Exhibit 10.17
SECURITIES PURCHASE AGREEMENT
AGREEMENT dated April 20, 1988 by and among Multitrak Software Development
Corp., a Delaware corporation, with offices at 000 Xxxx Xxxxxx, Xxxxxxx Xxxxx,
Xxxxxxxxxxxxx 00000 (herein the "Company"), Xxxxxxx X. Xxxxxxx, a resident of
Jamaica Plain, Massachusetts ("Shattow"), and LRF Investments, Inc., a
Massachusetts corporation, with offices at 000 Xxxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxxxxx (the "Purchaser").
In consideration of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. DESCRIPTION OF PROPOSED FINANCING
1.1 Authorization of Common Stock, Subordinated Note and Revolving Credit
Note. The Company has authorized or will authorize the issuance of 55,000 shares
(the "Shares") of its Common Stock, par value $0.01, its Subordinated Notes in
the aggregate principal amount of $400,000 in substantially the form of Exhibit
A attached hereto (the "Note" or "Notes") and its Revolving Credit Note in the
principal amount of $100,000 in substantially the form of Exhibit B attached
hereto (the "Revolving Credit Note").
1.2 Purchase of Shares and Note. On the terms and subject to the
conditions of this Agreement and in reliance upon the representations and
warranties of the Company and Shattow, the Purchaser agrees to purchase from the
Company and the Company agrees to sell to the Purchaser on the Closing Date
(hereinafter defined) 33,000 Shares at an aggregate purchase price of $60,000
and the Note dated as of the Closing Date in the principal amount of $240,000 at
a purchase price of 100% of the principal amount of the Note.
1.3 Closing. The Closing of the purchase and sale of the Shares and the
Note contemplated by paragraph 1.2 (the "Closing," the date thereof being
referred to herein as the "Closing Date") is taking place concurrently with the
execution of this Agreement. At the Closing, the Company shall deliver to the
Purchaser share certificates evidencing the 33,000 Shares to be purchased by the
Purchaser hereunder registered in the name of the Purchaser and the Note to be
purchased by the Purchaser hereunder made payable to the order of the
Purchaser, against payment of the purchase prices therefor.
1.4 Additional Purchase of Shares and Note. On the terms and subject to
the conditions of this Agreement and in reliance upon the representations and
warranties of the Company and Shattow contained herein, the Purchaser agrees to
purchase and the Company agrees to sell to the Purchaser additional Shares and
an additional Note, as set forth below:
(a) In the event, and only in the event, the Company shall have
executed and delivered contracts for the sale of its Multitrak software
system (the "System") to non-affiliates of the Company having an aggregate
sale price of at least $200,000 and one (1) such System shall have been
completely installed and accepted by the purchaser thereof, within the
six-month period ending on the date (the "Evaluation Date") six (6) months
following the Closing Date, the Purchaser shall purchase from the Company,
and the Company shall sell to the Purchaser, 22,000 Shares at an aggregate
purchase price of $40,000 and the Note dated the date of the Second
Closing (hereinafter defined) in the principal amount of $160,000 of a
purchase price of 100% of the principal amount of the Note. Promptly after
the Evaluation Date the Company shall give written notice (the "Evaluation
Notice") to the Purchaser stating the aggregate sale price of the
contracts for the System that have been executed and delivered and how
many Systems have been completely installed and accepted by the purchaser
thereof as of the Evaluation Date.
(b) In the event the Purchaser shall become obligated to purchase
the Shares and Note under paragraph 1.4(a), then within sixty (60) days
following receipt by the Purchaser of the Evaluation Notice, the Company
may deliver to the Purchaser a written demand (the "Purchase Demand") to
purchase the Shares and the Note under paragraph 1.4(a); provided said
Purchase Demand shall be accompanied by a certificate signed by the
President and the principal financial officer of the Company certifying
that the representations and warranties set forth in Sections 2 and 3
remain true and correct in all material respects on and as of the date
thereof and that the Company has conformed and complied in all material
respects with the covenants of Sections 4 and 5 as of the date thereof.
(c) In the event, and only in the event, the Company shall have
executed and delivered contracts for the sale of the System to
non-affiliates of the Company having an aggregate sale price of at least
$300,000 and one (1) such System shall have been completely installed and
accepted by the purchaser thereof any time before the Evaluation Date, the
Company by delivery of a Purchase Demand to Purchaser may require the
Purchaser to purchase from the Company the number of Shares and the
principal amount of the Note
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specified in paragraph 1.4(a) at the purchase prices specified in
paragraph 1.4(a); provided said Purchase Demand shall be accompanied by a
certificate signed by the President and the principal financial officer of
the Company certifying that the representations and warranties set forth
in Sections 2 and 3 remain true and correct in all material respects on
and as of the date thereof and that the Company has conformed and complied
in all material respects with the covenants of Sections 4 and 5 as of the
date thereof.
(d) The closing of the purchase and sale of the Shares and Note
pursuant to this Section 1.4 (herein the "Second Closing") shall occur at
such time and place as shall be mutually agreed upon by the Company and
the Purchaser, provided that such Second Closing shall be no later than
twenty (20) days following receipt by the Purchaser of said Purchase
Demand. At the Second Closing the Company shall deliver to the Purchaser
share certificates evidencing the 22,000 Shares to be purchased by the
Purchaser hereunder registered in the name of the Purchaser and the Note
in the principal amount of $160,000 to be purchased by the Purchaser
hereunder made payable to the order of the Purchaser, against payment of
the purchase prices therefor.
1.5 Revolving Credit.
1.5.1 Revolving Credit. Subject to the terms and conditions of this
Agreement and so long as there exists no Event of Default (hereinafter defined),
at anytime after the Closing Date and prior to April 20, 1991, the Company may
borrow and reborrow, and the Purchaser shall make loans or extensions of credit
to the Company pursuant to this paragraph ("Revolving Credit Advances"), as from
time to time requested by the Company; provided Shattow, Xxxx Xxxx (herein
"Xxxx"), and Xxxxx Xxxxxx (herein "Xxxxxx") shall have executed and delivered a
Guaranty in favor of the Purchaser in an amount up to $50,000, which Guaranty
shall be substantially in the form of Exhibit C, (herein "Guaranty") to secure
repayment and performance of all the Company's obligations under the Revolving
Credit Advances. The aggregate amount of all Revolving Credit Advances
outstanding at any one time shall not exceed $100,000 or such higher amount of
indebtedness as approved by the Purchaser. At the time of the initial request
for a Revolving Credit Advance, the Company shall execute and deliver to the
Purchaser the Revolving Credit Note evidencing the Revolving Credit Advances.
Anything set forth herein to the contrary notwithstanding, the Purchaser
shall have the absolute right to refuse to make any Revolving Credit Advance (i)
if Shattow, Tyer, and Xxxxxx
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have not executed the Guaranty, or (ii) for so long as there exists any Event of
Default, or any other condition which, with the passage of time or giving of
notice or both, would constitute an Event of Default upon the making of such
Revolving Credit Advance. The Company shall have the right to make prepayments
reducing the outstanding balance of Revolving Credit Advances without penalty.
The Revolving Credit Note shall be prepaid immediately in the amount by which at
any time the aggregate amount of all Revolving Credit Advances outstanding
exceeds $100,000 or such higher amount of indebtedness as approved by the
Purchaser.
1.5.2 Request for Revolving Credit Advances and Responses. Each request
for a Revolving Credit Advance shall be made to the Purchaser in writing by a
duly authorized representative of the Company. At the time of the initial
request for a Revolving Credit Advance, the Company shall provide the Purchaser
with a certificate signed by the President and principal financial officer of
the Company certifying that the representations and warranties set forth in
Sections 2 and 3 remain true and correct in all material respects on and as of
the date thereof and that the Company has conformed and complied in all material
respects with the covenants of Sections 4 and 5 as of the date hereof. Each
subsequent request for a Revolving Credit Advance shall constitute a
reconfirmation of the representations contained in such Certificate. Objection
to a request for a Revolving Credit Advance, if any, shall be made within three
(3) business days from the date such request is received by the Purchaser, and
in the absence of such objection, the Revolving Credit Advance shall be made
within five (5) business days from the date such request is received by the
Purchaser. The Purchaser shall not unreasonably withhold or delay any requested
Revolving Credit Advance made properly pursuant to and in accordance with this
paragraph 1.5.
1.5.4 Interest on Revolving Credit Advances. When Revolving Credit
Advances are made in the form of a cash advance, the Company shall pay interest
on the unpaid balance of each such Revolving Credit Advance from time to time
outstanding at a rate per annum equal to the Prime Rate established from time to
time by the Xxxxxxxxxx Bank and Trust Company plus three and one-half percent
(3.5%). The amount of cash advances will be added to the unpaid balance of the
Revolving Credit Note when made. Where Revolving Credit Advances are made via
extensions of credit (e.g., guarantees of letters of credit), the Company shall
pay all reasonable costs of such extensions of credit incurred by the Purchaser.
Interest shall be payable in arrears on the fifteenth day of each month
commencing with the first such month following the date of the initial Revolving
Credit Advance and continuing until all of the indebtedness of the Company to
the Purchaser
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under this paragraph 1.5 shall have been fully paid. On the stated or
accelerated maturity of the Revolving Credit Note, all accrued and unpaid
interest thereon together with the unpaid principal thereof shall be due and
payable immediately.
