SECOND AMENDED AND RESTATED SUBSCRIPTION AND REPURCHASE AGREEMENT (this
"Agreement"), dated as of August 6, 2004, between SCAN-OPTICS, INC. (the
"Company") and ARK CLO 2000-1, LIMITED (the "Purchaser" and, together with the
Company, individually, a "Party," and collectively, the "Parties").
RECITALS
A. Purchaser and the Company are parties to the Credit Agreement
(defined below) relating to, among other things, certain Loans (defined below)
made by the Purchaser to the Company.
B. As consideration for the Purchaser's agreement to surrender to the
Company for cancellation certain warrants to purchase common stock of the
Company and certain preferred stock of the Company, extending the maturity date
of the Loans under the Credit Agreement and the termination of the Master
Agreement (defined below), the Company wishes to issue and sell to the
Purchaser, and the Purchaser wishes to purchase from the Company, the Securities
(as defined below), on the terms and subject to the conditions of this
Agreement.
C. The Company and the Purchaser now wish to enter into this Agreement
to provide for the acquisition of the Securities by the Purchaser and the
Purchaser's agreement to transfer certain of the Securities to the Company under
certain circumstances, all as set forth herein.
D. The Parties are amending and restating this Agreement to modify
certain provisions that did not reflect the existence of 413,500 shares of
common treasury stock held by the Company and the expiration of certain
outstanding options.
AGREEMENT
In consideration of the premises and the mutual covenants and the
agreements herein set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I
Defined Terms
Section 1.01. Definitions. As used in this Agreement, the following terms
have the meanings stated:
"2004 Plan" has the meaning stated in Section 5.07(b).
"Affiliate" of a Person means any other Person that directly
or indirectly controls, is controlled by or is under common control
with, the Person or any of its Subsidiaries.
"Amended and Restated Certificate" has the meaning stated in
Section 4.01(f).
"Cancelled Preferred Stock" means that certain stock
certificate No. 1 issued by the Company to the Purchaser representing
380,000 shares of the Series B Redeemable Preferred Stock of the
Company.
"Cancelled Securities" means the Cancelled Preferred Stock and
the Cancelled Warrant.
"Cancelled Warrant" means that certain Warrant No. W-1 dated
as of December 31, 2001 issued by the Company to the Purchaser
entitling the holder thereof to purchase 33.20% of the Company's Common
Stock on a fully diluted basis as of December 31, 2001.
"Certificate of Designations" has the meaning stated in
Section 4.01(g).
"Closing" has the meaning stated in Section 3.01.
"Closing Date" has the meaning stated in Section 3.01.
"Common Stock" means the common stock, par value $.02 per
share, of the Company.
"Company" has the meaning stated in the Heading of this
Agreement and its successors.
"Company Indemnified Persons" has the meaning stated in
Section 8.01(b).
"Confidential Information" has the meaning stated in Section
7.01(c).
"Consents" means any approval, consent, authorization or order
of, notice to or registration or filing with, or any other action by,
any Governmental Body or other Person.
"Contract" means any agreement, contract, license, lease,
instrument, document, note, bond, mortgage, indenture, guarantee, or
other legally binding commitment or obligation, whether or not written,
each as amended or modified from time to time.
"Credit Agreement" means that certain Third Amended and
Restated Credit Agreement, dated as of March 30, 2004, among the
Company, the guarantors identified therein, the Purchaser and the other
lenders identified therein and Patriarch Partners Agency Service, LLC,
as the same may be amended, modified and supplemented from time to time
in accordance with the terms thereof.
"Dollars" and "$" refer to United States dollars and other
lawful currency of the United States of America from time to time in
effect.
"Existing Management" means any of Xxxxxx X. Xxxxxx, Xxxxxxx X.
Xxxxxxx, Xxxx X. Xxxxxx, Xxxxx X. Xxxxx, Xxxxxxxx X. Xxxx, Xxxxxxx
Xxxxxxx, Xxxx X. Xxxx, Xxxxx
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Xxxxxxxx and any other management level employees who are granted
options under the Existing Management Option Plan.
"Existing Management Option Agreements" means all of the stock
option agreements pursuant to the Existing Management Option Plan
covering the options granted to date to Existing Management and set
forth on Schedule A attached hereto and options that may be granted
from time to time in the future under such plan.
"Existing Management Option Plan" means the Company's amended
and restated senior executive stock option plan covering 6,470,929
shares of Common Stock.
"Governmental Body" means any legislative, agency, bureau,
commission or court, whether federal, state, local, domestic or
foreign.
"Loans" shall have the meaning given to such term in the
Credit Agreement.
"Losses" has the meaning stated in Section 8.01(a).
"Master Agreement" means that certain Master Agreement, dated
as of August 2, 1999, as amended by that certain First Amendment to
Master Agreement dated as of December 31, 2001 and that certain Second
Amendment to Master Agreement dated as of March 30, 2004.
"Option Shares" means any shares of the Company's Common Stock
to be issued to any of the Existing Management upon the exercise of his
rights under any Existing Management Option Agreement.
"Outside Date" has the meaning stated in Section 3.01.
"Person" means an individual, a corporation, a partnership, a
limited liability company, an association, a trust or any other entity
or organization, including a Governmental Body.
"Purchaser" has the meaning stated in the heading of this
Agreement, and its successors and permitted assigns.
"Purchaser Common Stock" has the meaning stated in Section
2.01.
"Purchaser Indemnified Person" has the meaning stated in
Section 8.01(a).
"Purchaser Preferred Stock" has the meaning stated in Section
2.01.
