such information shall be kept confidential by such Offering Persons unless (i) disclosure of such information is required by court or administrative order or in connection with an audit or examination by, or a blanket document request from, a regulatory or self-regulatory authority, bank examiner or auditor, (ii) disclosure of such information, in the reasonable judgment of the Offering Persons, is required by law or applicable legal process (including in connection with the offer and sale of securities pursuant to the rules and regulations of the SEC), (iii) such information is or becomes generally available to the public other than as a result of a non-permitted disclosure or failure to safeguard by such Offering Persons in violation of this Agreement or (iv) such information (A) was known to such Offering Persons (prior to its disclosure by the Company) from a source other than the Company when such source, to the knowledge of the Offering Persons, was not bound by any contractual, legal or fiduciary obligation of confidentiality to the Company with respect to such information, (B) becomes available to the Offering Persons from a source other than the Company when such source, to the knowledge of the Offering Persons, is not bound by any contractual, legal or fiduciary obligation of confidentiality to the Company with respect to such information or (C) was developed independently by the Offering Persons or their respective representatives without the use of, or reliance on, information provided by the Company. In the case of a proposed disclosure pursuant to (i) or (ii) above, such Person shall be required to give the Company written notice of the proposed disclosure prior to such disclosure (except in the case of (ii) above when a proposed disclosure was or is to be made in connection with a registration statement or prospectus under this Agreement and except in the case of clause (i) above when a proposed disclosure is in connection with a routine audit or examination by, or a blanket document request from, a regulatory or self-regulatory authority, bank examiner or auditor);
(xv) cooperate with the Investors and each Underwriter or agent participating in the disposition of Registrable Securities and their respective counsel in connection with any filings required to be made with the Financial Industry Regulatory Authority (“FINRA”), including the use of commercially reasonable efforts to obtain FINRA’s pre-clearance or pre-approval of the registration statement and applicable prospectus upon filing with the SEC;
(xvi) as promptly as is reasonably practicable notify the Investors (A) when the prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to such registration statement or any post-effective amendment, when the same has become effective, (B) of any request by the SEC for amendments or supplements to such registration statement or related prospectus or to amend or to supplement such prospectus or for additional information, (C) of the issuance by the SEC of any stop order suspending the effectiveness of such registration statement or the initiation of any proceedings for such purpose, (D) if at any time the Company has reason to believe that the representations and warranties of the Company contained in
24
any agreement contemplated by Section 3.03(a)(vii) above relating to any applicable offering cease to be true and correct or (E) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose; or
(xvii) use its commercially reasonable efforts to take such other steps that are customarily taken by issuers necessary to effect the registration and sale of the Registrable Securities contemplated hereby.
(b) The Investors agree that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3.03(a)(vii) or 3.03(a)(xvi)(C), the Investors shall discontinue, and shall cause each Holder to discontinue, disposition of any Registrable Securities covered by such registration statement or the related prospectus until receipt of the copies of the supplemented or amended prospectus, which supplement or amendment shall, subject to the other applicable provisions of this Agreement, be prepared and furnished as soon as reasonably practicable, or until the Investors are advised in writing by the Company that the use of the applicable prospectus may be resumed, and has received copies of any amended or supplemented prospectus or any additional or supplemental filings which are incorporated, or deemed to be incorporated, by reference in such prospectus (such period during which disposition is discontinued being an “Interruption Period”) and, if requested by the Company, the Investors shall use commercially reasonable efforts to return, and cause the Holders to return, to the Company all copies then in their possession, of the prospectus covering such Registrable Securities at the time of receipt of such request. As soon as practicable after the Company has determined that the use of the applicable prospectus may be resumed, the Company will notify the Investors thereof. In the event the Company invokes an Interruption Period hereunder and in the reasonable discretion of the Company the need for the Company to continue the Interruption Period ceases for any reason, the Company shall, as soon as reasonably practicable, provide written notice to the Investors that such Interruption Period is no longer applicable.
The Company shall be entitled on one (1) occasion in any six (6) month period, for a period of time not to exceed sixty (60) days in the aggregate in any six (6) month period and seventy-five (75) days in any twelve (12) month period to (x) defer any registration of Registrable Securities and shall have the right not to file and not to cause the effectiveness of any registration covering any Registrable Securities, (y) suspend the use of any prospectus and registration statement covering any Registrable Securities and (z) require the Holders of Registrable Securities to suspend any offerings or sales of Registrable Securities pursuant to a registration statement, if the Company delivers to the Investors a certificate signed by an executive officer certifying that such registration and offering would (i) require the Company to make an Adverse Disclosure or (ii) materially interfere with any bona fide material financing, acquisition, disposition, reorganization, restructuring, pending or proposed transaction or announcement or other similar transaction or action involving the Company or any of its subsidiaries then under
25
consideration. Such certificate shall contain a statement of the reasons for such suspension and an approximation of the anticipated length of such suspension. The Investors shall keep the information contained in such certificate confidential subject to the same terms set forth in Section 3.03(a)(xiv).
(a) If the Company defers any registration of Registrable Securities in response to an Underwritten Offering Notice or requires the Investors or the Holders to suspend any Underwritten Offering, the FP Investor Parties shall be entitled to withdraw such Underwritten Offering Notice and if it does so, such request shall not be treated for any purpose as the delivery of an Underwritten Offering Notice pursuant to Section 3.01(f).
(b) In the event that the Company shall exercise its right to delay or suspend the filing or effectiveness of a registration hereunder, the applicable time period during which the registration statement is to remain effective shall be extended by a period of time equal to the duration of the total aggregated period of suspension.
SECTION 3.05.Expenses of Registration. All Registration Expenses incurred in connection with any registration pursuant to Sections 3.01 and 3.02 shall be borne by the Company. All Selling Expenses relating to securities registered on behalf of the Holders shall be borne by the applicable Holders of the Registrable Securities included in any such registration.
SECTION 3.06.Information by Holders.
The Holder or Holders of Registrable Securities included in any registration shall, and the Investors shall cause such Holder or Holders to, furnish to the Company such information regarding such Holder or Holders and their Affiliates, the Registrable Securities held by them and the distribution proposed by such Holder or Holders and their Affiliates as the Company or its Representatives may reasonably request and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. It is understood and agreed that the obligations of the Company under Sections 3.01 and 3.02 are conditioned on the timely provisions of the foregoing information by such Holder or Holders and, without limitation of the foregoing, will be conditioned on compliance by such Holder or Holders with the following:
(i) such Holder or Holders will, and will cause their respective Affiliates to, cooperate with the Company in connection with the preparation of the applicable registration statement and prospectus and, for so long as the Company is obligated to keep such registration statement effective, such Holder or Holders will and will cause their respective Affiliates to, provide to the Company, in writing and in a timely manner, for use in such registration statement (and expressly identified in writing as such), all information regarding themselves and their respective Affiliates and such other information as may be required by applicable Laws to enable the Company to prepare or amend such registration statement, any related prospectus and any other documents related to such offering covering the applicable Registrable Securities owned by such Holder or Holders and to maintain the currency and effectiveness thereof;
26
(ii) during such time as such Holder or Holders and their respective Affiliates may be engaged in a distribution of the Registrable Securities, such Holder or Holders will, and they will cause their Affiliates to, comply with all Laws applicable to such distribution, including Regulation M promulgated under the Exchange Act, and, to the extent required by such Laws, will, and will cause their Affiliates to, among other things (A) not engage in any stabilization activity in connection with the securities of the Company in contravention of such Laws, (B) distribute the Registrable Securities acquired by them solely in the manner described in the applicable registration statement and (C) if required by applicable Law, cause to be furnished to each agent or broker-dealer to or through whom such Registrable Securities may be offered, or to the offeree if an offer is made directly by such Holder or Holders or their respective Affiliates, such copies of the applicable prospectus (as amended and supplemented to such date) and documents incorporated by reference therein as may be required by such agent, broker-dealer or offeree;
(iii) such Holder or Holders shall, and they shall cause their respective Affiliates to, (A) permit the Company and its Representatives to examine such documents and records and will supply in a timely manner any information as they may be reasonably requested to provide in connection with the offering or other distribution of Registrable Securities by such Holder or Holders and (B) execute, deliver and perform under any agreements and instruments reasonably requested by the Company or its Representatives to effectuate such registered offering, including opinions of counsel and questionnaires; and
(iv) on receipt of any notice from the Company of the occurrence of any of the events specified in Section 3.03(a)(vii), 3.03(a)(xvi)(B) or 3.03(a)(xvi)(C) or that otherwise requires the suspension by such Holder or Holders and their respective Affiliates of the offering, sale or distribution of any of the Registrable Securities owned by such Holder or Holders, such Holders shall, and they shall cause their respective Affiliates to, cease offering, selling or distributing the Registrable Securities owned by such Holder or Holders until the offering, sale and distribution of the Registrable Securities owned by such Holder or Holders may recommence in accordance with the terms hereof and applicable Law.
SECTION 3.07.Rule 144 Reporting. With a view to making available the benefits of Rule 144 to the Holders, the Company agrees that, for so long as a Holder owns Registrable Securities, the Company will use its commercially reasonable efforts to:
(a) make and keep public information available, as those terms are understood and defined in Rule 144, at all times after the date of this Agreement;
(b) file with the SEC in a timely manner all reports and other documents required of the Company under the Exchange Act; and
27
(c) so long as a Holder owns any Registrable Securities, furnish to the Holder upon written request a written statement by the Company as to its compliance with the reporting requirements of the Exchange Act.
SECTION 3.08.Holdback Agreement. If during the Effectiveness Period, the Company shall file a registration statement (other than in connection with the registration of securities issuable pursuant to an employee stock option, stock purchase or similar plan or pursuant to a merger, exchange offer or a transaction of the type specified in Rule 145(a) under the Securities Act) with respect to an underwritten public offering of Common Stock or securities convertible into, or exchangeable or exercisable for, such securities or otherwise informs the Investors that it intends to conduct such an offering utilizing an effective registration statement or pursuant to an underwritten Rule 144A and/or Regulation S offering and provides each Investor and each Holder the opportunity to participate in such offering in accordance with and to the extent required by Section 3.02, each Investor and each Holder shall, if requested by the managing Underwriter or Underwriters, enter into a customary “lock-up” agreement relating to the sale, offering or distribution of Registrable Securities, in the form reasonably requested by the managing Underwriter or Underwriters, covering the period commencing on the date of the prospectus pursuant to which such offering may be made and continuing until 90 days from the date of such prospectus or such shorter period as may be agreed by the managing Underwriter or Underwriters.
Indemnification by Company. To the extent permitted by applicable Law, the Company will, with respect to any Registrable Securities covered by a registration statement or prospectus, or as to which registration or qualification or compliance under applicable “blue sky” laws has been effected pursuant to this Agreement, indemnify and hold harmless each Holder, each Holder’s current and former officers, directors, partners, members, managers, stockholders, accountants, attorneys, agents and employees, and each Person controlling such Holder within the meaning of Section 15 of the Securities Act and such Holder’s current and former officers, directors, partners, members, managers, stockholders, accountants, attorneys, agents and employees, and each Underwriter thereof, if any, and each Person who controls any such Underwriter within the meaning of Section 15 of the Securities Act (collectively, the “Company Indemnified Parties”) from and against any and all expenses, claims, losses, damages, costs (including costs of preparation and reasonable attorney’s fees and any legal or other fees or expenses actually incurred by such party in connection with any investigation or proceeding), judgments, fines, penalties, charges, amounts paid in settlement and other liabilities, joint or several (or actions in respect thereof) (collectively, “Losses”), to the extent arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, preliminary prospectus, offering circular “issuer free writing prospectus” (as such term is defined in Rule 433 under the Securities Act) or other document, in each case related to such registration statement, or any amendment or supplement thereto, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not
28
misleading, or any violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rules or regulations thereunder applicable to the Company and (without limiting the preceding portions of this Section 3.09) the Company will reimburse each of the Company Indemnified Parties for any reasonable and documented out-of-pocket legal expenses and any other reasonable and documented out-of-pocket expenses actually incurred in connection with investigating, defending or, subject to the last sentence of this Section 3.09, settling any such Losses or action, as such expenses are incurred; provided that the Company’s indemnification obligations shall not apply to amounts paid in settlement of any Losses or action if such settlement is effected without the prior written consent of the Company (which consent shall not be unreasonably withheld or delayed), nor shall the Company be liable to a Holder in any such case for any such Losses or action to the extent that it arises out of or is based upon a violation or alleged violation of any state or federal Law (including any claim arising out of or based on any untrue statement or alleged untrue statement or omission or alleged omission in the registration statement or prospectus) which occurs in reliance upon and in conformity with written information regarding such Holder furnished to the Company by such Holder or its authorized representatives expressly for use in connection with such registration by or on behalf of any Holder.
(a) Indemnification by Holders. To the extent permitted by applicable Law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which registration or qualification or compliance under applicable “blue sky” laws is being effected, indemnify, severally and not jointly with any other Holders of Registrable Securities, the Company, each of its Representatives, each Person who controls the Company or such Underwriter within the meaning of Section 15 of the Securities Act (collectively, the “Holder Indemnified Parties”), against all Losses (or actions in respect thereof) to the extent arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, preliminary prospectus, offering circular, “issuer free writing prospectus” or other document, in each case related to such registration statement, or any amendment or supplement thereto, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, and will reimburse each of the Holder Indemnified Parties for any reasonable and documented out-of-pocket legal expenses and any other reasonable and documented out-of-pocket expenses actually incurred in connection with investigating, defending or, subject to the last sentence of this Section 3.09, settling any such Losses or action, as such expenses are incurred, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular, “issuer free writing prospectus” or other document in reliance upon and in conformity with written information regarding such Holder furnished to the Company by such Holder or its authorized representatives and stated to be specifically for use therein; provided, however, that in no event shall any indemnity under this Section 3.09(b) payable by the Investors and any Holder exceed an amount equal to the net proceeds (after payment of Selling Expenses) received by each such Holder in respect of the Registrable Securities sold pursuant to the registration statement. The indemnity agreement contained in this Section 3.09(b) shall not apply to amounts
29
paid in settlement of any loss, claim, damage, liability or action if such settlement is effected without the prior written consent of the applicable Holder (which consent shall not be unreasonably withheld or delayed).
(b) Notification. If any Person shall be entitled to indemnification under this Section 3.09 (each, an “Indemnified Party”), such Indemnified Party shall give prompt notice to the party required to provide indemnification (each, an “Indemnifying Party”) of any claim or of the commencement of any proceeding as to which indemnity is sought. The Indemnifying Party shall have the right, exercisable by giving written notice to the Indemnified Party as promptly as reasonably practicable after the receipt of written notice from such Indemnified Party of such claim or proceeding, to assume, at the Indemnifying Party’s expense, the defense of any such claim or litigation, with counsel reasonably satisfactory to the Indemnified Party and, after notice from the Indemnifying Party to such Indemnified Party of its election to assume the defense thereof, the Indemnifying Party will not (so long as it shall continue to have the right to defend, contest, litigate and settle the matter in question in accordance with this Section 3.09(c)) be liable to such Indemnified Party hereunder for any legal expenses and other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof; provided, however, that an Indemnified Party shall have the right to employ separate counsel in any such claim or litigation, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless the Indemnifying Party shall have failed within a reasonable period of time to assume such defense and the Indemnified Party is or would reasonably be expected to be materially prejudiced by such delay. The failure of any Indemnified Party to give notice as provided herein shall relieve an Indemnifying Party of its obligations under this Section 3.09 only to the extent that the failure to give such notice is materially prejudicial or harmful to such Indemnifying Party’s ability to defend such action. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the prior written consent of each Indemnified Party (which consent shall not be unreasonably withheld or delayed), consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. The indemnity agreements contained in this Section 3.09 shall not apply to amounts paid in settlement of any claim, loss, damage, liability or action if such settlement is effected without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. The indemnification set forth in this Section 3.09 shall be in addition to any other indemnification rights or agreements that an Indemnified Party may have. An Indemnifying Party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such Indemnifying Party with respect to such claim, unless in the reasonable judgment of any Indemnified Party a conflict of interest may exist between such Indemnified Party and any other Indemnified Parties with respect to such claim.
30
(c) Contribution. If the indemnification provided for in this Section 3.09 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party, other than pursuant to its terms, with respect to any Losses or action referred to therein, then, subject to the limitations contained in this Section 3.09, the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses or action in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party, on the one hand, and the Indemnified Party, on the other, in connection with the actions, statements or omissions that resulted in such Losses or action, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party, on the one hand, and the Indemnified Party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made (or omitted) by, or relates to information supplied by such Indemnifying Party or such Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission. The Company and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 3.09(d) was determined solely upon pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding sentence of this Section 3.09(d). Notwithstanding the foregoing, the amount an Investor and any Holder will be obligated to contribute pursuant to this Section 3.09(d) will be limited to an amount equal to the net proceeds (after payment of Selling Expenses) received by such Investor and/or such Holder in respect of the Registrable Securities sold pursuant to the registration statement which gives rise to such obligation to contribute. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.
SECTION 3.10.Transfer of Registration Rights. Any rights to cause the Company to register securities granted to a Holder under this Article III may be transferred or assigned to any Affiliate of such Holder or any investment fund managed or controlled by such Holder or its Affiliates to whom shares of Series B Preferred Stock or Common Stock are transferred pursuant to and in accordance with Section 4.02 or any other party to whom such Holder may transfer any shares of Series B Preferred Stock pursuant to Section 4.02; provided, however, that (i) prior written notice of such assignment of rights is given to the Company and (ii) such Person agrees in writing to be bound by, and subject to, this Agreement as a “Holder” pursuant to a written instrument in form and substance reasonably acceptable to the Company.
SECTION 3.11.Termination of Registration Rights. The rights of any particular Holder to cause the Company to register securities under Article III shall terminate with respect to such Holder upon the date upon which such Holder no longer holds any Registrable Securities. The registration rights contained in this Article III shall terminate on the date on which all shares of Common Stock issuable (or actually issued) to any of the Investors upon conversion of the Series B Preferred Stock cease to be Registrable Securities.
31
SECTION 3.12.Registration Default. If any of the following events shall occur (each, a “Registration Default”), then the Company shall pay Registration Default Dividends (as defined in the Series B Certificate of Designations) to the Investors as contemplated in the Series B Certificate of Designations:
(a)if a Resale Shelf Registration Statement is not filed with the SEC on or prior to the date that is 120 days after the date hereof;
(b)if a Resale Shelf Registration Statement is filed but not declared effective by the SEC (or has not become effective in the case of an automatic shelf registration statement) on or prior to the date that is 180 days after the date hereof; or
(c)if a Shelf Registration has been declared or become effective but ceases to be effective or usable for the offer and sale of the Registrable Securities (without being succeeded immediately by an effective replacement registration statement), or the Shelf Registration or prospectus contained therein ceases to be usable in connection with the resales of Registrable Securities for a period of time which exceeds one hundred and twenty (120) days in the aggregate in any consecutive 12-month period because of a suspension under Section 3.04 or otherwise; provided that, no such Registration Default Dividends shall accrue under this Section 3.12(c) if the registration statement ceases to be effective or usable for the offer, sale and resale of Registrable Securities solely as a result of requirement to file a post-effective amendment or supplement to the prospectus to make changes to the information regarding selling securityholders or the plan of distribution provided for therein;
provided further, however, that (i) upon the filing of the Resale Shelf Registration Statement (in the case of paragraph (a) above), (ii) upon the effectiveness of the Resale Shelf Registration Statement (in the case of paragraph (b) above), or (iii) upon such time as the Shelf Registration which had ceased to remain effective or usable for resales again becomes effective and usable for resales (in the case of paragraph (c) above), the Registration Default Dividends shall cease to accrue.
Commencing on the date any such Registration Default occurs, Registration Default Dividends shall accrue on the Stated Value (as defined in the Series B Certificate of Designations) of the Series B Preferred Stock, (i) at a rate of 0.25% per annum for the first 90 days from and including the date such Registration Default occurs and (ii) 0.50% per annum thereafter. Registration Default Dividends shall cease to accrue when, (i) with respect to paragraph (a) above, the relevant filing is made and (ii) with respect to paragraphs (b) and (c) above, the relevant registration statement becomes effective.
Any amounts of Registration Default Dividends due pursuant to this Section 3.12 will be payable in cash on the next succeeding dividend payment date with respect to Preferred Dividends (as defined in the Series B Certificate of Designations) to Investors entitled to receive such Registration Default Dividends on the relevant dividend payment date for the payment of Preferred Dividends. If any share of Series B Preferred Stock ceases to be outstanding during any period for which Registration Default
32
Dividends is accruing, the Company will prorate the Registration Default Dividends payable with respect to such share. Upon the cure of all Registration Defaults then continuing, the accrual of Registration Default Dividends will automatically cease and the dividend rate borne by the Series B Preferred Stock will revert to the dividend rate otherwise in effect at such time.
If Registration Default Dividends would be payable because more than one Registration Default occurs, the Company shall only be obligated to pay Registration Default Dividends in an amount not exceeding 0.50% per annum. Other than the Company’s obligation to pay Registration Default Dividends in accordance with this Section 3.12, the Company will not have any liability for damages with respect to a Registration Default.
ARTICLE IV
Limitations on Transfers
SECTION 4.01.Limitation on Transfer of Series B Preferred Stock. Except as otherwise permitted by this Agreement, including Section 4.02, the Investors shall not, from and after the date hereof until the earliest of (i) the date that is 6 months following the date hereof, (ii) the date of the consummation of a Fundamental Change (as defined in the Series B Certificate of Designations) and (iii) the date of a Material Company Breach (such period, the “Restricted Period”), directly or indirectly, sell, transfer, assign, or otherwise dispose of (each, a “Transfer”) any portion of or interest in any shares of Series B Preferred Stock acquired pursuant to the Purchase (including any Conversion Shares) without the prior written consent of the Company (which consent may be given or withheld or made subject to such conditions as are determined by the Company in its sole discretion). Notwithstanding the foregoing, the Investors shall provide notice to the Company of any Transfer of any shares of Series B Preferred Stock (but not any Conversion Shares) substantially concurrent with such Transfer.
(a) Neither the Investors nor any Affiliate of an Investor may at any time knowingly transfer any shares of Series B Preferred Stock acquired pursuant to the Purchase (including any Conversion Shares) to any Prohibited Transferee without the prior written consent of the Company (which consent may be given or withheld, or made subject to such conditions as are determined by the Company, in its sole discretion), other than in connection with the consummation of a Fundamental Change (as defined in the Series B Certificate of Designations) or as permitted by Section 4.02.
