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Exhibit 4.2
EXECUTION COPY
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QUALITY CARE SOLUTIONS, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
May 29, 1998
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TABLE OF CONTENTS
SECTION 1. Authorization and Sale of Series C Preferred Stock ........................................... 1
1.1. Authorization of Series C Preferred Stock ..................................................... 1
1.2. Sale of Series C Preferred Stock .............................................................. 1
SECTION 2. Closing Dates; Delivery ...................................................................... 1
2.1. Closing Dates ................................................................................. 1
2.2. Delivery and Payment .......................................................................... 2
SECTION 3. Representations and Warranties of the Company ................................................ 2
3.1. Organization and Standing; Charter Documents .................................................. 2
3.2. Corporate Power ............................................................................... 2
3.3. Subsidiaries .................................................................................. 3
3.4. Capitalization ................................................................................ 3
3.5. Authorization ................................................................................. 3
3.6. Proprietary Rights ............................................................................ 4
3.7. Litigation, etc. .............................................................................. 5
3.8. Material Liabilities .......................................................................... 5
3.9. Material Agreements ........................................................................... 5
3.10. Title to Properties and Assets; Liens, etc. .................................................. 5
3.11. Compliance with Other Instruments, None Burdensome, etc. ..................................... 5
3.12. Employees .................................................................................... 6
3.13. Registration Rights .......................................................................... 6
3.14. Governmental Consent, etc. ................................................................... 6
3.15. Offering ..................................................................................... 6
3.16. Brokers or Finders ........................................................................... 7
3.17. Related-Party Transactions ................................................................... 7
3.18. Permits ...................................................................................... 7
3.19. Insurance .................................................................................... 7
3.20. Financial Statements ......................................................................... 7
3.21. Employee Benefit Plans ....................................................................... 8
3.22. Tax Returns and Payments ..................................................................... 8
3.23. Minute Books ................................................................................. 8
3.24. Section 1202 of the Internal Revenue Code .................................................... 8
3.25. Disclosure ................................................................................... 9
SECTION 4. Representations and Warranties of the Purchasers .............................................10
4.1. Preexisting Relationship with Company; Business and Financial Experience ......................10
4.2. Investment Intent; Blue Sky ...................................................................10
4.3. Rule 144 ......................................................................................10
4.4. No Public Market ..............................................................................10
4.5. Restrictions on Transfer; Restrictive Legends .................................................10
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4.6. Authorization .................................................... 11
4.7. Tax Liability .................................................... 11
SECTION 5. Covenants ........................................................ 11
5.1. Annual Financial Statements ...................................... 11
5.2. Insurance ........................................................ 11
5.3. Board of Directors ............................................... 11
SECTION 6. Conditions to Closing of the Purchasers .......................... 11
6.1. Representations and Warranties Correct ........................... 11
6.2. Covenants ........................................................ 12
6.3. Opinion of the Company's Counsel ................................. 12
6.4. Blue Sky ......................................................... 12
6.5. Restated Certificates ............................................ 12
6.6. Legal Matters .................................................... 12
6.7. Shareholder Rights Agreement ..................................... 12
6.8. Compliance Certificate ........................................... 12
6.9. Board of Directors ............................................... 12
6.10. Purchaser's Due Diligence ........................................ 12
6.11. Employment, Confidential Information and Invention Assignment
Agreements ....................................................... 12
6.12. Management Rights Letter ......................................... 13
SECTION 7. Conditions to Closing of the Company ............................. 13
7.1. Representations and Warranties Correct ........................... 13
7.2. Covenants ........................................................ 13
7.3. Blue Sky ......................................................... 13
7.4. Restated Certificate ............................................. 13
7.5. Legal Matters .................................................... 13
7.6. Shareholder Rights Agreement ..................................... 13
SECTION 8. Miscellaneous .................................................... 13
8.1. Governing Law .................................................... 13
8.2. Entire Agreement; Amendment ...................................... 13
8.3. Notices, etc. .................................................... 14
8.4. Delays or Omissions .............................................. 15
8.5. Expenses ......................................................... 15
8.6. Counterparts ..................................................... 15
8.7. Severability ..................................................... 15
8.8. Titles and Subtitles ............................................. 15
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SCHEDULE I Schedule of Purchasers
EXHIBIT A Restated Series A and B Certificates of Designation and Series C
Certificate of Designation
EXHIBIT B Schedule of Exceptions
EXHIBIT C Shareholder Rights Agreement
EXHIBIT D Form of Employment, Confidential Information and Invention
Assignment Agreement
EXHIBIT E Form of Legal Opinion of Xxxxx Xxxx LLP
EXHIBIT F Compliance Certificate
EXHIBIT G Management Rights Letter
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EXECUTION COPY
QUALITY CARE SOLUTIONS, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This agreement (the "AGREEMENT") is made effective as of May 29, 1998, by
and among Quality Care Solutions, Inc., a Nevada corporation (the "COMPANY"),
and each of the purchasers (the "PURCHASERS") listed on the Schedule of
Purchasers attached hereto as Schedule I (the "SCHEDULE OF PURCHASERS").
SECTION 1.