"Recapitalization" has the meaning set forth in the Credit
Agreement.
"Regulation" means each applicable law, rule, regulation or
order by any Governmental Body and each judgment, injunction or order
of any Governmental Body.
"Required Consents" has the meaning stated in Section 5.04.
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"Sale Agreements" means this Agreement, the Certificate of
Designations, and the Share Certificates.
"Securities" has the meaning stated in Section 2.01.
"Securities Act" means the Securities Act of 1933, as amended,
and the related regulations and published interpretations.
"Series I Preferred Stock" means the Company's Preferred
Stock, par value $0.02 per share, designated as "4% Series I Cumulative
Redeemable Preferred Stock" pursuant to the Certificate of
Designations.
"Share Certificates" means the stock certificates representing
the Securities to be purchased by the Purchaser hereunder.
"Subsidiary" of a Person means any Person of which equity
securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors, the general partner, the
manager or other persons performing similar functions are at the time
directly or indirectly owned by the Person. Unless the context
otherwise requires, references to one or more Subsidiaries are
references to Subsidiaries of the Company.
"Transactions" means the transactions contemplated by, or
described in, this Agreement and the other Sale Agreements, including,
without limitation, the issuance, sale, transfer, assignment,
conveyance and delivery of the Securities to the Purchaser.
ARTICLE II
Issuance and Sale of the Securities
-----------------------------------
Section 2.01. Issuance and Sale of the Securities. Upon the terms and
subject to the conditions set forth in this Agreement, at the Closing, the
Company will issue, sell, transfer, assign, convey and deliver to the Purchaser
(a) 420,857 shares of Series I Preferred Stock (the "Purchaser Preferred
Stock"), and (b) 34,425,345 shares of the Company's Common Stock (the "Purchaser
Common Stock" and collectively with the Purchaser Preferred Stock, the
"Securities"), and the Purchaser will purchase, acquire and accept from the
Company the Securities, for the consideration set forth in Section 2.02.
Section 2.02. The Consideration. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing, as payment in full of
the purchase price for the Securities and as an integral part of the
Recapitalization, (i) the Purchaser will surrender to the Company for
cancellation the Cancelled Preferred Stock and the Cancelled Warrant, (ii) the
Purchaser and the Company shall terminate and cancel the Master Agreement and
the Purchaser shall transfer to the Company (on an "as is" and "where is" basis,
without any representation or warranty whatsoever) all of its interests (if any)
in the personal property subject to such Master Agreement, and (iii) the
maturity date of the Loans shall be extended from June 1, 2005 to March 30,
2007.
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ARTICLE III
The Closing
-----------
Section 3.01. Time and Place of the Closing. The closing of the
issuance, sale, transfer, assignment, conveyance and delivery of the Securities
(the "Closing"), will be deemed to take place at the offices of Xxxxxxxx Xxxxxx
Xxxxx & Xxxx LLP, Xxx Xxxxx Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, at 10:00
a.m. (New York City time), as of the date on which all of the conditions to
closing set forth in this Agreement are satisfied or waived (the "Closing
Date"), so long as the conditions to closing set forth in this Agreement are
satisfied or waived on or prior to September 30, 2004 or such later date agreed
to by the Purchaser (the "Outside Date").
ARTICLE IV
Conditions to the Closing
-------------------------
Section 4.01. Conditions Precedent to the Obligations of the Purchaser.
The obligations of the Purchaser under this Agreement are expressly subject to
the fulfillment of each of the following conditions, unless waived by the
Purchaser in writing, at or before the Outside Date.
(a) Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement and in the other Sale Agreements
shall be true in all material respects on and as of the Closing Date.
(b) Performance of Agreements. The Company shall have performed and
complied in all material respects with all of its covenants and other
obligations contained in this Agreement and in the other Sale Agreements
required to be performed or complied with by the Company at or before the
Closing Date.
(c) Consents. The Purchaser shall have received copies of all of the
Required Consents, which Required Consents shall have been duly obtained or made
and shall be effective on and as of the Closing Date.
(d) No Actions. There shall be no lawsuit, action, proceeding or claim
by any Governmental Body or by any other Person (i) challenging or seeking to
restrain or prohibit the Transactions, or (ii) seeking to obtain from the
Purchaser or any of its Affiliates in connection with the Transactions any
damages.
(e) Share Certificates. The Purchaser shall have received the Share
Certificates, registered in the names of the Purchaser, duly executed and
delivered by the Company.
(f) Amended and Restated Certificate of Incorporation. The Board of
Directors and the shareholders of the Company shall have adopted the Amended and
Restated Certificate of Incorporation, in the form of Exhibit 4.01(f) hereto
(the "Amended and Restated Certificate"), and such Amended and Restated
Certificate shall have been filed with, and accepted for filing by, the
Secretary of State of the State of Delaware.
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(g) Certificate of Designations. The board of directors of the Company
shall have adopted the Certificate of Designations for the Series I Preferred
Stock, in the form of Exhibit 4.01(g) hereto (the "Certificate of
Designations"), and such Certificate of Designations shall have been filed with,
and accepted for filing by, the Secretary of State of the State of Delaware.
(h) Good Standing Certificate. The Purchaser shall have received a
certificate of the Secretary of State of the jurisdiction in which the Company
is organized, dated as of a recent date, as to the good standing of the Company.
(i) Opinion of Counsel. The Purchaser shall have received an opinion of
Day, Xxxxx & Xxxxxx, counsel for the Company, in form and substance reasonably
satisfactory to the Purchaser.
