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EXHIBIT 10.17
CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
by and among
HIGH SPEED ACCESS NETWORK, INC.,
XXXXXX X. XXXXXXX,
XXXXXX X. XXXX, III
and
BROADBAND SOLUTIONS, LLC
April 3, 1998
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TABLE OF CONTENTS
PAGE
----
1. Sale and Issuance of Convertible Preferred Stock............................................1
2. Closing.....................................................................................2
3. Closing Items...............................................................................2
4. Further Assurances..........................................................................3
5. Representations and Warranties of Company and Founders......................................3
A. Corporate Standing.................................................................3
B. Authorization......................................................................4
C. Capitalization.....................................................................4
D. Validly Issued Shares..............................................................5
E. No Conflict........................................................................5
F. Contracts and Other Commitments; Compliance........................................5
G. Subsidiaries.......................................................................6
H. Consents...........................................................................6
I. Financial Statements...............................................................6
J. Indebtedness for Borrowed Money; No Undisclosed Liabilities........................6
K. Absence of Changes.................................................................6
L. Title to Property and Assets; Leases...............................................8
M. Legal Proceedings..................................................................8
N. Environmental Matters..............................................................8
O. Licenses and Permits; Compliance with Laws.........................................8
P. Employee Benefit Plans.............................................................9
Q. Labor Relations....................................................................9
R. Insurance........................................................................ 10
S. Tax Matters...................................................................... 10
T. Bank Accounts.................................................................... 10
U. Related Party Transactions....................................................... 10
V. Brokers' and Finders' Fees....................................................... 11
W. Registration Rights.............................................................. 11
X. Small Business Concern........................................................... 11
Y. Business Plan; Material Facts.................................................... 11
6. Representations and Warranties of Investor................................................ 11
A. Authorization; Binding Agreement................................................. 12
B. Investment Representations....................................................... 12
C. Accredited Investor; Residence................................................... 12
D. Receipt of Information; Restricted Securities.................................... 12
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E. Investment Experience............................................................ 12
7. Survival of Representations and Warranties................................................ 12
8. Indemnification........................................................................... 13
A. Indemnification by Company and Founders.......................................... 13
B. Indemnification by Investor...................................................... 13
9. Covenants of Company and Founders......................................................... 14
A. Redemption Rights................................................................ 14
B. Financial Reporting.............................................................. 14
C. Indebtedness for Borrowed Money.................................................. 15
D. Board of Directors............................................................... 15
E. Reservation of Shares............................................................ 15
F. Use of Proceeds.................................................................. 15
G. Prohibited Matters............................................................... 15
H. Life Insurance................................................................... 16
I. Consulting Fee................................................................... 16
10. Public Statements......................................................................... 16
11. Notices................................................................................... 16
12. Parties in Interest; Assignment........................................................... 17
13. Construction; Governing Law............................................................... 18
14. Entire Agreement; Amendment and Waiver.................................................... 18
15. Severability.............................................................................. 18
16. Counterparts.............................................................................. 18
17. Expenses.................................................................................. 18
18. Time of Essence........................................................................... 18
19. Attorneys' Fees........................................................................... 18
20. Rights of Investor........................................................................ 19
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CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
THIS CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is
made and entered into as of the 3rd day of April, 1998, by and among HIGH SPEED
ACCESS NETWORK, INC., a Delaware corporation ("Company"), XXXXXX X. XXXXXXX, an
individual ("Xxxxxxx"), XXXXXX X. XXXX, III, an individual ("Xxxx") (Xxxxxxx and
Xxxx are collectively referred to herein as the "Founders"), and BROADBAND
SOLUTIONS, LLC, a Kentucky limited liability company ("Investor").
WITNESSETH:
Company desires to sell and issue, and Investor desires to purchase and
acquire, up to 2,500,000 shares of Company's authorized but unissued Convertible
Preferred Stock, upon the terms and subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties herein contained, and intending to be legally
bound, Company, Founders and Investor agree as follows:
1 Sale and Issuance of Convertible Preferred Stock.
1.1 Company shall adopt and file with the Secretary of State of the
State of Delaware on or before the Closing (as defined below) Amended and
Restated Articles of Incorporation in the form attached hereto as Exhibit A (the
"Articles"). The Convertible Preferred Stock ("Preferred Stock") will have the
rights, preferences and privileges and restrictions set forth in the Articles.
1.2 Subject to the terms and conditions of this Agreement, at the
Closing (as defined below) Investor agrees to purchase from Company, and Company
agrees to sell, issue and deliver to Investor 500,000 shares of Preferred Stock
at a price of One Dollar ($1.00) per share, resulting in a total purchase price
at the Closing of Five Hundred Thousand Dollars ($500,000). At any time and from
time to time after the Closing, at the option of Company, evidenced by a
resolution of its Board of Directors and upon ten (10) days prior written notice
given by Company to Investor, Investor agrees to purchase from Company, and
Company agrees to sell, issue and deliver to Investor, up to 2,000,000 shares of
Preferred Stock at a price of One Dollar ($1.00) per share, resulting in an
additional total purchase price not to exceed Two Million Dollars ($2,000,000)
in the aggregate for such additional shares of Preferred Stock (the "Post
Closing Capital Calls"). There may be one or more Post Closing Capital Calls,
provided that pursuant thereto [i] Investor shall be, under no circumstances,
obligated to purchase more than 2,000,000 shares of Preferred Stock in the
aggregate, and [ii] Investor shall be, under no circumstances, obligated to
purchase any shares of Preferred Stock pursuant to a Post Closing Capital Call
if, as of the date of such Post Closing Capital Call, Company has not met the
monthly
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performance projections attached hereto as Schedule 1 (the "Projections"), as
determined by Investor in its sole discretion.