(b) Any purported Transfer that is not in accordance with the terms and conditions of this Article IV shall be, to the fullest extent permitted by Law, null and void ab initio, and, in addition to other rights and remedies at law and in equity, the Company shall be entitled to injunctive relief enjoining the prohibited action.
SECTION 4.02.Permitted Transfers. Notwithstanding anything to the contrary in Section 4.01, the Investors may Transfer all or any portion of or any interest in any shares of Series B Preferred Stock or Conversion Shares as follows:
33
(a) to the Company or its Subsidiaries;
(b) pursuant to a tender offer or exchange offer made to all or substantially all of the holders of the Common Stock.
(c) to any Affiliate of an Investor and any investment fund managed or controlled by any Investor or its Affiliates, and such permitted transferees may further Transfer all or any portion of or any interest in any shares of Series B Preferred Stock or any shares of Common Stock issued upon conversion of such shares of Series B Preferred Stock (or any dividends received thereon) to any other Affiliate and any investment fund managed or controlled by any Investor or its Affiliates; provided, however, that no such Transfer shall be permitted pursuant to this clause (c) unless and until any such permitted transferee agrees in writing for the benefit of the Company (in such customary form and substance reasonably satisfactory to the Company) to be bound by the terms of this Agreement, unless such transferee is already bound by this Agreement; and
(d) pursuant to a merger, tender offer or exchange offer or other business combination, acquisition of assets or similar transaction or any change of control transaction involving the Company or any of its Subsidiaries (i) that has been recommended or approved by a majority of the Board or (ii) that is a tender offer or exchange offer (A) that a majority of shares of Common Stock held by stockholders other than the Investors have been tendered or exchanged into or (B) that includes a majority minimum tender or approval condition, and, as of the tender date, all of the conditions to closing of which (including the majority minimum tender or approval condition) have been satisfied or (other than with respect to the majority minimum tender or approval condition) waived and is expiring on the tender date.
SECTION 4.03.Legend. (a) The Company may place appropriate and customary legends on the shares of Series B Preferred Stock (or the Conversion Shares) held by any of the Investors setting forth the restrictions referred to in this Article IV and any restrictions appropriate for compliance with U.S. federal securities Laws. The Investors agree with the Company that, other than to take into account any changes in applicable securities Laws, each share of Series B Preferred Stock held by an Investor on the Closing Date shall be marked with a legend substantially in the form set forth below:
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THE EXCHANGE THEREOF have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state or other jurisdiction. The securities may not be offered, sold, pledged, transferred OR OTHERWISE DISPOSED OF except (1) pursuant to an exemption from registration under the Securities Act or (2) pursuant to an effective registration statement RELATING TO SUCH SECURITIES under the Securities Act, in each case
34
in accordance with all applicable state securities laws and the securities laws of other jurisdictions.
THESE SECURITIES ARE SUBJECT TO TRANSFER AND OTHER RESTRICTIONS SET FORTH IN THE INVESTOR RIGHTS AGREEMENT DATED MARCH 10, 2017 AMONG CONNECTURE, INC., FRANCISCO PARTNERS IV, L.P., FRANCISCO PARTNERS IV-A, L.P. AND CHRYSALIS VENTURES II, L.P., AS AMENDED FROM TIME TO TIME, COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE ISSUER.
(b) Upon request of the applicable Investor, upon receipt by the Company of an opinion of counsel reasonably satisfactory to the Company to the effect that such legend is no longer required under the Securities Act and applicable state securities laws, the Company shall promptly cause the first paragraph of the legend to be removed from any certificate for any Series B Preferred Stock or Common Stock to be Transferred in accordance with the terms of this Agreement and the second paragraph of the legend shall be removed upon the expiration of such transfer and other restrictions set forth in this Agreement (and, for the avoidance of doubt, immediately prior to any termination of this Agreement).
SECTION 5.01.Information and Access. Following the Closing until the Fall-Away of Investor Board Rights, the Company agrees to provide the FP Investor Parties with the following:
(a) within 90 days after the end of each fiscal year of the Company, (i) an audited, consolidated balance sheet of the Company and its Subsidiaries as of the end of such fiscal year and (ii) audited, consolidated statements of income, comprehensive income, cash flows and changes in shareholders’ equity of the Company and its Subsidiaries for such fiscal year; provided that this requirement shall be deemed to have been satisfied if on or prior to such date the Company files its annual report on Form 10-K for the applicable fiscal year with the SEC;
(b) within 45 days after the end of each of the first three quarters of each fiscal year of the Company, (i) an unaudited, consolidated balance sheet of the Company and its Subsidiaries as of the end of such fiscal quarter and (ii) consolidated statements of income, comprehensive income and cash flows of the Company and its Subsidiaries for such fiscal quarter; provided that this requirement shall be deemed to have been satisfied if on or prior to such date the Company files its quarterly report on Form 10-Q for the applicable fiscal quarter with the SEC;
35
(c) reasonable access, to the extent reasonably requested by the FP Investor Parties, to the offices and the properties of the Company and its Subsidiaries, including its and their books and records, all upon reasonable notice and at such reasonable times and as often as the FP Investor Parties may reasonably request; provided that any access pursuant to this Section 5.01(c) shall be conducted in a manner as not to interfere unreasonably with the conduct of the business of the Company and its Subsidiaries;
(d) until the Fall-Away of Investor Board Rights, the Company shall afford the FP Investor Parties an opportunity to receive and discuss with senior management of the Company on a regular basis (it being the expectation that such discussions will occur on no more than a monthly basis), during normal business hours and without unduly interfering with the operation of the business, monthly reports regarding financial, operating, strategic and such other matters relating to the management of the Company as may be mutually acceptable to management and the Company in good faith. At the request of the Company, such monthly calls will be open to all Directors who wish to attend; and
(e) copies of all material, substantive materials provided to the Board at substantially the same time as provided to the Directors of the Company;
provided that, the Company shall not be obligated to provide such access or materials to the FP Investor Parties to the extent the Company determines, in its reasonable judgment, that doing so would (A) result in the disclosure of trade secrets or competitively sensitive information to third parties, (B) materially violate any applicable Law, Judgment or contract or obligation of confidentiality owing to a third party, (C) jeopardize the protection of an attorney-client privilege, attorney work product protection or other similar legal privilege, (D) be materially adverse to the interests of the Company or any of its Subsidiaries in any pending or threatened Action or (E) expose the Company to risk of liability for disclosure of personal information; (F) violate the rights of the Company’s customers; provided, that, in each case, the Company shall use commercially reasonable efforts to provide the maximum access such that clauses (A) through (F) do not apply. In addition, notwithstanding anything to the contrary contained herein, neither the Company nor any of its Subsidiaries will be required to provide any information or materials that relate to, contain or reflect any analyses, studies, notes, memoranda and other information related to or prepared in connection with the Investment Agreement, the other Transaction Documents or any of the transactions contemplated thereby or any matters relating thereto or any transactions with or matters relating to the FP Investor Parties or any of their respective Affiliates.
Notwithstanding anything to the contrary in this Section 5.01, the FP Investor Parties shall have the right to waive their right to receive information and/or access under this Section 5.01 for such period of time as any such FP Investor Party may specify and, upon receipt of written notice of such waiver, the Company agrees to no longer provide such FP Investor Party with information and/or access for the duration of the period so specified.
36
SECTION 5.02.Confidentiality. Each FP Investor Party shall, and shall cause its Affiliates and Representatives to, keep confidential any information (including oral, written and electronic information) concerning the Company, its Subsidiaries or its Affiliates that may be furnished to the FP Investor Parties or their respective Affiliates or Representatives by or on behalf of the Company or any of its Representatives pursuant to Section 5.01 (collectively referred to as the “Confidential Information”); provided that the Confidential Information shall not include information that (a) was or becomes available to the public other than as a result of a disclosure by the FP Investor Parties or any of their respective Affiliates or Representatives in violation of this Section 5.02, (b) was or becomes available to the FP Investor Parties or any of their respective Affiliates or Representatives from a source other than the Company or its Representatives; provided that such source is believed by the FP Investor Parties not to be disclosing such information in violation of an obligation of confidentiality (whether by agreement or otherwise) to the Company or any of its Affiliates, (c) at the time of disclosure is already in the possession of the FP Investor Parties or any of their respective Affiliates or Representatives; provided that such information is believed by the FP Investor Parties not to be subject to an obligation of confidentiality (whether by agreement or otherwise) to the Company, or (d) was independently developed by the FP Investor Parties or any of their respective Affiliates or Representatives without use of any Confidential Information. The FP Investor Parties and the Company agree that Confidential Information may be disclosed solely (i) to their Related Investment Funds, the FP Investor Parties’ Affiliates and their respective Representatives and (ii) in the event that the FP Investor Parties, any of their Affiliates, their Related Investment Funds or any of its or their respective Representatives are requested or required by applicable Law, Judgment or by a Governmental Entity (including by deposition, interrogatory, request for documents, subpoena, civil investigative demand, summons or similar process) to disclose any Confidential Information, in each of which instances, to the extent permissible by applicable Law and reasonably practicable, such FP Investor Party, its Affiliates, its Related Investment Funds and their respective Representatives, as the case may be, shall provide notice to the Company sufficiently in advance of any such disclosure so that the Company shall have a reasonable opportunity to timely seek to limit, condition or quash such disclosure; and, provided, that, with respect to any Related Investment Fund or Affiliate of an FP Investor Party receiving Confidential Information hereunder (i) such Related Investment Fund or Affiliate of an FP Investor Party, as applicable, will agree to keep such information confidential in accordance with this Section 5.02 as though it were a party hereto and (ii) the FP Investors will remain liable for any breaches by their respective Affiliates and Related Investment Funds of this Section 5.02.
SECTION 5.03.Section 16 Matters. If the Company becomes a party to a consolidation, merger or other similar transaction that may result in the Investors, their Affiliates and/or any Investor Director being deemed to have made a disposition of Equity Securities of the Company or derivatives thereof for purposes of Section 16 of the Exchange Act, and if any Investor Director is serving on the Board at such time or has served on the Board during the preceding six months (i) the Board will pre-approve such disposition of Equity Securities or derivatives thereof for the express
37
purpose of exempting the Investors’, their respective Affiliates’ and the Investor Director’s interests (to the extent such Investors or their respective Affiliates may be deemed to be “directors by deputization”) in such transaction from Section 16(b) of the Exchange Act pursuant to Rule 16b-3 thereunder and (ii) if the transaction involves (A) a merger or consolidation to which the Company is a party and Capital Stock is, in whole or in part, converted into or exchanged for equity securities of a different issuer, (B) a potential acquisition by the Investors, such Investors’ respective Affiliates, and/or the Investor Director of equity securities of such other issuer or derivatives thereof and (C) an Affiliate or other designee of the Investors or their respective Affiliates will serve on the board of directors (or its equivalent) of such other issuer, then if the Company requires that the other issuer pre-approve any acquisition of equity securities or derivatives thereof for the express purpose of exempting the interests of any director or officer of the Company or any of its Subsidiaries in such transactions from Section 16(b) of the Exchange Act pursuant to Rule 16b- 3 thereunder, the Company shall require that such other issuer pre-approve any such acquisitions of equity securities or derivatives thereof for the express purpose of exempting the interests of the Investors, their respective Affiliates and the Investor Director (for such Investors and/or their respective Affiliates, to the extent such persons may be deemed to be “directors by deputization” of such other issuer) in such transactions from Section 16(b) of the Exchange Act pursuant to Rule 16b-3 thereunder.
SECTION 6.01.Notices. All notices, requests, permissions, waivers or other communications required or permitted to be given under this Agreement shall be in writing and shall be delivered by hand or sent by facsimile or sent, postage prepaid, by registered, certified or express mail or overnight courier service and shall be deemed given when so delivered by hand, by facsimile (which is confirmed, such confirmation not to be unreasonably withheld, conditioned or delayed), or if mailed, three days after mailing (one Business Day in the case of express mail or overnight courier service marked for overnight delivery) to the parties at the following addresses or facsimiles (or at such other address or facsimile for a party as shall be specified by like notice):
(a) If to the Company: |
|
||
|
|
|
|
|
Connecture, Inc. |
|
|
|
18500 West Corporate Drive, Suite 250 |
|
|
|
Brookfield, WI 53045 |
||
|
Attention: |
Chief Financial Officer |
|
|
Facsimile: |
(262) 432 0075 |
|
|
|
||
|
with a copy to (which copy alone shall not constitute notice): |
|
|
|
|
|
|
|
DLA Piper LLP (US) |
|
38
|
401 Congress Ave. Suite 2500 |
|
|
|
Austin, TX 78701 |
||
|
Attention: |
Samer Zabaneh |
|
|
Facsimile: |
(512) 457 7001 |
|
|
|
||
(b) If to the FP Investors: |
|
||
|
|
|
|
|
c/o Francisco Partners Management, L.P. |
|
|
|
One Letterman Drive, Building C – Suite 410 |
|
|
|
San Francisco, CA 94129 |
||
|
Attention: |
Ezra Perlman, Leonid Rozkin, and Tom Ludwig |
|
|
Facsimile: |
(415) 418 2999 |
|
|
|
||
|
with a copy to (which copy alone shall not constitute notice): |
|
|
|
|
|
|
|
Kirkland & Ellis LLP |
|
|
|
3330 Hillview Avenue |
|
|
|
Palo Alto, CA 94304 |
|
|
|
Attention: Adam D. Phillips, P.C. |
|
|
|
Ross M. Leff, Esq. |
|
|
|
Facsimile: (650) 859 7500 |
|
|
|
|
|
|
(c) If to Chrysalis: |
|
||
|
|
||
|
Chrysalis Ventures |
|
|
|
101 South Fifth Street, Suite 1650 |
|
|
|
Louisville, KY 40202 |
||
|
Attention: |
Jeremy Burtel |
|
|
Facsimile: |
(502) 583 7648 |
SECTION 6.02.Amendments; Waivers. This Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed by the Company and the FP Investors and, if such amendment or waiver shall be enforced against Chrysalis, Chrysalis. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, shall not constitute a waiver by such party of its right to exercise any such other right, power or remedy or to demand such compliance.
SECTION 6.03.Counterparts and Facsimile. This Agreement may be executed in two or more identical counterparts (including by facsimile or electronic transmission), each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument, and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered (by facsimile, electronic transmission or otherwise) to the other parties.
39
SECTION 6.04.Governing Law; Specific Enforcement; Submission to Jurisdiction; Waiver of Jury Trial. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware applicable to agreements made and to be performed entirely within such state, without regard to the conflicts of law principles of such state.
(a) The parties hereto acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties hereto shall be entitled to an injunction or injunctions, specific performance or other equitable relief to prevent breaches or threatened breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the courts described in Section 6.04(c), without proof of damages or otherwise (in each case, subject to the terms and conditions of this Section 6.04) (and each party hereto acknowledges and agrees that any party seeking an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in accordance with this Section 6.04 shall not be required to provide any bond or other security in connection with any such order or injunction), this being in addition to any other remedy to which they are entitled at law or in equity. The parties hereto agree not to assert that a remedy of specific enforcement is unenforceable, invalid, contrary to Law or inequitable for any reason, or that a remedy of monetary damages would provide an adequate remedy or that the parties otherwise have an adequate remedy at law.
(b) Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the Chancery Court of the State of Delaware (or, if the Chancery Court of the State of Delaware declines to accept jurisdiction, any state or federal court within the State of Delaware), for the purposes of any demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any Governmental Entity or any arbitration or mediation tribunal (“Action”) or other proceeding arising out of this Agreement and the rights and obligations arising hereunder, and irrevocably and unconditionally waives any objection to the laying of venue of any such Action or proceeding in any such court, and further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such Action or proceeding has been brought in an inconvenient forum. Each party hereto agrees that service of any process, summons, notice or document by registered mail to such party’s respective address set forth in Section 6.01 shall be effective service of process for any such Action or proceeding.
(c) Each party hERETO Hereby waives, to the fullest extent permitted by applicable Law, any right it may have to a trial by jury in respect OF any ACTION, CLAIM OR OTHER PROCEEDING directly or indirectly arising out of, under or in connection with this Agreement. Each party HERETO (i) certifies that no Representative of any other party has represented, expressly or otherwise, that such other party would not, in the event of ANY ACTION, CLAIM OR OTHER PROCEEDING, seek to
40
enforce the foregoing waiver, (ii) it understands and has considered the implications of such waiver, (iii) it makes such waiver voluntarily and (iv) acknowledges that it and the other parties HERETO have been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this SECTION 6.04(d).
SECTION 6.05.Interpretation. (a) When a reference is made in this Agreement to an Article or Section, such reference shall be to an Article or Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. The word “will” shall be construed to have the same meaning as the word “shall”. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”. The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The words “date hereof” shall refer to the date of this Agreement. The word “or” shall not be exclusive. The word “extent” in the phrase “to the extent” shall mean the degree to which a subject or other thing extends, and shall not simply mean “if”. All references to “$” mean the lawful currency of the United States of America. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term, and references to the masculine, feminine or neuter gender shall include other gender. Except as specifically stated herein, any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. Except as otherwise specified herein, references to a Person are also to its successors and permitted assigns. Whenever a consent, approval, designation, nomination or similar right is provided to the FP Investor Parties, such right may be exercised by a majority-in-interest of the FP Investor Parties based on the FP Investor Parties’ ownership of the Company’s Capital Stock at such time. Each of the parties hereto has participated in the drafting and negotiation of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement must be construed as if it is drafted by all the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of authorship of any of the provisions of this Agreement.
(b) For purposes of determining beneficial ownership, the FP Investor Parties may rely on the Company’s most recent publicly available Quarterly Report on Form 10-Q or Annual Report on Form 10-K to determine the number of issued and outstanding Equity Securities of the Company at any given time and any Person’s beneficial ownership percentage, unless the Company provides written notice to the FP Investor Parties with an updated number of Equity Securities of the Company then issued and outstanding.
41
(c) In the event that the Common Stock is listed on a National Securities Exchange other than NASDAQ, all references herein to NASDAQ rules shall be deemed to be to the most comparable rule applicable to such other National Securities Exchange and all references to NASDAQ shall be deemed to be such other National Securities Exchange, in each case, mutatis mutandis. In the event that the Common Stock is listed on both NASDAQ and any other National Securities Exchange, the Company and the FP Investor Parties shall cooperate to make any amendments to this Agreement reasonably requested by the other party; provided, that in no event shall an FP Investor Party be required to accept any changes that would result from any shares Capital Stock beneficially owned by any FP Investor Party being listed on any exchange other than a National Securities Exchange.
SECTION 6.06.Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced because of any Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse in any material respect to any party hereto. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable Law.
SECTION 6.07.No Third-Party Beneficiaries. Except as expressly set forth in Section 3.08, this Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing expressed or referred to in this Agreement will be construed to give any Person, other than the parties to this Agreement and such permitted assigns, any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement, whether as third party beneficiary or otherwise.
SECTION 6.08.Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, in whole or in part, by any party hereto (whether by operation of Law or otherwise) without the prior written consent of the other party; provided that notwithstanding the foregoing, (a) the Company shall be permitted to assign this Agreement and its rights, interests and obligations hereunder without the prior written consent of any other party hereto to the successor or surviving entity in any merger, business combination or other transaction involving a change of control of the Company and (b) this Section 6.08 shall not prohibit any Transfer permitted under Section 5.02; provided, further, that in the event of any such assignment pursuant to clause (b) or (c), the applicable Investor will remain liable for all of its obligations under this Agreement.
42
(a) Automatic Termination. Other than the termination provisions applicable to particular Sections of this Agreement that are specifically provided elsewhere in this Agreement, this Agreement shall terminate, subject to Section 6.09(b), (i) upon the mutual written agreement of the Company and the FP Investor Parties and (ii) at such time when the FP Investor Parties no longer beneficially own shares of Capital Stock.
(b) Survival. In the event that this Agreement shall terminate, all provisions of this Agreement shall terminate and shall be void, except Section 5.02 and Articles I and VI and shall survive any such termination indefinitely. The termination of this Agreement shall not relieve any party from any liability for any breach by a party of this Agreement.
SECTION 6.10.Entire Agreement, etc. This Agreement (including the Exhibits hereto), together with the Series B Certificate of Designations and the Investment Agreement, constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof; provided, that nothing herein shall limit, restrict, prevent or supersede the other Transaction Documents or the transaction documents related to the Series A Preferred Stock (other than with respect to Article II of the Series A Investor Rights Agreement as set forth in Section 2.09 hereof), or serve as a consent or waiver thereunder.
