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EXHIBIT 4.5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of July 10,
1998, is made and entered into between BLUE RIDGE INVESTORS LIMITED PARTNERSHIP,
a North Carolina limited partnership (the "Purchaser") which is a Federal
Licensee under the Small Business Investment Act of 1958, as amended (the "SBIC
Act"); I 3S, INC., a Texas corporation (the "Company"); XXXXX X. XXXXX, XXXX X.
XXXXXXX, XXXX X. XXXXX, XX., XXXXXXX XX PRICE, XXXXXX XXXXXX, and I3S FUNDING I,
L.L.C. ("Funding") the sole existing holders of capital stock of the Company
(the "Shareholders") who execute this Agreement solely for the purpose of
agreeing to the provisions of Section 2 hereof and waiving any and all
preemptive rights with respect to the issuance of the Class C Shares hereunder.
Purchaser wishes to purchase from the Company, and the Company wishes
to sell to Purchaser, 875,000 shares of the Company's Class C Common Stock, no
par value per share (the "Class C Shares"), on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the mutual agreements,
representations and warranties contained in this Agreement, the parties hereto
agree as follows:
1. SALE AND PURCHASE OF CLASS C SHARES; THE CLOSING
a. Sale and Purchase of Class C Shares. Subject to the terms and
conditions set forth in this Agreement, at the Closing provided for in paragraph
1.d. below, the Company shall sell to Purchaser, and Purchaser shall buy from
the Company, Eight Hundred Seventy Five Thousand (875,000) Class C Common Shares
for an aggregate purchase price of One Million Seven Hundred Fifty Thousand
Dollars ($1,750,000). The Class C Shares shall represent at the time of issuance
6.5029% of all outstanding common stock of the Company on a fully diluted basis
(i.e. calculated as
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if all outstanding options, warrants or other rights to acquire or purchase
shares of the Company's common stock, had been exercised).
b. Payment of Purchase Price. At the Closing, Purchaser shall deliver
the sum of One Million Seven Hundred Fifty Thousand Dollars ($1,750,000) to the
Company by way of a wire transfer in complete payment for the Class C Shares.
c. Delivery of Stock Certificate. In consideration for Purchaser's
payment for the Class C Shares, at the Closing the Company shall deliver to
Purchaser a stock certificate representing the Class C Shares.
d. The Closing. The closing of the sale and purchase of the Class C
Shares contemplated hereby (the "Closing"), shall take place at the offices of
the Company, 0000 Xxxxx Xxxx, Xxxxx 000, Xxxxxx, Xxxxx, at 10:00 a.m. on the
date hereof, or such other date and time as Purchaser and the Company shall
mutually agree in writing (the "Closing Date"). At the Closing, the Company
simultaneously shall sell 875,000 shares of Class C Common Stock to Spotswood
Capital, LLC ("Spotswood") for $1,750,000 on substantially the same terms and
conditions that are set forth herein with respect to the sale of the Class C
Shares to Purchaser.
2. PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE CLASS C SHARES
a. Voting. Except as provided in Section 2.i below, the Class C Shares
shall be entitled to vote on all matters voted on at a shareholders' meeting,
with the same voting rights per share as are granted to the Company's Class A
Common Stock and Class B Common Stock. Purchaser acknowledges that 258,521 of
the Class C Shares shall be transferred to a voting trust pursuant to a Voting
Trust Agreement to be executed and delivered at Closing substantially in the
form of Exhibit A attached hereto.
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b. Preemptive Rights. Until such time as a Purchaser Approved Offering
(as defined below) has been consummated or Purchaser has otherwise sold all of
its Class C Shares or other equity interests in the Company, Purchaser shall
have preemptive rights with regard to any future issuances of common stock of
the Company (other than an issuance of common stock pursuant to options that are
approved by the holders of the Company's Class B Common Stock) permitting
Purchaser to purchase additional common shares pro rata at the same price and on
the same terms and conditions of such issuance; provided, however, that if the
holders of the Company's Class B Common Stock waive their rights with respect to
a future issuance of common stock, Purchaser shall not have preemptive rights
with respect to that issuance. For purposes of this Agreement, a Purchaser
Approved Offering shall mean the consummation of an underwritten public offering
of common stock of the Company on the New York Stock Exchange, the American
Stock Exchange, or The Nasdaq Stock Market, Inc. pursuant to a registration
statement filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "1933 Act"), covering the offer and sale of common
stock of the Company to the public at a price resulting in gross proceeds from
such sale to the Company (before deduction of underwriting discounts and
expenses of sale) of not less than $50,000,000.