2 Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at 10:00 a.m. on April 3, 1998, at the offices
of Xxxxx, Tarrant & Xxxxx, 0000 Xxxxxxxx Xxxxx, Xxxxxxxxxx, Xxxxxxxx, or at such
other time, date, or place as shall be mutually agreed upon by the parties
hereto in writing (the "Closing Date"). Each of the Post Closing Capital Calls,
if any, shall be consummated at Company's option as contemplated by Section 1.B
above by delivery of a certificate representing the shares of Preferred Stock
Investor is purchasing against payment of the purchase price therefor in
immediately available funds.
3 Closing Items.
3.1 At the Closing, Company and Founders shall deliver, or cause to be
delivered, the following items:
[a] a certificate representing the shares of Preferred Stock that
Investor is purchasing against payment of the purchase price therefor in
immediately available funds;
[b] the Articles certified by the Delaware Secretary of State;
[c] the Bylaws of Company ("Bylaws"), certified as to their due
adoption and continued validity by the Secretary of Company;
[d] the Employment, Noncompetition and Nondisclosure Agreement between
Company and Xxxxxxx in the form attached hereto as Exhibit B duly executed
by Company and Xxxxxxx;
[e] the Noncompetition and Nondisclosure Agreement between Company and
each of Xxxx, Xxxxxx X. Xxxx, Xxxxxxxx Xxxxxxx, Xxxx Xxxxxx and Xxxxxxxx X.
Xxxxxx in the form attached hereto as Exhibit C duly executed by Company
and Xxxx;
[f] the Registration Rights Agreement in the form attached hereto as
Exhibit D ("Registration Rights Agreement") duly executed by Company;
[g] the Shareholders Agreement in the form attached hereto as Exhibit
E ("Shareholders Agreement") duly executed by Company, Founder, and each of
Xxxx, Xxxxxx X. Xxxx, Xxxxxxxx Xxxxxxx, Xxxx Xxxxxx and Xxxxxxxx X. Xxxxxx;
[h] the 1998 Stock Option Plan in the form attached hereto as Exhibit
F (the "Stock Option Plan") duly executed by Company;
[i] the opinion of Xxxxxxxx, Kluger & Xxxxx, counsel to Company, in
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the form attached hereto as Exhibit G;
[j] the $650,000 Promissory Note executed by Company in favor of Xxxx
Multimedia Partnership in the form attached hereto as Exhibit H (the
"Note");
[k] resolutions of the Board of Directors and shareholders of Company
authorizing the execution, delivery and consummation of this Agreement, the
issuance of the shares of Preferred Stock, and the other matters
contemplated hereby, certified as to their due adoption and continued
validity by the Secretary of Company; and
[l] information necessary for the preparation of a Portfolio Financing
Report on SBA Form 1031 with respect to Company.
3.2 At the Closing, Investor shall deliver, or cause to be delivered
the following items:
[a] immediately available funds in the amount of Five Hundred Thousand
Dollars ($500,000);
[b] the Registration Rights Agreement executed by Investor;
[c] the Shareholders Agreement executed by Investor; and
[d] resolutions of the Board of Managers of Investor authorizing the
execution, delivery and consummation of this Agreement, the purchase of the
shares of Preferred Stock, and the other matters contemplated hereby.
4 Further Assurances. Each party shall execute such additional documents
and take such other actions as the other party or parties may reasonably request
to consummate the transactions contemplated hereby and otherwise as may be
necessary to effectively carry out the terms and provisions of this Agreement.
5 Representations and Warranties of Company and Founders. Company and
Xxxxxxx, jointly and severally, represent and warrant to Investor, as of the
date hereof and as of the date of each additional issuance of Preferred Shares
to Investor pursuant to Post Closing Capital Calls, as follows:
5.1 Corporate Standing. Company is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
Company has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted and as presently
proposed to be conducted, to execute, deliver and perform this Agreement, the
Shareholders Agreement, the Registration Rights Agreement and any other
agreement to which Company is a party, the execution and delivery of which is
contemplated hereby (the "Ancillary Agreements"). Except as set out on Schedule
5.A attached hereto, Company is not qualified to do business as a foreign
corporation in any jurisdiction and such qualification is not now required. True
and accurate copies of the articles of incorporation, and
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all amendments thereto, bylaws (and all amendments thereto) and minute book
(containing the records of all meetings and written consents of the
stockholders, the board of directors and any committees of the board of
directors) of Company have previously been delivered to counsel to Investor.
5.2 Authorization. The execution and delivery of this Agreement, the
Shareholders Agreement, the Registration Rights Agreement, and any Ancillary
Agreement and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary corporate action on the part
of Company. Each of this Agreement, the Shareholders Agreement, the Registration
Rights Agreement, and any Ancillary Agreement have been duly executed and
delivered by Company and Founders, as applicable, and constitutes the legal,
valid and binding obligation of Company and Founders, as applicable, enforceable
against them in accordance with its terms.