[Remainder of page intentionally left blank]
43
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
COMPANY: |
|||
|
|||
CONNECTURE, INC. |
|||
|
|||
By |
/s/ Vincent E. Estrada |
||
|
Name: |
|
Vincent E. Estrada |
|
Title: |
|
Chief Financial Officer |
INVESTORS: |
|||
|
|||
FRANCISCO PARTNERS IV, L.P. |
|||
|
|||
By: |
FRANCISCO PARTNERS GP iV, L.P. its General Partner |
||
|
|
||
By: |
FRANCISCO PARTNERS GP IV MANAGEMENT LIMITED its General Partner |
||
|
|
||
By: |
/s/ Ezra Perlman |
||
|
Name: |
|
Ezra Perlman |
|
Title: |
|
Co-President |
FRANCISCO PARTNERS IV-A, L.P. |
|||
|
|||
By: |
FRANCISCO PARTNERS GP iV, L.P. its General Partner |
||
|
|
||
By: |
FRANCISCO PARTNERS GP IV MANAGEMENT LIMITED its General Partner |
||
|
|
||
By: |
/s/ Ezra Perlman |
||
|
Name: |
|
Ezra Perlman |
|
Title: |
|
Co-President |
CHRYSALIS VENTURES II, L.P. (solely for purposes of Articles III, IV and VI and Section 5.03 (and related definitions)) |
[SIGNATURE PAGE TO INVESTOR RIGHTS AGREEMENT]
|
|||
By |
CHRYSALIS PARTNERS II, LLC |
||
|
|
||
|
/s/ David A. Jones, Jr. |
||
|
Name: |
|
David A. Jones, Jr. |
|
Title: |
|
Member |
[SIGNATURE PAGE TO INVESTOR RIGHTS AGREEMENT]
Exhibit 10.1
INVESTMENT AGREEMENT
by and among
CONNECTURE, INC.
and
EACH OF THE INVESTORS LISTED ON THE SIGNATURE PAGES HERETO
Dated as of March 10, 2017
TABLE OF CONTENTS
|
Page |
|
|
|
|
Article I |
Definitions |
3 |
|
|
|
Section 1.01 |
Definitions |
3 |
|
|
|
Article II |
Purchase and Sale |
9 |
|
|
|
Section 2.01 |
Purchase and Sale |
9 |
Section 2.02 |
Closing |
9 |
|
|
|
Article III |
Representations and Warranties of the Company |
10 |
Section 3.01 |
Organization; Standing |
10 |
Section 3.02 |
Capitalization |
10 |
Section 3.03 |
Authority; Noncontravention |
12 |
Section 3.04 |
Governmental Approvals |
13 |
Section 3.05 |
Company SEC Documents; Undisclosed Liabilities |
13 |
Section 3.06 |
Absence of Certain Changes |
14 |
Section 3.07 |
Legal Proceedings |
16 |
Section 3.08 |
Compliance with Laws; Permits |
16 |
Section 3.09 |
Tax Matters |
16 |
Section 3.10 |
Employee Benefits |
17 |
Section 3.11 |
Labor Matters |
18 |
Section 3.12 |
Environmental Matters |
18 |
Section 3.13 |
Intellectual Property |
18 |
Section 3.14 |
Property |
19 |
Section 3.15 |
Contracts |
19 |
Section 3.16 |
Insurance |
20 |
Section 3.17 |
Sale of Securities |
21 |
Section 3.18 |
No Broker |
21 |
Section 3.19 |
Listing and Maintenance Requirements |
21 |
Section 3.20 |
Investment Company Act |
21 |
Section 3.21 |
No Rights Agreement |
21 |
Section 3.22 |
Certain Business Relationships with Affiliates |
21 |
Section 3.23 |
Privacy and Data Protection |
21 |
Section 3.24 |
Illegal Payments; FCPA Violations |
22 |
Section 3.25 |
Economic Sanctions |
22 |
Section 3.26 |
Compliance with Money Laundering Laws |
22 |
Section 3.27 |
Compliance with Healthcare Laws |
23 |
Section 3.28 |
No Other Investor Representations or Warranties |
23 |
|
|
|
Article IV |
Representations and Warranties of the Investors |
23 |
|
|
|
Section 4.01 |
Organization and Authority |
23 |
Section 4.02 |
Authorization; Enforceability |
23 |
Section 4.03 |
No Conflict |
24 |
Section 4.04 |
Governmental Approvals |
24 |
Section 4.05 |
Financing |
24 |
Section 4.06 |
No Broker |
24 |
Section 4.07 |
Purchase for Investment |
25 |
i
TABLE OF CONTENTS
No Other Company Representations or Warranties |
25 |
|
Section 4.09 |
Arm’s Length Transaction |
25 |
Section 4.10 |
Private Placement Consideration |
25 |
Section 4.11 |
Tax Matters |
26 |
|
|
|
Article V |
Additional Agreements |
26 |
|
|
|
Section 5.01 |
Public Announcements |
26 |
Section 5.02 |
Corporate Action |
26 |
Section 5.03 |
NASDAQ Listing of Shares |
26 |
Section 5.04 |
Use of Proceeds |
26 |
Section 5.05 |
Expenses |
26 |
Section 5.06 |
Rights Agreement; Board Composition |
26 |
Section 5.07 |
Tax Matters |
27 |
Section 5.08 |
Amendments to Corporate Documents |
27 |
Section 5.09 |
Tax Treatment |
27 |
|
|
|
Article VI |
Conditions to Closing |
27 |
|
|
|
Section 6.01 |
Conditions to the Obligations of the Company and the Investors |
27 |
Section 6.02 |
Conditions to the Obligations of the Company |
28 |
Section 6.03 |
Conditions to the Obligations of the Investor |
28 |
|
|
|
Article VII |
Survival |
29 |
|
|
|
Section 7.01 |
Survival |
29 |
Section 7.02 |
Limitation on Damages |
29 |
Section 7.03 |
Non-Recourse |
29 |
|
|
|
Article VIII |
Miscellaneous |
30 |
|
|
|
Section 8.01 |
Notices |
30 |
Section 8.02 |
Amendments, Waivers, etc |
31 |
Section 8.03 |
Counterparts and Facsimile |
31 |
Section 8.04 |
Further Assurances |
31 |
Section 8.05 |
Governing Law; Specific Enforcement; Submission to Jurisdiction; Waiver of Jury Trial |
31 |
Section 8.06 |
Interpretation |
32 |
Section 8.07 |
Severability |
33 |
Section 8.08 |
No Third-Party Beneficiaries |
33 |
Section 8.09 |
Assignment |
33 |
Section 8.10 |
Acknowledgment of Securities Laws |
33 |
Section 8.11 |
Entire Agreement |
33 |
Exhibits
Form of Series B Certificate of Designations |
Exhibit A |
Form of Series B Investor Rights Agreement |
Exhibit B |
ii
THIS INVESTMENT AGREEMENT (this “Agreement”) is entered into as of March 10, 2017, among Connecture, Inc., a Delaware corporation (the “Company”), and the investors set forth on the signature pages hereto under the heading “FP Investors” (together with their successors, each an “FP Investor,” and collectively, the “FP Investors”) and Chrysalis Ventures II, L.P. (“Chrysalis,” and together with the FP Investors, the “Investors” and each an “Investor”).
WHEREAS, concurrently with the investment pursuant to this Agreement, the Company and the lenders under the Amended and Restated Credit Agreement between Wells Fargo Bank, National Association, the lenders party thereto, and the Company and DestinationRX, Inc. as borrowers, dated as of June 8, 2016, as amended (the “Credit Agreement”), are entering into an amendment pursuant to which the lenders consent to the Transactions and make certain additional modifications to the Credit Agreement as set forth therein (“Credit Agreement Amendment”).
WHEREAS, the Company desires to issue, sell and deliver to the Investors, and the Investors severally desire to purchase and acquire from the Company, pursuant to the terms and subject to the conditions set forth in this Agreement, an aggregate of 17,500 shares of the Company’s Series B Convertible Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”), having the powers, preferences and rights, and the qualifications, limitations and restrictions, as set forth in the form of Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock of the Company pursuant to the Company’s Certificate of Incorporation attached hereto as Exhibit A (the “Series B Certificate of Designations”).
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:
Section 1.01Definitions. As used in this Agreement (including the recitals hereto), the following terms shall have the following meanings:
“Affiliate” means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such specified Person; provided that (i) the Company and its Subsidiaries shall not be deemed to be Affiliates of any of the Investors or any of their respective Affiliates, and (ii) portfolio companies in which an Investor or any of its Affiliates has an investment (whether as debt or equity) shall not be deemed an Affiliate of the Investor or the Investor’s Affiliates. For the purposes of this definition, “control,” when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling,” “controlled,” “controlled by” and “under common control with” have meanings correlative to the foregoing.
“Affiliate Arrangements” means any Contracts (excluding employment agreements with officers entered into in the ordinary course of business) between the Company, on the one hand, and any director, officer or stockholder (in each case, in his, her or its capacity as such) of the Company or its Affiliates, on the other hand, which is currently in effect.
Any Person shall be deemed to “beneficially own,” to have “beneficial ownership” of, or to be “beneficially owning” any securities (which securities shall also be deemed “beneficially owned” by such Person) that such Person is deemed to “beneficially own” within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the date hereof; provided that any Person shall be deemed to
beneficially own any securities that such Person has the right to acquire, whether or not such right is exercisable immediately.
“Board” means the board of directors of the Company.
“Business Day” means any day except a Saturday, a Sunday or other day on which the SEC or banking institutions in New York, New York are authorized or required by law, regulation or executive order to be closed.
“Bylaws” means the Amended and Restated Bylaws of the Company, as may be amended and restated from time to time.
“Certificate of Incorporation” means the Sixth Amended and Restated Certificate of Incorporation of the Company, as amended by the Series A Certificate of Designations and as may be further amended and restated from time to time.
“Code” means the United States Internal Revenue Code of 1986, as amended.
“Common Stock” means the common stock, par value $0.001 per share, of the Company.
“Company Charter Documents” means the Certificate of Incorporation and Bylaws.
“Company Lease” means any lease, sublease, sub-sublease, license and other agreement under which the Company or any of its Subsidiaries leases, subleases, licenses, uses or occupies (in each case whether as landlord, tenant, sublandlord, subtenant or by other occupancy arrangement), or has the right to use or occupy, now or in the future, any real property.
“Company Leased Real Property” means all right, title and interest of the Company and its Subsidiaries to any leasehold interests in any material real property, together with all buildings, structures, improvements and fixtures thereon.
“Company Plan” means each “employee benefit plan” (as defined in Section 3(3) of ERISA, whether or not subject to ERISA) and each other plan, program, contract, arrangement, agreement or policy relating to stock options, stock purchases, other equity-based compensation, bonus, incentive, deferred compensation, employment, severance, retention, change in control, termination, fringe benefits, disability, medical, life, paid time off, relocation, or other benefits or compensation, in each case sponsored, maintained or contributed to or required to be contributed to by the Company or any of its Subsidiaries or with respect to which the Company or any of its Subsidiaries has any Liabilities.
“Company Stock Plans” means the Company’s 2010 Stock Plan, 2014 Equity Incentive Plan and 2014 Employee Stock Purchase Plan, in each case as amended from time to time.
“Conversion Shares” means (i) the Common Stock issuable upon the conversion or exchange of the Preferred Shares, including any increase in the stated value of the Preferred Shares pursuant to the issuance of dividends in accordance with the Series B Certificate of Designations (the “PIK Dividends”) and (ii) any Common Stock issuable as a dividend on the Preferred Shares (including the PIK Dividends, if any).
“DGCL” means the General Corporation Law of the State of Delaware.
“Environmental Law” means any federal, state, local or foreign Law or Judgment relating to pollution or protection of the environment; natural resources; or, to the extent relating to exposure to hazardous or toxic substances, human health or safety.
4
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“ERISA Affiliate” means any Person which, together with the Company or any of its Subsidiaries, would at any relevant time be treated as a single employer under Section 4001 of ERISA or Section 414 of the Code.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“GAAP” means generally accepted accounting principles in the United States, consistently applied.
“Governmental Entity” means any federal, state or local, domestic or foreign governmental or regulatory (including any stock exchange) authority, agency, court, commission, or other entity or self-regulatory organization.
“Guarantee” means any guarantee, letter of credit, surety bond (including any performance bond), credit support agreement or other assurance of payment.
“Indebtedness” means, with respect to any Person, without duplication, the principal of, accrued and unpaid interest, prepayment and redemption premiums or penalties (if any), unpaid fees or expenses and other Liabilities in respect of (i) all obligations of such Person for borrowed money, or with respect to deposits or advances of any kind to such Person (other than extensions of trade credit to customers of such Person and its Subsidiaries in the ordinary course of business), (ii) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (iii) all obligations of such Person which are, or would be required under GAAP to be, recorded on the balance sheet of such Person with respect to a lease, (iv) all obligations of such Person pursuant to securitization or factoring programs or arrangements, (v) all Guarantees and arrangements having the economic effect of a Guarantee of such Person of any Indebtedness of any other Person, (vi) all obligations or undertakings of such Person to maintain or cause to be maintained the financial position or covenants of others or to purchase the obligations or property of others, (vii) net cash payment obligations of such Person under swaps, options, derivatives, and other hedging agreements or arrangements that will be payable upon termination thereof (assuming they were terminated on the date of determination), (viii) letters of credit, bank guarantees, and other similar contractual obligations entered into by or on behalf of such Person, (ix) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable and other accrued current liabilities), and (x) all obligations of the type referred to in the foregoing clauses secured by any Lien on any property or asset.
“Intellectual Property” means any and all intellectual property rights in the following, in any and all countries: (i) patents (including all reissues, divisionals, continuations, continuations-in-part, reexaminations, supplemental examinations, inter partes reviews, post-grant oppositions, substitutions and extensions thereof), utility models, industrial designs and inventions, and all applications and registrations therefor, (ii) trademarks, service marks, brand names, certification marks, collective marks, and other indicia of origin, and all applications, registrations and renewals therefor, together with the goodwill associated with any of the foregoing, (iii) copyrights, applications and registrations therefor and renewals, extensions, restorations and reversions thereof, (iv) software, including source code, executable code, firmware and all documentation related to any of the foregoing, (v) internet domain names, and (vi) trade secrets, know-how and other proprietary information.
“Judgment” means any judgment, injunction, order or decree of any Governmental Entity.
5
“Knowledge” means, with respect to the Company, the actual knowledge as of the date hereof of Jeffery Surges, Vincent Estrada and David Sockel after due inquiry of the direct reports of such individuals.
“Liabilities” means, collectively, all obligations, liabilities and commitments of any nature, whether known or unknown, express or implied, primary or secondary, direct or indirect, liquidated, absolute, accrued, contingent or otherwise and whether due or to become due.
“Liens” means any pledges, liens, charges, mortgages, encumbrances or security interests of any kind or nature.
“Material Adverse Effect” means any circumstance, development, effect, change, event, occurrence or state of facts that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on (1) the business, results of operations, assets, Liabilities or financial condition of the Company and its Subsidiaries taken as a whole; provided, however, that none of the following, and no effect, change, event or occurrence arising out of, or resulting from, the following, shall constitute or be taken into account, individually or in the aggregate, in determining whether a Material Adverse Effect has occurred or may occur: any effect, change, event or occurrence that results from or arises in connection with (A) changes in or conditions generally affecting the industry in which the Company and its Subsidiaries operate, (B) general economic or regulatory, legislative or political conditions or securities, credit, financial or other capital markets conditions in any jurisdiction, (C) geopolitical conditions, the outbreak or escalation of hostilities, any acts of war (whether or not declared), sabotage, terrorism or man-made disaster, or any escalation or worsening of any of the foregoing, (D) natural disaster, (E) any change in GAAP (or authoritative interpretation thereof), including accounting and financial reporting pronouncements by the SEC and the Financial Accounting Standards Board or applicable Law, (F) any change resulting or arising from the execution and delivery of this Agreement or the public announcement of the Transactions, (G) any decline in the market price, or change in trading volume, of the capital stock of the Company or (H) any failure to meet any internal or public projections guidance or estimates (it being understood that the exceptions in clauses (G) and (H) shall not prevent or otherwise affect a determination that the underlying cause of any such change, decline or failure referred to therein is a Material Adverse Effect); provided that the exceptions in clauses (A), (B), (C) and (D) above shall not apply to the extent such circumstance, development, effect, change, event, occurrence or state of facts has a materially disproportionate impact on the Company and its Subsidiaries, taken as a whole, relative to other participants in the industry in which the Company and its Subsidiaries operate, or (2) the ability of the Company and its Subsidiaries to timely consummate the Transactions or to perform their respective material obligations under the Related Documents.
“Materials of Concern” means any waste, substance or material that is classified, regulated, defined or designated under Environmental Law as radioactive, explosive, highly flammable, hazardous or toxic or as a contaminant or a pollutant, or for which liability or standards of conduct may be imposed, including petroleum products, byproducts and distillates, heavy metals (such as lead and cadmium), ozone-depleting substances, chlorinated solvents, polychlorinated biphenyls, friable asbestos, toxic mold and anti-microbial agents, nanoparticles, nanomaterials, microbeads and microplastics.
“NASDAQ” means the Nasdaq Global Market and its successors.
“Option” means an unexercised option to purchase shares of Common Stock granted under a Company Stock Plan or otherwise.
“Participant” means any current or former director, officer, employee or independent contractor of the Company or any of its Subsidiaries.
6
“Performance RSU” means a restricted stock unit in respect of shares of Common Stock that is subject to performance-based vesting or forfeiture conditions (whether granted under a Company Stock Plan or otherwise).
“Permitted Liens” means (i) statutory Liens for Taxes, assessments or other charges by Governmental Entities not yet due and payable or the amount or validity of which is being contested in good faith and by appropriate proceedings, (ii) mechanics’, materialmen’s, carriers’, workmen’s, warehousemen’s, repairmen’s, landlords’ and similar Liens granted or which arise in the ordinary course of business, (iii) pledges or deposits by the Company or any of its Subsidiaries under workmen’s compensation Laws, unemployment insurance Laws or similar legislation, or good faith deposits in connection with bids, tenders, Contracts (other than for the payment of Indebtedness) or leases to which such entity is a party, or deposits to secure public or statutory obligations of such entity or to secure surety or appeal bonds to which such entity is a party, or deposits as security for contested Taxes, in each case incurred or made in the ordinary course of business, (iv) Liens securing payment, or any obligation, of the Company or its Subsidiaries with respect to Indebtedness outstanding on the date hereof, (v) non-exclusive licenses granted to third parties in the ordinary course of business by the Company or any of its Subsidiaries, (vi) transfer restrictions imposed by applicable securities or other Law, (vii) easements, rights-of-way, encroachments, restrictions, conditions and other similar Liens incurred or suffered in the ordinary course of business and which, individually or in the aggregate, would not reasonably be expected to materially impair the use and operation of the applicable real property to which they relate in the conduct of the business of the Company and its Subsidiaries as currently conducted, (viii) zoning, entitlement, building and other land use regulations imposed by Governmental Entities having jurisdiction over such real property, (ix) Liens placed by any developer, landlord, owner or other third party on real property over which the Company or any of its Subsidiaries has leasehold or easement rights and subordination, non-disturbance or similar agreements relating thereto, (x) Liens created by or through the actions of the Investor or any of its Affiliates, and (xi) such other Liens that are not material in amount or do not materially detract from the value of or materially impair the use of the property affected by such Lien.
“Person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Entity or other entity.
“Related Documents” means the Series B Certificate of Designations, the Series B Investor Rights Agreement and any other agreements between or among the Company, the Investors and any of their respective Affiliates entered into to give effect to the transactions contemplated by this Agreement.
“Related Investment Funds” means (a) any current or potential investment funds, co-investment funds, successor investment funds and other investment vehicles and managed accounts under direct or indirect common management, governance or control and other similar investment management relationships with, the Investors or their respective Affiliates and (b) current or potential limited partners or members of each Person described in clause (a).
“Representative” means, with respect to any Person, the directors, officers, employees, investment bankers, financial advisors, attorneys, accountants or other advisors, agents or representatives of such Person.
“Restricted Share” means a share of Common Stock that is subject to vesting or forfeiture conditions (whether time-based or performance-based and whether granted under a Company Stock Plan or otherwise).
7
“SEC” means the Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Series A Preferred Stock” means the Company’s Series A Convertible Preferred Stock, par value $0.001 per share, having the designation, powers, preferences and rights, and the qualifications, limitations and restrictions, as specified in the Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of the Company pursuant to the Company’s Certificate of Incorporation, filed with the Secretary of State of the State of Delaware on April 29, 2016 (the “Series A Certificate of Designations”).
“Series A Investor Rights Agreement” means the investor rights agreement between the Company and the holders of Series A Preferred Stock, dated as of May 2, 2016.
“Series A Transaction Documents” means, collectively, (a) that certain Investment Agreement dated as of March 11, 2016, among the Company and the investors party thereto (the “Series A Investment Agreement”), and (b) the Related Agreements (as defined in the Series A Investment Agreement).
“Series B Investor Rights Agreement” means the investor rights agreement between the Company and the Investors in the form attached hereto as Exhibit B.
“Service-Based RSU” means a restricted stock unit in respect of shares of Common Stock that is solely subject to service-based vesting or forfeiture conditions (whether granted under a Company Stock Plan or otherwise).
“Stock Appreciation Right” means an unexercised stock appreciation right in respect of shares of Common Stock (whether granted under a Company Stock Plan or otherwise).
“Subsidiary” means, with respect to any Person, another Person, an amount of the voting securities, other voting rights or voting partnership interests of which is sufficient to elect at least a majority of its board of directors or other governing body (or, if there are no such voting interests, more than 50% of the equity interests of which) is owned directly or indirectly by such first Person.
“Transaction Documents” means this Agreement and the Related Documents.
“Transactions” means the transactions contemplated by this Agreement and the Related Documents.
(a)In addition to the terms defined in Section 1.01(a), the following terms have the meanings assigned thereto in the Sections set forth below:
Term |
Section |
Action |
3.07 |
Agreement |
Preamble |
Anticorruption Laws |
3.24 |
Balance Sheet Date |
3.05(c) |
Bankruptcy and Equity Exception |
3.03(a) |
Capitalization Date |
3.02(a) |
Closing |
2.02(a) |
Closing Date |
2.02(a) |
8
Term |
Section |
Preamble |
|
Company Disclosure Letter |
Article III |
Company Fundamental Representations |
6.03(a) |
Company SEC Documents |
3.05(a) |
Company Securities |
3.02(b) |
Contract |
3.03(b) |
FCPA |
3.24 |
Filed SEC Documents |
Article III |
FP Investor |
Preamble |
Government Official |
3.24 |
HIPAA |
3.27 |
IRS |
4.11 |
Investor |
Preamble |
Laws |
3.08 |
Material Contracts |
3.15(a) |
Money Laundering Laws |
3.26 |
Non-Recourse Party |
7.03 |
Permits |
3.08 |
Preferred Shares |
2.01 |
Series B Certificate of Designations |
Recitals |
Series B Preferred Stock |
Recitals |
Purchase |
2.01 |
Purchase Price |
2.01 |
Tax |
3.09(j) |
Tax Return |
3.09(j) |
Section 2.01Purchase and Sale. On the terms and subject to the conditions set forth in this Agreement, at the Closing, the Investors shall severally purchase and acquire from the Company an aggregate of 17,500 shares of Series B Preferred Stock (the “Preferred Shares”), and the Company shall issue, sell and deliver to each Investor, the Preferred Shares set forth opposite such Investor’s name on Section 2.01 of the Company Disclosure Letter, for a purchase price per Preferred Share equal to $1,000 and an aggregate purchase price of $17,500,000 (the “Purchase Price”). The purchase of the Preferred Shares pursuant to this Section 2.01 is referred to as the “Purchase.”
Section 2.02Closing. The closing of the Purchase (the “Closing”) shall take place at the offices of Kirkland & Ellis LLP, 3330 Hillview Avenue, Palo Alto, CA 94304, on the date hereof, or at such other place, time and date as shall be agreed between the Company and the Investor. The date on which the Closing occurs is referred to in this Agreement as the “Closing Date.” The Closing shall be deemed to occur and be effective as of 12:01 a.m., New York City time, on the Closing Date.
(a)At the Closing, to effect the purchase and sale of the Preferred Shares, (i) the Investors shall pay to the Company, by wire transfer to a bank account designated in writing by the Company at least two Business Days prior to the Closing Date, in immediately available funds, the Purchase Price, (ii) the Company shall deliver to the Investors evidence of the Preferred Shares in book entry, (iii) the Company shall make the filing described in Section 6.01(b), and (iv) each of the Company and the Investors shall execute and deliver to the other the Series B Investor Rights Agreement.