c. Right of First Refusal. Except in the event of and after the
consummation of a Purchaser Approved Offering, and except for gifts, charitable
donations or sales in each case representing less than One Percent (1%) of the
Company's outstanding common stock in the aggregate, no shareholder shall be
permitted to dispose of any shares of the Company's common stock unless such
shares shall have been offered for sale in writing first to the Company and then
to the other shareholders of the Company pro rata. In the event a shareholder
desires to transfer any
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common shares, the shareholder desiring to make such transfer (the "Transferring
Shareholder") shall deliver written notice (the "Offer Notice") to the Company
and to all other shareholders at least sixty (60) days prior to the proposed
transfer. The Offer Notice will disclose in reasonable detail the proposed
number of shares to be transferred, the proposed transferee and the proposed
price, terms and conditions of the transfer.
i. Upon receipt of the Offer Notice, the Company shall have
the option (the "Company's Option") for a period of thirty (30) days to purchase
or otherwise acquire all or part of the shares described in the Offer Notice for
an aggregate amount (such aggregate amount being hereinafter referred to as the
"Option Price") equal to the bona fide purchase price to be paid by the proposed
purchaser as described in the Offer Notice (which amount shall be zero if the
proposed transfer would take the form of a gift or other gratuitous transfer).
The Company shall notify in writing all then current shareholders as to whether
it will exercise, partially exercise or not exercise the Company's Option before
the expiration of the Company's Option.
ii. In the event that the Company does not elect to fully
exercise the Company's Option within thirty (30) days after receipt of the Offer
Notice, the remaining shareholders shall have the option (each a "Shareholder's
Option") for a period of ten (10) days from the earlier of (i) their receipt of
written notice from the Company of its decision not to exercise or to only
partially exercise the Company's Option, or (ii) the expiration of the Company's
Option (the "Other Shareholder Election Period"), to purchase or otherwise
acquire all or part of the remaining shares which the Company does not choose to
purchase pursuant to the Company's Option, in proportion to their respective
ownership of shares which, for purposes of such determination, shall include
without duplication all outstanding options, warrants or other rights owned by
such shareholders that are
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convertible into shares as of the date of such notice from the Company (or the
expiration of the Company's Option), for an amount equal to the applicable
portion of the Option Price. Each shareholder shall notify in writing all then
current shareholders as to whether such shareholder will exercise, partially
exercise or not exercise the shareholder's option before the expiration of the
Other Shareholder Election Period.
iii. For a period of ten (10) days from the earlier of (i) the
receipt by the other shareholders of a written notice from a shareholder that it
does not want to exercise its option or will only partially exercise its option,
or (ii) the expiration of the Other Shareholder Election Period, the other
shareholders shall have the right to purchase or otherwise acquire such
shareholder's portion of the shares described in the Offer Notice in proportion
to their respective ownership of shares (determined as described in Section
2.c.ii. above).
iv. If shares of a Transferring Shareholder remain unsold
after compliance with the procedures set forth in this Section 2.c., the Company
shall have the final option for ten (10) days to purchase or otherwise acquire
all of the remaining shares proposed to be transferred for an amount equal to
the applicable portion of the Option Price. If, however, the Company and the
other shareholders do not individually or collectively elect to purchase all of
the shares being offered, the Transferring Shareholder may, within thirty (30)
days after the expiration of the Other Shareholder Election Period (subject to
the provisions of Section 0.x.xx. below), transfer all of the shares specified
in the Offer Notice to the transferee identified in the notice at the price and
terms stated in the Offer Notice. Any shares so transferred thereupon shall
continue to be subject to this Agreement, and the transferee shall have the
rights and obligations set forth in this Agreement hereunder with respect to
such shares. If the Transferring Shareholder fails to consummate such transfer
within the thirty-day
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period after the expiration of the Other Shareholder Election Period, any
transfer of the shares thereafter shall again be subject to the provisions of
this Section 2.c.
