Exhibit 4.9
SERIES F PREFERRED STOCK PURCHASE AGREEMENT
by and among
INTEK INFORMATION, INC.
and
BVCF IV, L.P.
and
The Other Named Parties Hereto
Dated as of November 19, 1999
Table of Contents
Section Page
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I. Issuance and Sale of Securities............................................................................................... 1
1.1. The Closing........................................................................................................... 1
II. Representations and Warranties of the Company................................................................................ 3
2.1. Organization and Good Standing; Power and Authority; Qualifications................................................... 3
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2.2. Authorization of the Documents........................................................................................ 3
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2.3. Capitalization........................................................................................................ 4
2.4. Authorization and Issuance of Capital Stock........................................................................... 5
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2.5. Reservation of Shares................................................................................................. 5
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2.6. Financial Statements.................................................................................................. 6
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2.7. Absence of Undisclosed Liabilities.................................................................................... 6
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2.8. Absence of Material Changes........................................................................................... 6
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2.9. No Conflict........................................................................................................... 7
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2.10. Agreements............................................................................................................ 8
2.11. Patents, Trademarks, etc.............................................................................................. 8
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2.12. Equity Investments; Subsidiaries...................................................................................... 9
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2.13. Corporate Minute Books................................................................................................ 9
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2.14. Suitability........................................................................................................... 9
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2.15. Assets................................................................................................................ 9
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2.16. Employee Benefit Plans............................................................................................... 10
2.17. Labor Relations; Employees........................................................................................... 13
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2.18. Litigation; Orders................................................................................................... 13
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2.19. Compliance with Laws; Permits........................................................................................ 13
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2.20. Offering Exemption................................................................................................... 14
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2.21. Related Transactions................................................................................................. 14
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2.22. Disclosure........................................................................................................... 14
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2.23. Taxes................................................................................................................ 15
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2.24. Environmental Protection............................................................................................. 16
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2.25. Consents............................................................................................................. 18
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2.26. Insurance............................................................................................................ 18
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2.27. Brokers.............................................................................................................. 18
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2.28. Use of Proceeds...................................................................................................... 19
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2.29. Previous Issuances Exempt............................................................................................ 19
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2.30. Real Property........................................................................................................ 19
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2.31. Accounts Receivable.................................................................................................. 20
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2.32. Investment Banking Services.......................................................................................... 20
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2.33. Registration Rights.................................................................................................. 20
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2.34. Material............................................................................................................. 20
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III. Representations and Warranties of the Investor............................................................................. 20
3.1. Investment Representations........................................................................................... 20
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3.2. Due Authorization, Etc............................................................................................... 21
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IV. Certain Covenants........................................................................................................... 22
4.1. Operation of the Business Prior to the Closing....................................................................... 22
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4.2. Third Party Consents Prior to the Closing............................................................................ 23
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4.3. Access to Records Prior to the Closing............................................................................... 23
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4.4 Use of Proceeds...................................................................................................... 23
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V. Survival of Representations, Warranties, Agreements and Covenants, Etc....................................................... 23
VI. Expenses.................................................................................................................... 24
VII. Indemnification............................................................................................................ 24
7.1. General Indemnification............................................................................................... 24
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7.2. Indemnification Principles............................................................................................ 24
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7.3. Claim Notice.......................................................................................................... 25
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7.4. Claim Procedure....................................................................................................... 25
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VIII. Miscellaneous............................................................................................................. 27
8.1. Remedies.............................................................................................................. 27
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8.2. Transfer Taxes........................................................................................................ 27
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8.3. Further Assurances.................................................................................................... 27
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8.4. Successors and Assigns; Assignment.................................................................................... 27
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8.5. Entire Agreement...................................................................................................... 28
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8.6. Notices............................................................................................................... 28
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8.7. Amendments............................................................................................................ 29
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8.8. Counterparts.......................................................................................................... 29
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8.9. Headings.............................................................................................................. 29
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8.10. Nouns and Pronouns.................................................................................................... 29
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8.11. Governing Law......................................................................................................... 29
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8.12 Severability.......................................................................................................... 29
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8.13. Knowledge............................................................................................................. 30
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8.14. Termination........................................................................................................... 30
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ii
Exhibits
A - Legal Opinion
B - Amended and Restated Certificate of Incorporation
C - Bylaws
D - Amended and Restated Shareholders' and Voting Agreement
E - Investor Registration Rights Agreement
F - Amendments to Registration Rights Agreements
iii
SERIES F PREFERRED STOCK PURCHASE AGREEMENT
SERIES F PREFERRED STOCK PURCHASE AGREEMENT, dated as of November __, 1999,
by and among INTEK INFORMATION, INC., a Delaware corporation (the "Company") and
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BVCF IV, L.P., a Delaware limited partnership, ("Xxxxxxx") and each of those
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other persons and entities whose names are set forth on the Schedule of
Investors attached hereto (with Xxxxxxx, the "Investors") and persons who are
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added to such Schedule (the "Additional Investors" and each an "Additional
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Investor."
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W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company wishes to sell to the Investors and the Additional
Investors and the Investors and the Additional Investors wish to purchase from
the Company, shares of Series F Convertible Preferred Stock, par value $.001 per
share (the "Series F Preferred Stock");
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WHEREAS, Xxxxxxx wishes to invest up to $8,000,000 and the Investors in
total (separately, not jointly), in the aggregate, may invest up to $5,000,000
in the Company by the purchase of Series F Preferred Stock;
WHEREAS, the Company in the future wishes to sell to other qualified
investors shares of Series F Preferred Stock in accordance with the terms and
conditions of this Agreement, each of whom is an Additional Investor.
ACCORDINGLY, the parties hereto hereby agree as follows:
I. Issuance and Sale of Securities
1.1. The Closing
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(a) At the Closing (as defined in Section 1.1(b)), Xxxxxxx shall purchase
from the Company and the Company shall sell to Xxxxxxx 3,755,869 shares of
Series F Preferred Stock (the "Purchase") for U.S. $8,000,000 (the "Purchase
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Price") and to any other Investors such number of shares of Series F Preferred
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Stock as shown on the signature pages hereto. The per share purchase price to
be paid by each Investor for the Series F Preferred Stock purchased by it at the
Closing is $2.13.
(b) The closing of the Purchase (the "Closing") shall take place at the
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offices of Xxxxxxxx, Xxxxx & Xxxxxxx, P.C., 0000 Xxxxxxxxx Xxxxxx, Xxxxxxx, XX
00000 on a date (the "Closing Date") as soon as practicable following the
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satisfaction or waiver of each of the closing conditions set forth herein. The
parties will use their respective best efforts to have the Closing occur on or
before November 19, 1999.
(c) At the Closing: (i) Xxxxxxxx, Xxxxx & Xxxxxxx, P.C., counsel to the
Company, shall deliver to each Investor its opinion substantially in the form of
Exhibit A attached hereto,
(ii) the Company shall deliver to each Investor copies of the Company's
Certified (by the Delaware Secretary of State) Amended and Restated Certificate
of Incorporation ("Restated Certificate") substantially in the form of Exhibit
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B attached hereto, the Company's By-Laws substantially in the form of Exhibit C
attached hereto, and resolutions of the Company's Board of Directors approving
the transaction contemplated hereby, each certified by the Assistant Secretary
of the Company as true, correct and complete and in effect as of the Closing,
(iii) the Company, each Investor and certain other equity holders of the Company
shall deliver duly executed counterparts to the Amended and Restated
Shareholders' and Voting Agreement in the form of Exhibit D hereto (the
"Shareholders' Agreement"), (iv) the Investor and the Company shall deliver duly
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executed counterparts to the Registration Rights Agreement by and among the
Company and the Investor in the form of Exhibit E hereto (the "Investor
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Registration Rights Agreement"), (v) the necessary parties shall deliver
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executed counterparts to the Amendments (as defined in Section 2.1) and (vi) the
Company will deliver the Management Rights Letter to Xxxxxxx in the form
previously delivered by Xxxxxxx.
(d) At the Closing, the Company shall deliver to each Investor a
certificate ("CEO Certificate"), dated the Closing Date and executed by the
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Chief Executive Officer of the Company, certifying to the effect that (i) each
of the representations and warranties of the Company set forth in this Agreement
are accurate in all material respects on and as of the Closing Date as if made
on and as of the Closing Date and (ii) each of the covenants and obligations
that the Company is obligated to perform or to comply with pursuant to this
Agreement at or prior to the Closing has been duly performed and complied with
in all material respects.
(e) At the Closing, the Company shall deliver to each Investor a
certificate representing the shares of Series F Preferred Stock purchased by it,
registered in the name of each Investor. Delivery of such certificate to each
Investor shall be made against receipt at the Closing by the Company from each
Investor of the Purchase Price, which shall be paid by wire transfer to an
account designated at least one business day prior to the Closing by the
Company.
(f) The Company may, at any time and from time to time prior to December 1,
1999, without obtaining the signature, consent or permission of the Investors or
any other party hereto, offer and sell to Additional Investors (who may already
be holders of securities of the Company), at a price of $2.13 per share, up to
an additional 2,347,418 shares of Series F Preferred Stock (the "Additional
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Shares"). At the closing of any such sale of Additional Shares (each a
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"Subsequent Closing"), each such Additional Investor shall deliver to the
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Company a duly executed counterpart to this Agreement (certifying in particular
the accuracy of the representations and warranties in Article III hereof as
applied to such Additional Investor), the Shareholders' Agreement and the
Investor Registration Rights Agreement. At each Subsequent Closing, the Company
shall deliver to each Additional Investor participating in such Subsequent
Closing (i) a CEO Certificate dated the date of the Subsequent Closing, and (ii)
a certificate representing the shares of Series F Preferred Stock purchased by
it, registered in the name of the Additional Investor. Delivery of such
certificate to each Additional Investor shall be made against receipt at the
Subsequent Closing by the Company from such Additional Investor of the purchase
price therefor, which shall be paid by wire transfer to an account designated at
least
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one business day prior to the Subsequent Closing by the Company. Any such
Additional Shares purchased by such Additional Investors, and such Additional
Investors, shall be subject to all of the terms and conditions of this Agreement
and the other Documents.