5.3 Capitalization. The authorized capital stock of Company consists
of [i] 7,450,000 Common Shares with $.01 par value per share ("Common Shares"),
of which at the date hereof 2,000,000 shares are validly issued and outstanding,
fully paid and nonassessable and owned, beneficially and of record, as set forth
on Schedule 5.C attached hereto, and [ii] 2,500,000 Preferred Shares, no par
value per share ("Preferred Shares"), none of which is outstanding at the date
hereof and all of which are to be sold pursuant to this Agreement. 2,500,000
Common Shares have been duly and validly reserved for issuance upon conversion
of the Preferred Shares, and 450,000 Common Shares have been duly and validly
reserved for issuance under Company's Stock Option Plan. Except for (i) the
conversion and other privileges of the Preferred Shares, and (ii) the rights
provided in Section 10.A hereof and in the Registration Rights Agreement and the
Shareholders Agreement, there are outstanding no subscriptions, options,
warrants, calls, commitments or rights (including conversion or preemptive
rights and rights of first refusal), proxy or stockholder agree ments or
agreements of any character relating to shares of Company's capital stock or the
Preferred Stock to be issued hereunder or any instruments that can be converted
into shares of Company's capital stock or the Preferred Stock to be issued
hereunder. None of the shares of Company's capital stock have been issued in
violation of any preemptive right. All issuances, transfers or purchases of the
capital stock of Company have been in compliance with all applicable agreements
and all applicable laws, including federal and state securities laws, and all
taxes thereon, if any, have been paid. No former or present holder of any of the
shares of capital stock of Company has any legally cognizable claim against
Company or Founders based on any issuance, sale, purchase, redemption or
involvement in any transfer of any shares of capital stock by Company. Except
for obligations of Company to redeem Preferred Shares as contemplated by Section
10.A hereof, there are no contractual obligations of Company to repurchase,
redeem or otherwise acquire any shares of capital stock of Company. No bonds,
debentures, notes or other indebtedness having the right to vote (or convertible
into or exercisable for securities having the right to vote) on any matters on
which shareholders of Company may vote are issued or outstanding. Company is not
a party or subject to any agreement or understanding, and, to Company's and
Xxxxxxx'x best knowledge, there is no agreement or understanding between any
persons that affects or relates to the voting or giving of written consents with
respect to any security or the voting by any director of Company.
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5.4 Validly Issued Shares. The shares of Preferred Stock to be issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration set out herein, will, upon issuance in accordance with the terms
hereof, be duly and validly issued, fully paid and nonassessable, free of
restrictions on transfer other than restrictions on transfer under this
Agreement, the Shareholders Agreement and under applicable federal and state
securities laws. The issuance of the Preferred Stock to Investor pursuant to
this Agreement will comply with all applica ble laws, including federal and
state securities laws, and will not violate the preemptive rights of any person.
The Common Shares issuable upon conversion of the Preferred Stock being
purchased under this Agreement will be, upon issuance and delivery in accordance
with the terms of the Articles, duly and validly issued, fully paid and
nonassessable and free of restrictions on transfer other than restrictions on
transfer under this Agreement and the Shareholders Agreement and under
applicable federal and state securities laws. The issuance of the Common Shares
upon conversion of the Preferred Stock will comply with all applicable laws,
including federal and state securities laws (assuming the accuracy of the
representations set forth in Sections 7.B through 7.E of this Agreement as of
the date of issuance of such Common Shares), and will not violate the preemptive
rights of any person.
5.5 No Conflict. The execution and delivery of this Agreement, the
Shareholders Agreement and the Registration Rights Agreement, and any Ancillary
Agreement do not, and the consummation of the transactions contemplated hereby
and thereby will not, conflict with, or result in any violation 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 the loss
of a material benefit under, or the creation of a lien, pledge, security
interest, charge or other encumbrance on assets (any such conflict, violation,
default, right of termination, cancellation or acceleration, loss or creation, a
"Violation") pursuant to, any provision of the Articles or Bylaws, or result in
any Violation of any material lease, agreement, obligation, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Company or Company's properties or
assets.
5.6 Contracts and Other Commitments; Compliance. Except as set forth
on Schedule 5.F attached hereto (the "Contracts"), Company does not have and is
not bound by any contract, agreement, lease, loan, commitment or proposed
transaction, judgment, order, writ or decree, written or oral, absolute or
contingent. No event or condition has occurred or exists, or, to the knowledge
of Company or Xxxxxxx, is alleged by any of the other parties thereto to have
occurred or existed, which constitutes, or with lapse of time or giving of
notice or both might constitute, a default or breach under any of the Contracts,
which default is reasonably likely to result in a material adverse change in the
financial condition, results of operation or business of Company. Company is not
in violation or default of any provision of its Articles or Bylaws or in any
respect of any provision of any Contract or other item listed on Schedule 5.F.
5.7 Subsidiaries. Company does not own or control, directly or
indirectly, any interest in any other corporation, partnership, limited
liability company, association or other business entity. Company is not a
participant in any joint venture, partnership or similar arrangement.
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5.8 Consents. No consent, approval, qualification, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, or other third party is required by or
with respect to Company or Founders in connection with the execution and
delivery of this Agreement, or the consummation by Company or Founders of the
transactions contemplated hereby, which has not already been obtained, except
for notices of sale required to be filed with the Securities and Exchange
Commission under Regulation D of the Securities Act of 1933, as amended (the
"Securities Act"), or such post closing filings as may be required under
applicable state securities laws which will be timely filed within the
applicable periods therefor.
5.9 Financial Statements. Company has delivered to Investor prior to
the date hereof its unaudited balance sheet as of February 28, 1998, and the
related statements of income and cash flows for the year then ended, and the
related notes thereto (the "Financial Statements"). The Financial Statements,
including any footnotes thereto, are true, correct and complete and present
fairly the financial condition of Company as of February 28, 1998 and the
related results of operations for the year then ended.
5.10 Indebtedness for Borrowed Money; No Undisclosed Liabilities.
Except as set forth on Schedule 5.J attached hereto, Company has no direct or
indirect indebtedness for borrowed money, indebtedness by way of lease-purchase
arrangements, guarantees, undertakings, chattel mortgages or other security
arrangements with any bank, financial institution or other third party. Except
as and to the extent reflected and adequately reserved against in the Financial
Statements or incurred in the ordinary course of business since the date of the
Financial Statements, as of the Closing Date, Company will not have any
liability or obligation whatsoever, whether accrued, absolute, contingent or
otherwise.