v. Unless otherwise agreed in writing, signed by the person
against whom such writing is sought to be enforced, the closing of any
acquisition of common shares hereunder pursuant to the Company's Option or a
Shareholder's Option shall take place within forty-five (45) days of an
applicable option's exercise. If any such closing does not take place within
such forty-five day period, then the shares that were to be acquired shall be
offered in accordance with this Section 2.c.
as though the applicable option had not been exercised.
vi. Notwithstanding the foregoing provisions of this Section
2.c., the following shall apply in the event of any Involuntary Transfer of
common shares. An "Involuntary Transfer" shall mean any transfer caused by the
death of a shareholder, as well as any transfer, proceeding or action by,
through, as a consequence of, or in which a shareholder shall be deprived or
divested of any right, title or interest in or to any of the common stock of the
Company, including, without limitation, any seizure under levy, attachment or
execution, any transfer in connection with bankruptcy (whether pursuant to a
filing of a voluntary or an involuntary petition under the United States
Bankruptcy Code, or any amendments, modifications, revisions or successors
statutes thereto) or other court proceeding to a debtor-in-possession, trustee
in bankruptcy or receiver or other officer or agency, any transfer to a state or
to a public officer or agency pursuant to any statute pertaining to escheat or
abandoned property, any transfer pursuant to a separation agreement, equitable
distribution agreement or community property distribution agreement, or the
entry of a final court order in a divorce proceeding from which there is no
further right of appeal.
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In the event of any Involuntary Transfer, the Company shall
give written notice to each shareholder upon the occurrence, or prospective
occurrence, of such Involuntary Transfer within fifteen (15) days of the date on
which the Company is notified of the occurrence or prospective occurrence of
such Involuntary Transfer. The foregoing provisions of this Section 2.c. then
shall apply, except (i) the Option Price shall be the value of the Company as
determined by a qualified representative of a nationally recognized investment
banking or accounting firm mutually agreeable to the Company, Purchaser, and the
shareholder who made, or may make, the Involuntary Transfer, multiplied by the
percentage of all equity interests in the Company that is then represented by
the shares that are the subject of the Involuntary Transfer, such independent
appraised value to take into account the earnings and book value of the Company,
and (ii) the appraiser shall deliver written notice of such valuation to the
Company and to all other shareholders promptly following his completion of such
valuation, and such written notice shall be considered the Option Notice for
purposes of this Section 2.c. The cost of the appraisal shall be shared equally
by the Company and the shareholder who made, or may make, the Involuntary
Transfer.
At the closing of any purchase by the Company or any
shareholders pursuant to this Section 0.x.xx., the involuntary transferee shall
deliver certificates representing the common shares being purchased, duly
endorsed for transfer and accompanied by all requisite stock transfer taxes, and
such shares shall be conveyed free and clear of any liens, claims, options,
charges, encumbrances or rights of others arising through the action or inaction
of the involuntary transferee, and the involuntary transferee shall so represent
and warrant. The involuntary transferee shall further represent and warrant that
he is the beneficial owner of such shares.
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In the event the provisions of this Section 0.x.xx. shall be
held to be unenforceable with respect to any particular Involuntary Transfer of
common stock, or if all of the shares subject to the Involuntary Transfer are
not purchased by the Company and/or one or more shareholders, and if the
involuntary transferee subsequently desires to transfer such common stock, the
involuntary transferee shall be deemed to be a "Transferring Shareholder" under
Section 2.c. and shall be bound by the other provisions of this Agreement.
vii. Notwithstanding anything to the contrary contained in
this Section 2.c., no shareholder shall transfer any common shares at any time
if such action would constitute a violation of any federal or state securities
laws or a breach of the conditions to any exemption from registration of the
shares under any such laws or a breach of any undertaking or agreement of such
shareholder entered into pursuant to such laws or in connection with obtaining
an exemption thereunder. Each shareholder agrees that any shares purchased or
acquired by such shareholder shall bear appropriate legends restricting the sale
or other transfer of such shares in accordance with applicable federal and state
securities laws, in addition to a legend referring to the restrictions set forth
in this Agreement.