SECTION 2. SECURITY INTEREST
In order to secure due payment of the principal of and interest on the
Notes and the Revolving Credit Note and compliance by the Company with its
obligations and responsibilities contained herein:
2.1 Grant of Security Interest. The Company does hereby grant to the
Purchaser a security interest in and does also hereby assign, transfer and set
over to the Purchaser all the right, title and interest of the Company in, to
and under all personal property and fixtures, including, without limitation, all
inventory, equipment and other goods, accounts, documents, instruments, general
intangibles and chattel paper, in which the Company now has or hereafter
acquires any right and all the products and proceeds thereof (the "Collateral").
2.2 Company's Place of Business. The Company warrants that:
(a) The Company's principal place of business is located at 000 Xxxx
Xxxxxx, Xxxxxxx Xxxxx, XX 00000.
(b) Debtor has no other place of business except 0000 Xxxxxxxxxxxxx
Xxxxxx, Xxxxxxxxx, XX 00000.
(c) The records concerning the Company's accounts and contract
rights are located at 0000 Xxxxxxxxxxxxx Xxxxxx, Xxxxxxxxx, XX 00000.
The Company covenants to notify the Purchaser of the addition or
discontinuance of any place of business or any change in the information
contained in this paragraph.
2.3 Location of Collateral. The Company warrants and covenants that all of
the Collateral shall be located at the Company's place of business specified in
this Agreement.
None of the Collateral shall be removed from the locations specified in
this paragraph other than in the ordinary course of business.
2.4 Fixtures. It is the intention of the Company and the Purchaser that
none of the Collateral shall become fixtures.
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2.5 Failure to Make Payments. If the Company shall fail to make any
payment under the Notes or the Revolving Credit Note when due thereunder, and
fails to make such payment within ten (10) days after written notice thereof to
the Company, the Purchaser shall have the right to possess and dispose of the
Collateral without further consent of the Company. The Purchaser may exercise
all the rights and remedies accorded a secured party under the Uniform
Commercial Code, and shall in addition have all the rights provided in this
Agreement. The net amount of receipts, proceeds and income received by the
Purchaser under or on account of the Collateral, after payment of all proper
costs and expenses incurred by the Purchaser in exercising its rights under this
Section 2, shall be applied to the reduction and payment of the debt evidenced
by the Notes and the Revolving Credit Note, including all interest due thereon.
2.6 Filing and Perfection. To evidence and perfect the security interest
granted under this Section, prior to or at the Closing, the Company shall
promptly execute and deliver to the Purchaser such certificates and financing
statements as the Purchaser may reasonably request. In addition, the Company
shall take or cause to be taken all other actions required by law or reasonably
requested by the Purchaser in order to preserve and protect said security
interest and the rights of the Purchaser hereunder.
2.7 Defeasance of Security Interest; Termination. When all the principal
and interest due on each of the Notes and the Revolving Credit Note has been
duly paid in accordance with the terms thereof and the Notes and Revolving
Credit Note have been retired, then the assignment of the Collateral shall
terminate and the Company's obligations with respect to the security interest
granted under this Section shall terminate. Thereafter, upon the Company's
reasonable request, the Purchaser shall promptly execute and deliver to the
Company instruments in the form furnished by the Company effective to evidence
the termination of the security interest granted under this Section and the
reassignment to the Company of the right, interest and title in, to and under
the Collateral.
2.8 Assignment of Security Interest. The Company agrees that the Purchaser
and a Secured Party may assign and transfer all or a part of the security
interest granted to the Purchaser under this Section to one or more subsequent
holders of the Notes or the Revolving Credit Note (a "Secured Party") without
the consent of the Company. To evidence the assignment and transfer of said
security interest to a Secured Party, the Company shall promptly execute and
deliver to the Secured
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Party, such certificates and financing statements as the Secured Party may
reasonably request to preserve and protect said security interest.
2.9 Subordination of Security Interest. The security interest granted to
the Purchaser pursuant to paragraph 2.1 shall be subordinate to the security
interest granted to Multisystems, Inc. in the System (as defined in paragraph
1.4(a)), as described in a Multitrak Purchase Agreement, dated April 20, 1988 by
and between the Company and Multisystems, Inc.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company and Shattow hereby represent and warrant to the Purchaser
that:
3.1 Organization and Corporate Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is qualified to do business as a foreign corporation in each
jurisdiction where such qualification is required. The Company has all required
corporate power and authority to own its property, to carry on its business as
presently conducted and as contemplated by the Business Plan referred to in
paragraph 3.15 and to carry out the transactions contemplated hereby and
thereby. The copies of the Certificate of Incorporation and By-laws of the
Company, as amended to date, which have been furnished to counsel for the
Purchaser by the Company, are correct and complete.
3.2 Authorization. This Agreement, the Shareholders' Agreement
(hereinafter defined), the Consulting Agreement (hereinafter defined), the
Employment Agreements (hereinafter defined), the Xxxxxxx Consulting Agreement
(as defined herein), the Notes, and the Revolving Credit Note when delivered
will be valid and binding obligations of the Company, enforceable in accordance
with their terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and subject to equitable principles
limiting rights to specific performance or other equitable remedies. The
execution, delivery and performance of this Agreement, the Shareholders'
Agreement, the Consulting Agreement, and the Employment Agreements, the Xxxxxxx
Consulting Agreement and the issuance of the Shares, the Notes and the Revolving
Credit Note have been duly authorized by all necessary corporate or other action
of the Company.
3.3 Capitalization. The authorized and issued capital stock of the Company
and the consideration received and to be received therefor are as set forth in
Schedule 3.3 of the Schedule Volume to this Agreement (the "Schedule Volume").
All
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of the presently outstanding shares of capital stock of the Company have been
duly and validly authorized and issued and are fully paid and non-assessable,
are owned of record and beneficially as set forth in said Schedule 3.3, and were
issued for the respective considerations set forth in said Schedule 3.3. The
Company has authorized for issuance to the Purchaser pursuant to this Agreement
55,000 shares of its Common Stock, and the shares so issued will, upon such
issuance pursuant to and in accordance herewith, be validly authorized, issued
and outstanding, fully paid and non-assessable. Except as provided above or in
said Schedule 3.3, the Company has issued no other shares of its Common Stock
and there are no outstanding warrants, options or other rights to purchase or
acquire any of such shares. There are no preemptive rights with respect to the
issuance or sale of the Company's Common Stock. There are no restrictions on the
transfer of the Company's Common Stock except as provided in this Agreement, the
Shareholders' Agreement, or described in said Schedule 3.3. The Company has no
subsidiaries and no investments in any other corporation or business
organization. The Company has no outstanding agreements providing for the
registration of any of its capital stock or other securities under the
Securities Act of 1933, as amended (the "Securities Act") except as provided in
this Agreement.
3.4 Financial Statements. Set forth in Schedule 3.4 of the Schedule Volume
are the following financial statements of the Company, all of which statements
(including footnotes thereto) are complete and correct in all material respects,
and fairly present the financial position of the Company on the dates of such
statements and the results of its operations for the period covered thereby.
Pro Forma Balance Sheet as of March 31, 1988, 1989 and 1990
Pro Forma Income Statements for the years ended December 31, 1988,
1989, 1990, 1991 and 1992
Pro Forma Statement of Monthly Cash Flow for the year ended
December 31, 1988
Pro Forma Statement of Quarterly Cash Flow for the years ended
December 31, 1989 and 1990
3.5 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the pro-forma balance sheet included in
Schedule 3.4 of the Schedule Volume, except for liabilities arising in the
ordinary course of its business since the date of said balance sheet, and except
as disclosed in Schedule 3.9 of the Schedule Volume, the Company has no material
accrued or contingent liability arising out of
8
any transaction or state of facts existing prior to or at the date hereof.
3.6 Absence of Certain Developments. Since the date of the pro forma
balance sheet included in Schedule 3.4 of the Schedule Volume, there has been
(i) no material adverse change in the condition, financial or otherwise, of the
Company or in its assets, liabilities, properties or business, (ii) no
declaration, setting aside or payment of any dividend or other distribution with
respect to the capital stock of the Company, (iii) no material loss, destruction
or damage to any property of the Company, whether or not insured, (iv) no labor
trouble involving the Company and no material change in its personnel or the
terms and conditions of employment, (v) no condition, act or event which
constitutes an Event of Default or which, with notice or lapse of time or both,
would constitute such an Event of Default, and (vi) no acquisition or
disposition of any material assets (or any contract or arrangement therefor) or
any other material transaction by the Company, otherwise than for fair value in
the ordinary course of business.
3.7 Title to Properties. Except for security interest of Multisystems,
Inc. in the System described in paragraph 2.9, the Company has good and
marketable title to all of its properties and assets free and clear of all
liens, restrictions or encumbrances except such as would be permitted by
paragraph 5.9 hereof. All machinery and equipment included in such properties
which is necessary to the business of the Company is in good condition and
repair, and all leases of real or personal property to which the Company is a
party are fully effective and afford the Company peaceful and undisturbed
possession of the subject matter of the lease. The Company is not in violation
of any zoning, building or safety ordinance, regulation or requirement or other
law or regulation applicable to the operation of its owned or leased properties,
nor has it received any notice of a violation thereof with which it has not
complied.