5.11 Absence of Changes. Since February 28, 1998, there has not been:
[a] any change in the assets, liabilities, financial condition or
operating results of Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
[b] any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of Company (as such business is presently
conducted and as it is presently proposed to be conducted);
[c] any waiver or compromise by Company of a valuable right or of a
material debt owed to it;
[d] any satisfaction or discharge of any lien, claim, or encumbrance
or payment of any obligation by Company, except in the ordinary course of
business and that is not material to the business, properties, or financial
condition of Company (as such business is presently conducted and as it is
presently proposed to be conducted);
[e] any material change to a material contract or arrangement by which
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Company or any of its assets is bound or subject;
[f] any material change in any compensation arrangement or agreement
with any employee or officer;
[g] any sale, assignment, or transfer of any intangible assets;
[h] any resignation or termination of employment of any key officer of
Company; and neither Company nor Xxxxxxx knows of the impending resignation
or termination of employment of any such officer;
[i] any mortgage, pledge, transfer of a security interest in, or lien,
created by Company, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
[j] any declaration, setting aside or payment of any dividend or other
distribution of Company's assets in respect of any of Company's capital
stock, or any direct or indirect redemption, purchase, or other acquisition
of any of such stock by Company;
[k] to the best of Company's and Xxxxxxx'x knowledge, any other event
or condition of any character that might materially and adversely affect
the business, properties, prospects or financial condition of Company (as
such business is presently conducted and as it is presently proposed to be
conducted); or
[l] any agreement or commitment by Company to do any of the things
described in this Section 5.K.
5.12 Title to Property and Assets; Leases.
[a] Schedule 5.L sets forth a complete and accurate list and
description of all the real and personal property that Company owns or
leases. Company is not bound or commit xxx to make any capital improvement
or expenditure with respect to its owned or leased real or personal
property.
[b] Company owns no real property in fee simple. Except as
contemplated by the Note, Company has good, valid and marketable title to
all the personal and mixed, tangible and intangible properties and assets
which it purports to own, free and clear of all liens, restrictions,
claims, charges, security interests, easements or other encumbrances of any
nature whatsoever, except for liens for current taxes not yet due and
payable. With respect to the property and assets that it leases, Company is
in compliance with such leases and, to Company's and Xxxxxxx'x best
knowledge, holds a valid leasehold interest, free and clear of any liens,
claims and encumbrances. All properties and assets of Company are in the
possession or control of Company, and no other person is entitled to
possession of any such properties and assets.
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5.13 Legal Proceedings. There are no claims of any kind or any
actions, suits, proceedings, arbitrations or investigations pending or, to
Company's and Xxxxxxx'x best knowledge, threatened against or affecting Company
or against any asset, interest or right of Company or which questions the
validity of the transactions contemplated by this Agreement and neither Company
nor Xxxxxxx knows of any facts which may constitute a basis therefor.
5.14 Environmental Matters. Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety (the "Environmental Laws"), and, to Company's and
Xxxxxxx'x best knowledge, as of the date hereof no material expendi tures are
required to be made by Company in order to comply with any of the Environmental
Laws.
5.15 Licenses and Permits; Compliance with Laws. Except as set forth
in Schedule 5.O, Company holds all franchises, permits, licenses, variances,
exemptions, orders and approvals of all governmental entities which are material
to the operation of Company's business and is in compliance with the terms
thereof. Company has complied with and is not in any default under (and has not
been charged with or received notice with respect to, nor is threatened with or
under investigation with respect to, any charge concerning any violation of any
provision of) any federal, state or local law, regulation, ordinance, rule or
order (whether executive, judicial, legislative or administrative) or any order,
writ, injunction or decree of any court, agency or instrumentality and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failures to comply.
5.16 Employee Benefit Plans. Except as set forth on Schedule 5.P,
Company has no employee benefit plans including any profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, phantom
stock, retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other plan, arrangement or understanding (whether or
not legally binding) providing benefits to any current or former employee,
officer or director of Company (collectively "Benefit Plans"), or any
employment, consulting, severance, termination or indemnification agreement,
arrangement or understanding between Company and any officer, director or
employee of Company. Company has delivered to Investor true, complete and
correct copies of each Benefit Plan, or, in the case of any unwritten Benefit
Plans, descriptions there of. Each Benefit Plan has been administered in all
material respects in accordance with its terms and all applicable laws.
5.17 Labor Relations.
[a] Company is in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours and occupational safety and
health;
[b] There is no unfair labor practice charge or complaint or any other
matter against or involving Company pending or, to Company's and Xxxxxxx'x
best
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knowledge, threatened before the National Labor Relations Board or any
court of law;
[c] There is no labor strike, dispute, slowdown or stoppage actually
pending or, to Company's and Xxxxxxx'x best knowledge, threatened against
Company;
[d] Company is not a party to or bound by any collective bargaining
agreement or any similar labor union arrangement;
[e] There are no charges, investigations, administrative proceedings
or formal complaints of discrimination (including discrimination based upon
sex, age, marital status, race, color, religion, national origin, sexual
preference, disability, handicap or veteran status) pending or, to
Company's and Xxxxxxx'x best knowledge, threatened, before the Equal
Employment Opportunity Commission or any federal, state or local agency or
court against Company. There have been no governmental audits of the equal
employment opportunity practices of Company and, to Company's and Xxxxxxx'x
best knowledge, no basis for any such claim exists; and
[f] Company is in compliance in all material respects with the require
ments of the Americans With Disabilities Act.
5.18 Insurance. Schedule 5.R sets forth a list of all insurance
policies, including property, casualty, liability and other insurance maintained
with respect to the assets and business of Company. Company is not liable for
any material retroactive premium adjustments with respect to any of its
insurance policies or bonds. All such policies and bonds are legal, valid and
enforceable and in full force and effect and Company is not in breach or default
(including with respect to the payment of premiums or the giving of notices) and
no event has occurred which, with notice or the lapse of time, would constitute
such a breach or default, or permit termination, modification or acceleration
under the policy received any notice of premium increases or cancellations with
respect to any of such policies and bonds. Company and Xxxxxxx believe the
amount and type of Company's insurance coverage is adequate for Company's
business and is consistent with good business practice.