9
Article III
Representations and Warranties of the Company
The Company represents and warrants to each Investor as of the date hereof and as of the Closing (except to the extent made only as of a specified date, in which case such representation and warranty is made as of such date) that, except as (A) set forth in the confidential disclosure letter delivered by the Company to the Investors on the date hereof (the “Company Disclosure Letter”) (it being understood that any information, item or matter set forth on one section or subsection of the Company Disclosure Letter shall be deemed disclosure only with respect to and shall be deemed to apply to and qualify only the section or subsection of this Agreement to which it corresponds in number and each other section or subsection of this Agreement to the extent that it is reasonably apparent on the face of such disclosure that such information, item or matter is relevant to such other section or subsection) or (B) disclosed in any report, schedule, form, statement or other document (including exhibits (including those incorporated by reference and publicly available)) filed with, or furnished to, the SEC and publicly available on or after March 15, 2016, and before the date hereof (the “Filed SEC Documents”), other than any disclosures set forth in the “Risk Factors” or forward-looking statement sections of such Filed SEC Documents and any other disclosures included therein to the extent they are predictive or forward-looking in nature; provided that this clause (B) shall not apply to the representations and warranties set forth in Section 3.01, Section 3.02, Section 3.03, Section 3.04, Section 3.06, Section 3.17, Section 3.18, Section 3.19, Section 3.20 and Section 3.21.
Section 3.01Organization; Standing. The Company is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware and has all requisite corporate power and corporate authority necessary to carry on its business as it is now being conducted except (other than with respect to the Company’s due organization and valid existence) as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company is duly licensed or qualified to do business and is in good standing (where such concept is recognized under applicable Law) in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing, qualification or good standing necessary, except where the failure to be so licensed, qualified or in good standing, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect. True and complete copies of the Company Charter Documents (as amended to the date hereof) are included in the Filed SEC Documents.
(a)Each of the Company’s Subsidiaries is duly organized, validly existing and in good standing (where such concept is recognized under applicable Law) under the Laws of the jurisdiction of its organization, except where the failure to be so organized, existing or in good standing, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect. Each of the Company’s Subsidiaries is duly licensed, qualified to do business and in good standing (where such concept is recognized under applicable Law) in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing, qualification or good standing necessary, except where the failure to be so licensed, qualified or in good standing, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect.
Section 3.02Capitalization. The authorized capital stock of the Company consists of 75,000,000 shares of Common Stock and 5,000,000 shares of preferred stock, par value $0.001 per share, 52,000 shares of which are designated as Series A Convertible Preferred Stock, par value $0.001 per share, and 17,500 shares of which will be designated as Series B Convertible Preferred Stock, par value $0.001 per share, as of the Closing. At the close of business on March 1, 2017 (the “Capitalization Date”), (i) 22,584,540 shares of Common Stock were issued and outstanding (including no Restricted Shares),
10
(ii) 106,477 shares of Common Stock were held by the Company in its treasury, (iii) 2,086,967 shares of Common Stock were reserved and available for issuance pursuant to the Company Stock Plans, (iv) 2,366,278 shares of Common Stock were subject to outstanding Options, (v) no shares of Common Stock were subject to outstanding Stock Appreciation Rights, (vi) 388,893 shares of Common Stock were subject to outstanding Service-Based RSUs, (vii) 355,000 shares of Common Stock were subject to outstanding Performance RSUs (assuming that applicable performance goals have been attained at maximum levels), (viii) 52,000 shares of Series A Preferred Stock were issued and outstanding and (ix) no shares of Series B Preferred Stock were issued or outstanding. Since the Capitalization Date through the date hereof, neither the Company nor any of its Subsidiaries has (A) issued any Company Securities or incurred any obligation to make any payments based on the price or value of any Company Securities or dividends paid thereon, other than in connection with the vesting, settlement or exercise of the Options, Service-Based RSUs and Performance RSUs referred to above that were outstanding as of the Capitalization Date or (B) established a record date for, declared, set aside for payment or paid any dividend on, or made any other distribution in respect of, any shares of the Company’s capital stock.
(a)Except as described in Section 3.02(a), as of the Capitalization Date, there were no (i) outstanding shares of capital stock of, or other equity or voting interests in, the Company, (ii) outstanding securities convertible into or exchangeable for shares of capital stock of, or other equity or voting interests in, the Company, (iii) outstanding options, warrants, stock appreciation rights, phantom stock rights, rights or other commitments or agreements to acquire from the Company or any Subsidiary, or that obligate the Company or any Subsidiary to issue, any capital stock of, or other equity or voting interests (or voting debt) in, or any securities convertible into or exchangeable for shares of capital stock of, or other equity or voting interests in, the Company, (iv) obligations of the Company or any Subsidiary to grant, extend or enter into any subscription, warrant, right, convertible or exchangeable security or other similar agreement or commitment relating to any capital stock of, or other equity or voting interests in, the Company (the items in clauses (i), (ii), (iii) and (iv) being referred to collectively as “Company Securities”) or (v) other obligations by the Company or any of its Subsidiaries to make any payments or provide any economic value based on the price or value of any Company Securities or dividends paid thereon. Except with respect to the Company Stock Plans and the Series A Transaction Documents, there are no outstanding agreements of any kind that obligate the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any Company Securities, or obligate the Company to grant, extend or enter into any such agreements relating to any Company Securities, including any agreements granting any preemptive rights, subscription rights, anti-dilutive rights, rights of first refusal or similar rights with respect to any Company Securities. Other than as set forth in Section 3.02(b) of the Company Disclosure Letter or pursuant to the Series A Transaction Documents, none of the Company or any Subsidiary of the Company is a party to any stockholders’ agreement, voting trust agreement, registration rights agreement or other similar agreement or understanding relating to any Company Securities or any other agreement relating to the disposition, voting or dividends with respect to any Company Securities. All outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights. The Preferred Shares and the Conversion Shares will be, when issued, duly authorized and validly issued, fully paid and nonassessable and issued in compliance with all applicable federal and state securities Laws, and such shares will not be issued in violation of any purchase option, call option, preemptive right, resale right, subscription right, right of first refusal or similar right, and will be free and clear of all Liens, except restrictions imposed by the Securities Act and any applicable state securities Laws. The Preferred Shares and the Conversion Shares, if and when issued, will have the terms and conditions and entitle the holders thereof to the rights set forth in the Company Charter Documents, as amended by the Series B Certificate of Designations. The shares of Common Stock issuable upon conversion of the Preferred Shares have been duly reserved for issuance.
(b)All of the outstanding shares of capital stock of, or other equity or voting interests in, each material Subsidiary of the Company (except for directors’ qualifying shares or the like)
11
are owned directly or indirectly, beneficially and of record, by the Company free and clear of all Liens, except for Permitted Liens. Each outstanding share of capital stock of each material Subsidiary of the Company, which is held, directly or indirectly, by the Company, is duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights, and, except as set forth in the Transaction Documents and the Series A Transaction Documents, there are no subscriptions, options, warrants, rights, calls, contracts or other commitments, understandings, restrictions or arrangements relating to the issuance, acquisition, redemption, repurchase or sale of any shares of capital stock or other equity or voting interests of any material Subsidiary of the Company, including any right of conversion or exchange under any outstanding security, instrument or agreement, any agreements granting any preemptive rights, subscription rights, anti-dilutive rights, rights of first refusal or similar rights with respect to any securities of any Subsidiary of the Company.
Section 3.03Authority; Noncontravention.
(a)The Company has all necessary corporate power and corporate authority to execute and deliver this Agreement and the Related Documents and to perform its obligations hereunder and thereunder and to consummate the Transactions. The execution, delivery and performance by the Company of this Agreement and the Related Documents, and the consummation by it of the Transactions, have been duly authorized and approved by the Board, and, except for filing the Series B Certificate of Designations with the Secretary of State of the State of Delaware pursuant to the DGCL, no other corporate action on the part of the Company is necessary to authorize the execution, delivery and performance by the Company of this Agreement and the Related Documents and the consummation by it of the Transactions. This Agreement has been, and the Related Documents will be on the Closing Date, duly executed and delivered by the Company and, assuming due authorization, execution and delivery hereof and thereof by the Investors, this Agreement constitutes, and the Related Documents will on the Closing Date constitute, a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar Laws of general application affecting or relating to the enforcement of creditors’ rights generally and (ii) is subject to general principles of equity, whether considered in a proceeding at law or in equity (the “Bankruptcy and Equity Exception”).
(b)Neither the execution and delivery of this Agreement nor any of the Related Documents by the Company, nor the consummation by the Company of the Transactions, nor performance or compliance by the Company with any of the terms or provisions hereof or thereof, will (i) conflict with or violate any provision of (A) the Company Charter Documents or (B) any similar organizational documents of any of the Company’s Subsidiaries or (ii) (x) violate or constitute a default (or constitute an event that, with notice or lapse of time or both, would constitute a violation or default) under any of the terms, conditions or provisions of any loan or credit agreement, debenture, note, bond, mortgage, indenture, deed of trust, lease, sublease, license, contract or other agreement, arrangement or understanding (each, a “Contract”) to which the Company or any of its Subsidiaries is a party or accelerate any obligations or rights under or give a right of termination of (whether or not with notice, lapse of time or both) any such Contract, (y) violate any Law, judgment, writ or injunction of any Governmental Entity applicable to the Company or any of its Subsidiaries or (z) result in the creation of any Lien on any properties or assets of the Company or any of its Subsidiaries, except, in the case of clause (i)(B) and clause (ii), as, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect.
(c)The Board, at a meeting duly called and held, adopted resolutions approving and declaring advisable and in the best interests of the Company and its stockholders the Transactions and the
12
execution, delivery and performance by the Company of this Agreement and the consummation of the Transactions, which resolutions have not been subsequently rescinded, modified or withdrawn.
(d)No vote or approval of the holders of any class or series of capital stock of the Company or any of its Subsidiaries is required under the rules and regulations of the SEC, the DGCL or NASDAQ to approve the Transactions and the consummation thereof.
Section 3.04Governmental Approvals. Except for (a) the filing with the SEC of such current reports and other documents, if any, required to be filed with the SEC under the Exchange Act or Securities Act in connection with the Transactions, (b) compliance with the rules and regulations of NASDAQ, and (c) the filing of the Series B Certificate of Designations with the Secretary of State of the State of Delaware pursuant to the DGCL, no consent or approval of, or filing with, license from, permit or authorization of, declaration of or registration with, any Governmental Entity or any stock market or stock exchange on which shares of Common Stock are listed for trading are necessary for the execution and delivery of this Agreement and the Related Documents by the Company, the performance by the Company of its obligations hereunder and thereunder and the consummation by the Company of the Transactions, other than such consents, approvals, filings, licenses, permits, authorizations, declarations or registrations the failure of which to obtain, make or give would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
Section 3.05Company SEC Documents; Undisclosed Liabilities.
(a)The Company has filed or furnished, as applicable, with the SEC, on a timely basis, all reports, schedules, forms, statements and other documents required to be filed or furnished, as applicable, by the Company with the SEC pursuant to the Securities Act or the Exchange Act since December 31, 2015 (collectively, the “Company SEC Documents”). As of their respective effective dates (in the case of Company SEC Documents that are registration statements filed pursuant to the requirements of the Securities Act) and as of their respective SEC filing dates (in the case of all other Company SEC Documents), the Company SEC Documents complied as to form in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, applicable to such Company SEC Documents, and none of the Company SEC Documents as of such respective dates (or, if amended prior to the date hereof, the date of the filing of such amendment, with respect to the disclosures that are amended) contained any untrue statement of a material fact or omitted, or will have omitted, to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of the date hereof, (i) the Company is eligible to file a Registration Statement on Form S-3, (ii) none of the Company’s Subsidiaries is required to file any documents with the SEC, (iii) there are no outstanding or unresolved comments in comment letters from the SEC staff with respect to any of the Company SEC Documents and (iv) to the Company’s Knowledge, none of the Company SEC Documents is the subject of ongoing SEC review, outstanding SEC comment or outstanding SEC investigation. Each of the certifications and statements relating to the Company SEC Documents required by: (A) Rule 13a-14 or Rule 15d-14 under the Exchange Act, (B) 18 U.S.C. § 1350 (Section 906 of the Sarbanes–Oxley Act) or (C) any other rule or regulation promulgated by the SEC or applicable to the Company SEC Documents is accurate and complete, and complies as to form and content with all applicable Laws.
(b)The consolidated financial statements of the Company (including all related notes or schedules) included or incorporated by reference in the Company SEC Documents (i) complied, as of their respective dates of filing with the SEC, in all material respects with the published rules and regulations of the SEC with respect thereto, (ii) present fairly, in all material respects, the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods covered thereby (subject, in the
13
case of unaudited quarterly financial statements, to normal year‑end adjustments), (iii) have been prepared in all material respects in accordance with GAAP (except, in the case of unaudited quarterly financial statements, as permitted by Form 10-Q of the SEC or other rules and regulations of the SEC) applied on a consistent basis during the periods covered thereby (except (A) as may be indicated in the notes thereto or (B) as permitted by Regulation S-X), and (iv) were prepared in accordance with the books of account and other financial records of the Company and its Subsidiaries (except as may be indicated in the notes thereto).
(c)Neither the Company nor any of its Subsidiaries has any liabilities of any nature (whether accrued, absolute, contingent or otherwise) that would be required under GAAP, as in effect on the date hereof, to be reflected on a consolidated balance sheet of the Company (including the notes thereto) except liabilities (i) reflected or reserved against in the balance sheet (or the notes thereto) of the Company and its Subsidiaries as of September 30, 2016 (the “Balance Sheet Date”) included in the Filed SEC Documents, (ii) incurred after the Balance Sheet Date in the ordinary course of business, (iii) as expressly contemplated by this Agreement or otherwise incurred in connection with the Transactions or (iv) as, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect.
(d)The Company has established and maintains, and at all times since December 11, 2014, has maintained, disclosure controls and procedures and a system of internal controls over financial reporting (as such terms are defined in paragraphs (e) and (f), respectively, of Rule 13a-15 under the Exchange Act) as required by Rule 13a-15 under the Exchange Act. Since December 31, 2015, neither the Company nor, to the Company’s Knowledge, the Company’s independent registered public accounting firm has identified or been made aware of any “significant deficiency” or “material weakness” (as defined by the Public Company Accounting Oversight Board) in the design or operation of the Company’s internal controls over financial reporting which would reasonably be expected to adversely affect in any material respect the Company’s ability to record, process, summarize and report financial data, in each case which has not been subsequently remediated. The Company is, and has been at all times since December 11, 2014, in compliance in all material respects with the applicable listing requirements and corporate governance rules and regulations of NASDAQ, and has not received any notice asserting any non-compliance with the listing requirements of NASDAQ.
(e)The Company’s auditor has at all times since December 11, 2014, been (i) a registered public accounting firm (as defined in Section 2(a)(12) of the Sarbanes–Oxley Act); (ii) “independent” with respect to the Company within the meaning of Regulation SX under the Exchange Act; and (iii) to the Company’s Knowledge, in compliance with subsections (g) through (l) of Section 10A of the Exchange Act and the rules and regulations promulgated by the SEC and the Public Company Accounting Oversight Board thereunder. All nonaudit services performed by the Company’s auditors for the Company that were required to be approved in accordance with Section 202 of the Sarbanes–Oxley Act were so approved.
Section 3.06Absence of Certain Changes. Since January 1, 2016, (a) through the date hereof, except for the execution and performance of this Agreement and the discussions, negotiations and transactions related thereto and any transaction of the type contemplated by this Agreement, the business of the Company and its Subsidiaries has been carried on and conducted in all material respects in the ordinary course of business, (b) there has not been any Material Adverse Effect or any circumstance, developments, effect, change, event, occurrence or state of facts that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect and (c) through the date hereof, the Company has not taken any of the following actions (except as provided in the Series A Transaction Documents):
14
(i) established a record date for, declares, set aside for payment or made payment in respect of, any dividend or other distribution upon any shares of capital stock of the Company;
(ii) redeemed, repurchased or otherwise acquired any of the Company’s capital stock or other equity or voting interests, or any rights, warrants or options to acquire any shares of its capital stock or other equity or voting interests of the Company or any of its Subsidiaries, other than repurchases of capital stock in the ordinary course of business pursuant to any Company Plan (or agreement thereunder) in effect as of the date hereof;
(iii) amended the Company Charter Documents (other than filing the Series B Certificate of Designations as provided hereunder), the committee charters of the committees of the Board or any corporate governance policy of the Company pertaining to members of the Board;
(iv) authorized, issued, split, combined, subdivided or reclassified any capital stock, or securities exercisable for, exchangeable for or convertible into capital stock, or other equity or voting interests of the Company other than (A) the authorization and issuance of the Preferred Stock in accordance with this Agreement and the Series B Certificate of Designations and any Conversion Shares and (B) issuances of capital stock, or securities exercisable for, exchangeable for or convertible into capital stock, of the Company to any Participant in the ordinary course of business pursuant to any Company Plan (or agreement thereunder) in effect as of the date hereof;
(v) changed any of the methods of accounting, accounting practices or policies in any material respect of the Company or any of its Subsidiaries, other than such changes as required by GAAP or a Governmental Entity;
(vi) entered into any Contract between the Company or its Subsidiaries, on the one hand, and any of the Company’s directors (including director nominees or candidates), officers or stockholders (in their capacity as such), on the other hand, including any stockholder agreement, investor rights agreement, board representation or board nomination agreement or any similar Contract, other than, in the case of officers, in the ordinary course of business consistent with past practice in connection with such officer’s employment or take or omit to take any other action that could reasonably be expected to result in a modification to the composition of the Board, grant any consent rights with respect to any actions by the Company or its Subsidiaries to any stockholder or that otherwise would reasonably be expected to limit, alter or modify in any material respect the rights that the Investor is expected to have following the Closing under the Series B Investor Rights Agreement and the Series B Certificate of Designations;
(vii) merged or consolidated the Company or any of its Subsidiaries with any Person;
(viii) (A) filed, or consented by answer or otherwise to the filing against the Company or any of its Subsidiaries of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, insolvency, reorganization, moratorium or other similar Law of any jurisdiction, (B) made an assignment for the benefit of the creditors of the Company or any of its Subsidiaries, (C) consented to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to the Company or any of its Subsidiaries or with respect to any substantial part of its or their property, (D) dissolved, liquidated or wound up the Company or (E) taken any corporate action for the purpose of any of the foregoing;
(ix) taken any action for which consent of any of the Investors would have been required (A) pursuant to Section 2.06 of the Series B Investor Rights Agreement had the Series B Investor
15
Rights Agreement been in effect as of the date hereof or (B) pursuant to the Series B Certificate of Designations had the Series B Certificate of Designations been in effect as of the date hereof;
(x) (A) acquired, in a single transaction or a series of related transactions, any business or Person, by merger or consolidation, purchase of assets, properties, claims or rights or equity interests, or by any other manner, for an aggregate purchase price (when taken together with all such acquisitions) in excess of $1,000,000, or (B) divested, in a single transaction or a series of related transactions, any assets, properties, claims or rights or equity interests for an aggregate sales price (when taken together with all such divestitures) in excess of $1,000,000; provided that acquisitions or dispositions of goods, products or services in the ordinary course of business shall not constitute acquisitions or divestitures for purposes of this clause (ix);
(xi) taken any action that causes, or would reasonably be expected to cause, the Common Stock to cease to be eligible for listing on NASDAQ; or
(xii) agreed, authorized, resolved or recommended, whether in writing or otherwise, to do, or taken any action reasonably likely to lead to or result in, any of the foregoing.
Section 3.07Legal Proceedings. Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, there is no (a) pending or, to the Knowledge of the Company, threatened legal or administrative proceeding, suit, arbitration, claim, charge, audit, action or, to the Knowledge of the Company, investigation (an “Action”) against the Company or any of its Subsidiaries, or (b) outstanding order, Judgment, injunction, ruling, writ or decree of any Governmental Entity imposed upon the Company or any of its Subsidiaries, in each case, by or before any Governmental Entity.
Section 3.08Compliance with Laws; Permits. The Company and each of its Subsidiaries are, and since January 1, 2015, have been, in compliance with all foreign, state, federal and local laws, statutes, common laws, ordinances, acts, codes, rules, regulations, orders, executive orders, judgments, injunctions, penalties, fines, writs, decrees, governmental guidelines or interpretations having the force of law, Permits, regulations, decrees and orders of Governmental Entities (collectively, “Laws”) applicable to the Company or any of its Subsidiaries, in each case except for instances of non-compliance that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect. The Company and each of its Subsidiaries hold all licenses, franchises, permits, certificates, approvals and authorizations from Governmental Entities necessary for the lawful conduct of their respective businesses (collectively, “Permits”), except where the failure to hold the same, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect.
Section 3.09Tax Matters. Except as, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect:
(a)The Company and each of its Subsidiaries has prepared (or caused to be prepared) and timely filed (taking into account valid extensions of time within which to file) all Tax Returns required to be filed by any of them, and all such filed Tax Returns are true, complete and accurate.
(b)All Taxes owed by the Company and each of its Subsidiaries that are due (whether or not shown on any Tax Return) have been timely paid or have been adequately reserved against in accordance with GAAP.
16
(c)All amounts of Taxes required to be withheld by the Company or any of its Subsidiaries have been duly withheld and remitted to the appropriate taxing authority as required by applicable Law.
(d)The Company has not received written notice of any pending audits, examinations, investigations, claims or other proceedings in respect of any Taxes of the Company or any of its Subsidiaries, and no audits, examinations, investigations, claims or other proceedings in respect of any Taxes of the Company or any of its Subsidiaries are pending or in progress.
(e)There are no Liens for Taxes on any of the assets of the Company or any of its Subsidiaries other than Permitted Liens.
(f)None of the Company or any of its Subsidiaries has been a “controlled corporation” or a “distributing corporation” in any distribution occurring in the prior two years that was purported or intended to be governed by Section 355 of the Code (or any similar provision of state, local or non-U.S. Law).
(g)No deficiency for any Tax has been asserted or assessed by any Governmental Entity in writing against the Company or any of its Subsidiaries, except for deficiencies that have been satisfied by payment in full, settled or withdrawn or that have been specifically identified in the Filed SEC Documents and adequately reserved against in accordance with GAAP.
(h)Neither the Company nor any of its Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to an assessment or deficiency for Taxes (other than pursuant to extensions of time to file Tax Returns obtained in the ordinary course).
(i)Neither the Company nor any of its Subsidiaries has participated in any “listed transaction” within the meaning of Treasury Regulation Section 1.6011‑4(b)(2).
(j)For purposes of this Agreement: (x) “Tax” shall mean any federal, state, local or foreign income, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add on minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, including any interest or penalty, imposed by any Governmental Entity, and (y) “Tax Return” shall mean any return, declaration, report or similar statement required to be filed with respect to any Tax (including any attached schedules), including, without limitation, any information return, claim for refund, amended return or declaration of estimated Tax.