(j) Election of Directors. Xxxx Xxxxxx, Xxxxxxx Xxxxxx and Xxxxx
Xxxxxxxx shall have been nominated and elected to the board of directors of the
Company at the 2004 Annual Stockholder Meeting.
(k) Resignation of Directors. Each of X. Xxxxxxxx Xxxxxxxx, Xxxxxx X.
Xxxxxx and Xxxxx X. Xxxxxxxx, Xx. shall have tendered his resignation as a
member of the Board of Directors of the Company.
Section 4.02. Conditions Precedent to the Obligations of the Company.
The obligations of the Company under this Agreement are expressly subject to the
fulfillment of each of the following conditions, unless waived by the Company in
writing, at or before the Outside Date.
(a) Representations and Warranties. The representations and warranties
of the Purchaser set forth in this Agreement and in the other Sale Agreements
shall be true in all material respects on and as of the Outside Date with the
same force and effect as though made on and as of the Outside Date, effective as
of the Closing Date.
(b) Performance of Agreements. The Purchaser shall have performed and
complied in all material respects with all of its covenants and other
obligations set forth in this Agreement and in the other Sale Agreements
required to be performed or complied with by the Purchaser at or before the
Outside Date.
(c) Consents. The Company shall have received copies of all of the
Required Consents which Required Consents shall have been duly obtained or made
and shall be effective on and as of the Outside Date.
(d) No Actions. There shall be no lawsuit, action, claim or proceeding
by any Governmental Body or by any other Person (i) challenging or seeking to
restrain or prohibit the Transactions, or (ii) seeking to obtain from the
Company or any of its Affiliates in connection with the Transactions any damages
that are material in relation to the Company or any of its Affiliates.
(e) Cancellation of Cancelled Warrants, Cancelled Preferred Stock and
Master Loan Agreement. The Company shall have received the original Cancelled
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Warrant and Cancelled Preferred Stock Certificate, and the Purchaser and the
Company shall have executed this Agreement.
ARTICLE V
Representations and Warranties of the Company
----------------------------------------------
The Company hereby represents and warrants to the Purchaser as of the
date hereof and as of the Outside Date, effective as of the Closing Date, as
follows:
Section 5.01. Existence and Power. Each of the Company and its
Subsidiaries (a) is a corporation or limited liability company, as the case may
be, duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) is duly qualified under the laws of each
jurisdiction in which qualification is required to own, lease or license their
assets and properties or to carry on their business, and (c) has all necessary
corporate or limited liability company power and authority, as the case may be,
required to own, lease or license their assets and properties, to conduct their
businesses and to execute and deliver this Agreement and the other Sale
Agreements to which it is a Party and to consummate the Transactions.
Section 5.02. Authorization; Binding Effect. The execution and delivery
by the Company of this Agreement and the other Sale Agreements, the performance
by the Company of its obligations under this Agreement and the other Sale
Agreements and the consummation of the Transactions by the Company has been duly
authorized by all necessary corporate action on the part of the Company. This
Agreement is, and the other Sale Agreements are, or will be, when executed and
delivered in accordance with this Agreement, the legal, valid and binding
obligation of the Company enforceable against the Company in accordance with
their terms, except that such enforcement (a) may be limited by bankruptcy,
insolvency, moratorium or similar laws affecting creditors' rights generally and
(b) is subject to the availability of equitable remedies, as determined in the
discretion of the court before which such a proceeding may be brought.
Section 5.03. Contravention. Neither the execution, delivery and
performance of this Agreement or the other Sale Agreements by the Company nor
the consummation of the Transactions by the Company will (with or without notice
or lapse of time or both) (a) violate or breach any provision of the Company's
or any of its Subsidiaries' organizational or governing documents, (b) violate
or breach any Regulation by which the Company, any of its Subsidiaries or any of
their assets or properties may be bound or affected, or (c) breach or result in
a default under, result in the acceleration of, or give rise to a right of
termination, cancellation, modification or acceleration or require any notice
under, any material Contract to which the Company or any of its Subsidiaries is
a party or by which the Company, any of its Subsidiaries or any of their assets
or properties, including, without limitation, the Securities, may be bound or
affected.
Section 5.04. Required Consents. The Company has obtained all Consents
(all such Consents being the "Required Consents") which are required or
advisable in connection with (a) the due execution and delivery by the Company
of this Agreement and the other Sale Agreements and the performance of the
Company's obligations thereunder, and (b) the
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consummation of the Transactions by the Company, including, without limitation,
the issuance, sale, transfer, assignment, conveyance and delivery of the
Securities to the Purchaser hereunder.
Section 5.05. Litigation. There is no lawsuit, action, claim or
proceeding against the Company or any of its Subsidiaries that questions the
validity of this Agreement or any of the other Sale Agreements or that involves
or relates to any of the Transactions.
Section 5.06. The Securities.
(a) Series I Preferred Stock. (i) The shares of Series I Preferred
Stock purchased by the Purchaser hereunder will have the terms and provisions
set forth in the Certificate of Designations.
(b) Title to the Securities. Upon delivery to the Purchaser at the
Closing of the Share Certificates with respect to the Securities for the
issuance, sale, transfer, assignment, conveyance and delivery to the Purchaser,
(A) the Purchaser will become the sole record owner of such Securities and good
and marketable title to such Securities will pass to the Purchaser, free and
clear of any liens, claims, encumbrances or security interests of any kind,
other than those created by the Purchaser or as expressly set forth in Section
7.04 below, and (B) such Securities will be duly authorized, validly issued,
fully paid and nonassessable.
Section 5.07. Capitalization.