3.8 Tax Matters. All federal, state, county and local taxes due and
payable by the Company have been paid. The Company has duly filed all federal,
state, county and local tax returns required to have been filed by it and there
are in effect no waivers of applicable statutes of limitations with respect to
taxes for any year.
3.9 Contracts and Commitments. The Company has no contract, obligation or
commitment which is material or which involves a potential commitment in excess
of $10,000 and no employment contracts, consulting agreements, stock redemption
or purchase agreements, financing agreements, licenses, leases, or pension,
profit-sharing, retirement or stock option plans or agreements, except as
described in this Agreement or in Schedule 3.9 of the Schedule Volume and of
which copies have
9
been delivered to counsel for the Purchaser. The Company is not in default under
any such contract, obligation or commitment. The Company is not a party to any
contract or arrangement which is unduly burdensome or could have a material
adverse effect on its business or prospects. The Company has no material
liability for renegotiation of government contracts or subcontracts.
3.10 Patents; Trade Secrets. The Company has exclusive ownership of, or
license to, all patent, copyright or trademark rights reasonably necessary to
the conduct of its business, and to the best of its knowledge, after due
investigation, does not infringe any such rights of others. The Company has the
right to use, free and clear of claims or rights of others, all trade secrets,
data, designs, customer lists and manufacturing processes required for or
incident to its products, and is not using any confidential information or trade
secrets of any former employer of any of its past or present employees.
3.11 Effect of Transactions. The execution, delivery and performance of
this Agreement, the Shareholders' Agreement, the Consulting Agreement, the
Employment Agreements, the Xxxxxxx Consulting Agreement and the agreements and
transactions contemplated hereby and the issuance of the Notes, the Revolving
Credit Note, and the Shares, will not conflict with or result in any default
under any contract, obligation, commitment, charter provision, by-law or
corporate restriction of the Company or the creation of any lien, charge or
encumbrance of any nature upon any of the properties or assets of the Company,
except pursuant to this Agreement. The transactions contemplated hereby do not
violate any statute or regulation of any federal, state or local government or
agency.
3.12 Litigation. There is no litigation, suit, claim, arbitration
proceeding, or governmental investigation pending or, to its knowledge,
threatened against the Company or to which the Company is a party, or any basis
therefor known to the Company.
3.13 Offerees. Except as set forth in Schedule 3.13 of the Schedule
Volume, neither the Company nor anyone acting on its behalf has within the past
thirteen (13) months offered the Notes or any similar security of the Company or
any Common Stock of the Company for sale to, or solicited any offers to buy the
same from any person or organization other than the Purchaser. Neither the
Company, nor anyone acting on its behalf, has in the past or will hereafter
sell, offer for sale or solicit offers to buy any of said securities so as to
bring the offer, issuance or sale of the Shares or the Notes, as contemplated by
this Agreement, within the provisions of Section 5 of the Securities Act. The
Company has complied and will comply with all applicable state "blue-sky" or
securities
10
laws in connection with the issuance and sale of the Shares, the Notes and other
securities.
3.14 Business. The Company has all necessary franchises, permits, licenses
and other rights and privileges necessary to permit it to own its property and
to carry on its business as presently conducted and as contemplated by the
Business Plan (as defined in paragraph 3.15). To the best knowledge of the
Company, the Company is not in violation of any law, regulation, authorization
or order of any public authority or in violation of the terms of any agreement
granting to the Company a franchise, license, or permit that is relevant to the
ownership of its properties or the carrying on of its present business.
3.15 Business Plan. The Business Plan, dated May, 1987 and the Business
Plan Supplement, dated April 1, 1988 (herein together referred to as the
"Business Plan"), set forth in Schedule 3.15 of the Schedule Volume, prepared by
the Company and furnished to the Purchaser prior to the date hereof has been
prepared by responsible officers of the Company, approved by the Company's Board
of Directors, and reflects good faith estimates of sales and expenses reasonably
achievable and known to exist based upon facts and conditions known to exist.
The Business Plan contains no untrue or misleading statement of a material fact
or any omission to state a fact material to the business of the Company or
necessary to make the statements contained therein not misleading.
3.16 Brokerage. There are no valid claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of the Company, and the Company will indemnify and hold the Purchaser
harmless against any liability or expense arising out of such a claim.
SECTION 4. AFFIRMATIVE COVENANTS OF THE COMPANY
So long as the Notes or the Revolving Credit Note are outstanding unless
the holders of at least a majority in interest of the principal amount of each
of the outstanding Notes and Revolving Credit Note shall otherwise consent in
writing:
4.1 Fulfillment of Obligations. The Company will pay the principal of and
interest on the Notes and the Revolving Credit Note in accordance with the terms
thereof, and will observe and comply with all of the terms, conditions and
covenants to be performed by it under this Agreement, the Notes, the Revolving
Credit Note and the other agreements and instruments entered into by the Company
pursuant to this Agreement.
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4.2 Accounts and Reports. The Company will maintain a standard system of
accounts in accordance with generally accepted accounting principles
consistently applied, will keep full and complete financial records and will
furnish to the Purchaser the following reports: (a) within ninety (90) days
after the end of each fiscal year a copy of the balance sheet of the Company as
of the end of such year, together with statements of income, retained earnings
and changes in financial position of the Company for such year, all in
reasonable detail, prepared and certified by independent public accountants of
national standing selected by the Company; (b) within forty-five (45) days after
the end of the first six months of each fiscal year a copy of the balance sheet
of the Company as of the end of such six months together with a statement of
income and changes in financial position of the Company for such six months, all
in reasonable detail, prepared by independent public accountants of national
standing selected by the Company and certified by the principal financial
officer of the Company; (c) within thirty (30) days after the end of each of the
first three quarters of each fiscal year a copy of the balance sheet of the
Company as of the end of such quarter and statements of income and changes in
financial position of the Company for the fiscal quarter and for the portion of
the fiscal year ending on the last day of such quarter, each of the foregoing
balance sheets and statements of income and changes in financial position to set
forth in comparative form the corresponding figures for the prior fiscal period,
to be in reasonable detail and to be certified, subject to year-end audit
adjustments, by the principal financial officer of the Company; (d) within ten
(10) days after the end of each month of each fiscal year a copy of the balance
sheet of the Company as of the end of such month, each of the foregoing balance
sheets to be in reasonable detail and to be certified, subject to year-end audit
adjustments. by the principal financial officer of the Company; (e) copies of
all financial statements and reports which the Company shall send to its
shareholders or file with the Securities and Exchange Commission or any stock
exchange on which any securities of the Company may be listed; and (f) such
other financial information as the Purchaser may reasonably request, including
without limitation, certificates of the principal financial officer of the
Company concerning compliance with the affirmative and negative-covenants of the
Company under this Agreement. The Company will also permit the Purchaser or its
authorized representative, at all reasonable times and as often as reasonably
requested, to visit and inspect, at the expense of the Purchaser, any of the
properties of the Company, including its books and records and, subject to
reasonable arrangements with transfer agents of the Company, lists of security
holders, and to make extracts therefrom and to discuss the affairs, finances,
and accounts of the Company with its officers. The reports required to be
furnished by the Company pursuant to clauses (a), (b) and (c) above shall be
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accompanied by a certificate executed by the President and principal financial
officer of the Company, and by its independent public accountants in the case of
annual financial statements under clause (a), to the effect that no Event of
Default exists or has existed during the period covered by such reports, or if
such an Event of Default exists or has existed, setting forth a description
thereof in reasonable detail and an explanation of action taken by the Company
to remedy the same.
4.3 Shareholders', Consulting, Employment and Abraham's Consulting
Agreements. On or before the Closing, the Company, the Purchaser, Shattow and
certain other shareholders of the Company will enter into an agreement providing
for the election of representatives of the Purchaser to the Board of Directors
of the Company, and containing such other provisions as the parties thereto may
agree to, which agreement shall be substantially in the form attached hereto as
Exhibit D (the "Shareholders' Agreement"). The Company will reimburse
representatives of the Purchaser who serve as Directors of the Company under the
Shareholders' Agreement for all expenses incurred by them in attending meetings
of the Board of Directors. On or before the Closing, the Company will enter into
an agreement with Purchaser providing for the provision by Purchaser of
consulting services to the Company, which agreement shall be substantially in
the form attached hereto as Exhibit E (the "Consulting Agreement"). On or before
the Closing, the Company will enter into with each of Shattow, Tyer, Xxxxxx and
Xxxxx Xxxxxx ("Xxxxxx") an Employment Agreement substantially in the form
attached hereto as Exhibit F (the "Employment Agreements"). On or before the
Closing the Company will enter into an agreement with Xxxx Xxxxxxx for the
provision of consulting services to the Company, which agreement shall be
substantially in the form attached hereto as Exhibit G ("Abraham's Consulting
Agreement"). Each of the Company and Shattow agrees that it will diligently
enforce all of its rights under each of the foregoing agreements and that it
will not waive or release any such rights or consent to any amendment of any of
said agreements without in each instance obtaining the prior written consent of
the holders of at least a majority in interest of the principal amount of each
of the outstanding Notes and Revolving Credit Note, which consent shall not be
unreasonably withheld.