Section 3.10Employee Benefits.
(a)Except for instances that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect, (i) each Company Plan has been established, maintained, funded and administered in accordance with terms and in compliance with the applicable provisions of ERISA, the Code and other applicable Laws, (ii) each Company Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and has timely received a favorable determination letter from the Internal Revenue Service, (iii) neither the Company nor any of its Subsidiaries has any Liabilities to provide post-termination health or life insurance benefits other than as required by Section 4980B of the Code, (iv) none of the Company, any of its Subsidiaries or any ERISA Affiliate has any Liability with respect to any plan that is or was subject to Title IV of ERISA or Section 412 of the Code or any “multiemployer plan” within the meaning of Section 3(37) of ERISA, and (v) no Company Plan has any unfunded or underfunded Liabilities.
17
(b)The execution, delivery and performance of this Agreement and the consummation of the Transactions will not, either alone or in combination with another event, result in (i) an increase in the amount of compensation or benefits payable to any Participant, (ii) any entitlements for any Participant to severance, termination, change in control or similar pay or benefits, (iii) the acceleration of the vesting or timing of the payment of any compensation or benefits payable to or in respect of any Participant or (iv) any increased or accelerated funding obligation with respect to any Company Plan. No payment or benefit provided to any Participant as a result (alone or in combination with any other event) of the execution, delivery and performance of this Agreement and the consummation of the Transactions, would constitute an “excess parachute payment” for purposes of Section 280G of the Code. Neither the Company nor any of its Affiliates is party to an agreement with a Participant that provides for any “gross up” payment for taxes pursuant to Sections 4999 or 409A of the Code.
Section 3.11Labor Matters. Except for instances that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect, (a) neither the Company nor any of its Subsidiaries is party to any collective bargaining agreement or Contract with any labor organization, (b) with respect to its employees, to the Knowledge of the Company and each of its Subsidiaries, there have not been any ongoing or threatened union organizational activities since January 1, 2015, (c) there are not currently and, since January 1, 2015, have not been any labor strikes, slowdowns, work stoppages, pickets, lockouts or other material labor disputes with respect to the employees of the Company or any of its Subsidiaries, (d) the Company and its Subsidiaries are, and since January 1, 2015, have been, in compliance with all applicable Laws governing or concerning labor relations and employment, and (e) to the Knowledge of the Company and each of its Subsidiaries, no employee layoff, facility closure or similar reduction in force is currently contemplated, planned or announced.
Section 3.12Environmental Matters. Except for those matters that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect, (a) each of the Company and its Subsidiaries is, and since January 1, 2015, has been, in compliance with all applicable Environmental Laws, (b) each of the Company and its Subsidiaries has obtained and, since January 1, 2015, has been in compliance with, all Permits required under Environmental Laws for the occupancy of their respective owned or leased real property and operation of their respective businesses as currently occupied and conducted, (c) there is no suit, claim, action or proceeding under any Environmental Law that is pending or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries, (d) neither the Company nor any of its Subsidiaries has received any unresolved written notice alleging that the Company or any of its Subsidiaries is in violation of or has any liability under any Environmental Laws, (e) neither the Company nor any of its Subsidiaries has treated, stored, disposed of, arranged for the disposal of, transported, handled, exposed any Person to or released any Material of Concern, or owned or operated any facility or property contaminated by any Material of Concern, so as to give rise to any liabilities pursuant to any Environmental Law, including conducting, funding or reimbursing another Person for environmental remedial activities pursuant to any Environmental Law at material cost to the Company or its Subsidiaries.
Section 3.13Intellectual Property.
(a)Except as, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect, (i) the Company or its Subsidiaries exclusively own all Intellectual Property registrations and applications filed in their names that have not expired or have not been abandoned and (ii) the Company and its Subsidiaries own, or have sufficient rights to use, all other Intellectual Property used in the conduct of the business of the Company and its Subsidiaries as currently conducted.
18
(b)Except as, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect, (i) no claims are pending or, to the Knowledge of the Company, threatened in writing against the Company or any of its Subsidiaries alleging that the conduct of the business of the Company and its Subsidiaries infringes, violates or misappropriates the Intellectual Property of any Person, (ii) no claims are pending or threatened by the Company or any of its Subsidiaries against any Person alleging any infringement, violation or misappropriation of the Intellectual Property owned by the Company or any of its Subsidiaries, (iii) to the Knowledge of the Company, the conduct of the business of the Company and its Subsidiaries has not infringed and does not infringe the Intellectual Property of any Person, (iv) to the Knowledge of the Company, no Person is infringing any Intellectual Property owned by the Company or its Subsidiaries, and (v) there have been no material breaches of the security of the Company’s or its Subsidiaries’ computer software, websites and systems (including the confidential data transmitted thereby or stored therein).
(c)To the extent that software included in the Intellectual Property of the Company and its Subsidiaries that is distributed by the Company or its Subsidiaries uses, incorporates or has embedded in it any source, object or other software code subject to an “open source,” “copyleft” or other similar types of license terms (including, without limitation, any GNU General Public License, Library General Public License, Lesser General Public License, Mozilla License, Berkeley Software Distribution License, Open Source Initiative License, MIT, Apache or public domain licenses, and the like), the Company has used its commercially reasonable efforts to ensure that such software is not used, produced or distributed in a way that requires, or conditions the distribution of any such software on, (i) the disclosure of any source code included in such Intellectual Property or (ii) the unlimited distribution of any software included in such Intellectual Property without charge.
(d)The Company and its Subsidiaries take commercially reasonable actions to protect and preserve the confidentiality of their trade secrets and the security of their material computer software, websites and systems (including the confidential data transmitted thereby or stored therein), including implementing a policy requiring employees and contractors who are reasonably expected to receive access to trade secrets to sign nondisclosure agreements and all employees who develop material Intellectual Property for the Company or its Subsidiaries to execute written agreements assigning all rights to such Intellectual Property to the Company or its Subsidiaries.
Section 3.14Property. Neither the Company nor any of its Subsidiaries owns any real property. The Company or one of its Subsidiaries has a good and valid leasehold interest in each material Company Lease, free and clear of all Liens (other than Permitted Liens) and to the Knowledge of the Company, none of the Company or any of its Subsidiaries has received written notice of any material default under any agreement evidencing any Lien or other agreement affecting any Company Lease, which default continues on the date hereof. The Company or its Subsidiaries have good and marketable title to all of its or their personal properties (whether tangible or intangible), rights and assets, free and clear of all Liens in all material respects other than Permitted Liens.
(a)Section 3.15 of the Company Disclosure Letter lists each of the following written contracts and agreements (other than any lease of Company Leased Real Property and contracts and agreements relating to Intellectual Property) to which the Company or any of its Subsidiaries is a party that is in effect as of the date of this Agreement (each such Contract or arrangement, together with any such contracts or arrangements entered into after the date hereof, collectively being “Material Contracts”):
(i) any joint venture, partnership or strategic alliance contract or investment agreement, in each case related to the formation, creation, operation, management or control of any partnership or joint venture in which the Company or any of its Subsidiaries owns any partial
19
interest and that is material to the business of the Company and its Subsidiaries, taken as a whole, other than revenue sharing agreements entered into in the ordinary course of business;
(ii) any settlement, conciliation or similar contract which would require the Company or any of its Subsidiaries to pay consideration of more than $2,000,000 (after taking into consideration any insurance proceeds available to the Company or any of its Subsidiary, as applicable, in respect thereof) or to satisfy any material non-monetary obligations, in each case after the date of this Agreement;
(iii) any contract that contains any covenant limiting, to a degree that is material to the Company or any of its Subsidiaries, the ability of the Company or any of its Subsidiaries, as applicable, to engage in any line of business or compete with any Person, in each case in any geographic area (excluding any contracts entered into with distributors or suppliers in the ordinary course of business);
(iv) (A) for the acquisition, directly or indirectly (by merger or otherwise) of a material portion of the assets (other than goods, products or services in the ordinary course) or capital stock or other equity interests of any Person for aggregate consideration in excess of $2,000,000 and that has not closed prior to the date hereof or pursuant to which the Company or any of its Subsidiaries has continuing indemnification (other than indemnification obligations with respect to current or former directors and officers), “earn-out” or other similar contingent payment obligations that are reasonably expected to exceed $2,000,000 in the aggregate after the date hereof or (B) gives any Person the right to acquire any assets of the Company or any of its Subsidiaries (excluding ordinary course commitments to purchase goods, products or services) after the date hereof with a total consideration of more than $2,000,000; and
(v) all Affiliate Arrangements.
(b)(i) Each Material Contract to which the Company or any of its Subsidiaries is a party or by which the Company, any of its Subsidiaries, or any of their respective properties or assets is bound (other than the Company Plans) is valid, binding and enforceable on the Company and any of its Subsidiaries to the extent such Person is a party thereto, as applicable, and to the Knowledge of the Company, each other party thereto, and is in full force and effect, (ii) the Company and each of its Subsidiaries, and, to the Knowledge of the Company, any other party thereto, is in compliance in all material respects with all Material Contracts and has performed in all material respects all obligations required to be performed by it under each Material Contract, (iii) to the Knowledge of the Company, neither the Company nor any of its Subsidiaries has received notice of the existence of any event or condition which constitutes, or, after notice or lapse of time or both, will constitute, a default on the part of the Company or any of its Subsidiaries under any such Material Contract, and (iv) to the Knowledge of the Company, there are no events or conditions which constitute, or, after notice or lapse of time or both, will constitute a default on the part of any counterparty under such Material Contract.
Section 3.16Insurance. (a) Neither the Company nor any of its Subsidiaries is in material default under any material insurance policy of the Company, (b) all material claims made thereunder have been properly and timely filed, and (c) no written notice of cancellation or termination of coverage has been received by the Company or its Subsidiaries with respect to any such material insurance policy, other than in connection with ordinary renewals. Each material insurance policy of the Company is in full force and effect and is the valid and binding obligation of the Company or its applicable Subsidiary named as the insured therein, subject, as to enforceability, to the Bankruptcy and Equity Exception.
20
Section 3.17Sale of Securities. Assuming the accuracy of the representations and warranties set forth in Section 4.07, the offer, sale and issuance of the Preferred Shares pursuant to this Agreement and the conversion of the Preferred Shares into Common Stock are exempt from the registration requirements and prospectus delivery requirements of the Securities Act and the blue sky laws of the various states. Without limiting the foregoing, neither the Company nor, to the Knowledge of the Company, any other Person authorized by the Company to act on its behalf, has engaged in a general solicitation or general advertising (within the meaning of Regulation D of the Securities Act) of or to investors with respect to offers or sales of the Preferred Shares, and neither the Company nor, to the Knowledge of the Company, any Person acting on its behalf has made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause the offering or issuance of Preferred Shares under this Agreement to be integrated with prior offerings by the Company for purposes of the Securities Act that would result in none of Regulation D or any other applicable exemption from registration under the Securities Act to be available, nor will the Company take any action or steps that would cause the offering or issuance of Preferred Shares under this Agreement to be integrated with other offerings by the Company.
Section 3.18No Broker. Except for fees payable to Raymond James (which fees are payable by the Company), no agent, broker, investment banker, financial advisor or other firm or Person is or will be entitled to any broker’s, finder’s, financial advisor’s or any other commission or similar fee, or the reimbursement of expenses in connection therewith, in connection with any of the Transactions based upon arrangements made by, or on behalf of, the Company or any of its Subsidiaries.
Section 3.19Listing and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) of the Exchange Act and listed on NASDAQ, and the Company has taken no action designed to (or which, to the Knowledge of the Company, is reasonably likely to) have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from NASDAQ, nor has the Company received, as of the date hereof, any notification that the SEC or NASDAQ is contemplating terminating such registration or listing.
Section 3.20Investment Company Act. The Company is not, and immediately after receipt of payment for the Preferred Shares will not be, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
Section 3.21No Rights Agreement. The Company is not party to a stockholder rights agreement, “poison pill” or similar antitakeover agreement or plan and no takeover statutes currently in effect in any jurisdiction in which the Company operates are applicable.
Section 3.22Certain Business Relationships with Affiliates. Other than the Transactions and except as set forth in Section 3.22 of the Company Disclosure Letter or in the Filed SEC Documents, none of the officers, directors or stockholders of the Company is presently a party to any transaction, agreement or arrangement with the Company (other than for services as officers and directors entered into in the ordinary course of business) that would be required to be disclosed pursuant to Item 404 of Regulation S-K promulgated under the Securities Act.
Section 3.23Privacy and Data Protection. The Company and its Subsidiaries have operated their businesses in a manner compliant in all material respects with applicable privacy and data protection laws and regulations and contractual obligations applicable to the Company’s and its Subsidiaries’ collection, handling, storage, processing, use, transmission, disclosure and securing of their and their customers’ data. The Company and its Subsidiaries have policies and procedures in place designed to ensure the integrity and security of the data collected, handled, stored, processed, used, transmitted or disclosed in connection with the delivery of their product offerings. The Company and its Subsidiaries comply with, have reasonable policies and procedures in place designed to ensure privacy
21
and data protection laws are complied with and take appropriate steps which are reasonably designed to assure compliance in all material respects with, such policies and procedures. Such policies and procedures comply in all material respects with all laws and regulations applicable to the Company and/or its Subsidiaries as well as all contractual obligations applicable to the Company and/or its Subsidiaries. The Company and its Subsidiaries have required and do require all third parties to which they provide any confidential, sensitive or protected data to maintain the privacy and security of such data, including by contractually requiring such third parties to protect such data from unauthorized access by and/or disclosure to any unauthorized third parties. Neither the Company nor its Subsidiaries have experienced any security incident that has materially compromised the privacy and/or security of any data. Neither the Company nor its Subsidiaries have experienced any failure or substandard performance of any information technology, information security, database or other computer system which has resulted in any material disruption to the business of the Company or its Subsidiaries.
Section 3.24Illegal Payments; FCPA Violations. During the past five (5) years, none of the Company, any of its Subsidiaries, nor, to the Knowledge of the Company, any director, officer, agent or employee of the Company or any of its Subsidiaries has (i) in violation of any Anticorruption Law, paid, caused to be paid, agreed to pay, or offered, directly or indirectly, in connection with the business of the Company, any payment or gift given to any person acting in an official capacity for any Governmental Entity, to any political party or official thereof, or to any candidate for political office (each, a “Government Official”) with the purpose of (w) influencing any act or decision of such Government Official in his official capacity; (x) inducing such Government Official to perform or omit to perform any activity related to his legal duties; (y) securing any improper advantage; or (z) inducing such Government Official to influence or affect any act or decision of any Governmental Entity, in each case, in order to assist the Company or its Affiliates in obtaining or retaining business for or with, or in directing business to, the Company or its Affiliates; (ii) made any illegal contribution to any political party or candidate; (iii) intentionally established or maintained any unrecorded fund or asset or made any false entries on any books or records for any purpose; (iv) taken any action that would violate the U.S. Foreign Corrupt Practices Act (the “FCPA”), the UK Bribery Act 2010 or any other applicable anti-bribery or anti-corruption law under any applicable jurisdictions (collectively, “Anticorruption Laws”); or (v) paid, caused to be paid, agreed to pay, or offered, directly or indirectly, in connection with the business of the Company, any bribe, kickback or other similar payment or gift to any supplier or customer in violation of an Anticorruption Law. The Company has not received any notice alleging any such violations or conducted any internal investigation with respect to any actual, potential or alleged violation of Anticorruption Laws.
Section 3.25Economic Sanctions. The Company and its Subsidiaries are not in contravention of and, during the past five (5) years, have not engaged in any conduct sanctionable under U.S. economic sanctions laws, including laws administered and enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control, 31 C.F.R. Part V, the Iran Sanctions Act, the Comprehensive Iran Sanctions, Accountability and Divestment Act, the Iran Threat Reduction and Syria Human Rights Act, the Iran Freedom and Counter-Proliferation Act of 2012, and any executive order issued pursuant to any of the foregoing.
Section 3.26Compliance with Money Laundering Laws. The operations of the Company and its Subsidiaries are and, during the past five years, have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Entity (collectively, the “Money Laundering Laws”) and no Action by or before any Governmental Entity involving the Company or any
22
of its Subsidiaries with respect to the Money Laundering Laws is pending or, to the Knowledge of the Company, threatened.
Section 3.27Compliance with Healthcare Laws. The Company and its Subsidiaries, taken as a whole, (i) are in compliance in all material respects with all legal requirements (including applicable Laws of any Governmental Entity) relating to the provision, administration and/or payment for insurance, insurance-related and healthcare-related products, services or functions in the conduct of their respective businesses, including, but not limited to, (A) applicable federal and state insurance and insurance marketing legal requirements, including applicable Medicare, Medicaid and CHIP statutory or rule requirements; (B) applicable federal and state health insurance exchange (including Federally Facilitated Marketplace and State Partnership Marketplace) statutory or rule requirements; (C) the Patient Protection and Affordable Care Act (Pub. L. No. 111-48) and Health Care and Education Reconciliation Act (Pub. L. No. 111-152) and regulations promulgated thereunder relating to the provision of insurance and market exchanges; (D) the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, and regulations promulgated thereunder (collectively, “HIPAA”); (E) applicable legal requirements concerning the privacy and/or security of personal data of or concerning an individual (including “protected health information” as that term is defined under HIPAA), including, where applicable, state data breach notification legal requirements, except where the non-compliance with such laws, acts, regulations and other requirements would not, reasonably be expected to have a Material Adverse Effect, (ii) possess all material certificates, authorizations, licenses, permits or other approvals required of them under the foregoing laws to conduct their respective businesses, and neither the Company nor any of its Subsidiaries has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization, license, permit or approval that, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect, and (iii) have not received notice from any governmental or regulatory authority of potential or actual material non-compliance by, or liability of, the Company or any of its Subsidiaries under the foregoing laws, except where doing so would not violate applicable law or regulations or would not reasonably be expected to have a Material Adverse Effect.
Section 3.28No Other Investor Representations or Warranties. Except for the representations and warranties expressly set forth in Article IV hereof and such representations and warranties set forth in the other Transaction Documents, the Company hereby acknowledges that neither the Investors nor any of their respective Affiliates, nor any other Person, has made or is making any other express or implied representation or warranty with respect to the Investors or any of their respective Affiliates, as applicable, or their respective businesses, operations, liabilities, condition (financial or otherwise) or prospects, including with respect to any information provided or made available to the Company or any of its Representatives or any information developed by the Company or any of its Representatives. The Company, on behalf of itself and on behalf of its Subsidiaries and Affiliates, expressly waives any such claim relating to the foregoing matters, except with respect to fraud.
Article IV
Representations and Warranties of the Investors
Each Investor severally represents and warrants to the Company:
Section 4.01Organization and Authority. The Investor is duly organized, validly existing and in good standing (where such concept is recognized under applicable Law) under the Laws of its jurisdiction of organization and has all requisite corporate, limited liability company or other power and authority to carry on its business as presently conducted.
Section 4.02Authorization; Enforceability. The Investor has all requisite corporate, limited liability company or other power and authority to execute and deliver this Agreement and the
23
Series B Investor Rights Agreement and to consummate the Transactions. The execution and delivery of this Agreement and the Series B Investor Rights Agreement by the Investor and the consummation of the Transactions, and compliance with the provisions of this Agreement and the Series B Investor Rights Agreement, by the Investor have been duly authorized by all necessary corporate, limited liability company or other action on the part of the Investor. This Agreement has been and, as of the Closing, the Series B Investor Rights Agreement will be, duly executed and delivered by the Investor and, assuming the due authorization, execution and delivery hereof and thereof by the Company, constitutes a legal, valid and binding obligation of the Investor, enforceable against the Investor in accordance with its terms, subject, as to enforceability, to the Bankruptcy and Equity Exception.
Section 4.03No Conflict. The execution and delivery by the Investor of this Agreement and, as of the Closing, the Series B Investor Rights Agreement do not and will not, and the consummation of the Transactions and compliance with the provisions of this Agreement and the Series B Investor Rights Agreement will not, conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to the loss of a benefit under, or result in the creation of any right or benefit on the part of any third party under, or result in the creation of any Lien upon any of the properties or assets of the Investor under (i) the organizational or governing documents of the Investor or (ii) assuming that the authorizations, consents and approvals referred to in Section 4.04 are obtained prior to the Closing Date and the filings referred to in Section 4.04 are made, (A) any term, condition or provision of any Contract to which the Investor or any of its Affiliates is a party or by which any of its properties or assets are bound and that is material to the business of the Investor and its Affiliates, taken as a whole, (B) any Law that is material to the Investor and its Affiliates, taken as a whole, or (C) any Judgment, permit, concession, grant or franchise, in each case, applicable to the Investor or any of its Affiliates or any of its properties or assets, other than, in the case of clause (ii) above, any such conflicts, violations, breaches, defaults, rights, losses or Liens that, individually or in the aggregate, have not had and would not reasonably be expected to have a material adverse effect on the Investor’s ability to consummate the Transactions.
Section 4.04Governmental Approvals. Except for (a) compliance with the applicable requirements of the Exchange Act, (b) compliance with the rules and regulations of NASDAQ, and (c) the filing by the Company of the Series B Certificate of Designations with the Secretary of State of the State of Delaware pursuant to the DGCL, no consent or approval of, or filing, license, permit or authorization, declaration or registration with, any Governmental Entity is necessary for the execution and delivery of this Agreement and the other Transaction Documents by the Investor, the performance by the Investor of its obligations hereunder and thereunder and the consummation by the Investor of the Transactions, other than such other consents, approvals, filings, licenses, permits, authorizations, declarations or registrations that, if not obtained, made or given, would not, individually or in the aggregate, be material to the Investor’s ability to consummate the Transactions.
Section 4.05Financing. The Investor currently has capital commitments sufficient to, and at the Closing will have available funds necessary to, consummate the Purchase and pay its portion of the Purchase Price on the terms and conditions contemplated by this Agreement.
Section 4.06No Broker. No agent, broker, investment banker, financial advisor or other firm or Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or any other commission or similar fee, or the reimbursement of expenses in connection therewith, in connection with any of the Transactions based upon arrangements made by or on behalf of the Investor or any of its Affiliates, except for Persons, if any, whose fees and expenses will be paid by the Investors or reimbursed by the Company as described in Section 5.05.