(a) Authorized, Issued and Outstanding Shares. As of the Closing Date,
immediately following the issuance and sale of the Securities pursuant to this
Agreement, the authorized capital stock of the Company will consist of (i)
5,000,000 shares of Preferred Stock, par value $.02, of which 420,857 have been
designated Series I Preferred Redeemable Preferred Stock, all of which will be
issued and outstanding (for the avoidance of doubt, no other shares of Preferred
Stock shall, as of the Closing Date, be designated, issued or outstanding), and
(ii) 65,000,000 shares of Common Stock, par value $.02, of which 41,451,577
shares will be issued and outstanding (the 41,451,577 shares of Common Stock
issued and outstanding do not include 413,500 shares of common treasury stock
held by the Company). All of the issued and outstanding shares of Common Stock
and Preferred Stock have been duly authorized, validly issued and are fully paid
and nonassessable. As of the Closing Date, except as set forth above, the
Company will not have any equity securities issued and outstanding, except for
the options listed in clause (b) below.
(b) Rights, Options, Etc. Except for (i) currently outstanding options
to purchase 542,000 shares of Common Stock granted to the Company's employees
pursuant to the Company's employee stock incentive plans, (ii) currently
outstanding options to purchase 774,183 shares of Common Stock granted to
officers of the Company, (iii) currently outstanding options to purchase 285,000
shares of Common Stock granted to directors of the Company and (iv) currently
outstanding options to purchase 1,080,000 shares of Common Stock (which will,
together with additional shares of Common Stock to be issued under the Existing
Management Option Plan, scheduled to occur on or before the date which is ten
(10) trading days after the Closing Date (such issuance, the "Option Issuance"),
be exercisable for a total of 6,470,929 shares of Common Stock) granted to
executive officers of the Company, pursuant to the six stock
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option plans for key employees, officers and directors of the Company
(collectively the "Options"), there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal), proxy
or stockholder agreements or agreements of any kind for the purchase or
acquisition from the Company of any of its securities. As of the Closing Date,
there are in addition an aggregate of 2,357,272 shares of Common Stock reserved
under stock option plans of the Company and not covered by existing options (or
in the case of the Existing Management Option Agreements, to be covered by such
agreements after giving effect to the Option Issuance), comprised of (x) 86,770
shares of Common Stock reserved for future grants under all of the Company's
stock option plans (other than the Existing Management Option Plan) in existence
prior to the Recapitalization and (y) 2,270,502 shares of Common Stock reserved
for future grants under the 2004 Incentive and Non-Qualified Stock Option Plan
("2004 Plan") adopted in connection with the Recapitalization, after giving
effect to the covenant set forth in Section 7.07 of this Agreement. The Company
is not a party to or subject to any agreement or understanding, and, to the best
of the Company's knowledge, there is no agreement or understanding between any
persons that affects or relates to the voting or giving of written consents with
respect to any security or the voting by a director of the Company.
Section 5.08. No Brokers. The Company has not engaged or employed any
finder, broker, agent or other intermediary in connection with the Transactions.
There are no fees, commissions or compensation payable by the Purchaser to any
Person engaged or retained by, through or on behalf of the Company in connection
with the consummation of the Transactions.
Section 5.09. Securities Laws. The Company has not offered to sell any
portion of the Securities or any interest therein in a manner which violates any
applicable securities law or would require the issuance and sale hereunder to be
registered under the Securities Act.
Section 5.10. Misstatements. No representation or warranty contained in
this Agreement or any other Sale Agreement, contained or will contain, as the
case may be, any material misstatement of fact or omitted or will omit, as the
case may be, to state a material fact or any fact necessary to make the
statement contained therein not materially misleading.
ARTICLE VI
Representations and Warranties of the Purchaser
-----------------------------------------------
The Purchaser hereby represents and warrants to the Company as of the
date of this Agreement and as of the Outside Date, effective as of the Closing
Date, as follows:
Section 6.01. Existence and Power. The Purchaser (a) is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and (b) has all necessary power and authority
to execute and deliver the Sale Agreements and to consummate the Transactions.
Section 6.02. Authorization; Binding Effect. The execution and delivery
by the Purchaser of this Agreement and the other Sale Agreements, the
performance by the Purchaser of its obligations under this Agreement and the
other Sale Agreements and the consummation of the Transactions by the Purchaser
has been duly authorized by all necessary action on the part of the
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Purchaser. This Agreement and each of the other Sale Agreements is, or will be,
when executed and delivered in accordance with this Agreement, legal, valid and
binding obligations of the Purchaser enforceable against the Purchaser in
accordance with its terms, except that such enforcement (a) may be limited by
bankruptcy, insolvency, moratorium or similar laws affecting creditors' rights
generally and (b) is subject to the availability of equitable remedies, as
determined in the discretion of the court before which such a proceeding may be
brought.
Section 6.03. Contravention. Neither the execution, delivery and
performance of this Agreement and the other Sale Agreements by the Purchaser nor
the consummation of the Transactions by the Purchaser will (with or without
notice or lapse of time or both) (a) violate or breach any provision of the
Purchaser's organizational or governing documents, (b) violate or breach any
Regulation by which the Purchaser or any of its properties may be bound or
affected, or (c) breach or result in a default under any material Contract to
which the Purchaser is a party or by which the Purchaser or any of its
properties may be bound or affected.
Section 6.04. Consents. Except for the Required Consents, all Consents
have been obtained which are required or advisable in connection with (a) the
due execution and delivery by the Purchaser of this Agreement and the other Sale
Agreements and the performance of the Purchaser's obligations thereunder and (b)
the consummation of the Transactions by the Purchaser.