d. Rights With Regard to Registration of Purchaser's Common Shares.
i. In the event that the Company registers any of its common
stock or other securities under federal and state securities laws for a primary
offering or a secondary offering by the Company or any of the officers or
directors of the Company who are also shareholders (a "Management Shareholder"),
Purchaser shall have piggy-back registration rights to include all common stock
then owned by Purchaser (collectively, the "Purchaser's Common Shares"), in any
such offering on a pro rata basis. The Company shall give Purchaser notice of
such proposed registration at least thirty (30) days prior to the filing of a
registration statement. Upon the written
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request of Purchaser delivered to the Company within twenty (20) days after the
receipt of the notice from the Company, which request shall state the number of
Purchaser's Common Shares that Purchaser wishes to sell or distribute publicly
under the registration statement proposed to be filed by the Company, the
Company shall use its best efforts to register Purchaser's Common Shares, and to
cause such registration to become and remain effective so long as the Company
keeps such registration effective as to any other common stock of the Company.
Purchaser's Common Shares registered pursuant to this Section 2.d.i. must be
purchased and offered for sale by a bona fide underwriter or underwriters in a
public offering on a firm commitment basis. The Company's managing underwriter
shall have the right to limit in whole or in part the total number of
Purchaser's Common Shares to be sold hereunder, so long as such limitation is
applied on a pro rata basis with respect to all shares proposed or requested to
be registered by the Company and all shareholders. The expenses of any such
offering shall be borne by the Company, except for Purchaser's pro rata share of
any underwriter's discount or sales agent's commission.
ii. If, in connection with any registration under this Section
2.d, any of the common shares of Company stock require registration or
qualification under the securities or "blue sky" laws of any state, or the
approval of any state governmental official or authority, the Company shall take
all requisite action and use its best efforts to cause such shares to be duly
registered, qualified or approved as may be required. If any shares meet the
criteria for listing on any exchange on which such stock of the Company is then
listed, the Company shall apply for and use its best efforts to obtain a listing
of all such shares on such exchange.
iii. Except as provided in Section 2.d.i. above, the Company
shall pay all of the expenses in connection with the registration of any shares
of Company stock, including, without
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limitation, the costs of preparing, printing and filing the registration
statement in compliance with the 1933 Act, the fees and expenses of counsel and
accountants for the Company, Management Shareholders and Purchaser for
qualifying the offering under the securities or "blue sky" laws and regulations
of the state in which the offering is qualified.
e. Sale of the Company.
i. At any time after April 4, 2000, and before the
consummation of a Purchaser Approved Offering, if a bona fide offer is made by
any person (other than Purchaser, or any person or entity related to or
affiliated with Purchaser), to purchase all or substantially all of the assets
or shares of stock of the Company, and Funding gives the Company written notice
that it desires such offer to be accepted, the Company and its shareholders
shall either accept the offer and consummate the sale on the terms and
conditions of the offer (in which case, if the transaction is a stock sale or
merger, Purchaser also shall sell all of its equity interests in the Company on
those terms and conditions), or the Company shall acquire all the equity
interests owned by Purchaser and Funding in the Company on the same terms and
conditions as the offer; provided, however, that if such offer is made prior to
April 4, 2002, the Company shall have no such obligation unless the total
consideration of such offer is at least $50,000,000. If at any time Funding
approves the sale of substantially all of the assets or shares of stock of the
Company, then Purchaser shall vote its shares in favor of the transaction so
approved and, if the transaction is a stock sale or merger, shall sell all of
its equity interests in the Company on the terms and conditions so approved.
In determining the total consideration for purposes of the foregoing,
any deferred payment shall be discounted to present value at a discount rate of
eight percent (8%) per annum. If the total consideration set forth in the offer
includes anything other than cash and/or marketable securities (the
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"Non-Cash Consideration") then the Company, at its option, may acquire
Purchaser's equity interests for the product of (a) either (i) the Non-Cash
Consideration specified or (ii) cash in the amount of the fair market value of
the total consideration set forth in the offer, multiplied by (b) the percentage
of all outstanding equity interests of the Company that then is owned by
Purchaser. Such fair market value shall be determined pursuant to the terms of
the Stock Purchase Agreements dated April 4, 1997 and March 31, 1998 by and
among the Company, Funding and the other stockholders of the Company (the
"Funding Purchase Agreements").