24
Section 4.07Purchase for Investment. The Investor acknowledges that the Preferred Shares will not have been registered under the Securities Act or under any state or other applicable securities laws. The Investor (a) acknowledges that it is acquiring the Preferred Shares (and the Conversion Shares) pursuant to an exemption from registration under the Securities Act solely for investment and for the Investor’s own account, not as nominee or agent, and with no present intention or view to distribute any of the Preferred Shares (or the Conversion Shares) to any Person in violation of the Securities Act, (b) will not sell or otherwise dispose of any of the Preferred Shares or the Conversion Shares, except in compliance with the registration requirements or exemption provisions of the Securities Act and any other applicable state securities laws, (c) is knowledgeable, sophisticated and experienced in financial and business matters, has previously invested in securities similar to the Preferred Shares and the Conversion Shares, fully understands the limitations on transfer and the restrictions on sales of such Preferred Shares and Conversion Shares, and is able to bear the economic risk of its investment and afford the complete loss of such investment, (d) (i) has such knowledge and experience in financial and business matters and in investments of this type, that it is capable of evaluating the merits and risks of its investment in the Preferred Shares and the Conversion Shares and of making an informed investment decision, (ii) has conducted an independent review and analysis of the business and affairs of the Company and its Subsidiaries that it considers sufficient and reasonable for purposes of making its investment in the Preferred Shares and the Conversion Shares and (iii) based thereon and on its own knowledge, has formed an independent judgment concerning the advisability of the Transactions, (e) is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act) and (f) is not a broker–dealer registered with the SEC under the Exchange Act or an entity engaged in a business that would require it to be so registered.
Section 4.08No Other Company Representations or Warranties. Except for the representations and warranties expressly set forth in Article III and such representations and warranties set forth in the other Transaction Documents, the Investor hereby acknowledges that neither the Company nor any of its Subsidiaries, nor any other Person, has made or is making any other express or implied representation or warranty with respect to the Company or any of its Subsidiaries or their respective businesses, operations, assets, liabilities, condition (financial or otherwise) or prospects, including with respect to any information provided or made available to the Investor or any of its Representatives or any information developed by the Investor or any of its Representatives. The Investor, on behalf of itself and on behalf of its Affiliates, expressly waives any such claim relating to the foregoing matters, except with respect to fraud.
Section 4.09Arm’s Length Transaction. The Investor is acting solely in the capacity of an arm’s length contractual counterparty to the Company with respect to the Transactions. Additionally, without limiting the representations and warranties of the Company in Article III, the Investor (a) is not relying on the Company for any legal, tax, investment, accounting or regulatory advice, (b) has consulted with its own advisors concerning such matters and (c) shall be responsible for making its own independent investigation and appraisal of the Transactions.
Section 4.10Private Placement Consideration. The Investor understands and acknowledges that (a) its representations and warranties contained herein are being relied upon by the Company as a basis for availing itself of such exemption and other exemptions under the securities Laws of all applicable states and for other purposes, (b) no U.S. state or federal agency has made any finding or determination as to the fairness of the terms of the sale of the Preferred Shares or any recommendation or endorsement thereof and (c) the Preferred Shares are “restricted securities” under the Securities Act inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under applicable securities Laws such Preferred Shares (and the Conversion Shares) may be resold without registration under the Securities Act only in certain limited circumstances.
25
Section 4.11Tax Matters. Each Investor has delivered to the Company a duly executed, valid, accurate and properly completed Internal Revenue Service (“IRS”) Form W-8 or Form W-9, as applicable, certifying that such Investor is not subject to backup withholding.
Article V
Additional Agreements
Section 5.01Public Announcements. The Company and the Investors agree that the initial public announcement by the parties or any of their Affiliates of the execution and delivery of this Agreement and the transactions contemplated hereby shall be in such form or forms as shall be mutually agreed by the Company and the Investors. Subject to each party’s disclosure obligations imposed by Law or the rules of any stock exchange upon which its securities are listed or any similar organization (in which case the party required to make the communication, release or announcement shall allow the other party reasonable time to comment thereon in advance of such release or public disclosure), neither the Company nor the Investors will make (a) any public news release or other public disclosure or (b) any other written widespread communication or general disclosure to any employees, suppliers, consultants, contractors or other persons with whom such party has material relationships, in each case with respect to the Transaction Documents or the transactions contemplated thereby, without receiving the others’ consent (which consent shall not be unreasonably withheld) to such communication or the communication plan with respect thereto. Notwithstanding the foregoing, the Investors and their respective Affiliates shall be entitled to communicate in the ordinary course and in a non-public manner with their respective investors and financing sources and the Related Investment Funds relating to the Transaction Documents and the transactions contemplated thereby, in each case subject to customary confidentiality obligations between the Investor and such other Persons.
Section 5.02Corporate Action. At any time that any Preferred Shares are outstanding, the Company shall from time to time take all lawful action within its control to cause the authorized capital stock of the Company to include a sufficient number of authorized but unissued shares of Common Stock to satisfy the conversion requirements of all of the Preferred Shares (including PIK Dividends) then outstanding.
Section 5.03NASDAQ Listing of Shares. To the extent the Company has not done so before the date of this Agreement, the Company shall promptly apply to cause the Conversion Shares to be approved for listing on NASDAQ, subject to official notice of issuance.
Section 5.04Use of Proceeds. The Company shall use the proceeds from the issuance and sale of the Preferred Shares (a) to pay any costs, fees and expenses incurred by it in connection with the Transactions, including the reimbursement of the FP Investors’ expenses pursuant to Section 5.05 and (b) for working capital or other general corporate purposes.
Section 5.05Expenses. Except as otherwise expressly provided herein, all costs and expenses, including fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the Transactions shall be paid by the party incurring such costs and expenses; provided that the Company shall, at the Closing, reimburse the FP Investors for their and their Affiliates’ reasonable and documented out-of-pocket third-party costs and expenses incurred in connection with the Transactions (including travel expenses and the fees and expenses of consultants, legal counsel, accountants and financial advisors in connection therewith); provided further, that the maximum amount of such costs and expenses to be reimbursed by the Company shall not exceed $400,000 in the aggregate.
Section 5.06Rights Agreement; Board Composition. At the Closing, the Company shall take all actions reasonably necessary to implement the provisions of Section 2.01 of the Series B
26
Investor Rights Agreement and to cause the Board (and each committee of the Board), effective as of the Closing, to be composed as set forth therein.
Section 5.07Tax Matters. The Company shall use reasonable best efforts to monitor the ownership of the stock of the Company by “5-percent shareholders” (as defined pursuant to Section 382(k)(7) of the Code) and shall notify the Investors to the extent the Company determines that the percentage of the stock of the Company owned by one or more “5-percent shareholders” has increased by more than 40 percentage points (taking into account the issuance of the Preferred Shares hereunder) over the lowest percentage of stock of the Company owned by such shareholders at any time during the applicable “testing period” (as defined pursuant to Section 382(i) of the Code).
Section 5.08Anti-takeover Laws. The Company shall ensure that the Transactions shall not have the effect of causing Section 203 of the DGCL any relevant corporate takeover statute or other similar statute or Laws to be applicable to the Transactions and, to the extent there is such a statute, to take all actions required to exempt the Transactions from such statutes or Laws.
Section 5.09Amendments to Corporate Documents. The Company and the Investors shall cooperate in good faith to identify and use commercially reasonable efforts to implement any mutually acceptable amendments to the delegations of authority of the Board, the Company’s corporate governance guidelines, the Bylaws and such other guidelines, policies, committee charters or similar documents of the Company and any other amendments reasonably necessary to effectuate and implement the rights of the Investor Parties (as defined in the Series B Investor Rights Agreement) set forth in the Series B Investor Rights Agreement. The covenants set forth in this Section 5.08 shall survive the Closing.
Section 5.10Tax Treatment. Absent a change in law or IRS practice, or a contrary determination (as defined in Section 1313(a) of the Code), the Investors and the Company agree not to treat the Series B Preferred Stock as “preferred stock” within the meaning of Section 305 of the Code and Treasury Regulation Section 1.305-5 for United States federal income Tax and withholding Tax purposes, and shall not take any position inconsistent with such treatment.
Article VI
Conditions to Closing
Section 6.01Conditions to the Obligations of the Company and the Investors. The respective obligations of each of the Company and the Investors to effect the Transactions are subject to the satisfaction or (to the extent permitted by Law) waiver by each of the Company and the Investors on or prior to the Closing Date of the following conditions:
(a)No Governmental Entity shall have issued any order, decree or ruling, no Action has been commenced seeking any order, decree or ruling and no Law shall be in effect, enjoining, restraining or otherwise prohibiting any of the Transactions;
(b)the Company shall have duly adopted and caused to be filed with the Secretary of State of the State of Delaware the Series B Certificate of Designations and any related filings, forms or applications;
(c)the Company shall have received the Credit Agreement Amendment, which shall be in full force and effect; and
(d)the Company shall have received a consent of the holders of Series A Preferred Stock to the consummation of the Transactions, including a waiver of any Fundamental Change (as
27
defined in the Series A Certificate of Designation) resulting from the Transaction, which shall be in full force and effect.
Section 6.02Conditions to the Obligations of the Company. The obligations of the Company to effect the Transactions are further subject to the satisfaction or (to the extent permitted by Law) waiver by the Company on or prior to the Closing Date of the following conditions:
(a)all representations and warranties of the Investors set forth in this Agreement shall be true and correct (without giving effect to any limitation or qualification as to “materiality” or “material adverse effect” set forth in such representations and warranties) in all material respects at and as of the Closing Date, with the same force and effect as if made on the Closing Date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct on such earlier date);
(b)the Investors shall have performed in all material respects all of their obligations hereunder required to be performed by it at or before the Closing;
(c)the Investors shall have duly executed and delivered to the Company the Series B Investor Rights Agreement; and
(d)the Company shall have received a certificate, signed by a duly authorized officer of each of the Investors, certifying as to the matters set forth in Section 6.02(a) and Section 6.02(b).
Section 6.03Conditions to the Obligations of the Investor. The obligations of the Investors to effect the Transactions are further subject to the satisfaction or (to the extent permitted by Law) waiver by the Investors on or before the Closing Date of the following conditions:
(a)(i) the representations and warranties of the Company set forth in Article III hereof (other than the Company Fundamental Representations) shall be true and correct (without giving effect to any limitation or qualification as to “materiality” or “Material Adverse Effect” set forth in such representations and warranties) as of the Closing Date (except to the extent that any such representation or warranty speaks to an earlier date, in which case such representation or warranty shall so be true and correct as of such earlier date), except where the failure of such representations and warranties to be so true and correct would not, individually or in the aggregate, have a Material Adverse Effect, (ii) the representations and warranties of the Company set forth in Section 3.06 (Absence of Certain Changes) shall be true and correct in all respects at and as of the Closing Date, (iii) the representations and warranties of the Company set forth in Section 3.01(a) (Organization; Standing) (other than the first sentence thereof), Section 3.02(b) and Section 3.02(c) (Capitalization), Section 3.03(a) and Section 3.03(b) (Authority), Section 3.17 (Sale of Securities), Section 3.18 (No Broker), Section 3.19 (Listing and Maintenance Requirements) and Section 3.21 (No Rights Agreement) (together with the Sections referenced in clause (iv) below, the “Company Fundamental Representations”) shall be true and correct (without giving effect to any limitation or qualification as to “materiality” or “Material Adverse Effect” set forth in such representations and warranties) in all material respects at and as of the Closing Date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct in all material respects as of such earlier date) and (iv) the representations and warranties of the Company set forth in the first sentence of Section 3.01(a) (Organization; Standing), Section 3.02(a) (Capitalization), Section 3.03(c) and Section 3.03(d) (Authority) shall be true and correct (without giving effect to any limitation or qualification as to “materiality” or “Material Adverse Effect” set forth in such representations and warranties) in all but de minimis respects as of the Closing Date (except to the extent that any such representation or warranty speaks to an earlier date, in which case such representation or warranty shall so be true and correct as of such earlier date);
28
(b)the Company shall have performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the Closing;
(c)the Company shall have (i) duly executed and delivered to the Investors the Series B Investor Rights Agreement and (ii) taken all actions necessary and appropriate to implement the provisions of Section 2.01 of the Series B Investor Rights Agreement and to cause the Board (and each committee of the Board), effective as of the Closing, to be composed as set forth therein;
(d)any shares of Common Stock issuable upon conversion of the Preferred Shares at the Conversion Price (as defined in the Series B Certificate of Designations) specified in the Series B Certificate of Designations shall have been approved for listing on NASDAQ, subject to official notice of issuance
(e)the Company shall have paid or reimbursed the FP Investors for amounts owed pursuant to Section 5.05 substantially concurrently with the Closing;
(f)each Investor shall have received from counsel to the Company an opinion substantially in the form mutually agreed among the parties hereto; and
(g)each Investor shall have received a certificate, signed by a duly authorized officer of the Company, certifying as to the matters set forth in Section 6.03(a) and Section 6.03(b).
Section 7.01Survival. All of the covenants or other agreements of the parties contained in this Agreement shall survive until fully performed or fulfilled, unless and to the extent that non-compliance with such covenants or agreements is waived in writing by the party entitled to such performance. The representations and warranties made herein shall survive for twelve (12) months following the Closing Date and shall then expire; provided that the Company Fundamental Representations shall survive for thirty-six (36) months following the Closing Date and shall then expire; provided further that nothing herein shall relieve any party of liability for any inaccuracy or breach of such representation or warranty to the extent that any good faith allegation of such inaccuracy or breach is made in writing prior to such expiration by a Person entitled to make such claim pursuant to the terms and conditions of this Agreement; and provided further that all representations and warranties contained in this Agreement shall survive until the resolution of a pending claim in the event a claim surrounding such representation or warranty has been brought before the expiry thereto pursuant to this provision. For the avoidance of doubt, claims may be made with respect to the breach of any representation, warranty or covenant until the applicable survival period therefor as described above expires.
Section 7.02Limitation on Damages. Notwithstanding any other provision of this Agreement, except in the case of fraud or intentional and willful breach, no party shall have any liability to the other in excess of the Purchase Price, and no party shall be liable for any speculative, special or punitive damages with respect to this Agreement.
Section 7.03Non-Recourse. This Agreement may only be enforced against, and any claims or causes of action that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement may only be made against the entities that are expressly identified as parties hereto, including entities that become parties hereto after the date hereof or that agree in writing for the benefit of the Company to be bound by the terms of this Agreement applicable to the Company, and, subject only to the specific contractual provisions hereof, no former, current or future equityholders, controlling persons, directors, officers, employees, agents or Affiliates of
29
any party hereto or any former, current or future equityholder, controlling person, director, officer, employee, general or limited partner, member, manager, advisor, agent or Affiliate of any of the foregoing (each, a “Non-Recourse Party”) shall have any liability for any obligations or liabilities of the parties to this Agreement or for any claim (whether in tort, contract or otherwise) based on, in respect of, or by reason of, the transactions contemplated hereby or in respect of any representations made or alleged to be made in connection herewith. Without limiting the rights of any party against the other parties hereto, in no event shall any party or any of its Affiliates seek to enforce this Agreement against, make any claims for breach of this Agreement against, or seek to recover monetary damages from, any Non-Recourse Party.
Section 8.01Notices. All notices, requests, permissions, waivers or other communications required or permitted to be given under this Agreement shall be in writing and shall be delivered by hand or sent by facsimile sent, postage prepaid, by registered, certified or express mail or overnight courier service and shall be deemed given when so delivered by hand, by facsimile (which is confirmed), or if mailed, three days after mailing (one Business Day in the case of express mail or overnight courier service) to the parties at the following addresses or facsimiles (or at such other address or facsimile for a party as shall be specified by like notice):
Connecture, Inc.
18500 West Corporate Drive, Suite 250
Brookfield, WI 53045
Attention: Chief Financial Officer
Facsimile: (262) 432-0075
with a copy to (which copy alone shall not constitute notice):
DLA Piper LLP (US)
401 Congress Ave. Suite 2500
Austin, TX 78701
Attention: Samer Zabaneh
Facsimile: (512) 457-7001
c/o Francisco Partners Management, L.P.
One Letterman Drive, Building C – Suite 410
San Francisco, CA 94129
Attention: Ezra Perlman, Leonid Rozkin, and Tom Ludwig
Facsimile: (415) 418-2999
30
with a copy to (which copy alone shall not constitute notice):
Kirkland & Ellis LLP
3330 Hillview Avenue
Palo Alto, CA 94304
Attention: Adam D. Phillips, Esq.
Ross M. Leff, Esq.
Facsimile: (650) 859-7500
If to Chrysalis:
Chrysalis Ventures
101 South Fifth Street, Suite 1650
Louisville, KY 40202
Attention:Jeremy Burtel
Facsimile:(502) 583-7648
Section 8.02Amendments, Waivers, etc. This Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed by the party against whom such amendment or waiver shall be enforced. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, shall not constitute a waiver by such party of its right to exercise any such other right, power or remedy or to demand such compliance.
Section 8.03Counterparts and Facsimile. This Agreement may be executed in two or more identical counterparts (including by facsimile or electronic transmission), each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument, and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered (by facsimile, electronic transmission or otherwise) to the other parties.
Section 8.04Further Assurances. Each party hereto shall execute and deliver after the Closing such further certificates, agreements and other documents and take such other actions as any other party hereto may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and to consummate or implement the Transactions.
Section 8.05Governing Law; Specific Enforcement; Submission to Jurisdiction; Waiver of Jury Trial.
(a)This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware applicable to agreements made and to be performed entirely within such state, without regard to the conflicts of law principles of such state.
(b)The parties hereto acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties hereto shall be entitled to an injunction or injunctions to prevent breaches or threatened breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of competent jurisdiction, in each case without proof of damages or otherwise (and each party hereto hereby waives any requirement for the securing or posting of any bond in connection with such remedy), this being in addition to any other remedy to which they are entitled at law or in equity. The parties hereto agree not to assert that a
31
remedy of specific enforcement is unenforceable, invalid, contrary to law or inequitable for any reason, nor to assert that a remedy of monetary damages would provide an adequate remedy.
(c)Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the Chancery Court of the State of Delaware (or, if the Chancery Court of the State of Delaware declines to accept jurisdiction, any state or federal court within the State of Delaware), for the purposes of any Action or other proceeding arising out of this Agreement and the rights and obligations arising hereunder, and irrevocably and unconditionally waives any objection to the laying of venue of any such Action or proceeding in any such court, and further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such Action or proceeding has been brought in an inconvenient forum. Each party hereto agrees that service of any process, summons, notice or document by registered mail to such party’s respective address set forth in Section 8.01 shall be effective service of process for any such Action or proceeding.
(d)EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, CLAIM OR OTHER PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (I) CERTIFIES THAT NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY ACTION, CLAIM OR OTHER PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.05(D).
Section 8.06Interpretation. When a reference is made in this Agreement to an Article or Section, such reference shall be to an Article or Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The words “date hereof” shall refer to the date of this Agreement. The word “or” shall not be exclusive. The word “extent” in the phrase “to the extent” shall mean the degree to which a subject or other thing extends, and shall not simply mean “if.” The words “made available to the Investor” and words of similar import refer to documents delivered in person or electronically to the Investor prior to the date hereof. All references to “$” mean the lawful currency of the United States of America. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Except as specifically stated herein, any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. Except as otherwise specified herein, references to a Person are also to its successors and permitted assigns. Each of the parties hereto has participated in the drafting and negotiation of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement must be construed as if it is drafted by all the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of authorship of any of the provisions of this Agreement.
32
Section 8.07Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced because of any Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the Transactions is not affected in any manner materially adverse to any party hereto. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the Transactions be consummated as originally contemplated to the greatest extent possible.
Section 8.08No Third-Party Beneficiaries. Except as provided in Section 7.03, this Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing expressed or referred to in this Agreement will be construed to give any Person, other than the parties to this Agreement and such permitted assigns, any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement, whether as third party beneficiary or otherwise.
Section 8.09Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of Law or otherwise) without the prior written consent of the other parties, except that the Investors may assign their respective rights under this Agreement and the Related Documents, in whole or in part, to any of their respective Affiliates without the prior written consent of the Company; provided that such Investor will remain liable for all of its obligations under this Agreement.
Section 8.10Acknowledgment of Securities Laws. Each Investor hereby acknowledges that it is aware, and that it will advise its Affiliates and Representatives who are provided material non-public information concerning the Company or its securities, that the United States securities Laws prohibit any Person who has received from an issuer material, non-public information from purchasing or selling securities of such issuer or from communication of such information to any other Person under circumstances in which it is reasonably foreseeable that such Person is likely to purchase or sell such securities.
Section 8.11Entire Agreement. This Agreement (including the Exhibits hereto and the Company Disclosure Letter), together with the other Transaction Documents, constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof and thereof.
[Remainder of page intentionally left blank]
33
IN WITNESS WHEREOF, the parties hereto have executed this Investment Agreement as of the day and year first above written.
CONNECTURE, INC. |
|
|
|
By: |
/s/ Vincent E. Estrada |
|
Name: Vincent E. Estrada |
|
Title: Chief Financial Officer |
[Signature page to Investment Agreement]
IN WITNESS WHEREOF, the parties hereto have executed this Investment Agreement as of the day and year first above written.
FP INVESTORS: FRANCISCO PARTNERS IV, L.P. By: FRANCISCO PARTNERS GP iV, L.P. By: FRANCISCO PARTNERS GP iV |
|
|
|
By: |
/s/ Ezra Perlman |
|
Name: Ezra Perlman |
|
Title: Co-President |
FRANCISCO PARTNERS IV-A, L.P. By: FRANCISCO PARTNERS GP iV, L.P. By: FRANCISCO PARTNERS GP iV |
|
|
|
By: |
/s/ Ezra Perlman |
|
Name: Ezra Perlman |
|
Title: Co-President |
[Signature page to Investment Agreement]
IN WITNESS WHEREOF, the parties hereto have executed this Investment Agreement as of the day and year first above written.
Chrysalis Ventures II, L.P. By: CHRYSALIS PARTNERS II, LLC, its general partner |
|
|
|
By |
/s/ David A. Jones, Jr. |
|
Name: David A. Jones, Jr. |
|
Title: Member |
[Signature page to Investment Agreement]
EXHIBIT A
FORM OF SERIES B CERTIFICATE OF DESIGNATIONS
EXHIBIT B
FORM OF SERIES B INVESTOR RIGHTS AGREEMENT
Exhibit 10.2
AMENDMENT NO. 2
TO
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”) is made as of March 10, 2017, by and among CONNECTURE, INC. (“Connecture”), DESTINATIONRX, Inc. (“DestinationRX” and together with Connecture, collectively, the “Borrowers”), the Lenders (as defined below) party hereto and Wells Fargo Bank, National Association (in its individual capacity, “Wells Fargo”), as administrative agent for each member of the Lender Group and the Bank Product Providers (as each such term is defined in the Credit Agreement referred to below) (in such capacity, together with its successors and assigns, the “Agent”). Capitalized terms used in this Amendment (including the Recitals), to the extent not otherwise defined herein, shall have the same meaning as in the Credit Agreement.