II. Representations and Warranties of the Company
The Company hereby represents and warrants to each Investor as follows as
of the date hereof and as of the Closing Date, and hereby represents and
warrants to the Additional Investors as follows as of the date hereof and as of
the date of the relevant Subsequent Closing (subject to additional disclosures
made in the CEO Certificate for each such Subsequent Closing):
2.1. Organization and Good Standing; Power and Authority; Qualifications.
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The Company and each of its Subsidiaries (a) is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization, (b) has
all requisite power and authority to own, lease and operate its properties and
to carry on its business as presently conducted and as proposed to be conducted
and (c) has all requisite power and authority to enter into and carry out the
transactions contemplated by (i) this Agreement, (ii) the Restated Certificate,
(iii) the Shareholders' Agreement, (iv) the Investor Registration Rights
Agreement, (v) Amendment No. 3 to the Registration Rights Agreement between the
Company and Conning Insurance Capital Limited Partnership V, in the form of
Exhibit F-1 hereto, (vi) Amendment No. 4 to the Registration Rights Agreement
among the Company, Xxxxx Xxxxxxxx, Xxxx & Company, Inc., and Squam Lake
Investors II, L.P., in the form of Exhibit F-2 hereto, (vii) Amendment No. 5 to
the Registration Rights Agreement among the Company, Resource Bancshares
Corporation and Xxxxxxx X. X'Xxxxxxx, in the form of Exhibit F-3 hereto, (viii)
Amendment No. 5 to the Registration Rights Agreement between the Company and The
Beacon Group III - Focus Value Fund, L.P., in the form of Exhibit F-4 hereto,
(ix) Amendment No. 3 to the Registration Rights Agreement among the Company,
Trans Cosmos USA, Inc. in the form of Exhibit F-5 hereto, and (x) Amendment No.
1 to the Registration Rights Agreement among the Company, the former
shareholders of Acorn Information Systems, Inc., and Prospero LLC in the form of
Exhibit F-6 hereto (the foregoing amendments to registration rights agreements
are collectively defined as the "Amendments," and all of the foregoing documents
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in this subpart (c) are collectively defined as the "Documents"). The Company
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and each Subsidiary is qualified to transact business as a foreign corporation
in, and is in good standing under the laws of, those jurisdictions listed on
Schedule 2.1, which jurisdictions constitute all of the jurisdictions wherein
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the character of the property owned or leased or the nature of the activities
conducted by it makes such qualification necessary, except for those
jurisdictions where the failure to be so qualified and in good standing would
not, individually or in the aggregate, have or reasonably be expected to have a
material adverse effect on the business, operations, properties, assets,
liabilities, condition (financial or other) or results of operations of the
Company (a "Material Adverse Effect").
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2.2. Authorization of the Documents ___. The execution, delivery and
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performance of each of the Documents has been duly authorized by all requisite
corporate action on the part of the Company, and each of the Documents
constitutes a legal, valid and binding obligation of the
3
Company, enforceable against the Company in accordance with its terms except to
the extent that enforceability may be limited by principles of equity,
bankruptcy, insolvency or other similar laws affecting rights of persons
generally and relating to equitable principles of general application.
2.3. Capitalization
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(a) The authorized capitalization of the Company immediately following
the Purchase will consist of:
(i) Preferred Stock. 79,000,000 shares of Preferred Stock, par
value $.001 per share ("Preferred Stock"), of which (A) 26,000 shares have been
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designated Series A Preferred Stock, (B) 22,000,000 shares have been designated
Series B Convertible Preferred Stock, (C) 11,500,000 shares have been designated
Series C Convertible Preferred Stock, (D) 15,800,000 shares have been designated
Series D Convertible Preferred Stock, (E) 8,300,000 shares have been designated
Series E Convertible Preferred Stock, (F) 9,160,000 shares have been designated
Series F Convertible Preferred Stock and (G) 12,214,000 shares of "blank check"
preferred stock that have no designation and none of which have been issued or
are outstanding. All of the outstanding shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock have been validly issued and are outstanding, fully
paid and nonassessable and free and clear of all mortgages, judgments, claims,
liens, security interests, pledges, escrows, charges or other encumbrances of
any kind or character whatsoever ("Encumbrances") other than: (i) those created
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by the Documents; (ii) those listed on Schedule 2.3(a); and (iii) those created
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by, or as a result of actions of the shareholder and which are not known to an
executive officer of the Company.
(ii) Common Stock. 170,000,000 shares of Common Stock, par value
$.0001 per share ("Common Stock"). All of the outstanding shares of Common
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Stock have been validly issued, and are outstanding, fully paid and
nonassessable and free and clear of all Encumbrances except for (i) those
created by the Documents; (ii) those listed on Schedule 2.3(a); and (iii) those
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created by, or as a result of actions of the shareholder and which are not known
to an executive officer of the Company.
(b) Schedule 2.3(b) hereto contains a list of (i) all holders of
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record of capital stock of the Company, including the number of shares of
capital stock held by each such holder, and (ii) all outstanding warrants,
options, agreements, convertible securities or other commitments pursuant to
which the Company is or may become obligated to issue any shares of the capital
stock or other securities of the Company, which names all persons entitled of
record to receive such shares or other securities, the shares of capital stock
or other securities required to be issued thereunder as of the date hereof and
the price per share, if any, payable with respect to the issuance of any share
of capital stock issuable thereunder. In addition to those securities listed on
Schedule 2.3(b), The Beacon Group III - Focus Value Fund, L.P. holds Warrant NB-
1 which, in effect, grants it weighted average antidilution protection in
respect of its Series B Convertible Preferred Stock, and the Company is
contingently obligated to issue up to
4
approximately 2,100,000 shares of Common Stock in connection with the
acquisition of Acorn Information Services, Inc. ("Acorn" and the "Acorn
Transaction"). Except as set forth on Schedule 2.3(b), the Company has no
knowledge of the names of any beneficial owners of shares of capital stock of
the Company who are not otherwise holders of record. Except as set forth on
Schedule 2.3(a) or as contemplated by the Documents there is, and immediately
after the Closing there will be, no agreement, restriction or encumbrance (such
as a preemptive or similar right, right of first refusal, right of first offer,
proxy, voting agreement, voting trust, registration rights agreement,
stockholders' agreement, warrant, etc.,) (i) with respect to which the Company
is a party and (ii) with respect to the best knowledge of the Company, to which
the Company is not a party with respect to the purchase, sale or voting of any
shares of capital stock or other securities of the Company pursuant to any
provision of law, the Restated Certificate or By-laws of the Company, any
agreement or otherwise. Except as contemplated by the Documents or except for
the right to vote its shares of capital stock of the Company for the election of
directors, no person has the right to nominate or elect one or more directors of
the Company. Subject to the closing, the Board of Directors of the Company has
approved a $600,000 loan to Xxxxxxx X. X'Xxxxxxx which will be secured by
600,000 shares of his Common Stock.
2.4. Authorization and Issuance of Capital Stock. The authorization,
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issuance, sale and delivery of the Series F Preferred Stock pursuant to this
Agreement and the authorization, reservation, issuance, sale and delivery of the
Common Stock issuable upon conversion of the Series F Preferred Stock issued
pursuant to this Agreement (the "Conversion Shares") have been duly authorized
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by all requisite corporate action on the part of the Company, and when issued,
sold and delivered in accordance with this Agreement, the Series F Preferred
Stock and the Conversion Shares will be validly issued and outstanding, fully
paid and nonassessable with no personal liability attaching to the ownership
thereof, free and clear of any Encumbrances, other than Encumbrances under the
Documents and those, if any, arising as a result of actions taken by any of the
Investors or any of the Additional Investors, and, except as set forth in the
Shareholders' Agreement, not subject to preemptive or similar rights of the
stockholders of the Company or others. The terms, designations, powers,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations and restrictions, of any series of Preferred
Stock of the Company are as stated in the Company's Restated Certificate and the
Documents. The Consent and Waiver (regarding, among other things, pre-emptive
rights) in the form provided by Xxxxxxx has been signed by the listed
signatories thereto and delivered to the Company.
2.5. Reservation of Shares. The Company has reserved a sufficient
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number of shares of Common Stock for issuance to the Investors upon the
conversion of the Series F Preferred Stock issued to the Investors on the date
of the Closing and the Subsequent Closing in accordance with this Agreement and
for issuance to each Additional Investor upon the conversion of the Series F
Preferred Stock issued to it on the date of any Subsequent Closing in accordance
with this Agreement, plus an additional 7,042,253 shares of Common Stock to
provide for conversion of a limited number of additional shares of Series F
Preferred Stock upon a "Series F PIK Election" as defined in the Restated
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Certificate and for the Series F Additional Adjustments (as defined in the
Restated Certificate). The Company has reserved
5
3,051,643 additional shares of Series F Preferred Stock for issuance upon such a
Series F PIK Election and 2,347,418 for sale to Investors and Additional
Investors other than Xxxxxxx (which 2,347,418 shares may be used for a Series F
PIK Election if not so sold).
2.6. Financial Statements. The Company has furnished to each Investor
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the audited statements of income, stockholders' equity and cash flows of the
Company for the 12 month period ending December 31, 1998, and the consolidated
audited balance sheet of the Company as of December 31, 1998, and the
consolidated unaudited statements of income, stockholders' equity and cash flows
of the Company for the nine-month period commencing on January 1, 1999, through
September 30, 1999, and the consolidated unaudited balance sheet of the Company
as of such date (the "Balance Sheet Date" and all such financial statements, the
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"Company Financial Statements"). The Company Financial Statements (i) are in
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accordance with the books and records of the Company and the Subsidiaries, (ii)
have been prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied (except that the financial statements for the
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nine-month period ended September 30, 1999 and the balance sheet as of such
date do not include all of the footnotes required under GAAP and do not include
customary year-end adjustments) and (iii) fairly and accurately present the
financial position of the Company and its consolidated subsidiaries as of
September 30, 1999, and the results of its operations and cash flows for the
periods are set forth in such statements. Schedule 2.7 sets forth additional
potential liabilities not contained in such statements.
2.7. Absence of Undisclosed Liabilities. Except as disclosed on
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Schedule 2.7, the Company and the Subsidiaries have no liabilities or
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obligations (whether accrued, absolute, contingent, unliquidated or otherwise,
whether or not known, whether due or to become due and regardless of when
asserted) other than (i) liabilities or obligations reserved against or
otherwise disclosed in the Company Financial Statements, (ii) other liabilities
or obligations that were incurred after the Balance Sheet Date in the ordinary
course of business consistent (in amount and kind) with past practice (none of
which is a liability resulting from breach of contract, breach of warranty,
tort, infringement, claim or lawsuit) and that do not exceed $100,000 in the
aggregate, (iii) liabilities or obligations under Contracts listed in the
Schedules to this Agreement or under Contracts that are not required to be
disclosed therein (but not liabilities for breaches thereof), (iv) liabilities
and obligations incurred in connection with the Acorn Transaction, and (v)
obligations and liabilities incurred in connection with the spin-off of Spider
Technologies, Inc. to the Company's shareholders ("Spider" and the "Spider Spin
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Off").