AUTHORIZATION AND SALE OF SERIES C PREFERRED STOCK
1.1 AUTHORIZATION OF SERIES C PREFERRED STOCK. The Company has
authorized the sale and issuance of 5,194,805 shares (the "SHARES") of Series C
Preferred Stock (the "SERIES C PREFERRED"), having the rights, preferences,
privileges and restrictions as set forth in the certificate of designation in
substantially the form attached hereto as Exhibit A (the "SERIES C
CERTIFICATE").
1.2 SALE OF SERIES C PREFERRED STOCK. Subject to the terms and
conditions hereof, the Company will issue and sell to each of the Purchasers,
severally, and each Purchaser will severally buy from the Company the total
number of Shares specified opposite such Purchaser's name on the Schedule of
Purchasers, at a per share purchase price of $0.77 (the "PER SHARE PRICE"), and
at the aggregate purchase price set forth opposite such Purchaser's name on the
Schedule of Purchasers. The Company's agreements with each of the Purchasers are
separate agreements, and the sales of the Series C Preferred to each of the
Purchasers are separate sales.
SECTION 2.
CLOSING DATES; DELIVERY
2.1 CLOSING DATES. It is anticipated that purchases and sales of the
Shares hereunder shall be consummated at one or two closings (collectively, the
"CLOSINGS" or individually, a "CLOSING"). Each Closing will be held at the
offices of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, 000 Xxxx Xxxx Xxxx, Xxxx Xxxx, XX
at 10:00 a.m. (Pacific Time), or at such other time and place upon which the
Company and the Purchasers consummating purchases at such Closing shall agree.
The first such Closing (the "FIRST CLOSING") shall take place on May 29, 1998
or such other date upon which the Company and the Purchasers participating in
the First Closing shall agree (the date and time of the First Closing is
hereinafter referred to as the "FIRST CLOSING DATE"). The Company may hold one
subsequent Closing (the "SECOND CLOSING") which will occur not later than 30
days after the First Closing Date. The Per Share Price and other terms of sales
consummated at the Second Closing shall be substantially identical to the terms
of the sale consummated at the First Closing. The Schedule of Purchasers shall
be amended in connection with the Second Closing to add thereto information
relating to the Purchasers participating in such Closing and Section 1.1 shall
be amended to increase the aggregate number of shares of
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Series C Preferred to be sold under this Agreement, such aggregate number not
to exceed 7,241,073. Such increased number of Shares shall be authorized in an
amendment to the Series C Certificate which has been duly adopted by the Board
of Directors and approved by the required vote of the stockholders. Each
Purchaser whose sales are consummated at the First Closing agrees to approve
such an amendment to the Series C Certificate provided that (i) the Second
Closing occurs within 30 days of the First Closing, (ii) the aggregate number
of shares of Series C Preferred authorized for issuance does not exceed
7,241,073 and (iii) only current holders of Series A Preferred Stock and Series
B Preferred Stock purchase shares at the Second Closing.
2.2 DELIVERY AND PAYMENT. At each Closing, the Company will deliver to
each Purchaser with respect to the Shares being purchased at such Closing, a
certificate or certificates, registered in such Purchaser's name as set forth
on the Schedule of Purchasers, representing the number of Shares to be
purchased by such Purchaser at such Closing, against payment of the purchase
price therefor, by check payable to the Company, or by wire transfer per the
Company's instructions.
SECTION 3.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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Except as set forth on Exhibit B attached hereto or, with respect to the
Second Closing, in the supplemental disclosure letter delivered by the Company
to the Purchasers participating in the Second Closing prior to the Second
Closing, the Company represents and warrants to each Purchaser that, as of date
of the Closing at which such Purchaser consummates its purchase of Shares
hereunder:
3.1 ORGANIZATION AND STANDING; CHARTER DOCUMENTS. The Company is a
corporation duly organized and existing under, and by virtue of, the laws of
the State of Nevada and is in good standing under such laws. The Company has
requisite corporate power and authority to own and operate its properties and
assets, and to carry on its business as presently conducted and as proposed to
be conducted. The Company is presently qualified to do business as a foreign
corporation in Arizona and there is no other jurisdiction in which the failure
to be so qualified would have a material adverse effect on the business or
financial condition of the Company. The Company has furnished the counsel for
the Purchasers with copies of its Articles of Incorporation (the "ARTICLES"),
amended and restated certificates of designation for each of the Series A
Preferred Stock and Series B Preferred Stock (the "RESTATED CERTIFICATES OF
DESIGNATION"), Series C Certificate and Bylaws (collectively, the "CHARTER
DOCUMENTS"). Said copies are true, correct and complete and reflect all
amendments now in effect.
3.2 CORPORATE POWER. The Company has all requisite legal and corporate
power and authority to execute and deliver this Agreement and the Shareholder
Rights Agreement in substantially the form attached hereto as Exhibit C (the
"SHAREHOLDER RIGHTS AGREEMENT"), to sell and issue the Shares hereunder, to
issue the underlying Common Stock (the "CONVERSION STOCK") in accordance with
the provisions of the Charter Documents, and to carry out and
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perform its obligations under the terms of this Agreement and the Shareholder
Rights Agreement.
3.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated companies
and does not otherwise own or control, directly or indirectly, any equity
interest in any corporation, association or business entity.