4.4 Adverse Change; Litigation. The Company will promptly advise the
Purchaser of any event which represents a material adverse change in the
condition or business, financial or otherwise, of the Company, and of each suit
or proceeding commenced or threatened against the Company which, if adversely
determined, would result in such a material adverse change. The Company will
also promptly advise the Purchaser of any facts which cast any doubt upon the
accuracy or completeness of
13
the representations and warranties contained herein and of any conditions or
events which constitute an Event of Default or which, after notice or lapse of
time or both, would constitute such an Event of Default.
4.5 Payment of Expenses. The Company agrees to pay the reasonable
out-of-pocket expenses of the Purchaser incurred in connection with the
negotiation, preparation, execution and delivery of this Agreement, the
Shareholders' Agreement, the Consulting Agreement, the Notes, the Revolving
Credit Note, Guaranty and the other instruments and agreements entered into
pursuant to this Agreement and any amendments or supplements to the same,
including without limitation, reasonable fees and disbursements of counsel for
the Purchaser.
4.6 Dealings with Related Parties. All transactions by and between the
Company, and Shattow or shareholders of the Company or corporations or other
business organizations controlled by such shareholders shall be conducted on an
arms-length basis and shall be on terms and conditions no less favorable to the
Company than could be obtained from non-related persons.
4.7 Use of Proceeds. The Company will apply the proceeds of the issuance
and sale of the Shares, the Notes and the Revolving Credit Note only as stated
in the Use of Proceeds Memorandum of even date herewith prepared by the Company
and delivered to the Purchaser, a copy of which is attached hereto as Exhibit H.
4.8 Life Insurance. The Company will at its expense purchase and maintain
ordinary or term life insurance from reputable insurers on the lives of each of
Shattow and Xxxx, in the face amounts of $1,000,000 and $500,000 for Shattow and
Xxxx respectively, each payable to the Company. The Company will not borrow
against said policies and will not cause or permit any assignment of the
proceeds of said policies to be made except to the Purchaser. It is agreed that
on and thereafter a date sixty (60) days following the death of any of the
insureds and in the event that the Company is not achieving its projections,
financial or otherwise, as previously mutually determined by the Company and the
Purchaser, the Purchaser shall have the right to require the Company to prepay
the unpaid principal amount of the outstanding Notes and Revolving Credit Note,
with interest accrued to the prepayment date, to the full extent of the proceeds
of said policies.
4.9 Property Insurance. The Company will keep its insurable properties
insured by financially sound and reputable insurers satisfactory to the
Purchaser against the perils of liability, casualty, fire and extended coverage
in amounts of coverage at least equal to those customarily maintained by
14
companies in the same or similar businesses. The Company will also maintain with
such insurers insurance against other hazards and risks and liability to persons
and property to the extent and in the manner customary for corporations engaged
in the same or a similar business.
4.10 Maintenance of Properties. The Company will maintain all properties
used or useful in the conduct of its business in good repair, working order and
condition as necessary to permit such business to be properly and advantageously
conducted.
4.11 Payment of Taxes, etc. The Company will pay and discharge all lawful
taxes, assessments and governmental charges or levies imposed upon it or upon
its income or property before the same shall become in default, as well as all
lawful claims for labor, materials and supplies which, if not paid when due,
might become a lien or charge upon its property or any part thereof; provided,
however, that the Company shall not be required to pay and discharge any such
tax, assessment, charge, levy, or claim so long as the validity thereof is being
contested by the Company in good faith by appropriate proceedings and an
adequate reserve therefore has been established on its books.
4.12 Conduct of Business; Compliance with Laws, The Company will keep in
full force and effect its corporate existence and all material rights, licenses,
patents, copyrights, trademarks, trade names and franchises now held by it and
useful in its business and comply with all applicable laws and regulations in
the conduct of its business.
4.13 Investment by Shattow. Shattow shall lend to the Company the sum of
$50,000 on or before the date ninety (90) days after the Closing Date. The
indebtedness of the Company to Shattow shall be subordinated in right of payment
of interest and liquidation to the Notes and the Revolving Credit Note. The
terms and conditions of the indebtedness of the Company to Shattow shall be no
more favorable to Shattow than the terms and conditions set forth herein with
respect to the indebtedness of the Company to the Purchaser.
SECTION 5. NEGATIVE COVENANTS OF THE COMPANY
So long as the Notes or the Revolving Credit Note are outstanding, unless
the holders of at least a majority in interest of the principal amount of each
of the outstanding Notes and Revolving Credit Note shall otherwise consent in
writing:
5.1 No Amendments to Certificate of Incorporation or By-Laws. The Company
will not make any amendment to its
15
Certificate of Incorporation or its By-Laws which shall adversely affect the
rights of the Purchaser.
5.2 Limitation on Liability for Obligations of Others. The Company will
not assume, guarantee, endorse or otherwise become liable for the obligations of
any person or organization, except (a) the endorsement of negotiable instruments
for deposit or collection and similar transactions in the ordinary course of
business of the Company or (b) obligations assumed by the Company in connection
with an acquisition or merger permitted by paragraph 5.8.
5.3 Limitations on Compensation of Employees. The Company will not pay
aggregate compensation to any employee of the Company for services rendered in
any fiscal year of the Company in excess of such limits as the Board of
Directors shall have previously approved consistent with the Business Plan and
the Employment Agreements.
5.4 Loans and Investments. The Company will not purchase or otherwise
acquire, or hold, any stock or obligations of, or make or permit to exist any
loans or advances to, or investments in, any person or organization, except that
the Company may (a) invest in direct obligations of the United States of
America, (b) extend normal credit in the ordinary course of business in
connection with the sale of its products or services, or (c) subject to
paragraph 5.8 (in case of a business acquisition) purchase or hold not less than
80% of the voting stock and outstanding stock of any corporation organized and
existing under the laws of any state of the United States, substantially all of
whose assets and business are located or conducted in the United States and
which shall be operated as a subsidiary of the Company; provided that if such
subsidiary shall have total assets having a fair value of 5% or more of the book
value of assets of the Company at any time or if the Company shall invest in
such subsidiary a total amount equivalent to 5% or more of said assets, said
subsidiary shall guarantee in writing payment of the Notes and the Revolving
Credit Note (the form of guarantee to be satisfactory to the Purchaser); and
provided further that no minority interest in such subsidiary may be owned
directly or indirectly by any person or organization who was or is a shareholder
of the Company.
5.5 Restrictions on Acquisition of Capital Assets. The Company will not,
without the approval of the Board of Directors of the Company including the
approval of the representatives of the Purchaser on said Board, make any
expenditures for fixed or capital assets, or any commitments for such
expenditures, exceeding an aggregate amount for all such expenditures made or
committed in such year of $15,000, other than expenditures provided for in the
Business Plan and
16
subsequent business plans developed and approved by the Board of Directors, and
excluding expenditures made in any fiscal year pursuant to commitments therefor
made in any prior fiscal year if such commitments when made were permitted under
this paragraph 5.5.
5.6 Restrictions on Leases. The Company will not, without the approval of
the Board of Directors of the Company including the approval of the
representatives of the Purchaser on said Board, lease or enter into arrangements
with any person or organization for the use of any fixed or capital assets, or
real property, if the aggregate of the amounts which will be payable under all
such leases or other such arrangements for any period of twelve (12) consecutive
months shall exceed $10,000.
5.7 Limitation of Indebtedness. The Company will not become indebted or
create, incur, assume, or be liable in any manner in respect of, or suffer to
exist, any indebtedness (whether for money borrowed or for the purchase price of
any asset or otherwise) except (a) indebtedness in respect of the Notes or the
Revolving Credit Note; (b) current liabilities and accounts payable (other than
for money borrowed) incurred in the ordinary course of business; (c)
indebtedness secured by, or incurred in connection with purchases or leases of
equipment or other personal property acquired or leased in accordance with the
limitations contained in paragraphs 5.5 and 5.6, including, without limitation,
the indebtedness cited in Schedule 3.9 of the Schedule Volume; or (d)
indebtedness for money borrowed from banks and other recognized governmental or
commercial lending institutions; provided that the principal amount of such
indebtedness at any one time outstanding shall not in the aggregate exceed 150%
of the net worth of the Company. For purposes of this paragraph "net worth"
shall mean the excess of assets (exclusive of good will, capitalized research
and development and the value of patents, trademarks, franchises and similar
rights) over liabilities (exclusive of shareholders' equity, the Note and
Revolving Credit Note) determined in accordance with generally accepted
accounting principles consistently applied on the same basis as employed by the
Company's independent public accountants in preparing its audited financial
statements pursuant to paragraph 4.2.