5.19 Tax Matters. Except as set forth on Schedule 5.S, Company has
timely filed or caused to be filed all federal, state, foreign and local income,
franchise, gross receipts, payroll, sales, use, withholding, occupancy, excise,
real and personal property, employment and other tax re turns, tax information
returns and reports ("Tax Returns") required to be filed and all such Tax
Returns were correct and complete in all respects. Company has paid, or made
adequate provisions for the payment of, all taxes, duties or assessments of any
nature whatsoever, interest payments, penalties and additions (whether or not
reflected in the returns as filed) due and payable (and/or properly accruable
for all periods ending on or before the date of this Agreement) to any city,
county, state, foreign country, the United States or any other taxing authority.
There are no security interests on any of the assets of Company that arise in
connection with any failure (or alleged failure) to pay any tax. Company has
withheld and paid all taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other third party. No material deficiencies for any
taxes have
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been proposed, asserted or assessed against Company that are not adequately
reserved for.
5.20 Bank Accounts. Schedule 5.T sets forth a complete and accurate
list of each bank or financial institution in which Company has an account or
safe deposit box (giving the address and account numbers) and the names of the
persons authorized to draw thereon or to have access thereto.
5.21 Related Party Transactions. Except as set forth on Schedule 5.U,
no employee, officer or holder of Company's Common Shares or member of his or
her immediate family is indebted to Company, nor is Company indebted (or
committed to make loans or extend or guarantee credit) to any of them, other
than (i) for payment of salary for services rendered, (ii) reimbursement for
reasonable expenses incurred on behalf of Company, and (iii) for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under any stock option plan approved by the Board
of Directors of Company). To the best of Company's and Xxxxxxx'x knowledge, none
of such persons has any direct or indirect ownership interest in any firm or
corporation with which Company has a business relationship, or any firm or
corporation that competes with Company, except that employees, stockholders, and
officers of Company and members of their immediate families may own stock in
publicly traded companies that may compete with Company.
5.22 Brokers' and Finders' Fees. Neither Company nor Xxxxxxx has
employed any broker, finder or financial advisor or incurred any liability for
fees or commissions payable to any broker, finder or financial advisor in
connection with the negotiations relating to or the transactions contemplated by
this Agreement.
5.23 Registration Rights. Company is presently not under any
obligation and has not granted any rights to register under the Securities Act
any of is outstanding securities or any of its securities that may be
subsequently issued.
5.24 Small Business Concern. Company, together with any "affiliates"
(as that term is defined in Section 121.103 of Title 13 of the Code of Federal
Regulations), is a "small business concern" within the meaning of the Small
Business Investment Act of 1958, as amended (the "SBIA"), and the regulations
thereunder, including Section 121.301 of Title 13 of the Code of Federal
Regulations. The information set forth in the documents provided to Investor
pursuant to Section 3.A[12] above is accurate and complete. Company does not
presently engage in, and it shall not hereafter engage in, any activities, nor
shall it use, directly or indirectly, the proceeds from the sale of the
Preferred Shares hereunder for any purpose for which a small business investment
company is prohibited from providing funds by the SBIA and the Regulations
thereunder.
5.25 Material Facts. Company has provided Investor with all the
information reasonably available to it that Investor has requested for deciding
whether to purchase the Preferred Stock. This Agreement, the Financial
Statements, and the Projections containing, among other things, projections
regarding expected revenues, expenses, net operating income and other financial
information of Company and the documents or written statements furnished by
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Company to Investor in connection with the transactions contemplated hereby, do
not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading, except with
respect to assumptions, projections and expressions of opinions or predictions
contained in the Projections, Company and Xxxxxxx represent only that such
assumptions, projections and expressions of opinions and predictions were made
in good faith and Company and Xxxxxxx believe that there is a reasonable basis
therefor.
6 Representations and Warranties of Xxxx. Xxxx represents and warrants to
Investor, as of the date hereof and as of the date of each additional issuance
of Preferred Shares to Investor pursuant to Post Closing Capital Calls, as
follows:
6.1 Binding Agreement. Each of this Agreement and the Shareholders
Agreement have been duly executed and delivered by Xxxx, and constitutes the
legal, valid and binding obligation of Xxxx, enforceable against him in
accordance with its terms.
6.2 No Conflict. The execution and delivery of this Agreement and the
Shareholders Agreement do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation 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 the loss of a material benefit under, or the creation of a
lien, pledge, security interest, charge or other encumbrance on assets (any such
conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation") pursuant to, any or result in any
Violation of any material lease, agreement, obligation, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Xxxx.
6.3 Share Ownership. Xxxx owns beneficially and of record the number
of shares of Company Common Stock set out opposite his name on Schedule 5.C,
free and clear of all claims, liens and encumbrances. Xxxx is not a party or
subject to any agreement or understanding that affects or relates to the voting
or giving of written consents with respect to any of such shares of Company
Common Stock.
6.4 Promissory Note. The Note represents funds actually advanced by
Xxxx Multimedia Partnership to the Company for use in the ordinary course of
Company's business. Schedule 6.D attached hereto contains a true, accurate and
complete list of each of the items for which funds were advanced to the Company
under the Note.
7 Representations and Warranties of Investor. Investor hereby represents
and warrants to Company, as of the date hereof and as of the date of each
additional issuance of Preferred Shares to Investor pursuant to Post Closing
Capital Calls, as follows:
7.1 Authorization; Binding Agreement. Investor is a limited liability
company existing under the laws of the Commonwealth of Kentucky. This Agreement,
the Registration Rights Agreement, the Shareholders Agreement, and any Ancillary
Agreements, and the purchase
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and receipt by Investor of the Preferred Stock hereunder have been duly
authorized by all requisite action on the part of Investor, and will not [i]
violate any provision of law or any order of any court or other agency of
government applicable to Investor, the governing instruments of Investor, or any
provision of any indenture, agreement or other instrument by which Investor or
any of Investor's properties or assets are bound, or [ii] conflict with, result
in a breach of or constitute (with due notice or lapse of time or both) a
default under any such indenture, agreement or any other instrument, or [iii]
result in the creation or imposition of any lien, charge, or encumbrance of any
nature whatsoever upon the properties or assets of Investor. This Agreement, the
Registration Rights Agreement, the Shareholders Agreement, and the Ancillary
Agreements (if any) have been duly executed and delivered by Investor and
constitute the legal, valid and binding obligations of Investor, enforceable
against Investor in accordance with their respective terms.