3.4 CAPITALIZATION. The authorized capital stock of the Company will, upon
the filing of the Restated Certificates of Designation and the Series C
Certificate, consist of 100,000,000 shares of Common Stock and 10,000,000 shares
of Preferred Stock, of which 2,861,382 have been designated Series A Preferred
Stock ("SERIES A PREFERRED"), 160,000 have been designated as Series B Preferred
Stock ("SERIES B PREFERRED") and 5,194,805 have been designated as Series C
Preferred Stock. Immediately prior to the Closing, the total number of
outstanding shares of Common Stock was 9,123,713. Upon the filing of the
Restated Certificates of Designation and the Series C Certificate and
immediately prior to the Closing, the total number of outstanding shares of
Series A Preferred Stock was 2,861,382 and the total number of outstanding
shares of Series B Preferred Stock was 160,000. The Series A Preferred Stock and
the Series B Preferred Stock shall have the rights, preferences, privileges and
restrictions set forth in each of their respective Restated Certificates of
Designation. The Series C Preferred Stock shall have the rights, preferences,
privileges and restrictions set forth in the Series C Certificate. All currently
outstanding shares of Common Stock, Series A Preferred Stock and Series B
Preferred Stock have been duly authorized and validly issued, are fully paid and
nonassessable, and have been issued in compliance with state and federal
applicable securities laws, and a true complete list of all holders of such
shares is set forth on Exhibit B. The Company has reserved 5,194,805 shares of
Series C Preferred for issuance hereunder, 5,194,805 shares of Common Stock for
issuance upon conversion of the Series C, 160,000 shares of Common Stock for
issuance upon conversion of the Series B Preferred and 2,861,382 shares of
Common Stock for issuance upon conversion of the Series A Preferred. Of the
2,500,000 shares of Common Stock of the Company reserved for issuance under the
Company's stock option plans, 123,664 shares have been issued pursuant to the
exercise of options granted with respect thereto, 2,020,668 shares remain
subject to outstanding options, and 355,668 shares remain available to underlie
future option grants. In addition, as of the Closing, there are outstanding
warrants to purchase an aggregate of 412,142 shares of the Company's Common
Stock. All of the granted options and warrants have been duly authorized,
validly issued and have been issued in compliance with applicable state and
federal securities laws and a true and complete list of all grantees of such
options and warrants is set forth on Exhibit B. Except as set forth above and as
provided in the Company's Charter Documents, there are no options, warrants or
other rights to purchase or acquire any of the Company's authorized and unissued
capital stock. The Company is not a party or subject to any agreement or
understanding, and to the best of the knowledge of the Company, there is no
agreement or understanding between any persons and/or entities, which affects or
relates to the voting or giving of written consents with respect to any security
or the voting by a director of the Company.
3.5 AUTHORIZATION. All corporate action on the part of the Company, its
directors and stockholders necessary for the authorization, execution, delivery
and performance of this
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Agreement and the Shareholder Rights Agreement by the Company, the
authorization, sale, issuance and delivery of the Shares and the Conversion
Stock and the performance of all of the Company's obligations hereunder and
under the Shareholder Rights Agreement has been taken or will be taken prior to
the First Closing. This Agreement and the Shareholder Rights Agreement, when
executed and delivered by the Company, shall constitute 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 rules of law governing specific performance, injunctive
relief or other equitable remedies; provided, however, that the Company makes
no representation as to the enforceability of the indemnification provisions
contained in the Shareholder Rights Agreement. The Shares, when issued in
compliance with the provisions of this Agreement, will be validly issued, fully
paid and nonassessable, and will have the rights, preferences, privileges and
restrictions described in the Series C Certificate; the Common Stock issuable
upon conversion of the Shares has been duly and validly reserved and, when
issued in compliance with the provisions of the Articles and the Series C
Certificate, will be validly issued, fully paid and nonassessable; and the
Shares and the Conversion Stock will be free of any liens or encumbrances
(assuming the Purchasers take the Shares with no notice thereof) other than any
liens or encumbrances created by or imposed upon the holders; provided,
however, that the Shares and the Conversion Stock may be subject to
restrictions on transfer under state or federal securities laws and
restrictions set forth in the Shareholder Rights Agreement. The issuance of the
Shares is not subject to any preemptive rights or rights of first refusal,
except for the rights of the Series A and Series B set forth in each of their
Restated Certificates of Designation.
3.6 PROPRIETARY RIGHTS. The Company has title and ownership of all
patents, trademarks, service marks, trade names, copyrights, trade secrets,
information, proprietary rights and processes used in or necessary for its
business as now conducted and as proposed to be conducted without any conflict
with or infringement of the rights of others. There are no outstanding options,
licenses, or agreements of any kind relating to the foregoing, nor is the
Company bound by or a party to any options, licenses or agreements of any kind
with respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information, proprietary rights and processes of any
other person or entity. The Company has not violated nor, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade proprietary rights of any other person
or entity. To the best knowledge of the Company after due and diligent
investigation, none of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of his or her best efforts to promote the interests
of the Company or that would conflict with the Company's business as proposed to
be conducted. Neither the execution nor delivery of this Agreement or the
Shareholder Rights Agreement, nor the carrying on of the Company's business by
the employees of the Company, nor the conduct of the Company's business as
proposed, will, to the best of the Company's knowledge after due and diligent
investigation, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated. The Company does
not believe it is or will
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be necessary to utilize any inventions of any of its employees (or people it
currently intends to hire) made prior to their employment by the Company.