Section 6.05. Litigation. There is no lawsuit, action, claim or
proceeding against the Purchaser that involves any of the Transactions or any
material property owned, licensed, leased or used by the Purchaser that,
individually or in the aggregate, if determined adversely to the Purchaser,
would materially and adversely affect the ability of the Purchaser to perform
its obligations under this Agreement or the other Sale Agreements.
Section 6.06. Investment Representations.
(a) Purchase for Own Account. The Securities will be acquired for the
Purchaser's own account, not as a nominee or agent, and not with a view to the
distribution of any part thereof in violation of applicable securities laws.
(b) No Registration. The Purchaser understands and acknowledges that
the Securities are not being registered under the Securities Act, or any state
securities laws on the grounds that the issuance thereof is exempt under Section
4(2) of the Securities Act, and such state securities laws as a transaction by
an issuer not involving any public offering, and that reliance on such exemption
is predicated in part on the representations by the Purchaser herein. The
Purchaser understands that the Securities cannot be sold unless they are
subsequently registered under the Securities Act and applicable state securities
laws or an exemption from such registration is available.
(c) Accredited Investor. The Purchaser is an "accredited investor" as
defined in Rule 501(a) of the Securities Act.
(d) Legend. The Purchaser agrees that the Company will obtain "stop
transfer" orders with respect to the Securities purchased by the Purchaser
hereunder to ensure that the Purchaser abides by the transfer restrictions
applicable to the Securities. In addition, the Purchaser agrees
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that the Securities will bear the following legends for so long as applicable
under applicable securities laws:
"The Securities represented by this certificate have not been
registered or qualified under the Securities Act of 1933, as amended
(the "1933 Act"), or under any state securities laws and such
Securities have been issued to the holder in reliance upon certain
exemptions from registration and qualification provided in the 1933 Act
and the rules and regulations thereunder and the applicable state
securities laws. Accordingly, neither such Securities or nor any
interest therein may be offered, sold, pledged, assigned or otherwise
transferred unless (1) a registration statement with respect thereto is
effective under the 1933 Act and any applicable state securities laws
or (2) such Securities are offered, sold, pledged, assigned, or
transferred in the manner pursuant to a valid exemption therefrom."
The Repurchase Shares that are subject to repurchase by the Company
pursuant to Section 7.04 of this Agreement shall also bear the following legend
for so long as such repurchase rights are applicable.
"The shares of stock represented by this certificate are
subject to restrictions upon transfer and a right of repurchase by the
Company set forth in a certain Second Amended and Restated Subscription
and Repurchase Agreement between the Company and the registered owner
of this certificate. The Company will furnish a copy of such agreement
to the holder of this certificate upon written request and without
charge."
ARTICLE VII
Covenants
---------
Section 7.01. Confidentiality.
---------------
(a) Confidentiality. Each of the Company and the Purchaser will not,
and will cause its respective shareholders, partners, managers, members,
directors, officers, employees, agents, counsel, accountants, advisors,
Affiliates and other representatives not to, directly or indirectly, disclose,
reveal, divulge, publish or otherwise make known to any Person any Confidential
Information for any reason or purpose whatsoever, other than disclosures to such
Person's directors, officers, employees, agents, counsel, accountants, lenders,
potential lenders, investors, potential investors, investment managers and other
authorized representatives who need to know such Confidential Information and
are advised of the confidential nature of the Confidential Information.
(b) Permitted Disclosure. Notwithstanding the provisions of Section
7.01(a) above (i) the Purchaser shall be permitted to disclose Confidential
Information to any Person in connection with the Transfer, or proposed Transfer,
of the Securities, any portion thereof, or any interest therein, including,
without limitation, any potential transferee in connection with any such
Transfer or proposed Transfer, and to use the Confidential Information in
connection with any such proposed Transfer, so long as the proposed transferee
agrees to maintain the confidentiality of such information, (ii) the Company and
the Purchaser shall be permitted to disclose
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Confidential Information as required by applicable Regulation or a subpoena or
court order by a court of competent jurisdiction, and (iii) the Company and the
Purchaser shall be permitted to disclose Confidential Information to the extent
necessary to obtain the Required Consents or otherwise effectuate the
Transactions.
(c) "Confidential Information". For purposes of this Agreement, the
term "Confidential Information" means any non-public information about the
Company delivered to such Person; provided, however, that "Confidential
Information" does not include information which (A) is in the public domain at
the time it is received by the Purchaser, or (B) which becomes public through no
fault of the Purchaser or any other Person.
Section 7.02. Further Assurances. Promptly upon the reasonable request
by the Purchaser, the Company shall (a) correct any defect or error that may be
discovered in this Agreement or in any other Sale Agreement or in the execution,
delivery, acknowledgment or recordation of this Agreement or any other Sale
Agreement, (b) execute, acknowledge, deliver, record, file and register, any and
all such further acts, conveyances, assignments, notices of assignment,
transfers, certificates, assurances, endorsements and other instruments, and (c)
take all such action, in each case, as such requesting party may require from
time to time.
Section 7.03. Expenses. The Company shall be responsible for and pay
the Purchaser's and its own legal, accounting and other fees and expenses
arising from the due diligence review, and the negotiation, preparation and
execution of this Agreement and the other Sale Agreements.
Section 7.04. Repurchase by the Company.