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2.8. Absence of Material Changes. Except as set forth on Schedule 2.8,
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since the Balance Sheet Date, the Company (which term includes each Subsidiary
for purposes of this Section) has conducted its business in the ordinary course,
consistent with past practice and there has not been (a) any Material Adverse
Effect or any event or condition (other than events or conditions affecting the
Company's industry generally and which have been publicly reported) which could
reasonably be expected to have such a Material Adverse Effect, (b) any waiver or
cancellation of any material right of the Company, or the cancellation of any
material debt or claim held by the Company, (c) any payment, discharge or
satisfaction of any claim, liability or obligation of the Company other than in
the ordinary course of business, (d) any Encumbrance upon the assets of the
Company other than any Permitted Encumbrance (as
6
defined in Section 2.30), (e) any declaration or payment of dividends on, or
other distribution with respect to, or any direct or indirect redemption or
acquisition of, any securities of the Company other than distribution of Capital
Stock of Spider, (f) any issuance of any stock, bonds or other securities of the
Company other than pursuant to the Acorn Transaction, (g) any sale, assignment
or transfer of any tangible or intangible assets of the Company except in the
ordinary course of business or transfers to Spider pursuant to the Spider Spin
Off, (h) any loan by the Company to any officer, director, employee, consultant
or shareholder of the Company (other than advances to such persons in the
ordinary course of business in connection with travel and travel related
expenses), (i) any damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the assets, property, financial
condition or results of operations of the Company, (j) any increase, direct or
indirect, other than in the ordinary course of business, in the compensation
paid or payable to any officer or director of the Company other than the salary
increase to Xx. X'Xxxxxxx and Xx. Xxxxxxxx approved by the Board of Directors in
October, 1999, (k) any change in the accounting or tax methods, practices or
policies, or of any material tax election of the Company, (l) any indebtedness
incurred for borrowed money by the Company other than in the ordinary course of
business, (m) any amendment to or termination of any material agreement to which
the Company is a party other than the expiration of any such agreement in
accordance with its terms, (n) any change of which either (i) the Company has
received notice or (ii) otherwise has knowledge with respect to the regulation
of the Company or its activities by any administrative agency or governmental
body to the extent such change has had or could reasonably be expected to have a
Material Adverse Effect, (o) any material change in the manner of business or
operations of the Company (including, without limitation, any accelerations or
deferral of the payment of accounts payable or other current liabilities or
deferral of the collection of accounts or notes receivable), (p) any capital
expenditures or commitments therefor by the Company that aggregate in excess of
$100,000, (q) except for the amendment on November 3, 1999 to the Company's
Certificate of Incorporation, and any amendments to the Company's certificate of
incorporation and by-laws required in connection with the transactions
contemplated by this Agreement, any amendment of the certificate of
incorporation, by-laws or other organizational documents of the Company, (r)
other than the Acorn Transaction and the Spider Spin Off, any transaction
entered into by the Company other than in the ordinary course of business or any
other material transaction entered into by the Company whether or not in the
ordinary course of business, or (s) any agreement or commitment (contingent or
otherwise) by the Company to do any of the foregoing.
2.9. No Conflict. The execution and delivery by the Company of the
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Documents and the consummation by the Company of the transactions contemplated
hereby and thereby and the compliance by the Company with the provisions hereof
and thereof (including, without limitation, the issuance, sale and delivery by
the Company of the Series F Preferred Stock and the Conversion Shares) will not
(a) (relying, in part, upon the representations and warranties of the Investors
and the Additional Investors in Article III) violate any provision of law,
statute, rule or regulation, or any ruling, writ, injunction, order, judgment or
decree of any court, administrative agency or other governmental body applicable
to it or the Subsidiaries, or any of their respective properties or assets; (b)
except as listed on Schedule 2.9 conflict with or result in any breach of any of
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the terms, conditions or provisions of, or constitute (with due notice or lapse
of time, or both) a default (or give rise to any right of termination,
cancellation or
7
acceleration) under, or result in the creation of any Encumbrance upon any of
its or the Subsidiaries' properties or assets under, any Contract to which it or
the Subsidiary is a party; or (c) violate its or the Subsidiaries' certificate
of incorporation or by-laws or other organizational documents.
2.10. Agreements
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(a) Except as set forth on Schedule 2.10, the Company (which term
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includes the Subsidiaries for purposes of this Section) is not a party to any
contract, agreement, indenture, mortgage, guaranty, lease, license or
understanding, written or oral (a "Contract"), other than any Contract which (i)
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pursuant to its terms, has expired, been terminated or fully performed by the
parties, and in each case, under which the Company has no liability, contingent
or otherwise, or (ii) involves monthly payments to or from the Company (as
opposed to an indemnity agreement or similar contract under which the Company
has any contingent liability) which monthly payments do not aggregate on an
annual basis to $100,000 or more, and in each case, is not material to the
business or financial condition of the Company.
(b) Complete copies (or, if oral, full written descriptions) of all
Contracts required to be listed on Schedule 2.10, including all amendments
thereto, have been made available to each Investor. Each of such Contracts is,
as of the date hereof, and will continue to be at and after the Closing, a
legal, valid, and binding obligation of, enforceable against, and in full force
and effect against, the Company and, to the best knowledge of the Company, the
other parties thereto. There is no breach, violation or default by the Company
and no event (including, without limitation, the consummation of the
transactions contemplated by the Documents except as listed on Schedule 2.9)
which, with notice or lapse of time or both, would (i) constitute a breach,
violation or default by the Company under any such Contract or (ii) give rise to
any lien or right of termination, modification, cancellation, prepayment,
suspension, limitation, revocation or acceleration against the Company under any
such Contract. To the best of the Company's knowledge, except as set forth on
Schedule 2.10, no other party to any of such Contracts is in arrears in respect
of the performance or satisfaction of the terms and conditions on its part to be
performed or satisfied under any of such Contracts, no waiver or indulgence has
been granted by any of the parties thereto and no party to any of such Contracts
has repudiated any provision thereof.
2.11. Patents, Trademarks, etc. To the Company's best knowledge, the
------------------------
Company and the Subsidiaries own, possess or have the right to use pursuant to
license, sublicense, agreement or permission all patents, inventions,
trademarks, service marks, trade names, whether registered or otherwise,
together with all goodwill associated therewith, copyrights, licenses,
information, proprietary rights, and processes, including the TelWeb Customer
Communications Data System, as listed on Schedule 2.11, necessary for the lawful
-------------
conduct of their business as now conducted, without any infringement of or
conflict with the rights of others. The TelWeb Customer Communications Data
System is licensed by the Company from Spider pursuant to a non-exclusive
license. Except as set forth in Schedule 2.11, there are no outstanding
options, licenses, or agreements of any kind relating to the foregoing
intellectual property rights, nor is the Company or any Subsidiary bound by or a
party to any options,
8
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. Except as set
forth on Schedule 2.11, the Company and the Subsidiaries have not received any
communications alleging that the conduct of the Company's or any Subsidiaries'
business infringes or conflicts with the rights of others under patents,
trademarks, copyrights and trade secrets. To the best of the Company's
knowledge, except as set forth in Schedule 2.11, the Company's and each
Subsidiary's business as now conducted and as proposed to be conducted will not
infringe or conflict with the rights of others, including rights under patents,
trademarks, copyrights and trade secrets. The Company's computer systems and
software are "year 2000 compliant" in all material respects.
2.12. Equity Investments; Subsidiaries. Except as set forth in
--------------------------------
Schedule 2.12, the Company has no Subsidiaries and has never owned, and does not
-------------
presently own, directly or indirectly, any capital stock or other proprietary
interest, directly or indirectly, in any company, association, trust,
partnership, joint venture or other entity. For purposes of this Agreement, the
term "Subsidiary" means, with respect to any person, any company, partnership or
-----------
other entity (a) of which shares of capital stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other similar managing body of such company, partnership or other entity are at
the time owned or controlled, directly or indirectly, by such person or (b) the
management of which is otherwise controlled, directly or indirectly, through one
or more intermediaries by such person.
2.13. Corporate Minute Books. The corporate records of the Company are
----------------------
correct and complete except that certain minutes have not been prepared
reflecting all the option grants shown on Schedule 2.3(a) and the complete
minutes of the meeting of the Board of Directors in October 1999, have not been
prepared. True and correct copies of all minutes of meetings or other actions
by the directors, stockholders or incorporators of the Company since its
inception have previously been made available to the Investors.
2.14. Suitability. To the best knowledge of the Company, none of the
-----------
events described in Item 401(f) of Regulation S-K under the Securities Act of
1933, as amended (the "Securities Act"), has occurred during the last five years
--------------
with respect to any director or officer of the Company.
2.15. Assets
------
(a) The Company (which term includes each Subsidiary for purposes of
this Section) has good and marketable title, or a valid leasehold interest in or
contractual right to use, all of its assets and properties, free and clear of
any Encumbrances except (i) as disclosed in Schedule 2.15(a) or Section 2.30,
----------------
(ii) Encumbrances for taxes not yet due and payable, (iii) Encumbrances set
forth on Schedule 2.15(a) for taxes and charges and other claims, the validity
of which the Company is contesting in good faith, (iv) Permitted Encumbrances
and (v) Spider's right of first refusal on certain equipment in the Company's
San Diego, California offices. The assets and properties owned by, or leased
to, the Company are sufficient for the
9
conduct of the business and operation of the Company as presently conducted and
as presently proposed to be conducted.
(b) Except as set forth on Schedule 2.15(b), the buildings,
----------------
facilities, machinery, equipment, furniture, leasehold and other improvements,
fixtures, vehicles, structures, any related capitalized items and other tangible
property owned by, or leased to the Company, as of the date hereof, (i) are to
the Company's best knowledge without investigation, in good operating condition
and repair (normal wear and tear excepted) and (in the case of buildings or
structures located on the Real Properties (as defined in Section 2.31)) free of
any structural or engineering defects and (ii) to the Company's best knowledge,
are suitable for their current use.
(c) Except as set forth on Schedule 2.15(c), the Company has not
----------------
received notice of, and has no knowledge of, any pending, threatened or
contemplated condemnation proceeding or similar taking affecting the assets of
the Company (including the Real Properties).