3.7 LITIGATION, ETC. There are no actions, suits, proceedings or
investigations pending or, to the Company's knowledge, threatened against the
Company or its properties before any court or governmental agency. The
foregoing includes, without limitation, actions pending or threatened (or any
basis therefor known to the Company) involving the prior employment of any of
the Company's employees, their use in connection with the Company's business of
any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
3.8 MATERIAL LIABILITIES. Except as set forth in the Financial Statements
(as defined in Section 3.20), the Company has no liabilities or obligations,
absolute or contingent, which are reasonably expected to exceed $25,000
individually or in the aggregate.
3.9 MATERIAL AGREEMENTS. All of the contracts and agreements with
expected receipts or expenditures in excess of $25,000 or involving a license
or grant of rights to or from the Company involving patents, copyrights,
trademarks, or other proprietary information applicable to the business of the
Company, to which the Company is a party and which are in effect as of the
First Closing Date are listed on Exhibit B. All such contracts and agreements
are valid, binding and in full force and effect in all material respects,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies, and the Company has not received
any indication of an intention to terminate any such contract or agreement by
any of the parties to any such contract or agreement.
3.10 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good and
marketable title to its properties and assets, and has good title to all its
leasehold interests, in each case subject to no mortgage, pledge, lien,
encumbrance or charge, other than (i) the lien of current taxes not yet due and
payable, and (ii) possible minor liens and encumbrances which, when considered
individually or together, do not materially detract from the value of the
property subject thereto or materially impair the operations of the Company, and
which have not arisen otherwise than in the ordinary course of business and such
properties and assets are sufficient to enable the Company to carry on its
business as presently conducted and, to the Company's knowledge, as proposed to
be conducted.
3.11 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The Company
is not in violation of or default under: (i) any term of its Charter Documents,
as amended to date; (ii) in any material respect, any term or provision of any
mortgage, indebtedness, indenture, contract, agreement, instrument, judgment or
decree; and (iii) any order, statute, rule or regulation applicable to the
Company. The execution, delivery and performance of and compliance with this
Agreement, and the issuance of the Shares and the Conversion Stock, have
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not resulted and will not result in any violation of, or conflict with, or
constitute a default under, the Company's Charter Documents, as amended to date
and have not and will not result in any violation of, or conflict with, or
constitute a default under, any of its agreements nor result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company.
3.12 EMPLOYEES. No employee of the Company has any agreement or
contract, written or oral, except as set forth herein, regarding such person's
employment with the Company. To the best of the Company's knowledge after due
and diligent investigation, no employee of the Company nor any consultant with
whom the Company has contracted is in violation of any term of any employment
contract, non-disclosure agreement or any other similar contract or agreement
relating to the relationship of such employee or consultant with the Company,
any former employer or any other party. No employee of the Company has been
granted the right to continued employment by the Company or to any material
compensation following termination of employment with the Company. The Company
is not aware that any officer or key employee, or that any group of officers
and/or key employees, intends to terminate their employment with the Company,
nor does the Company have a present intention to terminate the employment of
any officer, key employee or group of officers and/or key employees. Each prior
and current officer, employee and consultant of the Company has executed an
Employment, Confidential Information and Invention Assignment Agreement
substantially in the form attached hereto as Exhibit D. No current officer,
employee or consultant of the Company has excluded works or inventions made
prior to his or her employment with the Company from his or her assignment of
inventions pursuant to such Employment Confidential Information and Invention
Assignment Agreement.
3.13 REGISTRATION RIGHTS. Except as set forth in (i) the Shareholder
Rights Agreement and (ii) certain outstanding warrants held by Peacock, Hislop,
Xxxxxx & Given, Inc. to purchase an aggregate of 312,142 shares of Common Stock
of the Company, the Company immediately prior to the First Closing will not be
under any contractual obligation to register under the Securities Act of 1933,
as amended (the "SECURITIES ACT"), any of its presently outstanding securities
or any of its securities which may hereafter be issued.
3.14 GOVERNMENTAL CONSENT, ETC. 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 valid execution and
delivery of this Agreement, or the offer, sale or issuance of the Shares or the
Conversion Stock, or the consummation of any other transaction contemplated
hereby, except (a) the filing of the Restated Certificates of Designation and
the Series C Certificate in the office of the Nevada Secretary of State prior to
the Closing and (b) the qualification (or taking of such action as may be
necessary to secure an exemption from qualification, if available) of the offer
and sale of the Shares and the Conversion Stock under applicable Blue Sky laws,
which filings and qualifications, if required, will be accomplished in a timely
manner.
3.15 OFFERING. Subject to the accuracy of the Purchasers'
representations in Section 4 hereof, the offer, sale and issuance of the Shares
and the Conversion Stock constitute transactions
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exempt from the registration requirements of Section 5 of the Securities Act.
Neither the Securities and Exchange Commission not any state securities
commission has issued any order preventing or suspending the offer, sale and
issuance of the Shares and the Conversion Stock, or, to the best knowledge of
the Company, contemplated instituting proceedings for that purpose.