(a) Repurchase. Upon the exercise by any of the Existing Management of
his rights under any of the Existing Management Option Agreements to receive
Option Shares ("Repurchase Options"), the Company shall repurchase from the
Purchaser, and the Purchaser hereby agrees to sell, transfer and deliver to the
Company, the same number of shares of Common Stock, at a price of $.02 per share
(the "Repurchase Price"), as are issued to the Existing Management as Option
Shares. This repurchase right shall apply to no more than 6,470,929 shares of
Purchaser's Common Stock (the "Repurchase Shares"), as adjusted for stock
dividends, stock splits, reverse splits or combinations, recapitalizations or
other similar events; provided, that such adjustment for any such event that
would result in an increase of the number of shares of Common Stock issued and
outstanding shall only occur if both (i) the Repurchase Shares shall have
received the benefit of any such event (except in the case of an issuance of
shares under Section 7.04(c)) and (ii) the Existing Management Option Agreements
shall have provided commensurate anti-dilution protection for the Option Shares
to be issued thereunder; and provided, further, any reverse split, recombination
or other similar event that acts to reduce the number of Repurchase Shares
available under this Section 7.04 shall so reduce the number of such Repurchase
Shares notwithstanding the effect such event has on the number of Option Shares
issuable under the Existing Management Option Agreements. The Company and the
Purchaser agree that the intent of the preceding sentence is to ensure that no
more than 18.8% of the Purchaser Common Stock shall constitute Repurchase Shares
subject to repurchase by the Company pursuant to this Section 7.04.
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(b) Restriction on Sale. The Purchaser shall not sell, transfer, assign
or convey any of the Repurchase Shares without the prior written consent of the
Company; provided, that, after the third anniversary of the date of this
Agreement, to the extent that any Existing Management Option Agreement
terminates and Option Shares are no longer issuable thereunder, or to the extent
that any Option Shares cease to be issuable under any of the Existing Management
Option Agreements or to the extent that options under the Existing Management
Option Agreements are never granted with respect to such Option Shares, this
Section 7.04 shall no longer apply to an equal number of shares of Purchaser
Common Stock and that number of shares of the Purchaser Common Stock shall no
longer constitute Repurchase Shares subject to repurchase by the Company
hereunder and shall no longer be subject to the restriction on transfer set
forth in this Section 7.04(b). At any time that any shares of Purchaser Common
Stock no longer constitute Repurchase Shares, the Company shall issue new
certificates to the Purchaser for such shares not bearing the legend relating to
Repurchase Shares set forth in Section 6.06(d).
(c) Remedy. If, at any time the Purchaser does not transfer the
applicable Option Shares of the Company as required by Section 7.04(a) within
thirty (30) days of the Company's delivery to the Purchaser of written notice of
the exercise by the Existing Management member (such person for purposes of
Section 7.04, a ("Optionee"), of his rights under the Existing Management Option
Agreement to receive Option Shares in accordance with the terms of the Existing
Management Option Agreement (compliance by such Optionee to include, without
limitation, as applicable, the (x) exercise of the vested portion of such Option
only within the term of the Option, (y) payment to the Company of the exercise
price therefor and (z) payment to the Company of all applicable Federal, state
and local withholding taxes required to be paid by the Company upon such
exercise), then the Company shall promptly (but in any event within sixty (60)
days after the end of such thirty day period): (I) (x) issue the Option Shares
issuable upon exercise of such Existing Management Option Agreement to such
Optionee and (y) issue additional securities of the Company such that (i) each
stockholder of the Company (including the Optionee who had received Option
Shares pursuant to this remedy provision) receives additional Common Stock, and
(ii) each holder of options or rights convertible into or exercisable for shares
of Common Stock of the Company receives additional options or rights, in each
case other than the Purchaser and any of its permitted transferees holding
Purchaser Common Stock (collectively, the "Purchaser Common Stockholders"), such
that, after such additional issuances, the Purchaser Common Stockholders shall
have the percentage ownership of Common Stock of the Company, as would have
resulted had the Purchaser transferred the number of Repurchase Shares to the
Company in accordance with the requirements of Section 7.04(a) hereof, and (II)
increase the number of shares of Common Stock allocated to the 2004 Plan such
that the 2004 Plan shall have for issuance the same percentage of shares of the
Common Stock of the Company as it would have had had the Purchaser transferred
the number of Repurchase Shares to the Company in accordance with the
requirements of Section 7.04(a) hereof.
(d) Transfer to Trust. In the event that the Purchaser's Class A Notes
no longer have an investment grade rating, the Purchaser shall transfer any
remaining Repurchase Shares to a trust which shall hold such Repurchase Shares
subject to an agreement embodying the provisions of this Section 7.04. The trust
shall have no business other than holding such Repurchase Shares. The Purchaser
shall be the sole beneficial owner of such trust and shall have the right to
appoint the trustee of the trust. Any expenses of the trust and the trustee
shall be paid by the Company.
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Section 7.05. Registration Rights. After the Closing, the Company shall
enter into a registration rights agreement with the Purchaser which provides the
Purchaser unlimited demand registration rights and other customary terms
reasonably acceptable to the Purchaser and the Company. The Company shall
reimburse the Purchaser for all its costs and expenses (including reasonable
attorney's fees and expenses) incurred in negotiating such registration rights
agreement.
Section 7.06. Satisfaction of Recapitalization Covenant. The Purchaser
acknowledges and agrees that upon satisfaction of the conditions to closing set
forth in Article IV hereof and the issuance and sale of the Securities to the
Purchaser at the Closing, the Company shall have satisfied the covenant set
forth in Section 5.1(h)(i) of the Credit Agreement.