5.8 Limitations on Consolidations, Mergers and Sale of Assets. The Company
will not consolidate with, or merge into or have merged into it, or acquire the
stock, business or assets of, any other corporation or association, or sell,
lease or otherwise dispose of any of its assets except (a) sales of assets or
products for fair value in the ordinary course of business, or (b) the
acquisition by the Company of substantially all of the assets or stock of
another corporation or the merger of another corporation into the Company
provided
17
that such acquisition or merger is approved by the affirmative vote of at least
80% of the Board of Directors of the Company then in office and provided further
that immediately after such acquisition or merger there shall exist no Event of
Default hereunder or event or circumstance which after the passage of time or
giving of notice or both would become such an Event of Default.
5.9 Limitation on Liens. The Company will not create, incur, assume or
suffer to be created, incurred or assumed, or to exist, any pledge, mortgage,
lien, charge, security interest or encumbrance of any kind upon any of its
properties or assets, or own or acquire or agree to acquire any property of any
character subject to or upon any mortgage, conditional sale agreement or other
title retention agreement, or sell, assign, pledge or otherwise dispose of any
accounts or notes receivable or contract rights except (a) liens for taxes,
assessments, governmental charges, levies or claims suffered by the Company and
described in paragraph 4.11 hereof to the extent that payment thereof is not
required by such paragraph, or (b) other liens, charges, pledges, deposits and
encumbrances incidental to the conduct of the business of the Company which are
not incurred in connection with the borrowing of money or the obtaining of
advances or credits and which do not in the aggregate materially detract from or
impair the use of the assets or business of the Company.
5.10 Change in Management. The Company will not permit any substantial
change in the present management of the Company except as a result of death or
disability.
5.11 Issuance of Stock. The Company will not issue any Common Stock of the
Company or warrants, options, or other rights to purchase Common Stock of the
Company or any securities convertible into Common Stock of the Company, except
the Shares, except in the following circumstances:
(a) As a dividend or distribution payable pro rata to all
shareholders;
(b) Not in excess of a total of 48,000 shares of Common Stock of the
Company to employees, consultants, officers or directors of the Company
directly or through options or other rights; or
(c) In connection with a merger by the Company with, or the
acquisition by the Company of, another corporation as permitted by
paragraph 5.8.
5.12 Dividends; Distributions; Redemption of Capital Stock. Except as
otherwise expressly provided herein, the Company will not declare or pay any
dividends or make any
18
distributions of cash, property or securities of the Company with respect to any
shares of its Common Stock or any other class of its stock while the Notes or
Revolving Credit Note are issued and outstanding.
5.13 Restrictions on Other Agreements. The Company will not enter into any
agreement with any party which would restrict the payments due the holders of
the Notes or the Revolving Credit Note.
SECTION 6. SUBORDINATION
6.1 Senior Debt. The Company, for itself and its successors and assigns,
covenants and agrees, and the Purchaser and each successive holder of the Notes
or the Revolving Credit Note, by his acceptance of the Notes and the Revolving
Credit Note, likewise covenants and agrees, that the payment of the principal of
and interest on the Notes and the Revolving Credit Note and the security
interest granted herein is hereby expressly subordinated, to the extent and in
the manner hereinafter set forth in this Section 6, in right of payment, to the
prior payment in full of all (i) indebtedness of the Company for money borrowed
from banks or other recognized commercial or government lending institutions and
(ii) other indebtedness to which the obligations of the Notes and the Revolving
Credit Note shall be expressly subordinated by the holders of the Notes in
writing, citing this Section (hereinafter "Senior Debt").
6.2 Subordination in Bankruptcy, etc. Upon any payment or distribution of
assets of the Company in connection with its winding up, dissolution, total or
partial liquidation and reorganization, whether in bankruptcy, insolvency,
reorganization or receivership proceedings, or upon any assignment for the
benefit of creditors or any other marshalling of the assets and liabilities of
the Company or otherwise:
(a) all principal, premium, if any, and interest due upon all Senior
Debt shall first be paid in full, or payment thereof provided for in money
or money's worth, before the holders of the Notes or Revolving Credit Note
shall be entitled to receive any payment upon the principal of, or
interest on, the Notes or Revolving Credit Note;
(b) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities (other than shares
of stock of the Company as reorganized or readjusted, or securities of the
Company or any other corporation provided for by a plan of reorganization
or readjustment, the payment of which is subordinated to the payment of
all Senior Debt which may at
19
the time be outstanding on terms not less favorable to the holders thereof
than the terms of this Section 6) to which the holders of the Notes or the
Revolving Credit Note would be entitled except for the provisions of this
Section 6, shall be paid by the liquidating trustee or agent or other
person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or otherwise, directly to the holders of Senior
Debt (pro rata to each holder on the basis of the respective amounts of
Senior Debt owed to such holder), to the extent necessary to pay in full
all Senior Debt remaining unpaid after giving effect to any prior or
concurrent payment or distribution, or provision therefor, to the holders
of Senior Debt on the Senior Debt; and
(c) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities (other than shares of stock of the Company or
securities expressly exempted from the provisions of clause (b) above)
shall be received by the holder of the Notes or the Revolving Credit Note
before all Senior Debt is paid in full, or provision made for its payment,
such payment or distribution shall be paid over to holders of Senior Debt
(pro rata to each such holder on the basis of the respective amounts of
Senior Debt owed to such holder), for application to the payment of all
Senior Debt remaining unpaid until all such Senior Debt shall have been
paid in full, or provision made for its payment, after giving effect to
any prior or concurrent payment or distribution, or provision therefor, to
the holders of Senior Debt on the Senior Debt.
6.3 Subordination When Senior Debt Due, etc. In the event of and during
the continuance of any default by the Company with respect to the payment of any
Senior Debt when due (whether at a stated maturity date, upon acceleration or
otherwise), no payment of principal of or interest on the Notes and Revolving
Credit Note shall be made by the Company until payment of the full amount of
Senior Debt then due has been made or provided for.
6.4 Subrogation. Subject to the payment in full of all Senior Debt, the
holders of the Notes and the Revolving Credit Note shall be subrogated to the
rights of the holders of the Senior Debt to receive payments or distributions of
assets of the Company applicable to the Senior Debt until the principal of and
interest on the Notes and the Revolving Credit Note shall be paid in full. No
such payments or distributions applicable to the Senior Debt shall, as between
the Company, its creditors other than the holders of the Senior Debt, and the
holders of the Notes and the Revolving Credit Note, be
20
deemed to be a payment by the Company to or on account of the Notes and the
Revolving Credit Note.
6.5 Rights of Note Holders. The provisions of this Section 6 are solely
for the purpose of defining the rights of the holders of the Notes and the
Revolving Credit Note, on the one hand, relative to the rights of the holders of
the Senior Debt, on the other hand, and nothing contained in this Section 6 or
elsewhere in the Agreement or the Notes or the Revolving Credit Note is intended
to or shall (i) impair, as between the Company, its creditors other than the
holders of the Senior Debt, and the holders of the Notes and the Revolving
Credit Note, the obligation of the Company, which is unconditional and absolute,
to pay promptly to the holders of the Notes and the Revolving Credit Note the
principal of and interest on the Notes and the Revolving Credit Note, as and
when the same shall become due and payable in accordance with the terms of this
Agreement and the Note and the Revolving Credit Note, (ii) affect the rights of
the holders of the Notes and the Revolving Credit Note relative to creditors of
the Company other than the holders of the Senior Debt, or (iii) prevent the
holders of the Notes and the Revolving Credit Note from exercising all remedies
otherwise permitted by applicable law upon default under this Agreement or the
Notes or the Revolving Credit Note, subject to the rights, if any, under this
Section 6 of the holders of the Senior Debt in respect of assets of the Company
received upon the exercise of any such remedy.
6.6 Reliance by Note Holders. Upon any payment or distribution of assets
of the Company referred to in this Section 6, the holders of the Notes and the
Revolving Credit Note shall be entitled to rely upon any order or decree made by
any court of competent jurisdiction in which such dissolution, winding up,
liquidation or reorganization proceedings are pending or upon a certificate of
the liquidating trustee or agent or other person making any distribution to the
holders of the Notes and the Revolving Credit Note for the purpose of
ascertaining the amount of the Senior Debt, the holders thereof, the amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Section 6.
SECTION 7. PREPAYMENT
7.1 Prepayments. The Notes shall be subject to prepayment, at the option
of the Company, in whole or from time to time in part, in multiples of $10,000
at par value plus interest on the principal amount prepaid accrued to the
prepayment date; provided that there is not outstanding Senior Debt.
21
7.2 Notice of Prepayments. Not less than ten (10) days prior to the
prepayment date of any prepayment pursuant to this Section, the Company shall
give written notice thereof to the registered holders of the outstanding Note,
specifying the intended prepayment date, the principal amount of the Note to be
prepaid on such date and the interest applicable to such prepayment. Notice of
prepayment having been given as aforesaid, the principal amount of the Note to
be prepaid as specified in such notice together with interest, if any, as herein
provided shall mature and become due and payable on such prepayment date.
7.3 Evidence of Payment. Except as expressly provided otherwise in
paragraphs 13.3 or 13.4 hereof, upon any partial prepayment of any Note, such
Note shall, at the option of the holder thereof, be either (i) surrendered to
the Company in exchange for a new Note in the principal amount remaining unpaid
on the Note surrendered and otherwise having the same terms and provisions as
the Note surrendered, or (ii) made available to the Company at the place of
prepayment or any other place specified by the Company for notation thereon of
the portion of the principal amount so prepaid.