2.16. Employee Benefit Plans
----------------------
(a) Schedule 2.16 hereto contains a true and complete list of (i) each
-------------
plan, program, policy, payroll practice, contract, agreement or other
arrangement, or commitment therefore, providing for compensation, severance,
termination pay, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits of any kind, whether formal or informal,
funded or unfunded, written or oral, and whether or not legally binding, which
is now or previously has been sponsored, maintained, contributed to or required
to be contributed to by the Company (which includes each Subsidiary for purposes
of this Section) or pursuant to which the Company has any liability, contingent
or otherwise, including, but not limited to, any "employee benefit plan" within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") (each, a "Company Benefit Plan"); and (ii) each
----- --------------------
management, employment, bonus, option, equity (or equity related), severance,
consulting, non compete, confidentiality or similar agreement or contract,
pursuant to which the Company has any liability, contingent or otherwise,
between the Company and any current, former or retired employee, officer,
consultant, independent contractor, agent or director of the Company (an
"Employee") (each, an "Employee Agreement"). Except as identified on Schedule
--------- ------------------
2.16, neither the Company nor any ERISA Affiliate (as defined in 2.16(b))
currently sponsors, maintains, contributes to, or is required to contribute to,
nor has the Company ever sponsored, maintained, contributed to or been required
to contribute to, or incurred any liability to, (i) any "multiemployer plan" (as
defined in ERISA Section 3(37)) or (ii) any Company Benefit Plan which provides,
or has any liability to provide, life insurance, medical, severance or other
employee welfare benefits to any Employee upon his or her retirement or
termination of employment, except as required by Section 4980B of the Internal
Revenue Code ("Code"). Neither the Company nor any of the entities set forth on
----
Schedule 2.16(a) has or has had any ERISA Affiliates other than the Company or
----------------
any of such entities, Spider and Acorn.
10
(b) An "ERISA Affiliate" is defined as any entity that is (or at any
---------------
relevant time was) a member of a "controlled group of corporations" with, or
under "common control" with, or a member of an "affiliated service group" with,
or otherwise required to be aggregated with, the Company or any entity listed on
Schedule 2.16(a) as set forth in Section 414(b), (c), (m) or (o) of the Code or
Section 4001(a)(14) of ERISA.
(c) The Company has made available to each Investor current, accurate
and complete copies of all documents embodying or relating to each Company
Benefit Plan and each Employee Agreement, including all amendments thereto,
trust or funding agreements relating thereto (if any), the two most recent
annual reports (Series 5500 and related schedules) required under ERISA (if
any), summary annual reports, the most recent determination letter (if any)
received from the Internal Revenue Service ("IRS"), the most recent summary plan
---
description (with all material modifications) (if any), and if the Company
Benefit Plan is funded, the most recent annual and periodic accounting of
Company Benefit Plan assets, and has made available to each Investor all
material communications to any Employee or Employees relating to any Company
Benefit Plan or Employee Agreement.
(d) With respect to each Company Benefit Plan (i) the Company and each
ERISA Affiliate has performed all obligations required to be performed by it
under each Company Benefit Plan and Employee Agreement and neither the Company
nor any ERISA Affiliate is in default under or in violation of, any Company
Benefit Plan, (ii) each Company Benefit Plan has been established and maintained
in accordance with its terms and in compliance with all applicable laws,
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, including without limiting the foregoing, the timely filing of all
required reports, documents and notices, where applicable, with the IRS and the
Department; (iii) each Company Benefit Plan intended to qualify under Section
401 of the Code is, and since its inception has been, so qualified and a
determination letter has been issued by the IRS to the effect that each such
Company Benefit Plan is so qualified and that each trust forming a part of any
such Company Benefit Plan is exempt from tax pursuant to Section 501(a) of the
Code and no circumstances exist which would adversely affect this qualification
or exemption; (iv) no "prohibited transaction," within the meaning of Section
4975 of the Code or Section 406 of ERISA, has occurred with respect to any
Company Benefit Plan; (v) no action or failure to act and no transaction or
holding of any asset by, or with respect to, any Company Benefit Plan has or,
under currently applicable laws and regulations, may subject the Company or any
ERISA Affiliate or any fiduciary to any tax, penalty or other liability, whether
by way of indemnity or otherwise; (vi) there are no actions, proceedings,
arbitrations, suits or claims pending, or to the best knowledge of the Company
and any ERISA Affiliate, threatened or anticipated (other than routine claims
for benefits) against the Company or any ERISA Affiliate or any administrator,
trustee or other fiduciary of any Company Benefit Plan with respect to any
Company Benefit Plan or Employee Agreement, or against any Company Benefit Plan
or against the assets of any Company Benefit Plan; (vii) no event or transaction
has occurred with respect to any Company Benefit Plan that would result in the
imposition of any tax under Chapter 43 of Subtitle D of the Code; (viii) each
Company Benefit Plan can be amended, terminated or otherwise discontinued
without liability to the Company or any ERISA Affiliate; (ix) no Company Benefit
Plan is under audit or investigation by the IRS, the Department or the PBGC, and
to the best knowledge
11
of the Company and any ERISA Affiliate, no such audit or investigation is
pending or threatened.
(e) The execution of, and performance of the transactions contemplated
in, this Agreement will not (either alone or upon the occurrence of any
additional or subsequent events) (i) constitute an event under any Company
Benefit Plan or Employee Agreement that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligations to fund
benefits with respect to any Employee, or (ii) result in the triggering or
imposition of any restrictions or limitations on the right of the Company or the
Investors to amend or terminate any Company Employee Plan and receive the full
amount of any excess assets remaining or resulting from such amendment or
termination, subject to applicable taxes. Except as set forth in Schedule
--------
2.16(e), no payment or benefit which will or may be made by the Company or the
-------
Investors or any of their respective affiliates with respect to any employee of
the Company will be characterized as an "excess parachute payment," within the
meaning of Section 280G(b)(1) of the Code.
(f) With respect to each Company Benefit Plan (other than a multi-
employer plan) which is an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA ("Pension Plan"), (i) no steps have been taken to
-------------
terminate any Pension Plan now maintained or contributed to, no termination of
any Pension Plan has occurred pursuant to which all liabilities have not been
satisfied in full, no liability under Title IV of ERISA has been incurred by the
Company or any ERISA Affiliate which has not been satisfied in full, and no
event has occurred and no condition exists that could reasonably be expected to
result in the Company or any ERISA Affiliate incurring a liability under Title
IV of ERISA or could constitute grounds for terminating any Pension Plan; (ii)
no proceeding has been initiated by the PBGC to terminate any Pension Plan or to
appoint a trustee to administer any Pension Plan; (iii) each Pension Plan which
is subject to Part 3 of Subtitle B of Title I of ERISA or Section 412 of the
Code, has been maintained in compliance with the minimum funding standards of
ERISA and the Code and no such Pension Plan has incurred any "accumulated
funding deficiency," as defined in Section 412 of the Code and Section 302 of
ERISA, whether or not waived; (iv) neither the Company or any ERISA Affiliate
has sought nor received a waiver of its funding requirements with respect to any
Pension Plan and all contributions payable with respect to each Pension Plan
have been timely made; (v) no reportable event, within the meaning of Section
4043 of ERISA, and no event described in Section 4062 or 4063 of ERISA, has
occurred with respect to any Pension Plan; and (vi) the present value of all
accrued benefits of each Pension Plan, determined on a plan termination basis
using the actuarial assumptions established by the PBGC as in effect on the date
of determination, does not as of the date hereof and will not as of the Closing
exceed the fair market value of the assets (which for this purpose shall not
include any accrued but unpaid contributions) of such Pension Plan.
(g) Immediately following the Closing, the Company will be primarily
engaged, directly or through a Subsidiary or Subsidiaries, in the production or
sale of a product or service other than the investment of capital within the
meaning of Department of Labor Regulation (S) 2510.3-101(c), (d) or (e).
12
2.17. Labor Relations; Employees
--------------------------
(a) Schedule 2.17(a) lists all employees of the Company (which
----------------
term includes each Subsidiary for purposes of this Section) with an annual
salary in excess of $40,000. Except as set forth on Schedule 2.17(a), (i) the
Company is not delinquent in payments to any of its employees, for any wages,
salaries, commissions, bonuses or other direct compensation for any services
performed by the date hereof or material amounts required to be reimbursed by
them to the date hereof, (ii) the Company is in material compliance with all
applicable federal, state and local laws, rules and regulations respecting
employment, employment practices, labor, terms and conditions of employment and
wages and hours, (iii) the Company is not bound by or subject to (and none of
its assets or properties is bound by or subject to) any written or oral, express
or implied, commitment or arrangement with any labor union, and no labor union
has requested or, to the best knowledge of the Company, has sought to represent
any of the employees, representatives or agents of the Company, (iv) there is no
labor strike, dispute, slowdown or stoppage actually pending, or, to the best
knowledge of the Company, threatened against or involving the Company, and (v)
to the best knowledge of the Company, no salaried key employee has any plans to
terminate his or her employment with the Company. Each of the officers of the
Company, each key employee and each other employee and consultant now employed
or retained by the Company who has access to confidential information of the
Company has executed a confidentiality agreement, and such agreements are in
full force and effect.
(b) Except as set forth on Schedule 2.17(b), the Company is not a
----------------
party to or bound by any employment contract, deferred compensation agreement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation agreement. To the best knowledge of the Company, there
has been no breach, violation or default by any party under the agreements
listed on Schedule 2.17(b).
2.18. Litigation; Orders. Except as set forth on Schedule 2.18, there
------------------ -------------
is no civil, criminal, administrative or regulatory action, suit, claim, notice,
hearing, inquiry, proceeding or investigation at law or in equity by or before
any court, regulator, arbitrator or similar panel, governmental instrumentality
or other agency now pending or, to the best knowledge of the Company, threatened
against the Company or any of its Subsidiaries, or the assets or the business of
the Company or any of its Subsidiaries. Except as set forth in Schedule 2.18,
neither the Company nor any of its Subsidiaries is subject to any order, writ,
injunction or decree of any court of any federal, state, municipal or other
domestic or foreign governmental department, commission, board, bureau, agency
or instrumentality.
2.19. Compliance with Laws; Permits. Except as provided in Schedule
----------------------------- --------
2.19, the Company (which term includes each Subsidiary for purposes of this
----
Section) (a) has complied in all material respects with all federal, state,
local and foreign laws, rules, ordinances, codes, consents, authorizations,
registrations, regulations, decrees, directives, judgments and orders applicable
to it and its business (including, without limitation, the Telephone Consumer
Protection Act of 1991 and the Federal Telemarketing and Consumer Fraud and
Abuse
13
Prevention Act of 1994), and (b) has all federal, state, local and foreign
governmental licenses, permits and authorizations necessary in the conduct of
its business as currently conducted (including, without limitation, any state
teleservice industry registration requirements), such licenses, permits and
qualifications are in full force and effect, and no violations (other than
violations notice of which has not been received by the Company) have been
recorded in respect of any such licenses, permits and qualifications, and no
proceeding is pending or, to the best knowledge of the Company, threatened to
revoke or limit any such license, permit or qualification. Schedule 2.19 sets
forth a list of all such licenses, permits and authorizations, and the
expiration dates thereof.