Section 7.07. 2004 Plan. Notwithstanding the fact that 2,391,268 shares
of Common Stock are reserved for future grants under the 2004 Plan, the Company
agrees that, unless otherwise agreed to in writing by the Company and the
Purchaser, the actual number of shares of Common Stock that may be granted under
the 2004 Plan shall not exceed 2,270,502 shares, subject to adjustment as a
result of any merger, reorganization, recapitalization, stock dividend, stock
split or reverse stock split, as provided under the 2004 Plan.
Section 7.08. Repurchase Options. The Company agrees that it shall not,
without the written consent of the Purchaser, issue any Repurchase Options or
amend any Repurchase Option in a manner that results in a strike price that is
not greater than the Repurchase Price of the Repurchase Shares.
ARTICLE VIII
Indemnification
---------------
Section 8.01. Indemnification.
---------------
(a) Indemnification by the Company. The Company will indemnify and defend
the Purchaser and its Affiliates and each of their respective
shareholders, partners, members, managers, directors, officers,
employees, agents, attorneys and Affiliates (collectively, the
"Purchaser Indemnified Persons") against and hold each Purchaser
Indemnified Person harmless from any and all liabilities, obligations,
losses, damages, costs, expenses, claims and reasonable attorneys' fees
and expenses (collectively, "Losses"), that the Purchaser Indemnified
Persons may incur due to:
(i) any inaccuracy or breach of any of the representations and
warranties of the Company contained in this Agreement or any
other Sale Agreement; and/or
(ii) the nonfulfillment or breach of any covenant, undertaking,
agreement or other obligation of the Company contained in this
Agreement or any other Sale Agreement.
(b) Indemnification by the Purchaser. The Purchaser will indemnify and
defend the Company and its Affiliates and each of their respective
shareholders, partners, members, managers, directors, officers,
employees, agents, attorneys and Affiliates (collectively, the "Company
-14-
Indemnified Persons") against and hold each Seller Indemnified Person
harmless from any and all Losses that the Seller Indemnified Persons
may incur due to:
(i) any inaccuracy or breach of any of the representations and
warranties of the Purchaser contained in this Agreement or any
other Sale Agreement; and/or
(ii) the nonfulfillment or breach of any covenant, undertaking,
agreement or other obligation of the Purchaser contained in this
Agreement or any other Sale Agreement.
ARTICLE IX
Miscellaneous
-------------
Section 9.01. Notices. All notices, requests, demands and other
communications to any party or given under this Agreement will be in writing and
delivered personally, by overnight delivery or courier, by registered mail or by
telecopier (with confirmation received) to the parties at the address or
telecopy number specified for such parties on the signature pages hereto (or at
such other address or telecopy number as may be specified by a party in writing
given at least five business days prior thereto). All notices, requests, demands
and other communications will be deemed delivered when actually received.
Section 9.02. Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, and by different parties hereto in
separate counterparts, each of which when executed will be deemed an original,
but all of which taken together will constitute one and the same instrument.
Section 9.03. Amendment of Agreement. This Agreement may not be
amended, modified or waived except by an instrument in writing signed on behalf
of each of the parties hereto; provided, that, Section 7.04 may not be amended
and no provision thereof waived except by an instrument in writing signed on
behalf of each of the parties hereto and either (i) a majority in number of the
Existing Management or (ii) Existing Management party to Existing Management
Option Agreements covering a majority in number of the Option Shares.
Section 9.04. Successors and Assigns; Assignability. This Agreement
will be binding upon and inures to the benefit of and be enforceable by the
respective successors and permitted assigns of the parties hereto. This
Agreement may not be assigned by the Company without the prior written consent
of the Purchaser. The Purchaser may assign its rights hereunder to any permitted
assignee of any of the Securities. Any assignment or attempted assignment in
contravention of this Section will be void ab initio and will not relieve the
assigning party of any obligation under this Agreement.
Section 9.05. Governing Law. This Agreement will be governed by, and
construed in accordance with, the laws of the state of New York applicable to
contracts executed in and to be performed entirely within that state, without
reference to conflicts of laws provisions.
Section 9.06. Integration. This Agreement and the other Sale Agreements
contain and constitute the entire agreement of the parties with respect to the
subject matter hereof and
-15-
supersede all prior negotiations, agreements and understandings, whether written
or oral, of the parties hereto.
Section 9.07. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement will
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto will
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent possible.
Section 9.08. No Third-Party Rights. This Agreement is not intended,
and will not be construed, to create any rights in any parties other than the
Company and the Purchaser, and no Person, other than assignees of the
Purchaser's rights hereunder, may assert any rights as third-party beneficiary
hereunder, except as provided in Article VIII, Section 9.03 or to assignees of
the Purchaser.
Section 9.09. Enforcement. Each Party hereby acknowledges and agrees
that the provisions of this Agreement are of a special and unique nature, the
loss of which cannot be accurately compensated for in damages by an action at
law, and that the breach or threatened breach of the provisions of this
Agreement by such Party would cause the other Party hereto irreparable harm and
that money damages would not be an adequate remedy for any breach or threatened
breach of the provisions of this Agreement by such Party. Therefore, each Party
hereby agrees that the other Party hereof shall be entitled to equitable relief,
including, without limitation, an injunction or injunctions (without the
requirement of posting a bond, other security or any similar requirement or
proving any actual damages), to prevent breaches or threatened breaches of this
Agreement by such Party and to specifically enforce the terms and provisions of
this Agreement, this being in addition to any other remedy to which such other
Party is or may be entitled at law or in equity.