3.16 BROKERS OR FINDERS. Neither the Company nor the Purchaser, as a result
of any action taken by the Company, have incurred or will incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or the transactions
contemplated hereby.
3.17 RELATED-PARTY TRANSACTIONS. No employee, officer, or director of the
Company or member of such person's immediate family is indebted to the Company,
nor is the Company indebted (or committed to make loans or extend or guarantee
credit) to any of them except as disclosed in Exhibit B. To the best of the
Company's knowledge, none of such persons has any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or
with which the Company has a business relationship, or any firm or corporation
that competes with the Company, except that employees, officers, or directors
of the Company and members of their immediate families may own less than 1% of
the outstanding stock in a publicly traded company that may compete with the
Company. No employee, officer or director of the Company or member of such
person's immediate family is directly or indirectly interested in any contract
with the Company.
3.18 PERMITS. The Company has all franchises, permits, licenses, and any
similar authority necessary for the conduct of its business as now being
conducted or proposed to be conducted by it, the lack of which could materially
and adversely affect the business, properties, prospects, or financial
condition of the Company, and the Company believes it can obtain, without undue
burden or expense, any similar authority for the conduct of its business as
planned to be conducted. The Company is not in default in any material respect
under any of such franchises, permits, licenses, or other similar authority.
3.19 INSURANCE. The Company has insurance policies in effect covering the
risks associated with its business and properties which are of such character
and in such amounts as are customarily maintained by entities engaged in the
same or similar business and similarly situated. The Company has obtained, or
prior to Closing will obtain, a life insurance policy on J. Xxxxx Xxxxxxxxxx
with a face amount of $500,000, with proceeds payable to the Company.
3.20 FINANCIAL STATEMENTS. The Company has delivered to the Purchasers an
audited balance sheet and profit and loss statement as of and for the annual
period ended December 31, 1997 (the "ANNUAL FINANCIAL STATEMENTS") and
unaudited balance sheet and profit and loss statement as of and for the three
month period ended March 31, 1998 (collectively, the "FINANCIAL STATEMENTS").
The Financial Statements have been complied on a consistent basis throughout
the period indicated and with each other. The Financial Statements fairly
present the financial condition and operating results of the Company as of the
dates, and for the periods, indicated therein, subject to normal year-end audit
adjustments. Except as set forth in the Financial Statements, the Company has
no liabilities, contingent or otherwise, other than (i)
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liabilities incurred in the ordinary course of business subsequent to March 31,
1998 and (ii) obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally accepted accounting
principles to be reflected in the Financial Statements, which, in both cases,
individually or in the aggregate or not material to the financial condition or
operating results of the Company. The Company hereby represents and warrants
that the Annual Financial Statements have been, and all yearly financial
statements thereafter shall be, audited by an independent certified public
accounting firm of national recognition and such financial statements shall be
prepared in accordance with generally accepted accounting principles.
3.21 EMPLOYEE BENEFIT PLANS. The Company does not have any Employee
Benefit Plans as defined in the Employee Retirement Income Security Act of 1974.
3.22 TAX RETURNS AND PAYMENTS. The Company has filed all tax returns and
reports as required by law. These returns and reports are true and correct in
all material respects. The Company has paid all taxes and other assessments due.
3.23 MINUTE BOOKS. The copy of the minute books of the Company provided to
the counsel for the Purchasers contains minutes of all meetings of directors
and shareholders and all actions by written consent without a meeting by the
directors and shareholders since the date of incorporation and reflects all
actions by the directors (and any committee of directors) and shareholders with
respect to all transactions referred to in such minutes accurately in all
material respects.
3.24 SECTION 1202 OF THE INTERNAL REVENUE CODE. The capital stock issuable
hereunder will constitute "Qualified Small Business Stock" within the meaning
of Section 1202 of the Internal Revenue Code of 1986, as amended (the "CODE"),
as of the date of issuance and the Company hereby represents, warrants and
covenants that it shall continue to do the following:
(a) use its reasonable best efforts to cause the Shares to continue
to constitute Qualified Small Business Stock, including without limitation,
compliance with the reporting and record keeping requirements of Section 1202
of the Code and any regulations promulgated thereunder; and
(b) without limiting the generality of the foregoing, use its
reasonable efforts to provide the Purchasers with notice at least thirty (30)
business days prior to taking any of the following actions:
(i) Within the two-year period ending one year from the date
hereof, purchase an amount of its own stock (within the meaning of Section
1202(c)(3) of the Code) having an aggregate value at the time(s) of purchase
exceeding five percent of the aggregate value of all of its outstanding stock
determined as of the start of such period;
(ii) Conduct any of the following businesses (as defined for
purposes of Section 1202(e)(3) of the Code:
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(A) any business involving the performance of service in the
fields of law, accounting, actuarial science, performing arts, athletics or
brokerage services;
(B) any banking or insurance business;
(C) any farming business (including the business of raising or
harvesting trees);
(D) any business involving the production of extraction of
natural resources with respect to which a deduction is allowable under Section
613 or 613A of the Code;
(E) any business of operating a hotel, motel, restaurant or
similar establishment;
(iii) Permit more than 10% of the value of its assets to consist of
stock issued by other companies (other than stock of companies that qualify as
subsidiaries of the Company within the meaning of Section 1202(e)(5) of the Code
or stock that is held as working capital or reasonably expected to be sold
within two years to finance research and experimentation within the meaning of
Section 1202(e)(6) of the Code;
(iv) Permit more than 10% of the value of its assets to consist of
real property which is not used in the active conduct of a qualified trade or
business within the meaning of Section 1202(e)(7) of the Code;
(v) Make an election under section 936 of the Code (relating to the
Puerto Rico and possessions tax credit) or permit a subsidiary to make such an
election; or
(vi) In a single transaction or series of related transactions, raise
capital or more than $1 million through the issuance of securities or the
incurrence of indebtedness if such transaction or series of related transactions
likely would cause the Company to fail to satisfy the active business
requirement set forth in Section 1202(e)(1) of the Code by virtue of holding
excess cash or investment assets.