2.20. Offering Exemption. Assuming the accuracy of the representations
------------------
and warranties contained in Section 3 hereof, the offer and sale of the Series F
Preferred Stock to the Investors and the Additional Investors as contemplated
hereby and the issuance and delivery of the Conversion Shares to the Investors
and the Additional Investors upon the conversion of the Series F Preferred Stock
are each exempt from registration under the Securities Act and under applicable
state securities and "blue sky" laws, each as currently in effect.
2.21. Related Transactions
--------------------
(a) Except as set forth on Schedule 2.21(a), or as otherwise
----------------
described herein, no current stockholder, director, officer or employee of the
Company, or any "affiliate" or "associate" (as such terms are defined in Rule
12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange
--------
Act")) of any of the foregoing persons or the Company is presently, or during
---
the past five years has been, directly or indirectly, a party to any agreement,
transaction or series of similar transactions with the Company or any of its
Subsidiaries, other than in connection with any such person's duties as a
director, officer or employee of the Company or a Subsidiary.
(b) Each ongoing intercompany transaction set forth on Schedule
2.21(a), if any, is on terms that are (i) consistent with the past practice of
the Company and (ii) at least as favorable to the Company or the Subsidiary as
would be available with independent third parties dealing at arms' length.
2.22. Disclosure. Neither this Agreement nor any certificate,
----------
instrument or written statement furnished or made to the Investor or any
Additional Investor by or on behalf of the Company in connection with this
Agreement, when read together, contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact which the Company
has not disclosed to the Investor or any Additional Investor or its respective
counsel in writing and of which the Company is aware which materially and
adversely affects or which could reasonably be expected to materially and
adversely affect the business, financial condition, operations, property or
affairs of the Company or the ability of the Company to perform its obligations
under the Documents. All projections delivered to the Investors and the
Additional Investors in connection with this Agreement were prepared in good
faith, but are not guarantees of future performance.
14
2.23. Taxes
-----
(a) Except as set forth on Schedule 2.23(a), (i) the Company (and for
----------------
each Affiliated Period, each Affiliated Group of which the Company was a member)
has timely filed all Tax Returns (as such terms are defined below) required by
law to have been filed by it and has timely paid all Taxes required to be paid
by it including, without limitation, any Tax for which a notice of assessment or
demand for payment has been received by the Company (and for each Affiliated
Period, each Affiliated Group of which the Company was a member), (ii) all Tax
Returns filed by the Company (and for each Affiliated Period, each Affiliated
Group of which the Company was a member) were complete and correct in all
material respects and (iii) all amounts required to be collected or withheld by
the Company have been collected or withheld and any such amounts that are
required to be remitted to any taxing authority have been duly remitted. The
accruals and reserves for Taxes in each of the balance sheets referenced in
Section 2.6 are adequate in all material respects to cover any liability of the
Company for Taxes for periods through the dates of such balance sheets. The
accruals and reserves for deferred tax liability in each of the balance sheets
referenced in Section 2.6 are adequate to cover any such liability in accordance
with GAAP. If the Company files its Tax Returns for its taxable year which
includes the date hereof, in conformance with its past practices and tax
reporting, to the best knowledge of the Company, there will be no basis for any
material adverse audit adjustments with respect to the Company under any of the
provisions of the Code, or any provisions of state, local or foreign tax law,
with respect to operations and activities of the Company during the period that
began on January 1, 1999 and ends on the date hereof. "Taxes," for purposes of
-----
this Agreement, means any taxes, assessments, duties, fees, levies, imposts,
deductions, withholdings, including, without limitation, income, gross receipts,
ad valorem, value added, excise, real or personal property, asset, sales, use,
license, payroll, transaction, capital, net worth and franchise taxes, estimated
taxes, withholding, employment, social security, workers compensation, utility,
severance, production, unemployment compensation, occupation, premium, windfall
profits, transfer and gains taxes, or other governmental charges of any nature
whatsoever imposed by any government or taxing authority of any country or
political subdivision of any country and any liabilities with respect thereto,
including any penalties, additions to tax, fines or interest thereon, and
includes any liability of the Company arising under any tax sharing agreement to
which the Company is or has been a party. For purposes of this Agreement, (i)
"Affiliated Group" shall mean any affiliated group within the meaning of the
-----------------
Code (S) 1504(a) (or any similar group defined under a similar provision of
state, local or foreign law), (ii) "Affiliated Period" shall mean each taxable
-----------------
period during which the Company was a member of an Affiliated Group for all or
part of such period, and (iii) "Return" shall mean any report, return,
------
statement, estimate, declaration, notice, form or other information required to
be supplied to a taxing authority in connection with Taxes.
(b) Schedule 2.23(b) contains a list of states, territories and
----------------
jurisdictions (whether foreign or domestic) in which the Company (and for each
Affiliated Period, each Affiliated Group of which the Company was a member) has
filed an income, franchise, sales and use tax return. Except as set forth on
Schedule 2.23(b), (i) there is no action, suit, proceeding or claim currently
pending, or to the knowledge of the Company, threatened, regarding any Taxes for
which the Company could be liable, (ii) there are no Tax Returns with
15
respect to which an audit or examination is in progress or with respect to which
a written notification of intent to audit or examine has been received by the
Company (and for each Affiliated Period, each Affiliated Group of which the
Company was a member) from the IRS or any other taxing authority that relate to
Taxes for which the Company (and for each Affiliated Period, each Affiliated
Group of which the Company was a member) could be liable, (iii) no taxing
authority in a jurisdiction where the Company (and for each Affiliated Period,
each Affiliated Group of which the Company was a member) does not file Tax
Returns has made a claim, assertion or threat that such non-filing entity is or
may be subject to taxation by such jurisdiction, (iv) the Company has not been a
member of a consolidated, combined or unitary group for federal or state income
tax purposes, (v) the Company is not a party to any Tax allocation or sharing
agreement other than with Spider and (vi) the Company does not have any
liability for the Taxes of any person as a transferee or successor or by
contract.
2.24. Environmental Protection. Except as set forth on Schedule
------------------------ --------
2.24(a), the Company (which term includes each Subsidiary for purposes of this
-------
Section) has been operated at all times, and is, in material compliance with all
applicable Environmental Laws, including all limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in all applicable Environmental Laws. Except as set forth
on Schedule 2.24(b), the Company has obtained, is in material compliance with,
----------------
and has made all appropriate filings for issuance or renewal of, all permits,
licenses, authorizations, registrations and other governmental consents required
by any applicable Environmental Laws ("Environmental Permits"), including,
---------------------
without limitation, those regulating the use, storage, treatment,
transportation, release, emission or disposal of Hazardous Substances, and all
such Environmental Permits are in full force and effect. Except as set forth on
Schedule 2.24(c), there are no claims, notices, civil, criminal or
----------------
administrative actions, suits, hearings, investigations, inquiries or
proceedings of which the Company has received notice or otherwise should or has
reason to have knowledge pending or, to the knowledge of the Company, threatened
against the Company, and no requests from any governmental authority to perform
any investigatory or remedial activity have been made to the Company, that are
based on or related to any actual or alleged release of Hazardous Substances or
any other Environmental Matters or the failure to have any required
Environmental Permits. Except as set forth on Schedule 2.24(d), there are no
----------------
past or present conditions, events, circumstances, facts, activities, practices,
incidents, actions or omissions of the Company or its predecessors that (i) may
give rise to any liability or other obligation under any past, current or
proposed Environmental Laws that may require the Company to incur any material
Environmental Costs, (ii) may form the basis of any claim, action, suit,
proceeding, hearing, investigation or inquiry against the Company that may
require the Company to incur any material Environmental Costs, or (iii) may
interfere with or prevent continued material compliance by the Company with
Environmental Laws and/or Environmental Permits. Except as set forth on
Schedule 2.24(e), to the knowledge of the Company there are no (and have never
----------------
been any) underground or aboveground storage tanks, incinerators or surface
impoundments at, on, under, about, or within any Owned Real Property or Leased
Real Property. Except as set forth on Schedule 2.24(f), the Company has not
----------------
received any notice (written or oral) or other communication that the Company is
or may be a potentially responsible party or otherwise liable in connection with
any waste disposal site allegedly containing, or other location used for the
disposal of, any Hazardous Substances.
16
Schedule 2.24(g) contains a list of all sites or locations used by or on behalf
----------------
of the Company for the disposal of any waste containing Hazardous Substances.
For the purposes of this Section 2.24, the following terms shall have the
meanings indicated:
"Environmental Costs" shall mean, without limitation, any actual or
-------------------
potential cleanup costs, remediation, removal, or other response costs
(including without limitation costs to cause the Company, or any of the
Company's properties or assets, to come into compliance with Environmental
Laws), investigation costs (including without limitation fees of consultants,
counsel, and other experts in connection with any environmental investigation,
testing, audits or studies), losses, liabilities or obligations (including
without limitation liabilities or obligations under any lease or other
contract), payments, damages (including without limitation any actual, punitive
or consequential damages under any statutory laws, common law cause of action or
contractual obligations, and any damages (a) of third parties for personal
injury or property damage, or (b) to natural resources), civil or criminal fines
or penalties, judgments, and amounts paid in settlement, arising out of,
relating to, or resulting from any Environmental Matter.
"Environmental Laws" shall mean, without limitation, the Comprehensive
------------------
Environmental Response, Compensation and Liability Act, 42 U.S.C. (S)(S) 9601 et
--
seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.
----
(S)(S) 11001 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
-- ----
(S)(S) 6901 et seq., the Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 et
-- ---- --
seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. (S)(S)
---
136 et seq., the Clean Air Act, 42 U.S.C. (S)(S) 7401 et seq., the Clean Water
-- --- -- ---
Act (Federal Water Pollution Control Act), 33 U.S.C. (S)(S) 1251 et seq., the
-- ---
Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f et seq., the Occupational Safety
-- ---
and Health Act, 29 U.S.C. (S)(S) 641, et seq., the Hazardous Materials
-- ----
Transportation Act, 49 U.S.C. (S)(S) 1801, et seq., as any of the above statutes
-- ----
have been or may be amended from time to time, all rules and regulations
promulgated pursuant to any of the above statutes, and any other foreign,
federal, state or local law, statute, ordinance, rule or regulation governing
Environmental Matters, as the same have been or may be amended from time to
time, including any common law cause of action providing any right or remedy
relating to Environmental Matters, all indemnity agreements and other
contractual obligations (including without limitation leases, asset purchase
agreements and merger agreements) relating to environmental matters, and all
applicable judicial and administrative decisions, orders, and decrees relating
to Environmental Matters.