RECITALS
WHEREAS, the Borrowers are party to that certain Amended and Restated Credit Agreement, dated as of June 8, 2016 (as amended, amended and restated, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) among the Borrowers, the Agent and the lenders party thereto from time to time (collectively, the “Lenders”), pursuant to which the Lenders have made certain loans and financial accommodations available to the Borrowers;
WHEREAS, the Borrowers have requested that the Agent and the Lenders make certain amendments to the Credit Agreement; and
WHEREAS, the Agent and the Lenders are willing to amend such terms and conditions of the Credit Agreement on the terms and conditions expressly set forth herein.
NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1.Amendments to Credit Agreement. Effective as of the Amendment No. 2 Effective Date (as defined below), the Credit Agreement shall be amended as follows:
(a).Section 2.2 of the Credit Agreement shall be amended by deleting the table contained therein in its entirety and replacing such table with the following table in lieu thereof:
Date |
Installment Amount |
March 31, 2018 |
$1,312,500 |
June 30, 2018 |
$1,312,500 |
September 30, 2018 |
$1,312,500 |
December 31, 2018 |
$1,312,500 |
March 31, 2019 |
$1,312,500 |
DB1/ 90990661.9 EAST\140750151.5
$1,312,500 |
|
September 30, 2019 |
$1,312,500 |
December 31, 2019 |
$1,312,500 |
March 31, 2020 |
$1,312,500 |
June 30, 2020 |
$1,312,500 |
September 30, 2020 |
$1,312,500 |
December 31, 2020 |
$1,312,500 |
March 31, 2021 |
$1,312,500 |
(b).Clause (b)(i) of Section 2.3 of the Credit Agreement shall be amended by deleting the amount “$1,000,000” and substituting the amount “$500,000” in lieu thereof.
(c).Clause (e)(v) of Section 2.4 of the Credit shall be amended and restated in its entirety to read as follows:
“(v)Excess Cash Flow. Within 10 days of delivery to Agent of audited annual financial statements pursuant to Section 5.1, commencing with the delivery to Agent of the financial statements for Borrowers’ fiscal year ended December 31, 2016 or, if such financial statements are not delivered to Agent on the date such statements are required to be delivered pursuant to Section 5.1, within 10 days after the date such statements were required to be delivered to Agent pursuant to Section 5.1, Borrowers shall prepay the outstanding principal amount of the Obligations in accordance with Section 2.4(f) in an amount equal to (i) (A) for fiscal year ending December 31, 2016, 50% of the Excess Cash Flow of the Borrowers and their Subsidiaries for such fiscal year; and (B) for each fiscal year of the Borrowers thereafter, 75% of the Excess Cash Flow of the Borrowers and their Subsidiaries for such fiscal year, in each case, minus (ii) any voluntary prepayments of the Term Loan made during such fiscal year; provided, that any Excess Cash Flow payment made pursuant to this Section 2.4(e)(v) shall exclude the portion of Excess Cash Flow that is attributable to the target of a Permitted Acquisition and that accrued prior to the closing date of such Permitted Acquisition.”
(d).Section 2.6 of the Credit Agreement shall be amended by adding the following new clause in the appropriate alphabetical order therein:
“(g)PIK Interest and PIK Component. In addition to the interest which accrues on the Obligations pursuant to clauses (a) and (c) above, from and after the Amendment No. 2 Effective Date, additional interest shall accrue on all Obligations (except for undrawn Letters of Credit) at a per annum rate equal to the PIK Interest. Notwithstanding anything to the contrary contained herein or any other Loan Document, the PIK Interest that accrues pursuant to this clause shall be paid-in-kind by increasing the outstanding principal balance of the Term Loan as of the date on which the payment of such PIK Interest is due hereunder in an amount equal to such accrued PIK Interest. Any such PIK Interest capitalized pursuant to the foregoing sentence (the “PIK Component”) shall
2
constitute principal of the Term Loan and a portion of the Obligations for all purposes under this Agreement, shall be payable in cash in immediately available funds as part of the principal of the Term Loan on the Maturity Date (or, if earlier, the date of the acceleration of the Term Loan in accordance with the terms hereof), and shall bear interest at the rate applicable to the Term Loan.”
(e).Clause (b)(i) of Section 2.11 of the Credit Agreement shall be amended by deleting the amount “$1,250,000” and substituting the amount “$500,000” in lieu thereof.
(f).Clause (c) of Section 6.7 of the Credit Agreement shall be amended by deleting each instance of the amount “$10,000,000” contained therein and substituting the amount “$15,000,000” in lieu thereof.
(g).Section 7 of the Credit Agreement shall be amended and restated in its entirety to read as follows:
Each Borrower covenants and agrees that, until termination of all of the Commitments and payment in full of the Obligations, Borrowers will:
(a)Liquidity. (i) From the Closing Date to the Amendment No. 1 Effective Date, maintain Liquidity at all times in an amount of not less than $10,000,000, (ii) from the Amendment No. 1 Effective Date to February 28, 2017, maintain Liquidity at all times in an amount of not less than $11,500,000, (iii) from and after March 1, 2017 to March 31, 2018, maintain Liquidity at all times in an amount of not less than $1,500,000, and (iv) from and after April 1, 2018, maintain Liquidity at all times in an amount of not less than $15,000,000.”
(b)EBITDA.
(i)Achieve EBITDA, measured quarterly on a trailing twelve-month basis at the end of each quarter, of at least the required amount set forth in the following table for the applicable period set forth opposite thereto:
EBITDA |
For the trailing twelve month period ending on: |
$500,000 |
September 30, 2016 |
($12,000,000) |
December 31, 2016 |
($3,000,000) |
March 31, 2018 |
$8,000,000 |
June 30, 2018 |
$8,000,000 |
September 30, 2018 |
$9,000,000 |
December 31, 2018 |
$9,000,000 |
March 31, 2019 |
3
June 30, 2019 |
|
$9,000,000 |
September 30, 2019 |
$10,000,000 |
December 31, 2019 |
$10,000,000 |
March 31, 2020 |
$10,000,000 |
June 30, 2020 |
$10,000,000 |
September 30, 2020 |
$15,000,000 |
December 31, 2020 |
$15,000,000 |
March 31, 2021 |
(ii)Achieve EBITDA, measured quarterly (A) on a trailing three-month basis for the quarter ending on March 31, 2017, of at least ($4,000,000), (B) on a trailing six-month basis for the quarter ending on June 30, 2017, of at least ($8,000,000), (C) on a trailing nine-month basis for the quarter ending on September 30, 2017, of at least ($7,250,000), and (D) on a trailing twelve-month basis ending on December 31, 2017, of at least ($3,000,000).
For the avoidance of doubt, the parties hereby acknowledge and agree that the foregoing replaces Section 7 effective as of December 31, 2016 and that the covenants set forth above shall be operative to determine compliance with Section 7 from and after December 31, 2016.
(h).The definition of “Permitted Indebtedness” set forth in Schedule 1.1 of the Credit Agreement is hereby amended by deleting (i) the comma at the end of clause (t) thereof and substituting “, and” in lieu thereof, (ii) “, and” at the end of clause (u) thereof and substituting a period in lieu thereof, and (iii) clause (v) thereof in its entirety.
(i).The definition of “Permitted Investments” set forth in Schedule 1.1 of the Credit Agreement is hereby amended by deleting (i) the comma at the end of clause (n) thereof and substituting “, and” in lieu thereof, (ii) “, and” at the end of clause (o) thereof and substituting a period in lieu thereof, and (iii) clause (p) thereof in its entirety.
(j).Schedule 1.1 of the Credit Agreement is hereby amended by adding the following definitions in the appropriate alphabetical order:
“ “Amendment No. 2 Effective Date” means March 10, 2017.”
“ “Budget” has the meaning set forth in Schedule 5.1 to the Credit Agreement.”
“ “PIK Component” has the meaning set forth in Section 2.6(g).”
“ “PIK Interest” means two and a half percent (2.5%).”
4
(k).Schedule C-1 of the Credit Agreement is hereby amended and restated in its entirety by replacing such Schedule with Schedule C-1 attached hereto as Annex A.
(l).Schedule 5.1 of the Credit Agreement is hereby amended and restated in its entirety by replacing such Schedule with Schedule 5.1 attached hereto as Annex B.
2.Conditions Precedent to Effectiveness of this Amendment. This Amendment shall not become effective until the date on which all of the following conditions precedent shall have been satisfied in the sole discretion of Agent or waived by Agent (the “Amendment No. 2 Effective Date”):
(a)Agent shall have received this Amendment fully executed in a sufficient number of counterparts for distribution to all parties.
(b)Agent shall have received evidence in form and substance satisfactory to Agent that the Administrative Borrower has received substantially concurrently herewith at least $17,500,000 from the issuance of Equity Interests of the Administrative Borrower to each Permitted Holder and Chrysalis Ventures pursuant to the terms of that certain Investment Agreement, dated as of the date hereof, by and among Administrative Borrower, each Permitted Holder and Chrysalis Ventures, and on terms and conditions satisfactory to the Agent.
(c)The Agent (or its designee) shall have received a retainer in the amount of $100,000 in connection with the engagement of the Agent’s Financial Advisor (as defined below) on or prior to the date hereof.
(d)On or prior to the Amendment No. 2 Effective Date, the Agent shall have received an amount equal to $623,552.79 as a repayment of the outstanding Revolving Loans.
(e)The Agent shall have received (i) a rolling 13-week cash flow forecast of the Borrowers and their Subsidiaries for the succeeding thirteen (13) week period as of the Amendment No. 2 Effective Date, and (ii) a certificate signed by the chief financial officer of the Administrative Borrower to the effect that such cash flow forecast is true and correct, in each case, in form, substance and in such detail as is reasonably satisfactory to the Agent.
(f)The Agent shall have received a detailed report in form and substance reasonably satisfactory to Agent regarding the Borrowers’ and their Subsidiaries’ cash and Cash Equivalents, including a list of all accounts with account numbers and identifying all accounts which are subject to Control Agreements, and an indication of which accounts constitute Qualified Cash and which accounts do not constitute Qualified Cash, in each case, as of the Amendment No. 2 Effective Date.
(g)The representations and warranties set forth herein and in the Loan Documents (other than any such representations or warranties that, by their terms, are specifically made as of a date other than the date hereof) must be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any portion of any representation and warranty that is already qualified or modified by materiality in the text thereof).
(h)Agent shall have received all other documents and legal matters in connection with the transactions contemplated by this Amendment and such documents shall have been delivered or executed or recorded and shall be in form and substance satisfactory to Agent.
5
3.Representations and Warranties. Each Borrower represents and warrants to Agent and the Lenders as follows:
(a)Authority. Each Borrower has the requisite corporate power and authority to execute and deliver this Amendment, and to perform its obligations hereunder and under the Loan Documents (as amended or modified hereby) to which it is a party. The execution, delivery and performance by each Borrower of this Amendment have been duly approved by all necessary corporate action, have received all necessary governmental approval, if any, and do not contravene any law or any contractual restriction binding on any Borrower. No other corporate proceedings are necessary to consummate such transactions.
(b)Enforceability. This Amendment has been duly executed and delivered by each Borrower. This Amendment and each Loan Document (as amended or modified hereby) is the legal, valid and binding obligation of each Borrower, enforceable against each Borrower in accordance with its terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally, and is in full force and effect.
(c)Representations and Warranties. The representations and warranties contained in each Loan Document (other than any such representations or warranties that, by their terms, are specifically made as of a date other than the date hereof) are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any portion of any representation and warranty that is already qualified or modified by materiality in the text thereof) on and as of the date hereof as though made on and as of the date hereof.
(d)No Default. After giving effect to this Amendment, no event has occurred and is continuing that constitutes a Default or Event of Default.
(e)Taxes. The Loan Parties do not believe that the amendments made pursuant to this Amendment shall be treated as a “significant modification” of the Revolving Loans under Treasury Regulation Section 1.1001-3 and as such the Revolving Loans should still constitute a grandfathered obligation for the purposes of FATCA. The Loan Parties shall jointly and severally indemnify the Agent and Lenders, and hold them harmless from, any and all losses, claims, damages, liabilities and related expenses, including taxes and the fees, charges and disbursements of any counsel for any of the foregoing, arising in connection with the Agent’s and Lenders’ treating, for purposes of determining withholding Taxes imposed under FATCA, the Revolving Loans as modified hereby as qualifying as a “grandfathered obligation” within the meaning of Treasury Regulation Section 1.1471-2(b)(2)(i).
4.Agent’s Financial Advisor. The Agent and the Lenders shall be entitled to engage (either directly or through the Agent’s counsel) a financial advisor (the “Agent’s Financial Advisor”). The scope of the engagement shall be determined by the Agent in its sole discretion. The Borrowers agree to pay all reasonable and documented fees and expenses of the Agent’s Financial Advisor, with such fees and expenses to be payable upon demand, and all such amounts shall constitute “Obligations” under the Loan Documents and be secured by the Collateral. The Borrowers shall, and shall direct and cause their Subsidiaries, affiliates and representatives to, fully cooperate with the Agent’s Financial Advisor and make their books, records and other data sources and their respective officers, directors, shareholders, advisors and other personnel available to the Agent’s Financial Advisor in accordance with Section 5.7 of the Credit Agreement. Agent agrees that it will advise the Administrative Borrower at any time that its fees and disbursements of the Agent’s Financial Advisor exceed $250,000.
6
5.Expenses. The Borrowers shall pay all reasonable out-of-pocket fees, costs and expenses incurred by the Agent in connection with this Amendment or otherwise due and payable pursuant to the Credit Agreement, including, without limitation, legal fees and expenses of counsel to the Agent, and the reasonable and documented fees and expenses of the Agent’s Financial Advisor in accordance with Section 4 above.
6.Choice of Law. The validity of this Amendment, the construction, interpretation, and enforcement hereof, and the rights of the parties hereto with respect to all matters arising hereunder or related hereto shall be determined under, governed by, and construed in accordance with the laws of the State of New York.
7.Counterparts. This Amendment may be executed in any number of counterparts and by different parties and separate counterparts, each of which when so executed and delivered, shall be deemed an original, and all of which, when taken together, shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by telefacsimile or other electronic method of transmission shall be effective as delivery of a manually executed counterpart of this Amendment.
8.Reference to and Effect on the Loan Documents.
(a)Upon and after the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to “the Credit Agreement”, “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as modified and amended hereby.
(b)Except as specifically set forth in this Amendment, the Credit Agreement and all other Loan Documents, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed and shall constitute the legal, valid, binding and enforceable obligations of each Borrower to Agent and Lenders without defense, offset, claim or contribution.
(c)The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Agent or any Lender under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.
9.Ratification. Each Borrower hereby restates, ratifies and reaffirms each and every term and condition set forth in the Credit Agreement, as amended hereby, and the Loan Documents effective as of the date hereof.
10.Estoppel. To induce Agent and Lenders to enter into this Amendment and to induce Agent and Lenders to continue to make advances to Borrowers under the Credit Agreement, each Borrower hereby acknowledges and agrees that, after giving effect to this Amendment, as of the date hereof, there exists no Default or Event of Default and no right of offset, defense, counterclaim or objection in favor of any Borrower as against Agent or any Lender with respect to the Obligations.
11.Integration. This Amendment, together with the other Loan Documents, incorporates all negotiations of the parties hereto with respect to the subject matter hereof and is the final expression and agreement of the parties hereto with respect to the subject matter hereof.
12.Severability. In case any provision in this Amendment shall be invalid, illegal or unenforceable, such provision shall be severable from the remainder of this Amendment and the validity,
7
legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
13.Release; Covenant Not to Sue.
(a)Each of the Borrowers hereby absolutely and unconditionally releases and forever discharges Agent and the Lenders, and any and all participants, parent corporations, subsidiary corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all of the present and former directors, officers, agents and employees of any of the foregoing (each a “Released Party”), from any and all known claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which such Borrower has had, now has or has made claim to have against any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date of this Amendment, whether such claims, demands and causes of action are matured or unmatured; provided that, in each case, the foregoing release shall not apply to claims of fraud or willful misconduct. Each of the Borrowers understands, acknowledges and agrees that this release may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release.
(b)Each of the Borrowers, on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably, covenants and agrees with and in favor of each Released Party above that it will not sue (at law, in equity, in any regulatory proceeding or otherwise) any Released Party on the basis of any claim released, remised and discharged by any Borrower pursuant to the above release. If any Borrower or any of its successors, assigns or other legal representations violates the foregoing covenant, each Borrower, for itself and its successors, assigns and legal representatives, agrees to pay, in addition to such other damages as any Released Party may sustain as a result of such violation, all attorneys’ fees and costs incurred by such Released Party as a result of such violation.
14.Submission of Amendment. The submission of this Amendment to the parties or their agents or attorneys for review or signature does not constitute a commitment by Agent or any Lender to waive any of their respective rights and remedies under the Loan Documents, and this Amendment shall have no binding force or effect until all of the conditions to the effectiveness of this Amendment have been satisfied as set forth herein.
[Remainder of Page Intentionally Left Blank; Signature Pages Follow.]
8
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first above written.
BORROWERS: |
|
||
|
|
|
|
CONNECTURE, INC. |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
By: |
/s/ Vincent E. Estrada |
|
|
|
Name: |
Vincent E. Estrada |
|
|
Title: |
Chief Financial Officer |
|
DESTINATIONRX, INC. |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
By: |
/s/ Vincent E. Estrada |
|
|
|
Name: |
Vincent E. Estrada |
|
|
Title: |
Chief Financial Officer |
|
[Connecture – Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement]
|
|||
ASSOCIATION, as Lender and as Agent |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
By: |
/s/ Andrea Bernard |
|
|
|
Name: |
Andrea Bernard |
|
|
Title: |
Managing Director |
|
[Connecture – Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement]
Each of the undersigned hereby joins in this Amendment to evidence its consent to the execution by the Borrowers, to agree to be bound by the provisions of this Amendment to the extent applicable to each of the undersigned, to confirm that each Loan Document now or previously executed by the undersigned applies and shall continue to apply to the Credit Agreement (as amended hereby), to acknowledge that without such consent and confirmation, Agent and Lenders would not execute this Amendment, and to agree that each of the Loan Documents remain in full force and effect, and each of the undersigned confirms and ratifies all of its obligations under each Loan Document (as amended hereby) to which it is a party.
CONNECTEDHEALTH, LLC |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
By: |
/s/ Vincent E. Estrada |
|
|
|
Name: |
Vincent E. Estrada |
|
|
Title: |
Chief Financial Officer |
|
INSURIX, INC. |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
By: |
/s/ Vincent E. Estrada |
|
|
|
Name: |
Vincent E. Estrada |
|
|
Title: |
Chief Financial Officer |
|
RXHEALTH INSURANCE AGENCY, INC. |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
By: |
/s/ Vincent E. Estrada |
|
|
|
Name: |
Vincent E. Estrada |
|
|
Title: |
Chief Financial Officer |
|
[Connecture – Signature Page to Amendment No. 2 to Amended and Restated Credit Agreement]
Schedule C-1 to Credit Agreement
Please see attached.
Commitments
Lender |
Revolver Commitment |
Term Loan Commitment |
Total Commitment |
Wells Fargo Bank, National Association |
$500,000 |
$35,000,000 |
$35,500,000 |
All Lenders |
$500,000 |
$35,000,000 |
$35,500,000 |
S-2
amendment to credit agreement
Schedule 5.1
Deliver to Agent (and if so requested by Agent, with copies for each Lender) each of the financial statements, reports, or other items set forth below at the following times in form satisfactory to Agent:
As soon as available, but in any event on Thursday of every calendar week, |
(a)a rolling 13-week cash flow forecast of the Borrowers and their Subsidiaries for the succeeding thirteen (13) week period (a “Budget”), together with (i) a comparison of the prior Budget for the applicable periods showing actual performance and any variance of such actual performance from the projected performance in such Budget for such periods and (ii) a certificate signed by the chief financial officer of the Administrative Borrower to the effect that such information is true and correct, in each case, in form, substance and in such detail as is reasonably satisfactory to the Lenders, |
As soon as available, but in any event on Friday of every calendar week, |
(b)a detailed report in form and substance satisfactory to Agent regarding the Borrowers’ and their Subsidiaries’ cash and Cash Equivalents, including a list of all accounts with account numbers and identifying all accounts which are subject to Control Agreements, and an indication of which accounts constitute Qualified Cash and which accounts do not constitute Qualified Cash, |
As soon as available, but in any event within 30 days (45 days in the case of a month that is the end of the Administrative Borrower’s fiscal quarters) after the end of each month, during the Administrative Borrower’s fiscal years, |
(c)an unaudited consolidated and consolidating balance sheet, income statement, statement of cash flow, and statement of shareholder’s equity (prepared on an as billed basis and GAAP basis) covering the Administrative Borrower’s and its Subsidiaries’ operations during such period and compared to the prior period and plan, together with a corresponding discussion and analysis of results from management, and (d)a Compliance Certificate along with the underlying calculations, including the calculations to arrive at EBITDA1 to the extent applicable, |
|
1 |
Borrowers’ calculations to arrive at the EBITDA figure shall conform to the definition as set forth in Schedule 1.1. |
As soon as available, but in any event within 45 days after the end of each fiscal quarter of the Administrative Borrower ending June 30 and December 31: |
(h)a sales pipeline report by prospect including the probability of close for each prospect (and grouped by probability), (i)a detailed list of Borrower’s customers including contract expiration dates and annualized recurring revenue contribution, and (j)a summary report showing (A) all deferred revenues as set forth in each Borrower’s and their respective Subsidiaries’ balance sheet for the prior month, (B) the portion of such deferred revenues that will be earned during the next four fiscal quarters, and (C) the portion of such deferred revenues that will be earned on or after the date one year following the date of such balance sheet, |
shareholders generally. |
|
Promptly, but in any event within 5 days after a Borrower has knowledge of any event or condition that constitutes a Default or an Event of Default, |
(s)notice of such event or condition and a statement of the curative action |
Promptly after the commencement thereof, but in any event within 5 days after the service of process with respect thereto on a Borrower or any of its Subsidiaries, |
(t)notice of all actions, suits, or proceedings brought by or against such Borrower or any of its Subsidiaries before any Governmental Authority which reasonably could be expected to result in a Material Adverse Effect, |
Upon the request of Agent, |
(u)any other information reasonably requested relating to the financial condition of either Borrower or its respective Subsidiaries, and (v)Such other reports, including but not limited to a summary aging of the Borrowers’ Accounts, and a summary aging, by vendor, of Borrowers’ accounts payable, and any book overdrafts, and as to the Collateral or the financial condition of the Borrowers and their Subsidiaries, as Agent may reasonably request. |
Exhibit 99.1
Connecture Reports Financial Results for Fourth Quarter and Full Year 2016
Completes Additional Investment led by Francisco Partners
Contracted Backlog Grows on Fourth Quarter Sales Activity
BROOKFIELD, Wis. — March 14, 2017 — Connecture, Inc. (Nasdaq: CNXR), a provider of web-based information systems used to create health insurance marketplaces, today announced financial results for the fourth quarter and full year ended December 31, 2016. Concurrently, the Company announced it has completed an additional investment led by existing shareholder, Francisco Partners, a global private equity firm.