7.2 Investment Representations. Investor is acquiring the Preferred
Stock and the Common Stock issuable upon conversion thereof (collectively the
"Securities") solely for its own account as principal, for investment purposes
only and not with a view to resale or distribution thereof in whole or in part,
and Investor has no present intention of selling, granting any participation in,
or otherwise distributing the Securities. No other person has a direct or
indirect beneficial interest in the Securities to be acquired by Investor
hereunder and Investor does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to any
third person, with respect to any of the Securities.
7.3 Accredited Investor; Residence. Investor is a Kentucky limited
liability company and is an "accredited investor" as such term is defined under
Regulation D of the Securities Act.
7.4 Receipt of Information; Restricted Securities. Investor
acknowledges receipt of the Confidential Business Plan. Investor acknowledges
that the Securities are not being and will not be registered under the
Securities Act or the securities laws of any other jurisdiction in reliance on
exemptions thereunder. The Securities have not been and will not be approved or
disapproved by the Securities and Exchange Commission or any other governmental
authority or agency of any jurisdiction. Investor represents that Investor has
had an opportunity to ask questions and receive answers from Company regarding
the terms and conditions of the offering of the Preferred Stock and the
business, properties, prospects, and financial condition of Company and to
obtain additional information (to the extent Company possessed such information
or could acquire it without unreasonable effort or expense) necessary to verify
the accuracy of any information furnished to Investor or to which Investor had
access. Investor's representations under this Section 6, however, shall not
limit or modify the representations and warranties of Company in Section 5 of
this Agreement or the right of Investor to rely thereon.
7.5 Investment Experience. Investor is experienced in evaluating and
investing in private placement transactions of securities of companies in a
similar stage or development and acknowledges that such Investor is able to fend
for itself, can bear the economic risk of its investment, and has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of the investment in the Preferred Stock.
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7.6 Financial Commitments. Investor has in excess of $2.5 million of
committed capital.
8 Survival of Representations and Warranties. All representations and
warranties contained in this Agreement by any party to this Agreement and any
certificate or other instrument delivered by or on behalf of any party pursuant
to this Agreement shall be continuous and shall survive the Closing and the
issuance of all shares of Company's capital stock as contemplated hereunder for
a period of two (2) years. Each party shall have the right to rely on each other
party's representations and warranties made herein, notwithstanding any
investigation conducted by such party.
9 Indemnification.
9.1 Indemnification by Company and Xxxxxxx. Company and Xxxxxxx shall
jointly and severally indemnify and reimburse Investor for any and all claims,
losses, liabilities, damages (including, without limitation, fines, penalties,
and criminal or civil judgments and settlements), costs (including, without
limitation, court costs) and expenses (including, without limitation, attorneys'
and accountants' fees) (hereinafter "Loss" or "Losses") suffered or incurred by
Investor, any successors or assigns thereto as a result of, or with respect to:
[a] any breach or inaccuracy of any representation or warranty of
Company or Xxxxxxx set forth in Section 5;
[b] any breach of or noncompliance by Company or Xxxxxxx with any
covenant or agreement of Company or Xxxxxxx contained in this Agreement,
unless such breach or noncompliance results from any action or failure to
act by the Board of Directors of the Company, a majority of which has been
elected by Investor;
[c] any act or omission of Company or its employees, agents or
representatives, or of Company's predecessors in interest, occurring prior
to the Closing Date which results in any Loss arising under the
Environmental Laws, or the ownership, use, control or operation by Company
or its predecessors in interest of any of the current or former properties
of Company which results in any Loss arising under the Environmental Laws
or the release of any substance into the environment prior to the Closing
Date; and
[d] any and all actions, suits, proceedings, claims, demands,
assessments and judgments incident to any of the foregoing.
9.2 Indemnification by Xxxx. Xxxx shall indemnify and reimburse
Investor for any and all claims, losses, liabilities, damages (including,
without limitation, fines, penalties, and criminal or civil judgments and
settlements), costs (including, without limitation, court costs) and expenses
(including, without limitation, attorneys' and accountants' fees) suffered or
incurred by Investor or any successors or assigns thereto as a result of, or
with respect to:
17
[a] any breach or inaccuracy of any representation or warranty of Xxxx
set forth in Section 6;
[b] any breach of or noncompliance by Xxxx with any covenant or
agreement of Xxxx contained in this Agreement; and
[c] any and all actions, suits, proceedings, claims, demands,
assessments and judgments incident to any of the foregoing.
9.3 Indemnification by Investor. Investor shall indemnify and
reimburse Company for any and all claims, losses, liabilities, damages
(including, without limitation, fines, penalties, and criminal or civil
judgments and settlements), costs (including, without limitation, court costs)
and expenses (including, without limitation, attorneys' and accountants' fees)
suffered or incurred by Company or any successors or assigns thereto as a result
of, or with respect to:
[a] any breach or inaccuracy of any representation or warranty of
Investor set forth in Section 7;
[b] any breach of or noncompliance by Investor with any covenant or
agreement of Investor contained in this Agreement; and
[c] any and all actions, suits, proceedings, claims, demands,
assessments and judgments incident to any of the foregoing.