"Environmental Matter" shall mean any matter arising out of, relating to,
--------------------
or resulting from pollution, contamination, protection of the environment, human
health or safety, or health or safety of employees, and any matter relating to
emissions, discharges, disseminations, releases or threatened releases of
Hazardous Substances into the air (indoor or outdoor), surface water,
groundwater, soil, buildings, facilities, real or personal property or fixtures,
or otherwise arising out of, relating to, or resulting from the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
handling, release or threatened release of Hazardous Substances.
17
"Hazardous Substances" shall mean any pollutants, contaminants, substances,
--------------------
materials, wastes, constituents, compounds, chemicals, natural or man-made
elements or forces (including, without limitation, petroleum or any by-products
or fractions thereof, any form of natural gas, lead, asbestos or asbestos-
containing materials ("ACM"), building construction materials and debris,
polychlorinated biphenyls ("PCBs") or PCB-containing equipment, radon and other
radioactive elements, electromagnetic field and other types of radiation, sonic
forces, infectious, carcinogenic, mutagenic, or etiologic agents, pesticides,
defoliants, explosives, flammables, corrosives and urea formaldehyde foam
insulation) that are regulated by, or may now or in the future form the basis of
liability under, any Environmental Laws.
2.25. Consents. Except as set forth on Schedule 2.25, and assuming the
-------- -------------
accuracy and completeness of the representations and warranties of the Investors
and the Additional Investors set forth in Article III hereof, no permit,
authorization, consent or approval of or by, or any notification of or filing
with, any person (governmental or private) is required in connection with the
execution, delivery and performance by the Company of the Documents or any
documentation relating thereto, the consummation by the Company of the
transactions contemplated hereby or thereby, or the issuance, sale or delivery
to the Investors and the Additional Investors of the Series F Preferred Stock
and the Conversion Shares, except for a filing with the Securities and Exchange
Commission of a Form D pursuant to Regulation D of the Securities Act, and
corresponding filings with certain state securities regulatory authorities.
2.26. Insurance. Substantially all of the assets of the Company (which
---------
term includes each Subsidiary for purposes of this Section) that are of
insurable character (including all material assets of the Company that are of
insurable character) are covered by insurance with reputable insurers against
risks of liability, casualty and fire and other losses and liabilities
customarily obtained to cover comparable businesses and assets in amounts, scope
and coverage which are consistent with prudent industry practice and sufficient
in amount to allow it to replace any of its properties which might be damaged or
destroyed. The Company is not in default with respect to its obligations under
any material insurance policy maintained by it. Schedule 2.26 sets forth a list
-------------
of all insurance coverage carried by the Company, the carrier and the terms and
amount of coverage. All such policies and other instruments are in full force
and effect and all premiums with respect thereto have been paid. The Company
has not failed to give any notice or present any claim under any such insurance
policy in due and timely fashion or as required by any of such insurance
policies or has not otherwise, through any act, omission or non-disclosure,
jeopardized or impaired full recovery of any claim under such policies, and
there are no claims by the Company under any of such policies to which any
insurance company is denying liability or defending under a reservation of
rights or similar clause. The Company has not received notice of any pending or
threatened termination of any of such policies or any premium increases for the
current policy period with respect to any of such policies and the consummation
of the transactions contemplated by this Agreement will not result in any such
termination or premium increase.
2.27. Brokers. Neither the Company nor any of its officers, directors,
-------
employees or stockholders has employed any broker or finder in connection with
the transactions
18
contemplated by this Agreement, except that the Company retained The Xxxxxxx
Company and will be responsible solely for the fees owed to it.
2.28. Use of Proceeds. Except as set forth on Schedule 2.28 or as
--------------- -------------
otherwise expressly contemplated by this Agreement, the Company is not required
pursuant to any Contract or otherwise to apply the proceeds received from the
Investors or the Additional Investors pursuant to the transactions contemplated
hereby in any specified manner.
2.29. Previous Issuances Exempt. All shares of capital stock and other
-------------------------
securities issued by the Company prior to the Closing have been issued in
transactions exempt from registration under the Securities Act, and all
applicable state securities or "blue sky" laws. The Company has not violated
the Securities Act or any applicable state securities or "blue sky" laws in
connection with the issuance of any shares of capital stock or other securities
prior to the Closing. The Company has not offered any of its capital stock, or
any other securities, for sale to, or solicited any offers to buy any of the
foregoing from the Company, or otherwise approached or negotiated with any other
person in respect thereof, in such a manner as to require registration under the
Securities Act.
2.30. Real Property. Schedule 2.30 lists all real property owned or
------------- -------------
leased by the Company (which term includes each Subsidiary for purposes of this
Section). The Company has title to its owned real properties (collectively, the
"Owned Real Properties") in each case, free and clear of all imperfections of
---------------------
title and all Encumbrances, except for (a) those consisting of zoning or
planning restrictions, easements, permits and other restrictions or limitations
on the use of such property or irregularities in title thereto which,
individually and in the aggregate, do not materially impair the use of such
property, (b) warehousemen's, mechanics', carriers', landlords', repairmen's or
other similar Encumbrances arising in the ordinary course of business and
securing obligations not yet due and payable, (c) other Encumbrances which arise
in the ordinary course of business and which individually and in the aggregate
do not materially impair its use of such property or its ability to obtain
financing by using such asset as collateral, (d) the liens of Silicon Valley
Bank and Charter Financial for credit extended and to be extended to the Company
(encumbrances referenced in clauses (a), (b), (c) and (d), collectively referred
to as the "Permitted Encumbrances") and (e) Encumbrances listed on Schedule
---------------------- --------
2.30. The Company has leasehold title to its leased real properties
----
(collectively, the "Leased Real Properties," together with the Owned Real
----------------------
Properties, the "Real Properties"), and, in each case, has not taken or failed
---------------
to take any action that would result in the creation of any Encumbrance with
respect to any Leased Real Property. To the best knowledge of the Company
without investigation, other than as described on Schedule 2.30, there are no
intended public improvements which will result in any charge being levied
against, or in the creation of any Encumbrances upon, the Leased Real Properties
or any portion thereof. To the best knowledge of the Company without
investigation, there are no options, rights of first refusal, rights of first
offer or other similar rights with respect to the Real Properties other than
Spider's first right of refusal if the Company elects to assign the lease for,
or sublease, the Company's current San Diego, California offices. With respect
to each lease of Real Property to which the Company is a party, so long as the
Company performs all of its obligations under such lease for Real Property
within applicable notice and grace periods, (x) the rights of the Company under
such
19
lease shall not be terminated and (y) to the best knowledge of the Company, the
Company's possession of such Real Property and the use and enjoyment thereof
shall not be disturbed by any landlord, overlandlord, mortgagee or other
superior party. Except as set forth on the Schedule 2.30, the Company is not
obligated to purchase any Leased Real Property and no leased Real Property is
required to be accounted for under GAAP as a capitalized lease.
2.31. Accounts Receivable. The accounts receivable and notes receivable
-------------------
reflected on the books and records of the Company and each Subsidiary were and
are bona fide accounts receivable and notes receivable created in the ordinary
and usual course of business in connection with bona fide transactions and
consistent with past practice.
2.32. Investment Banking Services. Except as set forth in Schedule 2.32
--------------------------- -------------
and for the engagements of The Xxxxxxx Company, neither the Company nor any
Subsidiary is a party to any Contract which grants rights to any third party
with respect to the performance of investment banking services for it,
including, without limitation, with respect to its sale or a public offering,
including an initial public offering, of its securities.
2.33. Registration Rights. Except as required by the Investor
-------------------
Registration Rights Agreement or as set forth on Schedule 2.33, the Company has
-------------
no obligations with respect to registration under the Securities Act of any of
its currently outstanding securities or any of its securities which may
hereafter be issued.
2.34. Material. When the term "material" or "materially" is used in
--------
this Article II, it is in reference to the Company and its Subsidiaries on an
aggregate, consolidated basis.
III. Representations and Warranties of the Investors
Each Investor, severally and not jointly, represents and warrants to the
Company as follows as of the date hereof and the Closing Date and each
Additional Investor, severally but not jointly, represents and warrants to the
Company as follows as of the date of the relevant Subsequent Closing (for
purposes of this Article III, the term "Investor" shall refer to each Investor
and to each Additional Investor, as applicable):
3.1. Investment Representations.
--------------------------
(a) Such Investor is a sophisticated investor with sufficient
financial experience to assess the risks of investing in the Company and
purchasing Series F Preferred Stock, and is acquiring the Series F Preferred
Stock to be purchased by it under this Agreement for its own account, for
investment and not with a view to the distribution thereof within the meaning of
the Securities Act. Such Investor was not formed for the purpose of acquiring
Series F Preferred Stock or otherwise to invest in the Company.
(b) Such Investor understands that (i) except as provided in the
Investor Registration Rights Agreement applicable to it, the Series F Preferred
Stock has not been, and
20
that the Conversion Shares will not be, registered under the Securities Act or
any state securities laws, by reason of their issuance by the Company in a
transaction exempt from the registration requirements thereof and (ii) the
Series F Preferred Stock and the Conversion Shares may not be sold unless such
disposition is registered under the Securities Act and applicable state
securities laws or is exempt from registration thereunder.
(c) Such Investor further understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to such
Investor) promulgated under the Securities Act depends on the satisfaction of
various conditions, and that, if applicable, Rule 144 may afford the basis for
sales only in limited amounts.
(d) Except as set forth on Schedule 3.1(d), such Investor has not
---------------
employed any broker or finder in connection with the transactions contemplated
by this Agreement.
(e) Such Investor is an "Accredited Investor" (as defined in Rule
501(a) under the Securities Act).
(f) Such Investor has accurately completed the NASD Questionnaire
provided by the Company and returned it to the Company.
3.2. Due Authorization, Etc.
----------------------
(a) The Investor is validly existing under the laws of the state or
country of its organization (as set forth opposite its name on the signature
pages herein), is resident in the state or country so indicated on such
signature pages and has all power and authority to enter into and perform each
of the Documents to which it is a party. Each of the Documents to which it is a
party has been duly authorized by all necessary action on the part of the
Investor. Each of the Documents to which it is a party constitutes a valid and
binding agreement of the Investor enforceable against the Investor in accordance
with its terms, except to the extent that enforceability may be limited by
principles of equity, bankruptcy, insolvency or other similar laws affecting
rights generally.