Section 9.10. Submission to Jurisdiction. Each of the Company and the
Purchaser hereby (a) agrees that any lawsuit, action, claim or proceeding with
respect to this Agreement or any other Sale Agreement may be brought only in the
courts of the State of New York or of the United States of America for the
Southern District of New York, (b) accepts for itself and in respect of its
property, generally and unconditionally, the exclusive jurisdiction of such
courts, (c) irrevocably waives any objection, including, without limitation, any
objection to the laying of venue or based on the grounds of forum non
conveniens, which it may now or hereafter have to the bringing of any Action in
those jurisdictions, and (d) irrevocably consents to the service of process of
any of the courts referred to above in any lawsuit, action, claim or proceeding
by the mailing of copies of the process to the parties hereto as provided in
Section 9.01. Service effected as provided in this manner will become effective
ten calendar days after the mailing of the process.
Section 9.11. Waiver of Jury Trial. Each of the Company and the
Purchaser hereby waives any right to a trial by jury in any lawsuit, action,
claim or proceeding to enforce or defend
-16-
any right under this Agreement or any other Sale Agreement or any amendment,
instrument, document or agreement delivered or to be delivered in connection
with this Agreement or any other Sale Agreement and agrees that any lawsuit,
action, claim or proceeding will be tried before a court and not before a jury.
Section 9.12. Ambiguities. This Agreement was negotiated between legal
counsel for the parties and any ambiguity in this Agreement shall not be
construed against the party who drafted this Agreement.
Section 9.13. No Waiver; Remedies. No failure or delay by any party in
exercising any right, power or privilege under this Agreement will operate as a
waiver of the right, power or privilege. A single or partial exercise of any
right, power or privilege will not preclude any other or further exercise of the
right, power or privilege or the exercise of any other right, power or
privilege. The rights and remedies provided in this Agreement and the other Sale
Agreements will be cumulative and not exclusive of any rights or remedies
provided by law.
Section 9.14. D&O Insurance. After the Closing Date, Purchaser shall
(so long as it is a majority shareholder of the Company's common stock) use
commercially reasonable efforts to ensure that the Company continues to maintain
directors and officers insurance ("D&O Insurance") coverage for each current and
former director and officer that is comparable to, or better than, the coverage
(if any) existing under the Company's D&O Insurance policy in effect as of the
Closing Date (as defined in the Credit Agreement).
-17-
In witness whereof, the parties have executed and delivered this
Agreement as of the date first written above.
COMPANY:
---------
Address for Notices:
--------------------
000 Xxxxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxxxxx 00000
Attention: Chief Financial Officer
Facsimile: (000) 000-0000
SCAN-OPTICS, INC.
with a copy to:
Day, Xxxxx & Xxxxxx LLP By: /s/ Xxxxx X. Xxxxxxxx
---------------------------
CityPlace I Name: Xxxxx X. Xxxxxxxx
Hartford, Connecticut 06103-3499 Title: Chief Financial Officer
Attention: Xxxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
PURCHASER:
Address for Notices:
c/o Patriarch Partners, LLC
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Ms. Xxxx Xxxxxx ARK CLO 2000-1, LIMITED
Facsimile No.: (000) 000-0000
By: Patriarch Partners, LLC,
with a copy to: its Collateral Manager
Xxxxxxxx Xxxxxx Xxxxx & Xxxx LLP
One World Financial Center By: /s/ Xxxx Xxxxxx
---------------------
Xxx Xxxx, Xxx Xxxx 00000 Name: Xxxx Xxxxxx
Attention: Xx. Xxxx X'Xxxxx Title: Manager
Facsimile No.: (000) 000-0000
-18-
Schedule A
List of Existing Management Option Agreements
The following Options are covered by Existing Management Option Agreements as of
the date of this Agreement and shall be covered by the Company's repurchase
obligation specified in Section 7.04 of the Agreement.
--------------------------------- ------------------------- ----------------------------- ----------------------------
Name of Management Option Holder Date of Option Grant Number of Shares Covered by Number of Shares Covered
Grant (Pre-Recap) by Grant After Giving
Effect to the Option
Issuance Post-Recap
--------------------------------- ------------------------- ----------------------------- ----------------------------
Xxxxxx X. Xxxxxx 12/31/01 100,000 599,160
--------------------------------- ------------------------- ----------------------------- ----------------------------
Xxxxxxx X. Xxxxxxx 12/31/01 145,000 868,782
--------------------------------- ------------------------- ----------------------------- ----------------------------
Xxxx X. Xxxxxx 12/31/01 130,000 778,908
--------------------------------- ------------------------- ----------------------------- ----------------------------
Xxxxx X. Xxxxx 12/31/01 250,000 1,497,900
--------------------------------- ------------------------- ----------------------------- ----------------------------
Xxxxxxxx X. Xxxx 12/31/01 130,000 778,908
--------------------------------- ------------------------- ----------------------------- ----------------------------
Xxxxxxx Xxxxxxx 12/31/01 140,000 838,825
--------------------------------- ------------------------- ----------------------------- ----------------------------
Xxxx X. Xxxx 12/31/01 130,000 778,908
--------------------------------- ------------------------- ----------------------------- ----------------------------
Xxxxx Xxxxxxxx 04/26/04 5,000 29,958
--------------------------------- ------------------------- ----------------------------- ----------------------------
Xxxx Xxxxxxx 04/26/04 50,000 299,580
--------------------------------- ------------------------- ----------------------------- ----------------------------
--------------------------------- ------------------------- ----------------------------- ----------------------------
Total 1,080,000 6,470,929
--------------------------------- ------------------------- ----------------------------- ----------------------------
-19-
Exhibit 4.01(f)
[Certificate of Incorporation]
-20-
Exhibit 4.01(g)
[Certificate of Designations]
-21-