7.4 Reissue of Notes. No Note shall be reissued with respect to the
principal amount of the Note which is paid or prepaid pursuant to this Agreement
and the Company shall cancel and terminate the Note when it has been fully paid
or presented to it for exchange pursuant to any of the provisions of this
Agreement.
SECTION 8. RIGHT TO REPURCHASE SHARES
In the event all of the principal and interest due on each of the Notes
and the Revolving Credit Note has been duly paid in accordance with the terms
thereof and the Notes and the Revolving Credit Note are retired, then for a
period of one (1) year commencing on April 20, 1991, Shattow, Tyer, Cooper, and
Xxxxxx (collectively the "Employees", and individually an "Employee") and the
Company may elect if they are then employees of the Company to purchase from the
then holders of outstanding Shares and such holders shall thereupon become
obligated to sell to Employees and the Company on demand that number of Shares
such that immediately following such sale the aggregate number of Shares owned
by such holders shall constitute 30% of the issued and outstanding shares of
Common Stock (including shares of Common Stock issuable upon the exercise or
conversion of the then issued and outstanding warrants, options, or other
subscription or purchase rights or convertible securities) of the Company. (The
number of Shares available for purchase under this Section 8 shall herinafter be
referred to as the "Repurchase Shares.") The Employees shall have the first
right
22
to purchase all or any part of the Repurchase Shares. The Company, subject to
the prior right of the Employees, shall have the right to purchase that number
of Repurchase Shares as shall be equal to the Repurchase shares not purchased by
the Employees. The aggregate purchase price for such Repurchase Shares shall be
equal to the greater of $100,000 or the aggregate book value of such Repurchase
Shares on said date. Each Employee and the Company may elect to so purchase the
Repurchase Shares by delivering to such holders a written demand to sell the
Repurchase Shares to him/it. Payment of the purchase price by said Employee(s)
and the Company for the Repurchase Shares shall be paid within fifteen (15) days
after the date of said demand, against surrender by holders thereof of share
certificates evidencing the Repurchase Shares duly endorsed for transfer to said
Employee(s) and/or the Company. The right of said Employees under this Section 8
may be exercised by the Employees jointly or by any of them acting individually.
SECTION 9. REGISTRATION
9.1 Required Registration. At any two (2) occasions after the date hereof,
the holders of at least 25% of the Shares may make a written request to the
Company for registration of all or part of their Shares, but in no event less
than 10,000 Shares, under the Securities Act. Within ten (10) days after receipt
of such request, the Company will serve written notice (the "Notice") of such
registration request to all holders of the Shares and the Company will include
in such registration all Shares of such holders with respect to which the
Company has received written requests for inclusion therein within fifteen (15)
days after the receipt by the applicable holder of the Notice. All requests made
pursuant to this paragraph 9.1 will specify the number of Shares to be
registered and will also specify the intended method of disposition. The Company
will use its best efforts to cause such Shares of the holders to be registered
under the Securities Act and qualified under any applicable state securities or
"blue-sky" laws of jurisdictions specified in the request. The Company shall not
be deemed to have effected a registration pursuant to this paragraph 9.1 unless
and until such registration is declared effective for the Shares. All expenses
of such registration shall be borne by the Company, except that each holder
shall bear underwriting commissions and discounts, legal and accounting expenses
and other expenses attributable solely to the Shares being registered by that
particular holder.
9.2 Optional Registration. If at any time or times after the date hereof
the Company shall determine to register any of its securities under the
Securities Act and in connection therewith the Company may lawfully register the
Shares, the Company will promptly give written notice thereof to the then
23
holders of all outstanding Shares and will use its best efforts to effect the
registration under the Securities Act of all Shares which such holders may
request in writing delivered to the Company within fifteen (15) days after the
notice given by the Company; provided, however, that in the case of the first
such registration of Common Stock by the Company, it shall not be required to
register Shares in excess of the amount of Common Stock which the principal
underwriter of an underwritten offering shall reasonably and in good faith
refuse in writing to include in such offering; and provided, further, that if
any Shares are not included for this reason, the Company will permit holders of
Shares who have requested participation in the offering to participate to the
extent of a pro rata portion of all shares of Common Stock of shareholders
desiring to participate in such offering. If the Company includes in such
registration any securities to be offered by it, all expenses of registration
and offering shall be borne by the Company, except that such holders shall bear
underwriting commissions and discounts, legal and accounting expenses and other
expenses attributable solely to the Shares being registered by that particular
holder. If the registration is exclusively a secondary offering, such holders
shall bear their proportionate share of the expenses of the registration and
offering, except expenses which the Company would have incurred whether or not
registration was attempted, including without limitation the expense of
preparing normal audited or unaudited financial statements or summaries
consistent with this Agreement or applicable reports of the Securities and
Exchange Commission.
9.3 Further Obligations of the Company. Whenever under the preceding
paragraph of this Section 9, the Company is required hereunder to register
Shares, it agrees that it shall also do the following:
(a) Prepare for filing with the Securities and Exchange Commission
such amendments and supplements to said registration statement and the
prospectus used in connection therewith as may be necessary to keep said
registration statement effective for a period of two (2) years thereafter
and to comply with the provisions of the Securities Act with respect to
the sale of securities covered by said registration statement for the
period necessary to complete the proposed public offering;
(b) Furnish to each selling holder such copies of each preliminary
and final prospectus and such other documents as such holder may
reasonably request to facilitate the public offering of his Shares;
(c) Enter into any underwriting agreement with provisions consistent
herewith and reasonably required by the proposed underwriter for the
selling holders, if any; and
24
(d) Use its best efforts to register or qualify the Shares covered
by said registration statement under the securities or blue-sky laws of
such jurisdictions as any selling holder may reasonably request.
9.4 Indemnification. Incident to any registration statement referred to in
the preceding paragraphs of this Section, the Company will indemnify each
underwriter, each holder of Shares so registered, and each person controlling
any of them, against all claims, losses, damages and liabilities, including
legal and other expenses incurred in investigating or defending against the
same, arising out of any untrue statement of a material fact contained therein,
or any omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or arising out of
any violation by the Company of the Securities Act, any state securities or
"blue-sky" laws or any rule or regulation thereunder, in connection with such
registration, except insofar as the same may have been caused by an untrue
statement or omission based upon information furnished in writing to the Company
by such holder expressly for use therein, and with respect to such untrue
statement or omission in the information furnished in writing to the Company by
such holder, such holder will indemnify the underwriters, the Company, its
Directors and officers, the other holders and each person controlling any of
them, against any of said losses, claims, damages, expenses or liabilities to
which any of them may become subject.
SECTION 10. RESTRICTIONS ON TRANSFER
10.1 Investment Purpose. The Purchaser by acceptance of the Shares and/or
the Notes, represents that it has purchased the Shares and/or the Notes, not
with a view to, or for sale in connection with, any distribution thereof in
violation of the Securities Act or any rule or regulation promulgated
thereunder, as amended from time to time. Notwithstanding such representations,
the Company agrees to permit a sale or transfer of Shares or the Notes upon
obtaining reasonable assurance that the Securities Act and the rules and
regulations promulgated thereunder would not be violated thereby, including
without limitation, receipt of an opinion to such effect of Xxxxxxx, Procter &
Xxxx or other counsel for the Purchaser satisfactory to the Company.
10.2 Transfers to Competitors. Subject to this Section 10 and the terms of
the Shareholders' Agreement, the Purchaser may from time to time transfer,
assign or sell any or all of the Shares acquired hereunder to any individual or
entity.
25
10.3 Restrictive Legends. The Note and each certificate evidencing Shares
issued to the Purchaser or to any subsequent transferee shall include a legend
substantially in the form of the legend set forth below:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED
EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
OR (ii) FOLLOWING RECEIPT BY THE ISSUER OF AN OPINION FROM ITS COUNSEL
THAT NO REGISTRATION STATEMENT IS NECESSARY IN CONNECTION WITH SUCH
TRANSACTION. THE TRANSFER OF THIS SECURITY IS SUBJECT TO THE CONDITIONS
SPECIFIED IN THE SECURITIES PURCHASE AGREEMENT, DATED APRIL 20, 1988, TO
WHICH THE ISSUER AND THE ORIGINAL HOLDER OF THIS SECURITY ARE PARTIES. A
COPY OF SUCH CONDITIONS WILL BE FURNISHED BY THE ISSUER TO THE HOLDER
HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE."
In addition, each certificate evidencing Shares issued to the Purchaser or
to any subsequent transferee shall include a legend substantially in the form of
the additional legend set forth below:
"THIS SECURITY IS SUBJECT TO CERTAIN COVENANTS AND AGREEMENTS SET
FORTH IN THE SHAREHOLDERS' AGREEMENT DATED APRIL 20, 1988, TO WHICH THE
ISSUER AND THE ORIGINAL HOLDER OF THIS SECURITY ARE PARTIES (A COPY OF
WHICH MAY BE OBTAINED WITHOUT CHARGE FROM THE ISSUER AT ITS PRINCIPAL
EXECUTIVE OFFICES), AND THE HOLDER OF THIS SECURITY, BY SUCH HOLDER'S
ACCEPTANCE HEREOF, SHALL BE DEEMED TO HAVE AGREED TO, AND SHALL BE BOUND
BY, THE TERMS OF SUCH SHAREHOLDERS' AGREEMENT."