10 Covenants of Company and Founder.
10.1 Redemption Rights. At any time and from time to time from and
after April 3, 2003 but prior to the Company's completed underwritten initial
public offering, Investor shall have the right and option to sell to Company,
and Company shall buy, Investor's shares of capital stock of Company (the "Put")
at a price per share (the "Put Purchase Price") equal to the greater of (a) the
initial purchase price per share of Investor's shares, plus accrued but unpaid
dividends through the date of the Put Closing (as defined below), or (b) the
fair market value per share (without application of any discount for lack of
marketability or minority position) as determined by a qualified, independent
appraiser experienced in valuation of shares of companies similar to Company
(the "Qualified Appraiser") acceptable to both Company and Investor. If the
Investor and Company are unable to agree upon a Qualified Appraiser, each of
them shall separately designate a Qualified Appraiser. Such Qualified Appraisers
shall jointly designate a definitive Qualified Appraiser, and such definitive
Qualified Appraiser's determination shall be the fair market value of Investor's
shares of Company stock and shall be conclusive and binding upon the parties.
The fees and expenses of the definitive Qualified Appraiser shall be borne
equally by Company and the Investor. The closing (the "Put Closing") shall take
place at a time and place mutually agreed upon by Investor and Company on or
before the 180th day after written notice of exercise of the Put is given to
Company by Investor, or if Investor and Company shall not agree on the time and
place, the Put Closing shall take place at the principal office of
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Company in Louisville, Kentucky at 10:00 a.m. on the 180th day after written
notice of exercise is given, unless such day is a Saturday, Sunday or holiday,
in which case it shall occur on the next business day. The Put Purchase Price
shall be paid in cash at Closing.
10.2 Financial Reporting. For periods commencing on or after the
Closing Date, Company shall deliver or cause to be delivered to Investor monthly
and year-to-date balance sheets and income and cash flow statements (each as
compared to budget and the comparable prior year period), a monthly written
summary of operations and such other information and data with respect to
Company as Investor may reasonably request. Such monthly reports shall be
provided on or before fifteen (15) days following the end of each month. Not
later than thirty (30) days prior to the end of each fiscal year, Company shall
provide a business plan and projections for the next fiscal year. Annual audits
of the Company's financial statements for periods commencing on or after January
1, 1998 shall be performed by an independent accounting firm acceptable to a
majority of the holders of the Preferred Stock and copies thereof shall be
delivered to Investor on or before the 120th day following the end of Company's
fiscal year. Company's financial statements for the year ended December 31, 1997
shall be reviewed, at Company's expense, by an independent accounting firm
acceptable to Investor and shall be available for audit.
10.3 Indebtedness for Borrowed Money. Company shall not, without the
prior consent of a majority of Company's directors, incur in any fiscal year any
obligations for borrowed money or leases in excess of One Hundred Thousand
Dollars ($100,000) in the aggregate.
10.4 Board of Directors. Effective as of the Closing, the directors of
Company shall be Xxx Xxxxxxx, Xxxxx X. Xxxxx, Xx. and Xxxxxx Xxxxxxxx. The
directors of the Company shall appoint a Compensation Committee composed of
non-management directors of Company, which Committee shall determine management
compensation and awards of stock options. In addition, Investor shall have
"observer" rights pursuant to which it (or its representatives) shall be
entitled to attend and observe all meetings of the Board of Directors of the
Company but who shall have no right to vote on any matter brought before the
Board of Directors. Company shall pay the reasonable expenses of any Preferred
Director (as defined in the Articles) and of Investor and its representatives
incurred in attending meetings of the Board of Directors or other business of
Company.
10.5 Reservation of Shares. On and after the Closing Date, Company
will reserve and keep reserved at all times sufficient shares of Common Stock
for issuance upon conversion of the Preferred Stock pursuant to Paragraph B.4(a)
of Article IV of the Articles. Immediately prior to the occurrence of any event
that would cause the number of shares of Common Stock into which the Preferred
Stock would be convertible to be determined in accordance with Paragraph B.4(b)
of Article IV of the Articles, the Company shall take any and all actions
necessary to permit such conversion. Upon conversion of any shares of Preferred
Stock, Company will promptly issue and deliver the shares of Common Stock
required to be delivered.
10.6 Use of Proceeds. The proceeds from the sale of the Preferred
Stock
19
pursuant to this Agreement shall be used by Company for working capital, the
payment of the Note in accordance with its terms or for any other purpose
approved by the Board of Directors of the Company.
10.7 Prohibited Matters. From and after the date hereof, Company shall
not, without the consent of the holders of the majority of the then outstanding
Preferred Shares:
[a] Effect any transaction that results in a change of control of the
Company;
[b] Materially change the nature of the Company's business;
[c] Effect a liquidation, dissolution, merger or sale of the Company
or sell substantially all of its assets;
[d] Amend its articles of incorporation or bylaws;
[e] Redeem or pay any dividend or distribution on its common stock;
[f] Issue any class or series of equity securities or equivalents
thereof except pursuant to a management stock option plan approved by the
Board of Directors of Company or upon conversion of the Preferred Shares;
[g] Repay any shareholder loans, except for the payment of the Note in
accordance with its terms;
[h] Except as set forth on Schedule 10, and for transactions with
Investor, engage in any transactions with "affiliates", which for the
purposes of this Agreement, shall mean (i) any director or officer of
Company or holder of Company's capital stock, (ii) any person or entity,
directly or indirectly, controlling, controlled by or under common control
with any such person or entity, and (iii) in the case of a natural person,
members of his or her immediate family or a trust for their benefit; or
[i] Take any other actions that would materially affect the holders of
the Preferred Shares.
10.8 Life Insurance. Within thirty (30) days after the Closing,
Company will have in full force and effect term life insurance payable to
Company on the life of Xxxxxxx in the amount of $1 million. Company shall
maintain such life insurance in good standing and in full force and effect.
10.9 Consulting Fee. Company shall accrue $10,000 quarterly as a
consulting fee to Chrysalis Ventures, LLC. Such consulting fees shall be accrued
but not paid until the earlier of (i) a determination by Company's board of
directors that Company has sufficient cash flow to pay such fees, or (ii)
Company produces after-tax quarterly profits in excess of $100,000 for two
consecutive quarters.