For purposes of the foregoing, any valuation of other determination
(including, without limitation, a determination that a specific course of
action does not constitute the conduct of a business described in 2(b), above)
made by the Company's Board of Directors in good faith or for which there was,
at the time made, a reasonable basis in law or fact shall be conclusive.
3.25 DISCLOSURE. No representation or warranty made by the Company in
this Agreement, any schedule or exhibit hereto, or any certificate delivered
hereunder or any other statement or document delivered to the Purchasers by or
on behalf of the Company contains any untrue statement of a material fact, or
omits to state a material fact necessary to make the
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statements contained herein or therein not misleading in light of the
circumstances under which they were made.
SECTION 4.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby severally represents and warrants to the Company as
follows:
4.1 PREEXISTING RELATIONSHIP WITH COMPANY; BUSINESS AND FINANCIAL
EXPERIENCE. It either (i) has a prior business and/or personal relationship with
the Company and/or its officers and directors, or (ii) by reason of its business
or financial experience or the business or financial experience of its
professional advisors who are unaffiliated with the Company, and who are not
compensated by the Company, it has the capacity to protect its own interests in
connection with the purchase of the Shares and underlying Conversion Stock.
4.2 INVESTMENT INTENT; BLUE SKY. It is acquiring the Shares and the
underlying Conversion Stock for investment for its own account, not as a nominee
or agent, and not with the view to, or for resale in connection with, any
distribution thereof. It understands that the issuance of the Shares and the
underlying Conversion Stock has not been, and will not be, registered under the
Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act, the availability of which depends upon, among
other things, the bona fide nature of the Purchaser's investment intent and the
accuracy of the Purchaser's representations as expressed herein. The Purchaser's
address set forth on Schedule I represents the Purchaser's true and correct
state of domicile, upon which the Company may rely for the purpose of complying
with the applicable "Blue Sky" laws.
4.3 RULE 144. It acknowledges that the Shares and the underlying Conversion
Stock must be held indefinitely unless subsequently registered under the
Securities Act or unless an exemption from such registration is available. It is
aware of the provisions of Rule 144 promulgated under the Securities Act which
permit limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the existence
of a public market for the shares, the availability of certain current public
information about the Company, the resale occurring not less than one year after
a party has purchased and paid for the security to be sold, the sale being
effected through a "broker's transaction" or in a transaction directly with a
"market maker," and the number of shares being sold during any three-month
period not exceeding specified limitations.
4.4 NO PUBLIC MARKET. It understands that no public market now exists for
any of the securities issued by the Company and that the Company has made no
assurances that a public market will ever exist for the Company's securities.
4.5 RESTRICTIONS ON TRANSFER; RESTRICTIVE LEGENDS. It understands that the
transfer of the Shares and the Conversion Stock is restricted by applicable
state and Federal securities laws, and that the certificates representing the
Shares and the Conversion Stock will be imprinted with legends restricting
transfer except in compliance therewith.
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4.6 AUTHORIZATION. All action on the part of the Purchaser's partners,
board of directors, and stockholders, as applicable, necessary for the
authorization, execution, delivery and performance of this Agreement and the
Shareholder Rights Agreement by the Purchaser, the purchase of and payment for
the Shares and the Conversion Stock and the performance of all of the
Purchaser's obligations hereunder and under the Shareholder Rights Agreement has
been taken or will be taken prior to the Closing. This Agreement and the
Shareholder Rights Agreement, when executed and delivered by the Purchaser,
shall constitute valid and binding obligations of the Purchaser, enforceable in
accordance with their terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies; provided,
however, that the Purchaser makes no representation as to the enforceability of
the indemnification provisions contained in the Shareholder Rights Agreement.
4.7 TAX LIABILITY. It has reviewed with its own tax advisors the tax
consequences of the transactions contemplated by this Agreement. It relies
solely on such advisors and not on any statements or representations of the
Company or any of the Company's agents with respect to such tax consequences.
It understands that it, and not the Company, shall be responsible for its own
tax liability that may arise as a result of the transactions contemplated by
this Agreement.
SECTION 5.
COVENANTS
5.1 ANNUAL FINANCIAL STATEMENTS. Immediately after the First Closing, the
Company shall deliver to the Purchasers the Annual Financial Statements.
5.2 INSURANCE. The Company will obtain within 30 days after the First
Closing Date a life insurance policy on J. Xxxxx Xxxxxxxxxx with a face amount
of $1,000,000, with proceeds payable to the Company.