SECTION 11. CONDITIONS OF PURCHASER'S OBLIGATION
11.1 Effect of Conditions. The Purchaser's obligation to purchase and pay
for Shares, the Notes, and the Revolving Credit Note of the Company at the
Closing and the Second Closing shall be subject at the Purchaser's election to
the satisfaction of each of the conditions stated in the following paragraphs of
this Section 11.
11.2 Opinion of Counsel for Company. The Purchaser shall have received
from Xxxxx, Xxxx & X'Xxxxxxxx, counsel for the Company, a favorable opinion, in
form and substance satisfactory to the Purchaser and its counsel as to the
matters covered in paragraphs 3.1, 3.2, 3.3, 3.7, 3.10, 3.11, 3.12 and 3.13
hereof (with such exceptions or qualifications as may be
26
approved by counsel for the Purchaser), and as to the following additional
matters:
(a) This Agreement and the Shares and the Note acquired by the
Purchaser at the Closing have been duly authorized, executed and delivered
by the Company and, upon payment by the Purchaser for the Shares and the
Note, such Shares and Note will be duly and validly issued and fully paid
and non-assessable and entitled to the benefits of this Agreement.
(b) The issuance and delivery of the Shares and the Note under the
circumstances contemplated by this Agreement constitute transactions
exempt from registration under Section 5 of the Securities Act of 1933 as
now in effect, and neither registration of the Shares or the Note
thereunder nor qualification of this Agreement under the Trust Indenture
Act of 1939 as now in effect is required.
(c) The Company has complied with all applicable state "blue-sky" or
securities laws in connection with the issuance and sale of the Shares and
the Note. Except for any registration effected pursuant to the preceding
sentence, no consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority on the part of the
Company is required in connection with the execution and delivery of this
Agreement or the issuance and delivery of the Shares and the Note pursuant
to this Agreement, or the consummation of any other transaction
contemplated hereby.
(d) Section 2 hereof is sufficient to create a security interest in
the Purchaser's favor under the Uniform Commercial Code as enacted in the
Commonwealth of Massachusetts, in the Company's right, title and interest
in and to the property described as Collateral therein, to the extent such
collateral is of the type in which a security interest can be taken under
the Uniform Commercial Code. Upon the filing of financing statements with
respect to the security interest granted to the Purchaser pursuant to
Section 2 hereof, the Purchaser shall have a first priority security
interest in the Collateral, except for the security interest granted to
Multisystems, Inc. in the System (as defined in paragraph 1.4(a)).
(e) Any other matters incident to the transactions contemplated
hereby upon which the Purchaser may reasonably require that an opinion be
given.
11.3 Minimum Investment. Each shareholder set forth on Schedule 3.3 shall
have purchased on or before the Closing Date the number of shares of Company
Common Stock set forth opposite
27
his/her name on Schedule 3.3 for the purchase price set forth on said Schedule.
11.4 Acquisition of Multitrak System. The Company and Multisystems, Inc.,
a Massachusetts corporation with its principal place of business at 0000
Xxxxxxxxxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxxxxxx 00000 shall have executed and
delivered an agreement for the purchase by the Company of all Multisystems'
right, title and interest in and to the System together with any technology
necessary to use, manufacture and sell the System, upon terms and conditions
acceptable to Purchaser.
11.5 Acquisition of Project Management Graphics Package. The Company and
Xxxxxx shall have executed and delivered an agreement for purchase by the
Company of right, title and interest to a certain software project management
graphics package together with any technology necessary to use, manufacture and
sell said software, upon terms and conditions acceptable to Purchaser.
11.6 Licensing of Accolade and Imagine Software. The Company and Computer
Corporation of America, Inc., a Massachusetts corporation with its principal
place of business at Four Xxxxxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxxxxxx 00000 shall
have executed and delivered an agreement for the license by the Company of
certain software known as "Accolade" and "Imagine," upon terms and conditions
acceptable to Purchaser.
11.7 Representations and Warranties. The representations and warranties of
the Company and Shattow contained herein, in the Schedule Volume or in the
exhibits annexed hereto or otherwise made in writing by or on behalf of the
Company and Shattow in connection with the transactions contemplated hereby
shall be true and correct on the Closing Date with the same effect as though
made on and as of that date.
11.8 Performance; No Event of Default. Each of the Company and Shattow
shall have conformed and complied with all of the agreements and conditions
contained herein required to be performed or complied with by the Company at or
prior to the Closing; and the Company, Shattow and its shareholders shall have
entered into each of the additional agreements required to be entered into by
each of them pursuant to this Agreement or the exhibits attached hereto,
including without limitation, the Shareholders' Agreement, the Consulting
Agreement, the Employment Agreements, and the Guaranty. There shall exist on the
Closing Date no condition, event or act which constitutes an Event of Default or
which with notice or lapse of time or both would constitute such an Event of
Default.
28
11.9 Authorization. The Board of Directors of the Company shall have duly
adopted resolutions in form satisfactory to the Purchaser authorizing the
Company to consummate the transactions contemplated herein in accordance with
the terms hereof, and the Purchaser shall have received at the Closing a duly
executed certificate of the Clerk of the Company setting forth a copy of such
resolutions and such other matters as may be requested by the Purchaser.
11.10 Amendment of Certificate of Incorporation and By-Laws. The
Certificate of Incorporation shall have been amended by the Shareholders of the
Company to authorize the issuance of additional shares of Common Stock. The
By-Laws of the Com pany shall have been amended by the shareholders of the
Company to increase the size of the Board of Directors from one (1) to four (4)
Directors.
11.11 Compliance Certificate. The Purchaser shall have received at the
Closing a certificate signed by the President and principal financial officer of
the Company certifying that the conditions specified in this Section 11 have
been fulfilled.
11.12 Proceedings. All corporate and other proceedings to be taken prior
to or at the Closing in connection with the transactions contemplated hereby and
all documents incident thereto shall be satisfactory in substance and form to
the Purchaser and its counsel, and the Purchaser and its counsel shall have
received all original copies or certified or other copies of documents which it
may reasonably request.
SECTION 12. DEFAULT
12.1 Events of Default. If and whenever any of the following events or
actions (herein "Events of Default") shall occur, namely:
(a) If the Company shall default in the payment of any installment
of principal of the Notes or the Revolving Credit Note after the same
shall become due and payable; or
(b) If the Company shall default in the payment of any installment
of interest on the Notes or the Revolving Credit Note for more than seven
(7) days after the same shall have become due and payable; or
(c) If the Company shall default in the payment of principal of, or
any premium or interest on, any indebtedness for borrowed money (including
Senior Debt) or with respect to any of the provisions of any evidence of
indebtedness for borrowed money or any agreement relating thereto, and
such default shall continue and remain
29
unwaived by the lender for more than the period of grace therein
specified; or
(d) If the Company shall default in the performance of or compliance
with any of its obligations under paragraphs 4.2, 4.4, 4.5, 4.7, 4.8 and
4.9 of this Agreement; or
(e) If the Company shall default in the performance of or compliance
with any other provisions of this Agreement or of any certificate,
agreement or document attached hereto as an exhibit or delivered to the
Purchaser in connection with the transactions contemplated by this
Agreement, and such default shall not have been remedied within thirty
(30) days after the occurrence thereof; or
(f) If the net worth of the Company shall:
(i) at any time during the fiscal year ended December 31, 1988
be less than $100,000;
(ii) be less than $350,000 on or before December 31, 1989; and
(iii) upon reaching $350,000, at any time thereafter be less
than $350,000.
For purposes of this paragraph 12.1(f), "net worth" shall mean the excess assets
(exclusive of goodwill, capitalized research and development and the value of
patents, trademarks, franchises and similar rights) over liabilities (exclusive
of the shareholder's equity, the Note and Revolving Credit Note) determined in
accordance with generally accepted accounting principles consistently applied on
the same basis as employed by the Company's independent public accountants in
preparing its audited financial statement pursuant to paragraph 4.2.