(b) The execution, delivery and performance by the Investor of each of
the Documents to which it is a party and the consummation by the Investor of the
transactions contemplated thereby will not (i) violate any provision of law,
statute, rule or regulation, or any ruling, writ, injunction, order, judgment or
decree of any court, administrative agency or other governmental body applicable
to it, or any of its properties or assets if such violation would materially
adversely affect the ability of the Investor to consummate the transactions
contemplated thereby or (ii) violate its organizational documents.
21
(c) No permit, authorization, consent or approval of or by, or any
notification of or filing with, any person (governmental or private) is required
in connection with the execution, delivery and performance by the Investor of
each of the Documents to which it is a party or any documentation relating
thereto, or the consummation by the Investor of the transactions contemplated
thereby.
IV. Certain Covenants
4.1. Operation of the Business Prior to the Closing. Except as
----------------------------------------------
contemplated by the Documents or the Restated Certificate, during the period
between the date of this Agreement and the Closing, without the prior written
consent of Xxxxxxx, the Company shall:
(a) except as otherwise allowed or required pursuant to the terms of
this Agreement, conduct its business and operations only in the ordinary course
in a manner consistent with past practice;
(b) use best efforts to preserve intact its current business
organization, keep available the services of its current officers, employees,
and agents, and maintain the relations and goodwill with all material suppliers,
customers, licensers, licensees, landlords, trade creditors, Employees, agents,
and others having material business relationships with the Company or a
Subsidiary;
(c) confer with the Investors concerning operational matters of a
material nature;
(d) maintain in full force and effect the insurance described in
Section 2.26 or insurance providing at least comparable coverage;
(e) maintain all the properties and assets of the business and
operations of the Company and the Subsidiaries in the ordinary course consistent
with past practice;
(f) maintain its books and records in the usual, regular and ordinary
manner, on a basis consistent with prior years;
(g) perform and comply with its and the Subsidiaries' obligations
under all Contracts in the ordinary course of business, consistent with past
practice;
(h) furnish to the Investors copies of all financial statements and
certificates and reports concerning operation of the business, as and when such
financial statements, certificates and reports are delivered to any other person
or entity; and
(i) report periodically to the Investors concerning the status and
operation of the business and operations of the Company.
22
Notwithstanding the foregoing, the provisions of this Section shall in no
event apply after December 1, 1999 even if the Closing has not occurred by that
date for any reason.
4.2. Third Party Consents Prior to the Closing. Prior to the Closing and
-----------------------------------------
to each Subsequent Closing, the Company shall use commercially reasonable
efforts to obtain all consents required from third parties which are party to
Contracts with the Company or its Subsidiaries to the transactions contemplated
by the Documents as to the transactions to occur at that closing.
4.3. Access to Records Prior to the Closing. During the period
--------------------------------------
commencing on the date of this Agreement and continuing through the Closing, the
Company shall (i) afford to each Investor and its representatives full access,
during normal business hours, upon reasonable advance notice, with due regard to
its ongoing operations, to the personnel, properties, contracts, books and
records, and other documents and data of the Company, (ii) furnish each Investor
and its representatives with copies of all such contracts, books and records
(including, but not limited to, Tax Returns), and other existing documents and
data as each Investor and its representatives may reasonably request, and (iii)
furnish each Investor and its representatives such additional financial,
operating, and other data and information as each Investor and its
representatives may reasonably request. No investigation or receipt of
information shall affect any representation or warranty of the Company contained
in this Agreement or the conditions to the obligations of the Investors
specified in this Agreement.
4.4 Use of Proceeds. The Company shall use the proceeds from the sale
---------------
to the Investors of the Series F Preferred Stock hereunder for working capital
purposes and as otherwise disclosed in Schedule 2.8 item (f) and fees of The
Xxxxxxx Co. described in Section 2.32.
V. Survival of Representations, Warranties, Agreements and Covenants, Etc.
All representations and warranties in the Documents shall survive the
Closing until the earlier of (i) the fifth anniversary of the date hereof and
(ii) the consummation of a Qualified IPO (as defined in the Shareholders'
Agreement) (except to the extent a Claim Notice (as defined in Section 7.3)
shall have been given prior to such date with respect to a breach of a
representation and warranty, in which case such representation and warranty
shall survive until such claim is resolved) and shall in no way be affected by
any investigation or knowledge of the subject matter thereof made by or on
behalf of the Investor; provided, however, (x) the representations and
-------- -------
warranties set forth in Sections 2.1, 2.2, 2.3, 2.4, 2.5, 3.1 and 3.2 and the
final sentence of Section 2.16(a) shall survive the Closing indefinitely and (y)
the representations and warranties set forth in Sections 2.19, 2.20, 2.23, 2.24
and 2.28 shall survive the Closing until the expiration of the applicable
statute of limitations (except to the extent a Claim Notice shall have been
given prior to such date with respect to a breach of a representation and
warranty, in which case such representation and warranty shall survive until
such claim is resolved). All agreements contained herein shall survive
indefinitely until, by their respective terms, they are no longer operative.
23
VI. Expenses
Each party hereto shall pay all of the costs and expenses incurred by it or
on its behalf in connection with this Agreement and the consummation of the
transactions contemplated hereby; provided that, notwithstanding the foregoing,
the Company shall pay to the Investors (including if the Company fails to Close
the Purchase other than due to a failure of a condition to its obligation to so
Close, or if the Investors do not Close the Purchase due to a breach hereof by
the Company) an amount in cash equal to the lesser of (i) 100% of the Investor'
legal fees and expenses incurred in connection with the Investors' due
diligence review of the Company and the negotiation and execution of the
Documents and the transactions contemplated thereby and (ii) $30,000 (in the
aggregate). At the Company's request, the Investors shall deliver to the
Company an accounting for all costs and expenses for which they seek
reimbursement hereunder.
VII. Indemnification
7.1. General Indemnification. The Company shall, on an after Tax basis,
-----------------------
indemnify, defend and hold the Investor and each Additional Investor, their
affiliates, their respective officers, directors, partners, members, employees,
agents, representatives, successors and assigns (each an "Investor Entity")
---------------
harmless from and against all Losses (as defined below) incurred or suffered by
an Investor Entity (whether incurred or suffered directly or indirectly through
ownership of Common Stock or Preferred Stock) in respect of its purchase of
Series F Preferred Stock under this Agreement arising or resulting from the
breach of any of the representations, warranties, covenants or agreements made
by the Company in this Agreement or in any certificate or other instrument
delivered by the Company pursuant hereto including, without limitation, the
Documents. Each Investor and each Additional Investor, severally but not
jointly, shall, on an after Tax basis, indemnify, defend and hold the Company,
its affiliates, its respective officers, directors, employees, agents,
representatives, successors and assigns harmless from and against all Losses
arising from the breach of any of its representations, warranties, covenants or
agreements in this Agreement or in any certificate or other instrument delivered
by it pursuant hereto, including, without limitation, the Documents. All claims
for indemnification for Losses arising in connection with certificates,
instruments or Documents shall be governed by and subject to this Article VII.
7.2. Indemnification Principles. For purposes of this Article VII, (a)
--------------------------
"Losses" shall mean each and all of the following items: claims, losses,
-------
(including, without limitation, losses of earnings of the Company and its
Affiliates) liabilities, obligations, payments, damages (actual, punitive or
consequential), charges, judgments, fines, penalties, amounts paid in
settlement, reasonable costs and expenses (including, without limitation,
interest that may be imposed in connection therewith, costs and expenses of
investigation, actions, suits, proceedings, demands, assessments and fees,
expenses and disbursements of counsel, consultants and other experts); and (b)
each of the representations and warranties made by any party in this Agreement
or in any certificate or other instrument delivered pursuant hereto, including,
without limitation, the Documents, shall be deemed to have been made without the
inclusion of limitations or qualifications as to materiality or knowledge such
as the words
24
"material adverse affect," "immaterial," "material," "in all material respects"
and "knowledge," "best knowledge" or "knowingly" or words of similar import. Any
indemnification payment by the Company to an Investor or an Additional Investor
pursuant to this Article VII shall include an additional amount so that such
Investor or Additional Investor suffers no Loss in respect of its purchase of
Series F Preferred Stock under this Agreement as a result of any diminution in
the book value of the stockholder's equity related to its investment under the
Agreement as a result of such indemnification payment. Any payment by the
Company to an Investor or an Additional Investor pursuant to this Article VII,
shall be treated for federal income tax purposes as an adjustment to the price
paid by such Investor or Additional Investor for the Series F Preferred Stock
pursuant to this Agreement.
7.3. Claim Notice. A party seeking indemnification under this Article
------------
VII shall, promptly upon becoming aware of the facts indicating that a claim for
indemnification may be warranted, give to the party from whom indemnification is
being sought a claim notice relating to such Loss (a "Claim Notice"). Each
------------
Claim Notice shall specify the nature of the claim, the applicable provision(s)
of this Agreement or other instrument under which the claim for indemnity
arises, and, if possible, the amount or the estimated amount thereof. No
failure or delay in giving a Claim Notice (so long as the same is given prior to
expiration of the representation or warranty upon which the claim is based) and
no failure to include any specific information relating to the claim (such as
the amount or estimated amount thereof) or any reference to any provision of
this Agreement or other instrument under which the claim arises shall affect the
obligation of the party from whom indemnity is sought except to the extent such
party is materially prejudiced thereby.
7.4. Claim Procedure.
---------------
(a) Procedure for Indemnification with Respect to Third-Party Claims.