5.3 BOARD OF DIRECTORS. With 60 days after Closing, the Company's Board of
Directors shall appoint an outside director with industry experience who is
acceptable to all directors.
SECTION 6.
CONDITIONS TO CLOSING OF THE PURCHASERS
Each Purchaser's obligation to purchase the Shares is, unless waived in
writing by the Purchaser, subject to the fulfillment as of the date of such
Closing of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects as of the date of the Closing at which the Purchaser
consummates its purchase of Shares hereunder.
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6.2 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Company on or prior to
the First Closing Date shall have been performed or complied with in all
material respects.
6.3 OPINION OF THE COMPANY'S COUNSEL. The Purchaser shall have received
from Xxxxx Xxxx LLP, counsel to the Company, an opinion addressed to the
Purchaser, dated as of the date of the Closing at which the Purchaser
consummates its purchase of Shares hereunder, in substantially the form of
Exhibit E.
6.4 BLUE SKY. The Company shall have obtained all necessary Blue Sky law
permits and qualifications, or have the availability of exemptions therefrom,
required by any state for the offer and sale of the Shares and the underlying
Conversion Stock.
6.5 RESTATED CERTIFICATES. The Restated Certificates of Designation and
the Series C Certificate shall have been filed in the office of the Nevada
Secretary of State.
6.6 LEGAL MATTERS. All material matters of a legal nature which pertain
to this Agreement and the transactions contemplated hereby shall have been
reasonably approved by counsel to the Purchasers.
6.7 SHAREHOLDER RIGHTS AGREEMENT. The Shareholder Rights Agreement shall
have been executed and delivered by the parties thereto in substantially the
form attached hereto as Exhibit C.
6.8 COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Purchasers a certificate of the Company in substantially the form attached
hereto as Exhibit F, executed by the President of the Company, dated as of the
date of the Closing at which the Purchaser consummates its purchase of Shares
hereunder, and certifying, among other things, to the fulfillment of the
conditions specified in Sections 6.1 and 6.2 of this Agreement.
6.9 BOARD OF DIRECTORS. Upon the Closing, the members of the Company's
Board of Directors shall be J. Xxxxx Xxxxxxxxxx and Xxxxxxx X. Xxxxxxxx (who
shall fill the two board seats nominated by Management), Xxxx Xxxxxxx (who shall
be the Series A designee) Xxxxx Xxxxx (who shall be the Series C designee) and
one open seat which shall be filled in accordance with Section 5.3 of this
Agreement.
6.10 PURCHASER'S DUE DILIGENCE. Each Purchaser shall have satisfied
itself as to its due diligence investigation of the Company. Without
limitation, (i) each Purchaser shall have received annual financial statements
as of December 31, 1997 together with a draft audit report by an independent
national accounting firm and (ii) if applicable, each Purchaser shall have
received the approval of its investment committee or similar body.
6.11 EMPLOYMENT, CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT
AGREEMENTS. Each officer, employee and consultant of the Company shall have
executed an Employment, Confidential Information and Invention Assignment
Agreement substantially in the form attached hereto as Exhibit D.
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6.12 MANAGEMENT RIGHTS LETTER. The Company shall have executed and
delivered to the Purchasers consummating sales at the First Closing a management
rights letter in substantially the form attached hereto as Exhibit G.
SECTION 7.
CONDITIONS TO CLOSING OF THE COMPANY
The Company's obligation to sell and issue the Shares at each Closing is,
unless waived in writing by the Company, subject to the fulfillment as of the
date of the Closing of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations made in
Section 4 hereof by the Purchasers purchasing at such Closing shall be true and
correct as of the date of such Closing.
7.2 COVENANTS. All covenants, agreements, and conditions contained in this
Agreement to be performed or complied with by the Purchasers on or prior to the
date of such Closing shall have been performed or complied with in all material
respects.
7.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky law
permits and qualifications, or have the availability of exemptions therefrom,
required by any state for the offer and sale of the Shares and the underlying
Conversion Stock.
7.4 RESTATED CERTIFICATE. The Restated Certificates of Designation and the
Series C Certificate shall have been filed in the office of the Nevada
Secretary of State.
7.5 LEGAL MATTERS. All material matters of a legal nature which pertain to
this Agreement and the transactions contemplated hereby shall have been
reasonably approved by counsel to the Company.
7.6 SHAREHOLDER RIGHTS AGREEMENT. Each of the Purchasers shall have
executed and delivered the Shareholder Rights Agreement in substantially the
form attached hereto as Exhibit C.
SECTION 8.
MISCELLANEOUS
8.1 GOVERNING LAW. This Agreement shall be governed in all respects by the
internal laws of the State of Nevada without regard to conflict of laws
provisions.