(g) If any representation, warranty or opinion made or given by the
Company in this Agreement or in any certificate, agreement, document or
instrument furnished to the Purchaser in connection with the transactions
contemplated by this Agreement shall prove to have been false or incorrect in
any material respect as of the date made; or
(h) If the Company shall default in any material respect under any
material agreement to which it is a party or by which it is bound, including
agreements attached or described in the exhibits to this Agreement (other than
agreements referred to in subparagraph (e) above) and such
30
default shall not have been remedied within thirty (30) days after the
occurrence thereof; or
(i) If any material portion of the property of the Company shall be
condemned, seized or otherwise appropriated by any governmental authority or any
officer or instrumentality thereof; or
(j) If the Company shall make an assignment for the benefit of creditors,
or shall admit in writing its inability to pay its debts as they become due, or
shall file a voluntary petition in bankruptcy, or shall be adjudicated a
bankrupt or insolvent, or shall file any petition or answer seeking for itself
any reorganization, arrangement, composition, readjustment, dissolution or
similar relief under any present or future statute, law or regulation, or shall
file any answer admitting the material allegations of a petition filed against
the Company in any such proceeding, or shall seek or consent to or acquiesce in
the appointment of any trustee, receiver or liquidator of the Company or of all
or any substantial part of the properties of the Company, or the Company or its
directors or majority shareholders shall take any action looking to the
dissolution or liquidation or suspension of the business of the Company; or
(k) If, within sixty (60) days after the commencement of any proceeding
against the Company seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such proceeding shall not have been
dismissed, or if, within sixty (60) days after the appointment without the
consent or acquiescence of the Company of any trustee, receiver or liquidator of
the Company or of all or any substantial part of the properties of the Company,
such appointment shall not have been vacated; or
(l) If any restraining order or injunction which prevents or hinders the
Company from transacting all or any substantial part of its business, or a final
judgment, order or decree for the payments of money shall be rendered against
the Company in an amount which if paid would reduce the Company's net worth to
less than the amount specified in subparagraph 12.1(f) then outstanding, and
within sixty (60) days after entry thereof shall not have been satisfied or
discharged, or execution thereof stayed pending appeal, or if within sixty (60)
days after the expiration of any such stay such judgment shall not have been
satisfied or discharged;
31
then and in any such event holders of the Note or the Revolving Credit Note
whose aggregate principal amount is 50% or more of the total principal amount
of, respectively, the Note or the Revolving Credit Note then outstanding, may at
any time (unless all defaults theretofore have been remedied) at their option by
written notice to the Company declare the principal of and the accrued interest
on the Note or the Revolving Credit Note, respectively, to be immediately due
and payable, without presentment, demand, protest or notice, all of which are
hereby waived by the Company.
12.2 Remedies upon Default. If any Event of Default shall occur, the
holders of the Notes and the Revolving Credit Note may proceed to protect and
enforce their rights under this Agreement, the Notes and the Revolving Credit
Note by a suit in equity, action at law or other appropriate proceeding whether
for damages or the specific performance of any agreement contained herein or in
the Notes or for an injunction against a violation of any of the terms or
provisions hereof or thereof, or in aid of the exercise of any power granted
hereby or thereby or at law; and the Company will reimburse said holder for its
reasonable costs and expenses incurred in connection with the enforcement of its
rights under this Agreement and the Notes or the Revolving Credit Note,
including without limitation reasonable fees and disbursements of its attorneys.
No course of dealing or delay on the part of any such holder in exercising any
right shall operate as a waiver thereof or otherwise prejudice the rights of
such holder and no consent or waiver shall extend beyond the particular case and
purpose involved. No remedy conferred hereby or by the Note or the Revolving
Credit Note shall be exclusive of any other remedy referred to herein or therein
or now or hereafter available at law, in equity, by statute or otherwise.
SECTION 13. MISCELLANEOUS
13.1 Survival of Representations. The representations, warranties,
covenants and agreements made herein or in any certificates, agreements or
documents executed in connection herewith shall survive the execution and
delivery thereof and of the Shares and the Notes and the Revolving Credit Note
and all statements contained in any certificate, agreements or other document
delivered by the Company hereunder or in connection herewith shall be deemed to
constitute representations and warranties made by the Company herein.
13.2 Exchange or Replacement of Notes. The Company will at any time at its
expense upon the request of a holder of a Note and upon surrender of such Note
for the purpose, issue a new Note in exchange therefor payable to the order of
such holder or such person or persons as may be designated by such holder
32
(provided that there is compliance with Section 10 hereof), dated on the date to
which interest has been paid on the surrendered Note, in denominations of $1,000
or any integral multiple thereof, in the aggregate principal amount of the
unpaid principal amount of the Note surrendered and substantially in the form of
the Note surrendered with appropriate variations. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of a
Note, and in case of loss, theft or destruction upon delivery of a bond of
indemnity satisfactory to the Company, or in case of mutilation upon surrender
and cancellation of such Note, the Company will issue a new Note of like tenor
in lieu of such lost, stolen, destroyed or mutilated Note.
13.3 Exchange or Replacement of Share Certificates. The Company will at
any time at its expense upon the request of a holder of any Shares and upon
surrender of a share certificate evidencing such Shares for the purpose, issue
new share certificates in exchange therefor registered in the name of such
shareholder or such person or persons as may be designated by such shareholder
(provided that there is compliance with Section 10 hereof), substantially in the
form of the share certificates surrendered with appropriate variations. Upon
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of any share certificate, and in case of loss, theft or
destruction upon delivery of a bond of indemnity satisfactory to the Company, or
in case of mutilation upon surrender and cancellation of such share certificate,
the Company will issue a new share certificate of like tenor in lieu of such
lost, stolen, destroyed or mutilated share certificate.
13.4 Place of Payment. The Company will pay the interest on and any
prepayments of principal of the Notes and the Revolving Credit Note without any
presentment thereof and without notation of such payment being made thereon,
notwithstanding any contrary provisions of this Agreement, the Notes or the
Revolving Credit Note, by check duly mailed to the Purchaser at its address
first written above or in accordance with any unrevoked written direction from
the Purchaser to the Company. The Purchaser agrees that, prior to the sale or
transfer of the Notes by the Purchaser, it shall either (i) surrender said Note
to the Company in exchange for new Notes in the principal amount equal to the
unpaid balance of principal of the Notes surrendered and otherwise having the
same terms and provisions of the Notes surrendered or (ii) make a notation on
said Notes of the extent to which payment has been made on account of the
principal and interest thereof and furnish the Company with a certificate
stating that such notation has been made. The Purchaser further agrees that it
will promptly
33
notify the Company of the name and address of any transferee of the Notes issued
to it, if such transferee is known to it.
13.5 Incorporation by Reference. All Schedules and exhibits appended to
this Agreement and all documents delivered pursuant to or referred to in this
Agreement are herein incorporated by reference and made a part thereof.
13.6 Parties in Interest. All covenants, agreements, representations,
warranties, rights and undertakings contained in this Agreement to be performed
or observed by and on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto
and each successive holder of the Notes or any Share, whether so expressed or
not.
13.7 Amendments and Waivers. Changes in or additions to this Agreement or
the Notes or the Revolving Credit Note may be made or compliance with any term,
covenant, agreement, condition or provision set forth herein or therein may be
omitted or waived (either generally or in a particular instance and either
retroactively or prospectively) upon written consent of the Company and the
holders of at least a majority of the principal amount of, respectively, each of
the Notes or the Revolving Credit Note then outstanding; provided, however, that
no change, addition, omission or waiver which causes any change in or extension
of the time of payment of the principal amount, or the reduction of the rate or
extension of the time of payment of the interest on, or in any way affects or
impairs the obligation of the Company in respect of the principal of or interest
on, the Notes or the Revolving Credit Note, or causes the change in the
subordination provisions applicable to the Notes or the Revolving Credit Note,
shall be made without the written consent of the holder of such Notes or
Revolving Credit Note.
13.8 Termination. This Agreement shall terminate without further liability
to any of the parties at such time as all of the obligations of the Company
under the Notes and the Revolving Credit Note have been fully satisfied and
discharged.
13.9 Governing Law. This Agreement, the Notes and the Revolving Credit
Note shall be deemed contracts made under the laws of the Commonwealth of
Massachusetts and, together with the rights and obligations of the parties
hereunder, shall be construed under and governed by the laws of such
Commonwealth.
13.10 Notices. All notices, requests, consents and demands provided for in
this Agreement or under the Notes or the Revolving Credit Note shall be in
writing and shall be delivered or mailed, postage prepaid, as follows or to such
34
other address as the Company or the Purchaser or Shattow may furnish in writing
to the other parties hereto:
If to the Company or Shattow, at
Multitrak Software Development Corp.
000 Xxxx Xxxxxx
Xxxxxxx Xxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxx
If to the Purchaser, at
LRF Investments, Inc.
000 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx
13.11 Subsidiaries. In the event that the Company hereafter acquires one
or more subsidiaries the financial statements of the Company described in
paragraph 4.2 will thereafter include such subsidiaries to the extent required
by generally accepted accounting principles and the other obligations of the
Company set forth in Sections 4 and 5 hereof will apply where relevant to such
subsidiaries as well as to the Company.
13.12 Counterparts. This Agreement may be executed in counterparts, all of
which together shall constitute one and the same instrument.
13.13 Effect of Headings. The section and paragraph headings herein are
for convenience only and shall not affect the construction hereof.
IN WITNESS WHEREOF this Agreement has been executed as a sealed instrument
as of the date first written above by the parties or their duly authorized
representatives.
MULTITRAK SOFTWARE DEVELOPMENT
CORP.
By: /s/ Xxxxxxx X. Xxxxxxx
--------------------------
Xxxxxxx X. Xxxxxxx
President
35
LRF INVESTMENTS, INC.
By: /s/ Xxxxxx X. Xxxxxxx
--------------------------
Xxxxxx X. Xxxxxxx
Vice President
/s/ Xxxxxxx X. Xxxxxxx
------------------------------
Xxxxxxx X. Xxxxxxx
DP-1977/d
36