----------------------------------------------------------------
If any indemnified party hereunder determines to seek indemnification under this
Article VII with respect to Losses resulting from the assertion of liability by
third parties, such indemnified party shall give notice to the indemnifying
party hereunder within 30 days of such indemnified party becoming aware of any
such Losses or of facts upon which any claim for such Losses will be based; the
notice shall set forth such material information with respect thereto as is then
reasonably available to such indemnified party. In case any such liability is
asserted against such indemnified party, and such indemnified party notifies the
indemnifying party thereof, the indemnifying party will be entitled, if it so
elects by written notice delivered to such indemnified party within 10 days
after receiving such indemnified party's notice, to assume the defense thereof
with counsel satisfactory to such indemnified party, in which case, the
indemnifying party will not be liable to the indemnified party under this
Section 7.4 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
following sentence or (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action, in each of
which cases the fees and expenses of counsel shall be at the expense of the
indemnifying party. Notwithstanding the foregoing, (i) such indemnified party
shall also have the right to employ its own counsel in any
25
such case, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless such indemnified party shall reasonably determine
that there is a conflict of interest between or among such indemnified party and
the indemnifying party with respect to such claim, in which case the fees and
expenses of such counsel will be borne by the indemnifying party, (ii) such
indemnified party shall not have any obligation to give any notice of any
assertion of liability by a third party unless such assertion is in writing,
(iii) the rights of such indemnified party to be indemnified hereunder in
respect of any Losses that may or do result from the assertion of liability by
third parties shall not be adversely affected by its failure to give notice
pursuant to the foregoing unless, and, if so, only to the extent that, the
indemnifying party is materially prejudiced thereby, and (iv) the indemnifying
party's obligations to such indemnified party under this Article VII shall not
terminate until such indemnified party's claims have been finally satisfied to
such indemnified party's sole satisfaction. In the event that the indemnifying
party, within 10 days after receipt of the aforesaid notice of a claim
hereunder, fails to assume the defense of such indemnified party against such
claim, such indemnified party shall have the right to undertake the defense,
compromise, or settlement of such action on behalf of and for the account,
expense, and risk of the indemnifying party. Notwithstanding anything in this
Article VII to the contrary, (i) if there is a reasonable probability that a
claim may materially adversely affect such indemnified party, such indemnified
party shall have the right to participate in such defense, compromise, or
settlement and the indemnifying party shall not, without such indemnified
party's written consent (which consent shall not be unreasonably withheld),
settle or compromise any of such claims, or consent to entry of any judgment in
respect thereof unless such settlement, compromise, or consent includes as an
unconditional term thereof the giving by the claimant or the plaintiff to such
indemnified party a release from all liability in respect of such claim. With
respect to any assertion of liability by a third party that results in any claim
for indemnification hereunder, the parties hereto shall make available to each
other all relevant information in their possession material to any such
assertion. Each Investor acknowledges, and each Additional Investor
acknowledges, that a third-party claim may also result in losses to other
holders of Preferred Stock of the Company who hold similar indemnification
rights and rights to assume their defense. The Investors and the Additional
Investors shall act in good faith in such circumstances to coordinate such
defense with such holders requesting such coordination.
(b) Procedure For Indemnification with Respect to Non-Third Party
-------------------------------------------------------------
Claims. In the event that an indemnified party asserts the existence of a claim
------
with respect to Losses (but excluding claims resulting from the assertion of
liability by third parties), it shall give written notice to the indemnifying
party. Such written notice shall state that it is being given pursuant to this
Section 7.4(b), specify the nature and amount of the claim asserted, and
indicate the date on which such assertion shall be deemed accepted and the
amount of the claim deemed a valid claim (such date to be established in
accordance with the next sentence). If the indemnifying party, within 30 days
after the mailing of notice by such indemnified party, shall not give written
notice to such indemnified party announcing its intent to contest such assertion
of such indemnified party, such assertion shall be deemed accepted and the
amount of claim shall be deemed a valid claim. In the event, however, that the
indemnifying party contests the assertion of a claim by giving such written
notice to such Indemnified party within said period, then the parties shall act
in good faith to reach agreement regarding such claim. In the event
26
that litigation shall arise with respect to any such claim, the prevailing party
shall be entitled to reimbursement of costs and expenses incurred in connection
with such litigation including attorney fees, if the parties hereto, acting in
good faith, cannot reach agreement with respect to such claim within ten days
after such notice.
VIII. Miscellaneous
8.1. Remedies. In case any one or more of the covenants and/or
--------
agreements set forth in this Agreement shall have been breached by any party
hereto, the Investors and the Additional Investors, with respect to a breach by
the Company, and the Company, with respect to a breach by an Investor or an
Additional Investor, may proceed to protect and enforce its rights either by
suit in equity and/or by action at law, including, but not limited to, an action
for damages as a result of any such breach and/or an action for specific
performance of any such covenant or agreement contained in this Agreement.
8.2. Transfer Taxes. The Company agrees that it will pay, and will hold
--------------
the Investors and the Additional Investors harmless from any and all liability
with respect to any transfer, documentary, stamp or other similar Taxes that may
be determined to be payable in connection with the execution and delivery and
performance of this Agreement, and that it will similarly pay and hold the
Investors harmless from all Taxes in respect of the issuance of the Series F
Preferred Stock and the Conversion Shares to the Investors and the Additional
Investors, as applicable, each as contemplated by this Agreement.
Notwithstanding the foregoing, the Company shall have no obligation to pay or
hold the Investor or any Additional Investor harmless with respect to any
transfer, documentary, stamp or other similar Taxes that may be determined to be
payable in connection with the transfer by the Investor or any Additional
Investor, as applicable, of shares of Series F Preferred Stock or Conversion
Shares to any other person or entity.
8.3. Further Assurances. At any time or from time to time after a
------------------
Closing, the Company, on the one hand, and the Investor and the Additional
Investors, on the other hand, agree to cooperate with each other, and at the
request of the other party, to execute and deliver any further instruments or
documents and to take all such further action as the other party may reasonably
request in order to evidence or effectuate the consummation of the transactions
contemplated hereby relating to the purchases and to otherwise carry out the
intent of the parties hereunder.
8.4. Successors and Assigns; Assignment. This Agreement shall bind and
----------------------------------
inure to the benefit of the Company, the Investors and the Additional Investors,
and their respective successors, permitted assigns, heirs and personal
representatives. In addition, and whether or not any express assignment has
been made, except as otherwise expressly stated in this Agreement, the
provisions of Articles II, IV, VII, or VIII of this Agreement that are for the
Investors' and the Additional Investors' benefit as a purchaser or holder of
Series F Preferred Stock, are also for the benefit of, and enforceable by, any
subsequent holder of such Series F Preferred Stock and/or Conversion Shares.
Neither this Agreement nor any rights hereunder
27
may be transferred prior to the Closing Date without the written consent of the
Company and Xxxxxxx.
8.5. Entire Agreement. This Agreement and the other writings referred
----------------
to herein or delivered pursuant hereto which form a part hereof contain the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
8.6. Notices. All notices, requests, consents and other communications
-------
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or sent by telecopy, nationally
recognized overnight courier or first class registered or certified mail, return
receipt requested, postage prepaid, addressed to such party at the address set
forth below or in a counterpart hereto (as the case may be) or such other
address as may hereafter be designated in writing by such party to the other
parties:
if to the Company, to:
Intek Information, Inc.
0000 XXX Xxxxxxx, 00xx Xxxxx
Xxxxxxxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Chief Executive Officer
with a copy to:
Xxxxxxxx, Xxxxx & Xxxxxxx, P.C.
0000 Xxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Telecopy: (000) 000-0000
Attention: G. Xxxxx Xxxxxxxx, Jr.
if to an Investor, to the individual at the
address set forth in the signature pages hereto:
with a copy of notices to Xxxxxxx to:
Xxxxx, Xxxxxxx & Xxxxxxxxx, LLP
000 Xxxx Xxxxxx
Xxxxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Xxxx X. Xxxxxxx, Esq.
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
28
8.7. Amendments. The terms and provisions of this Agreement may only be
----------
modified or amended, or any of the provisions hereof waived, temporarily or
permanently, pursuant to the written consent of the Company and Xxxxxxx,
provided, however, that the addition of new parties to this Agreement in
accordance with the provisions hereof shall not be deemed an amendment hereof
and shall not require the consent of any party hereto.
8.8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8.9. Headings. The headings of the sections of this Agreement have been
--------
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.
8.10. Nouns and Pronouns. Whenever the context may require, any
------------------
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice versa.
8.11. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York without giving effect to
the principles of conflicts of law. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of New York, the State of Delaware and of the United
States of America, in each case located in the County of New York or the County
of New Castle, Delaware, as applicable, for any action, proceeding or
investigation in any court or before any governmental authority ("Litigation")
----------
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any Litigation relating thereto except in
such courts). Each of the parties hereto hereby irrevocably and unconditionally
waives any objection to the laying of venue of any Litigation arising out of
this Agreement or the transactions contemplated hereby in the courts of the
State of New York, the State of Delaware or the United States of America, in
each case located in the County of New York or the County of New Castle,
Delaware, as applicable, and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such
Litigation brought in any such court has been brought in an inconvenient forum.
EACH OF THE PARTIES ACKNOWLEDGES THAT THE FOREGOING IS ESSENTIAL TO THE
EFFECTIVE AND EFFICIENT ENFORCEMENT OF THIS AGREEMENT (IN LIGHT OF THE COMPANY'S
OTHER STOCK PURCHASE AGREEMENTS AND THE CHOICE-OF-LAW AND CHOICE-OF-FORUM
PROVISIONS CONTAINED THEREIN), AND THEREFORE AGREES TO BE IRREVOCABLY BOUND BY
THE PROVISIONS OF THIS SECTION 8.11.
8.12. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid, but if any
provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
29
8.13. Knowledge. As used herein, "knowledge of the Company" and similar
---------
phrases shall mean, in addition to actual knowledge of the Company, (a) the
actual knowledge of any officer, director or employee of the Company and (b)
with respect to any such person, knowledge that such person should have or could
reasonably be inferred to have by virtue of such person's activities,
circumstances or relationship with the Company and its business.
8.14. Termination. This Agreement may be terminated by written notice
-----------
given prior to the Closing: (a) by Xxxxxxx or the Company, as to the purchase by
Xxxxxxx, if the Closing has not occurred by November 22, 1999 (other than
through the failure of any party seeking to terminate this Agreement to comply
fully with such party's obligations under this Agreement), or such later date as
Xxxxxxx and the Company may agree in writing, or (b) by an Investor or
Additional Investor as to the purchase of Series F Preferred Stock by it
hereunder, if a material breach of any of the representations, warranties or
covenants of the Company set forth in this Agreement has been committed between
the date hereof and the Closing, and such breach has not been either waived by
the Investor or Additional Investor or cured by the Company within 10 days
after the Company's receipt of written notice thereof from the Investor or
Additional Investor. Termination of this entire Agreement pursuant to Clause (a)
of this Section 8.14 shall terminate all obligations of the parties hereto
except for the obligations under Sections 8.1, 8.6, 8.11 and 8.13 and Articles
VI and VII; provided that termination of this Agreement pursuant to this Section
--------
8.14 (other than clause (b) of the first sentence of this Section 8.14) shall
not relieve a defaulting or breaching party hereunder from any liability to the
other parties hereto resulting from the default or breach hereunder of such
defaulting or breaching party occurring prior to the date of termination.
30
IN WITNESS WHEREOF, the parties hereto have executed this Series F
Preferred Stock Purchase Agreement as of the date first above written.
THE COMPANY: INTEK INFORMATION, INC.
By: /S/ XXXXXXX X. X'XXXXXXX
------------------------
Xxxxxxx X. X'Xxxxxxx
Chief Executive Officer and President
31