8.2 ENTIRE AGREEMENT; AMENDMENT. This Agreement, including the exhibits
hereto, constitutes the full and entire understanding and agreement among the
parties with regard to the subjects hereof and thereof, and no party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or
therein. Except as expressly provided herein, neither this Agreement nor any
term hereof may be
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amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought or, in the case of the Purchasers, by the
holders of a majority of the Shares purchased hereunder. Notwithstanding the
foregoing, the Company, acting alone, may amend (i) the Schedule of Purchasers
in connection with the Second Closing as provided in Section 2.1 and/or (ii)
Section 1.1 to increase the aggregate number of shares of Series C Preferred to
be sold under this Agreement, provided that such increased number of Shares has
been authorized in an amendment to the Series C Certificate which has been duly
adopted by the Board of Directors and approved by the required vote of the
stockholders; provided, however, that no such amendment shall have the effect of
increasing the number of Shares which any Purchaser is obligated to purchase
without such Purchaser's consent.
8.3 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by facsimile
transmission, by hand or by messenger, addressed:
(a) if to a Purchaser, at such Purchaser's address as set forth in
Schedule I or at such other address as such Purchaser shall have furnished to
the Company, with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, PC
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attn: Xxxxxxxxxxx X. Xxxxxxxxx, Esq.
Fax: (000) 000-0000
(b) if to the Company, to:
Quality Care Solutions, Inc.
0000 Xxxx Xxxxxxx Xxxxx
Xxxxxxx, Xxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxxx
Fax: (000) 000-0000
or at such other address as the Company shall have furnished to the Purchaser,
with a copy to:
Xxxxx Xxxx LLP
0000 Xxxxx Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxx, Xxxxxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxxxxx, Esq.
Fax: (000) 000-0000
Each such notice or other communication shall for all purposes of
this Agreement be treated as effective or having been given when received if
delivered personally, if sent by facsimile, the first business day after the
date of confirmation that the facsimile has been successfully transmitted to
the facsimile number for the party notified, or, if sent by mail, at the
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earlier of its receipt or 72 hours after the same has been deposited in a
regularly maintained receptacle for the deposit of the United States mail,
addressed and mailed as aforesaid.
8.4 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or
omission to exercise any right, power or remedy accruing to any party, upon any
breach or default of another party under this Agreement, shall impair any such
right, power or remedy of such party nor shall it be construed to be a waiver of
any such breach or default, or an acquiescence therein, or of or in any similar
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any party, shall be cumulative
and not alternative.
8.5 EXPENSES. The Company shall bear its own expenses incurred on its
behalf with respect to this Agreement and the transactions contemplated hereby
and will pay the reasonable out-of-pocket expenses of the Purchasers, including
legal fees and expenses of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C., as counsel to
the Purchasers.
8.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, and all of which together
shall constitute one instrument.
8.7 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision, which shall be replaced with an enforceable provision
closest in intent and economic effect as the severed provision; provided that no
such severability shall be effective if it materially changes the economic
benefit of this Agreement to any party.
8.8 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
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The foregoing agreement is hereby executed effective as of the date first
set forth above.
"COMPANY"
QUALITY CARE SOLUTIONS, INC.,
a Delaware corporation
By: /s/ Xxxxxxx X. Xxxxxxxx
______________________________
Xxxxxxx X. Xxxxxxxx, President
Date: ______________________________
"PURCHASERS"
DOMINION FUND IV, A DELAWARE LIMITED PARTNERSHIP
by its general partner, DOMINION MANAGEMENT IV, L.L.C.
/s/ Xxxxx Xxxxx
____________________________________
By: Xxxxx Xxxxx
Title: Member
Date: May 29, 1998
[Signature page to Quality Care Solutions, Inc. Series C Preferred Stock
Purchase Agreement]
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EXHIBIT A
(To Series C Preferred Stock Purchase Agreement)
RESTATED CERTIFICATE OF DESIGNATION OF THE SERIES A PREFERRED,
RESTATED CERTIFICATE OF DESIGNATION OF THE SERIES B PREFERRED AND
CERTIFICATE OF DESIGNATION OF THE SERIES C PREFERRED
[See Exhibit 3.1 of S-1 Registration Statement]
22
EXHIBIT B
(To Series C Preferred Stock Purchase Agreement)
SCHEDULE OF EXCEPTIONS
(Omitted on original document).
23
EXHIBIT C
(To Series C Preferred Stock Purchase Agreement)
SHAREHOLDER RIGHTS AGREEMENT
Attached.
[See Exhibit 4.3 of S-1 Registration Statement]
24
EXHIBIT D
(To Series C Preferred Stock Purchase Agreement)
FORM OF EMPLOYMENT, CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT
(Omitted on original document).
25
EXHIBIT E
(To Series C Preferred Stock Purchase Agreement)
FORM OF LEGAL OPINION OF XXXXX XXXX LLP
(Omitted on Original Document)
26
EXHIBIT F
(To Series C Preferred Stock Purchase Agreement)
COMPLIANCE CERTIFICATE
(Omitted on Original Document.)
27
EXHIBIT G
(To Series C Preferred Stock Purchase Agreement)
MANAGEMENT RIGHTS LETTER
(Omitted on Original Document.)
28
SCHEDULE I
(To Series C Preferred Stock Purchase Agreement)
SCHEDULE OF PURCHASERS OF SERIES C PREFERRED STOCK
NAME, ADDRESS AND FAX NUMBER OF NO. OF DOLLAR
PURCHASER SHARES AMOUNT CLOSING DATE
Dominion Fund IV, a Delaware Limited 5,194,805 $3,999,999.85 May 29, 1998
Partnership
00 Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Fax: 000-000-0000