“The fourth quarter of 2016 capped a year of challenges and transitions for the Company,” remarked Jeff Surges, President and CEO of Connecture. “On the positive side, we added notable new logos to our customer base, enabled our clients to experience another successful open and annual enrollment period, and empowered over 20 million Americans to make smarter purchase decisions regarding their health insurance and drug benefits. However, the uncertain political status of the Affordable Care Act and proposed health plan merger activity created market headwinds which impacted our growth expectations. Additionally, our profitability significantly suffered from greater than expected resources required to support certain customers through the 2016 enrollment period and disappointing volume in our variable revenue arrangements. To address the issues impacting our financial results, we implemented substantial cost reductions in the fourth quarter which are expected to meaningfully improve our financial performance beginning in 2017. With a new leadership team, a laser focus on achieving profitability through an emphasis on fixing our pricing and cost structure, and an expected improvement in the general market conditions, we expect to build upon our customer successes while also improving our financial performance.
Surges added, “We are pleased to also announce the completion of an additional $17.5 million cash investment led by Francisco Partners. The investment will provide us with the necessary capital to execute our 2017 operating plan and grow our Private Exchange, Enterprise Commercial, and market-leading Medicare business.”
Full Year 2016 Financial Results
|
• |
Total revenue was $81.9 million, decreasing 14.6% compared to $95.8 million in 2015. Excluding the Enterprise State segment which we are exiting and has only one remaining customer as of December 31, 2016, revenue was $78.4 million compared to $82.5 million in 2015, a decrease of 4.9% primarily due to lower service revenue in our Enterprise Commercial segment. |
|
• |
Gross margin was $25.0 million, or 30.5% of total revenue, compared to $45.2 million, or 47.1% of total revenue, in 2015. The decrease in gross margin was due to lower gross margins in our Enterprise State, Enterprise Commercial and Private Exchange segments. Gross margin in our Enterprise State segment decreased as we near completion of the wind down of this segment with one remaining customer at December 31, 2016. Gross margin in our Enterprise Commercial and Private Exchange segments decreased due to the lower service revenue recognized in our Enterprise Commercial segment combined with increased cost of revenue to support customers in both of these segments. Our recent cost reduction actions are expected to contribute substantially to higher gross margins in 2017. |
|
• |
Net cash used in operating activities was $24.5 million compared to $16.2 million in 2015. |
|
• |
The net increase in cash of $0.8 million includes $49.3 million in net proceeds from the sale of Series A preferred stock in May 2016 less $24.5 million in cash used in operating activities, $4.7 million used for the acquisition of Connected Health in June 2016 and $17.2 million used for the net repayment of debt. |
Recent Business Highlights
|
• |
Total contracted backlog at December 31, 2016 was $86.7 million, compared to $82.3 million at September 30, 2016. The sequential increase was due to increased sales activity during the quarter, including significant multi-year sales to a large regional provider sponsored health plan with over 500,000 members and a large national broker aggregator. |
|
• |
Annual and Open Enrollment launches of over 50 health insurance carriers, many of whom experienced volume increases over prior years and utilized our new mobile platform. |
|
• |
The Company announced the hiring of a new Chief Financial Officer, Vincent Estrada, on January 1, 2017. |
|
• |
On March 10, 2017, the Company issued and sold a new class of Series B Convertible Preferred Stock to Francisco Partners and Chrysalis Ventures, both existing shareholders, to secure a $17.5 million investment. Following the investment, Francisco Partners controls approximately 56% of the Company’s common stock equivalents. In addition, the Company amended its Credit Agreement with Wells Fargo Bank to establish new covenants and re-set its principal repayment terms to provide approximately $2.5 million of additional liquidity in 2017. For the Series B financing, Connecture was advised by Raymond James and DLA Piper LLP (US), and Francisco Partners was advised by Kirkland & Ellis LLP. |
Business Outlook
Connecture is providing guidance for full year 2017 as indicated below:
|
• |
Total revenue is expected to be in the range of $73.0 to $78.0 million. The guidance reflects the assumed completion of the last Enterprise State contract in 2017 and the non-recurrence of certain deferred revenue recognized in 2016 upon completion of several contractual obligations. Excluding the impact of these two items, the guidance is for flat to modest revenue growth in 2017. |
|
• |
Adjusted EBITDA is expected to be in the range of a ($3.0) million loss to $0.5 million income, and includes the cost reduction actions taken in 2016 combined with further reductions in 2017 which are expected to decrease our total cost of revenue and operating expenses in 2017 by at least $15.0 million. This reflects a substantial improvement from our ($13.6) million loss in 2016, establishing a new base level from which we expect to improve in subsequent years. |
Conference Call
Connecture’s management will host a conference call at 5:00 p.m. EDT on Tuesday, March 14, 2017, to discuss the fourth quarter and full year 2016 results. The conference call will be accessible by dialing 877-930-8068 (U.S.) or 253-336-8043 (international) and referencing participant code 85989906. A live webcast of the conference call will also be available on the investor relations section of the Company’s website at investors.connecture.com.
Use of Non-GAAP Measures
To provide additional information regarding Connecture’s financial results, Connecture has disclosed in this press release adjusted gross margin and adjusted EBITDA margin, each a non-GAAP financial measure. Connecture defines adjusted gross margin as gross margin before depreciation and amortization expense, as well as stock-based compensation expense. Connecture defines adjusted EBITDA as net income (loss) before net interest, other expense, taxes, depreciation and amortization expense, adjusted to eliminate stock-based compensation and non-cash changes in fair value of contingent consideration and impairments of goodwill, intangible and long-lived assets, if any.
Connecture has included adjusted gross margin and adjusted EBITDA as supplemental financial measures in this press release because they are key measures used by its management and board of directors to understand and evaluate its core operating performance and trends, to prepare and approve its annual budget and to develop short- and long-term operational plans, and because management believes that they provide useful information in understanding and evaluating Connecture’s operating results. However, use of adjusted gross margin and adjusted EBITDA as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of Connecture’s financial results as reported under GAAP. A reconciliation to the closest GAAP measures of these non-GAAP measures is contained in the accompanying tables.
Connecture has also provided forward-looking guidance on adjusted EBITDA. Connecture is unable to predict with reasonable certainty the ultimate outcome of the exclusions to net income (loss) required to calculate adjusted EBITDA without unreasonable effort. Therefore, Connecture has not provided guidance for GAAP net loss or reconciliation of the forward-looking adjusted EBITDA guidance to GAAP net income (loss).
Connecture (NASDAQ: CNXR) is a leading web-based consumer shopping, enrollment and retention platform for health insurance distribution. Connecture offers a personalized health insurance shopping experience that recommends the best fit insurance plan based on an individual’s preferences, health status, preferred providers, medications and expected out-of-pocket costs. Connecture’s customers are health insurance marketplace operators such as health plans, brokers and exchange operators, who must distribute health insurance in a cost-effective manner to a growing number of insured consumers. Connecture’s solutions automate key functions in the health insurance distribution process, allowing its customers to price and present plan options accurately to consumers and efficiently enroll, renew and manage plan members.
Forward-Looking Statements
This press release contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this press release, including statements regarding Connecture’s strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
These forward-looking statements include, among other things, statements about management’s estimates regarding future market growth, revenues and financial performance and other statements about management’s beliefs, intentions or goals. Connecture may not actually achieve the plans, intentions or expectations disclosed in the forward-looking statements, and you should not place undue reliance on Connecture’s forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results or events to differ materially from the expectations disclosed in the forward-looking statements, including, but not limited to, risks related to (1) Connecture’s ability to manage its growth, including accurately planning and forecasting its financial results and hiring, retaining and motivating employees; (2) the competitive environment for Connecture’s business and the market for Connecture’s solutions; (3) Connecture’s ability to maintain historical contract terms; (4) Connecture’s ability to operate its proprietary software, transition to new platforms and provide innovative and high quality software and services; (5) errors, interruptions or delays in Connecture’s services; (6) breaches of Connecture’s security measures; (7) Connecture’s ability to comply with regulatory requirements; (8) technological and regulatory developments; (9) litigation related to intellectual property and other matters and any related claims, negotiations and settlements; (10) concentration of ownership of Connecture’s securities with one significant stockholder; and (11) other risks and potential factors that could affect Connecture’s business and financial results identified in Connecture’s filings with the Securities and Exchange Commission (the “SEC”), including Connecture’s Annual Report on Form 10-K and its quarterly reports on Form 10-Q. The forward-looking statements contained in this press release reflect Connecture’s current views with respect to future events, and Connecture assumes no obligation to update or revise any forward-looking statements except as required by applicable law.
Investor Relations Contact:
Vincent Estrada
Chief Financial Officer
Connecture, Inc.
Phone: 262-432-8210
vestrada@connecture.com
Media Contact:
Jeff Hyman
Channel Marketing Director
Connecture, Inc.
Phone: 818-415-2569
jhyman@connecture.com
Source: Connecture
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except share and per share data)
(unaudited)
|
Three Months Ended December 31, |
|
|
Year Ended December 31, |
|
||||||||||
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
Revenue |
$ |
20,879 |
|
|
$ |
29,139 |
|
|
$ |
81,894 |
|
|
$ |
95,847 |
|
Cost of revenue (1) |
|
14,988 |
|
|
|
12,732 |
|
|
|
56,895 |
|
|
|
50,670 |
|
Gross margin |
|
5,891 |
|
|
|
16,407 |
|
|
|
24,999 |
|
|
|
45,177 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development (1) |
|
5,109 |
|
|
|
4,860 |
|
|
|
22,297 |
|
|
|
22,718 |
|
Sales and marketing (1) |
|
2,534 |
|
|
|
1,993 |
|
|
|
10,410 |
|
|
|
9,507 |
|
General and administrative (1) |
|
3,546 |
|
|
|
3,616 |
|
|
|
13,162 |
|
|
|
14,439 |
|
Total operating expenses |
|
11,189 |
|
|
|
10,469 |
|
|
|
45,869 |
|
|
|
46,664 |
|
Income (loss) from operations |
|
(5,298 |
) |
|
|
5,938 |
|
|
|
(20,870 |
) |
|
|
(1,487 |
) |
Other expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
634 |
|
|
|
1,390 |
|
|
|
3,485 |
|
|
|
5,665 |
|
Other expense, net |
|
300 |
|
|
|
132 |
|
|
|
2,239 |
|
|
|
140 |
|
Income (loss) before income taxes |
|
(6,232 |
) |
|
|
4,416 |
|
|
|
(26,594 |
) |
|
|
(7,292 |
) |
Income tax (provision) benefit |
|
- |
|
|
|
(93 |
) |
|
|
60 |
|
|
|
(51 |
) |
Net income (loss) |
$ |
(6,232 |
) |
|
$ |
4,323 |
|
|
$ |
(26,534 |
) |
|
$ |
(7,343 |
) |
Comprehensive income (loss) |
$ |
(6,232 |
) |
|
$ |
4,323 |
|
|
$ |
(26,534 |
) |
|
$ |
(7,343 |
) |
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
(0.32 |
) |
|
$ |
0.20 |
|
|
$ |
(1.31 |
) |
|
$ |
(0.34 |
) |
Diluted |
$ |
(0.32 |
) |
|
$ |
0.19 |
|
|
$ |
(1.31 |
) |
|
$ |
(0.34 |
) |
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
22,425,517 |
|
|
|
21,960,077 |
|
|
|
22,275,256 |
|
|
|
21,813,407 |
|
Diluted |
|
22,425,517 |
|
|
|
22,784,888 |
|
|
|
22,275,256 |
|
|
|
21,813,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Cost of revenue and operating expenses include following stock-based compensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
$ |
130 |
|
|
$ |
184 |
|
|
$ |
689 |
|
|
$ |
922 |
|
Research and development |
|
62 |
|
|
|
479 |
|
|
|
422 |
|
|
|
1,379 |
|
Sales and marketing |
|
18 |
|
|
|
146 |
|
|
|
243 |
|
|
|
518 |
|
General and administrative |
|
343 |
|
|
|
585 |
|
|
|
1,308 |
|
|
|
1,893 |
|
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
|
|
As of December 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
6,208 |
|
|
$ |
5,424 |
|
Accounts receivable - net of allowances |
|
|
8,390 |
|
|
|
10,792 |
|
Prepaid expenses and other current assets |
|
|
1,153 |
|
|
|
652 |
|
Total current assets |
|
|
15,751 |
|
|
|
16,868 |
|
Property and equipment, net |
|
|
1,957 |
|
|
|
2,109 |
|
Goodwill |
|
|
31,072 |
|
|
|
26,779 |
|
Other intangibles, net |
|
|
9,188 |
|
|
|
11,392 |
|
Deferred implementation costs |
|
|
23,257 |
|
|
|
24,565 |
|
Other assets |
|
|
1,263 |
|
|
|
976 |
|
Total assets |
|
$ |
82,488 |
|
|
$ |
82,689 |
|
Liabilities, redeemable preferred stock and stockholders' deficit |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
7,387 |
|
|
$ |
6,853 |
|
Accrued payroll and related liabilities |
|
|
4,945 |
|
|
|
3,560 |
|
Other liabilities |
|
|
1,950 |
|
|
|
2,188 |
|
Current maturities of debt |
|
|
3,053 |
|
|
|
1,441 |
|
Deferred revenue |
|
|
31,606 |
|
|
|
34,049 |
|
Total current liabilities |
|
|
48,941 |
|
|
|
48,091 |
|
Deferred revenue |
|
|
9,310 |
|
|
|
18,529 |
|
Deferred tax liability |
|
|
23 |
|
|
|
23 |
|
Long-term debt |
|
|
29,469 |
|
|
|
46,964 |
|
Other long-term liabilities |
|
|
235 |
|
|
|
262 |
|
Total liabilities |
|
|
87,978 |
|
|
|
113,869 |
|
Redeemable preferred stock |
|
|
51,894 |
|
|
|
— |
|
Total stockholders' deficit |
|
|
(57,384 |
) |
|
|
(31,180 |
) |
Total liabilities, redeemable preferred stock and stockholders' deficit |
|
$ |
82,488 |
|
|
$ |
82,689 |
|
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
|
Year Ended December 31, |
|
|||||
|
2016 |
|
|
2015 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net loss |
$ |
(26,534 |
) |
|
$ |
(7,343 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
4,601 |
|
|
|
5,043 |
|
Stock-based compensation expense |
|
2,662 |
|
|
|
4,712 |
|
Other |
|
2,552 |
|
|
|
970 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
2,831 |
|
|
|
1,291 |
|
Prepaid expenses and other assets |
|
(546 |
) |
|
|
757 |
|
Deferred implementation costs |
|
1,308 |
|
|
|
(13 |
) |
Accounts payable |
|
263 |
|
|
|
1,856 |
|
Accrued expenses and other liabilities |
|
623 |
|
|
|
(2,306 |
) |
Deferred revenue |
|
(12,229 |
) |
|
|
(21,159 |
) |
Net cash used in operating activities |
|
(24,469 |
) |
|
|
(16,192 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
Purchases of property and equipment |
|
(999 |
) |
|
|
(1,317 |
) |
Business acquisition, net of cash acquired |
|
(4,683 |
) |
|
|
— |
|
Net cash used in investing activities |
|
(5,682 |
) |
|
|
(1,317 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
Net repayments of debt |
|
(17,181 |
) |
|
|
(4,365 |
) |
Proceeds from preferred stock, net |
|
49,251 |
|
|
|
— |
|
Other |
|
(1,135 |
) |
|
|
(954 |
) |
Net cash provided by (used in) financing activities |
|
30,935 |
|
|
|
(5,319 |
) |
Net increase (decrease) in cash and cash equivalents |
|
784 |
|
|
|
(22,828 |
) |
Cash and cash equivalents - beginning of period |
|
5,424 |
|
|
|
28,252 |
|
Cash and cash equivalents - end of period |
$ |
6,208 |
|
|
$ |
5,424 |
|
Reconciliation of GAAP to Non-GAAP Measures
(In thousands)
(unaudited)
|
Three Months Ended December 31, |
|
|
Year Ended December 31, |
|
||||||||||
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
Reconciliation from Gross Margin to Adjusted Gross Margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
$ |
5,891 |
|
|
$ |
16,407 |
|
|
$ |
24,999 |
|
|
$ |
45,177 |
|
Depreciation and amortization |
|
991 |
|
|
|
974 |
|
|
|
3,857 |
|
|
|
3,846 |
|
Stock-based compensation expense |
|
130 |
|
|
|
184 |
|
|
|
689 |
|
|
|
922 |
|
Adjusted gross margin |
$ |
7,012 |
|
|
$ |
17,565 |
|
|
$ |
29,545 |
|
|
$ |
49,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation from Net Income (Loss) to Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ |
(6,232 |
) |
|
$ |
4,323 |
|
|
$ |
(26,534 |
) |
|
$ |
(7,343 |
) |
Depreciation and amortization |
|
1,145 |
|
|
|
1,246 |
|
|
|
4,601 |
|
|
|
5,043 |
|
Interest expense |
|
634 |
|
|
|
1,390 |
|
|
|
3,485 |
|
|
|
5,665 |
|
Other expense, net |
|
300 |
|
|
|
132 |
|
|
|
2,239 |
|
|
|
140 |
|
Income taxes |
|
- |
|
|
|
93 |
|
|
|
(60 |
) |
|
|
51 |
|
Stock-based compensation expense |
|
553 |
|
|
|
1,394 |
|
|
|
2,662 |
|
|
|
4,712 |
|
Total net adjustments |
$ |
2,632 |
|
|
$ |
4,255 |
|
|
$ |
12,927 |
|
|
$ |
15,611 |
|
Adjusted EBITDA |
$ |
(3,600 |
) |
|
$ |
8,578 |
|
|
$ |
(13,607 |
) |
|
$ |
8,268 |
|
Exhibit 99.2
CONNECTURE, INC.
CHARTER OF
THE INVESTOR COMMITTEE
OF THE BOARD OF DIRECTORS
As adopted by the Board on March 9, 2017, effective as of March 10, 2017
I.STATEMENT OF POLICY
This Charter specifies the scope of the responsibilities of the Investor Committee (the “Committee”) of the Board of Directors (the “Board”) of Connecture, Inc. (the “Company”) and the manner in which those responsibilities shall be performed, including its structure, processes and membership requirements. The Committee was duly formed on March 9, 2017 (effective as of March 10, 2017) by the Board in accordance with the terms of that certain Investor Rights Agreement, dated as of March 10, 2017 (the “Investor Rights Agreement”), as may be amended from time to time, by and among the Company and certain holders of the Company’s outstanding Series A Convertible Preferred Stock and Series B Convertible Preferred Stock (collectively, the “Preferred Stock” and such holders entitled to rights pursuant to the Investor Rights Agreement, the “Preferred Holders”).
The primary responsibilities of the Committee are, pursuant to authority delegated to it by the Board, to: (a) in its sole discretion, approve resolutions increasing or decreasing the size of the Board or any committee of the Board in connection with the election or removal of individuals designated to become Board members by the Preferred Holders pursuant to the Investor Rights Agreement (the “Designated Directors”); (b) evaluate the qualifications of Designated Directors; (c) in its sole discretion, elect Designated Directors to fill vacancies on the Board; and (d) consider committee member qualifications, appointment and removal with respect to Designated Directors and in its sole discretion, appoint Designated Directors to committees of the Board.
II.ORGANIZATION AND MEMBERSHIP REQUIREMENTS
The Committee shall be appointed by the Board and shall be comprised entirely of Designated Directors. This Committee shall continue in existence consistent with the terms of the Investor Rights Agreement.
Each member of the Committee shall serve until his or her successor is duly elected and qualified or until such member’s earlier resignation, removal or death. Any member of the Committee may only be removed or replaced by the other members of the Committee, or in the absence of any members on the Committee, by the Designated Directors of the Board, or in the absence of any Designated Directors on the Board, upon the instruction of the Preferred Holders. The members of the Committee may designate a Chair by majority vote of the full Committee membership. The Chair shall preside at all regular meetings of the Committee and set the agenda for each Committee meeting.
In fulfilling its responsibilities, the Committee shall, to the extent permitted by law, be entitled to delegate duties or responsibilities to one or more subcommittees of the Committee comprised of one or more members of the Committee.
The Committee shall have the authority to obtain advice or assistance from consultants, legal counsel, accounting or other advisors as appropriate to perform its duties hereunder, and to determine the
terms, costs and fees for such engagements. The fees and costs of any consultant or advisor engaged by the Committee to assist the Committee in performing its duties hereunder shall be borne by the Company.
III.MEETINGS
The Committee shall meet as often as it deems necessary or appropriate to fulfill its responsibilities hereunder. The Committee may meet with management or individual directors at such time as it deems appropriate to discuss any matters before the Committee. The Committee may request that any employee of the Company attend any of its meetings or meet with any Committee member or consultant.
A majority of the members shall represent a quorum of the Committee and, if a quorum is present, any action approved by at least a majority of the members present (in person or by telephone conference call) shall represent the valid action of the Committee. The Committee may also take action by unanimous written consent without a meeting.
The Committee shall maintain written minutes of its meetings, which minutes will be filed with the minutes of the meetings of the Board.
IV.COMMITTEE AUTHORITY AND RESPONSIBILITY
To fulfill its responsibilities and duties hereunder, pursuant to authority delegated to it by the Board, the Committee shall have the sole authority to:
a.Upon request of the Preferred Holders pursuant to the Investor Rights Agreement, approve resolutions increasing or decreasing the size of the Board or any committee thereof in connection with the election or removal of Designated Directors;
b.Evaluate the qualifications of Designated Directors;
c.Elect Designated Directors to fill vacancies on the Board and determine the classification of such Board members;
d.Consider committee member qualifications, appointment and removal with respect to Designated Directors and appoint Designated Directors to committees of the Board;
e.Review and reassess the adequacy of this Charter as appropriate and approve amendments as necessary; and
f.Perform any other activities consistent with this Charter, the Company’s Bylaws and governing law, as the Committee or the Board deems necessary or appropriate.
V.AMENDMENT
The Charter may only be amended by action of the Committee.
2