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11 Public Statements. Neither Company, Founders nor Investor shall, without
the prior written approval of the other parties hereto, make any press release
or other public announcement concerning the transactions contemplated by this
Agreement. Investor, Company and Founders may disclose information with respect
to the transaction contemplated hereby to their respective employees, agents,
consultants and third parties only to the extent such persons have a need to
know such information.
12 Notices. All notices, requests, consents, and other communications under
this Agreement shall be in writing and shall be mailed by first class,
registered, or certified mail, postage prepaid, or sent via overnight courier
service, or delivered personally:
If to Investor, to: Broadband Solutions, LLC
1850 National City Tower
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
With a copy to: Xxxxxxx X. Xxxxxxxxx, Esq.
Xxxxx, Tarrant & Xxxxx
0000 Xxxxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
If to Company or
Founders, to: HSAnet, Inc.
Attn: Xxx Xxxxxxx
00 Xxxx Xxxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxx 00000
With a copy to:
Xxxxxxxx X. Xxxxxx, Esq.
Xxxxxxxx, Xxxxxx & Xxxxx, P.C.
700 Mellon Bank Center
0 Xxxx Xxxxxx Xxxxxx
Xxxxxx-Xxxxx, XX 00000-0000
or to such other address of which the addressee shall have notified the sender
in writing. Notices mailed in accordance with this section shall be deemed given
when mailed, and notices sent by overnight courier service shall be deemed given
when placed in the hands of a representative of such service.
13 Parties in Interest; Assignment. Except as otherwise provided herein,
all covenants and agreements contained in this Agreement by or on behalf of any
of the parties to this Agreement shall bind and inure to the benefit of their
respective heirs, executors, successors, and assigns, whether so expressed or
not. Nothing in this Agreement, express or implied, is intended to confer upon
any party other than the parties hereto and their respective successors and
assigns
21
any rights, remedies, obligations or liabilities under or by reason of this
Agreement. This Agreement is not assignable and any other purported assignment
shall be null and void, provided that Investor may assign its rights and
obligations under this Agreement to any of its affiliates that may purchase any
of the Preferred Stock held by Investor. Notwithstanding such permitted
assignment, Investor shall not be released from its obligations hereunder. The
term "affiliate" as used in this Section 13 shall include, without limitation,
[i] any director or executive officer of such person or of an affiliate of such
person, [ii] a parent, spouse or child (a "relative") of such director or
executive officer, [iii] any group, acting in concert, of such director,
executive officer or relative (a "group"), [iv] any person controlled by any
such director, executive officer, relative or group, and [v] any person or group
which beneficially owns or holds 5% or more of any class of voting securities or
a 5% or greater equity or profits interest in such person.
14 Construction; Governing Law. The section headings contained in this
Agreement are inserted as a matter of convenience and shall not affect in any
way the construction of the terms of this Agreement. This Agreement shall be
governed by and interpreted in accordance with the laws of the Commonwealth of
Kentucky as applied to agreements among Kentucky residents entered into and
performed entirely within Kentucky.
15 Entire Agreement; Amendment and Waiver. This Agreement, including the
Schedules and Exhibits hereto, constitutes and contains the entire agreement
between the parties hereto with respect to the transactions contemplated hereby
and supersedes any prior writing by the parties. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of Company and Investor (or its
permitted assigns). Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any securities purchased under
this Agreement at the time outstanding (including securities into which such
securities have been converted), each future holder of all such securities, and
Company.
16 Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of the remaining
provisions.
17 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
18 Expenses. Company agrees, upon consummation of the transactions
contemplated by this Agreement, to pay all reasonable legal and out-of-pocket
expenses incurred by Investor in connection with this Agreement and the
transactions contemplated hereunder, including, without limitation: (i) all fees
and expenses of Xxxxx, Xxxxxxx & Xxxxx, in connection with this Agreement and
the transactions contemplated hereunder, and (ii) all expenses, including
reasonable attorneys' fees and expenses, incurred by Investor with respect to
the enforcement of any rights or provisions of this Agreement, or in responding
to any subpoena or other legal process issued in connection with this Agreement
or the transactions contemplated hereunder.
22
19 Time of Essence. Time is of the essence to the performance of the
obligations set forth in this Agreement.
20 Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the Shareholders Agreement,
the Registration Rights Agreement, any Ancillary Agreement or the Articles, the
prevailing party shall be entitled to reasonable attorneys' fees, costs, and
disbursements in addition to any other relief to which such party may be
entitled.
21 Rights of Investor. Each holder of Preferred Stock (and Common Stock
issued upon conversion thereof) shall have the absolute right to exercise or
refrain from exercising any right or rights that such holder may have by reason
of this Agreement or any Preferred Stock, including without limitation the right
to consent to the waiver of any obligation of Company under this Agreement and
to enter into an agreement with Company for the purpose of modifying this
Agreement or any agreement effecting any such modification, and such holder
shall not incur any liability to any other holder or holders of Preferred Stock
(or Common Stock issued upon conversion thereof) with respect to exercising or
refraining from exercising any such right or rights.
IN WITNESS WHEREOF, Company, Founders and Investor have caused this
Agreement to be executed as of the day and year first written above.
"COMPANY"
HIGH SPEED ACCESS NETWORK, INC.
By: /s/ XXX XXXXXXX
-----------------------------------------
Title: President
--------------------------------------
"FOUNDERS"
/s/ XXX XXXXXXX
--------------------------------------------
XXXXXX X. XXXXXXX
/s/ XXXXXX X. XXXX, III
--------------------------------------------
XXXXXX X. XXXX, III
23
"INVESTOR"
BROADBAND SOLUTIONS, LLC
By: /s/ XXXXX XXXXX, JR.
-----------------------------------------
Title: Member
--------------------------------------