If the offer contemplates an asset sale, the Company may acquire
Purchaser's equity interests for cash equal to the product of (a) the after-tax
value to the Company of the consideration set forth in the offer multiplied by
(b) the percentage of all outstanding equity interests of the Company that is
then owned by Purchaser. If the Company decides to acquire Purchaser's and
Funding's equity interests, the Company shall acquire Purchaser's and Funding's
equity interests for cash within ninety (90) days from the date of Funding's
written notice.
ii. At any time before the consummation of a Purchaser
Approved Offering, if any assets or stock of the Company is sold for any reason,
or if the Company is merged or consolidated, then the following payments (the
"Management Shareholder Payments") to the Management Shareholders in connection
with such sale, merger or consolidation shall be deemed, for purposes of this
Agreement, as part of the total consideration to be paid for the Company so that
Purchaser shall be entitled to receive from the Company, pari passu with the
rights of holders of the Company's Class B Common Stock and all other holders of
the Company's Class C Common Stock to be paid with respect to the Management
Shareholder Payments, and before any distribution to shareholders, a priority
distribution equal to the product of (1) the sum of (a) all payments made to
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a Management Shareholder in consideration of any covenant not to compete or
consulting agreement, plus (b) the component of any compensation to a Management
Shareholder for employment services that is in excess of the prevailing industry
average compensation, paid by companies that are similar to the company that
will be making the payments to the Management Shareholder, for the management
responsibilities actually to be performed by the Management Shareholder, as such
average compensation is mutually agreed between the Company, the Management
Shareholder and Funding, or if they cannot agree, then as determined by a
current survey of total compensation conducted by a qualified representative of
a nationally recognized investment banking or accounting firm mutually agreeable
to the Company, the Management Shareholder, and Funding, multiplied by (2) the
percentage of all equity interests in the Company that is then owned by
Purchaser.
The priority distribution due Purchaser under this Paragraph 2.e.ii.
shall be paid on the same schedule as the Management Shareholder Payments are
received by the Management Shareholder. If the Company has insufficient funds to
pay the portion of the priority distribution that is due at the time a
Management Shareholder receives a Management Shareholder Payment, the Management
Shareholders receiving Management Shareholder Payments shall pay Purchaser the
amount of such insufficiency pro rata in accordance with the proportionate
amounts of each such Management Shareholder's Payments, such amount to be paid
on the same schedule as the payments are received by the Management Shareholder.
f. Right of Co-Sale. In addition to the rights set forth in Section
2.c, at any time prior to the consummation of a Purchaser Approved Offering,
Purchaser shall have the right to participate pro rata to the full extent of its
equity interest in the Company in any sale or transfer of stock, other
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than a gift, charitable donation or other sale or transfer representing less
than One Percent (1%) of the Company's outstanding common stock, by the Company
or any shareholder of the Company.
g. Rights of Class C Shares on Liquidation, Dissolution or Winding Up.
The following provisions shall apply until the earlier of (i) the consummation
of a Purchaser Approved Offering, or (ii) the redemption or conversion of all
outstanding shares of the Company's Class C Common Stock:
i. In the event of any liquidation, dissolution or winding up
of the Company (including without limitation a liquidation or reorganization
under Chapter 11 of the United States Bankruptcy Code of 1978, as amended and as
may hereafter be amended), (a "Liquidation"), after payment of any priority
distributions due to Purchaser under Section 2.e.ii. above, the holders of the
Company's Class C Common Stock then outstanding shall be entitled to be paid out
of the assets of the Company available for distribution to its shareholders
(pari passu with the holders of the Company's Class B Common Stock, and before
any payment shall be made to the holders of any shares of the Company's Class A
Common Stock) an amount equal to the stated value of $2.00 (subject to
appropriate adjustment for stock dividends, stock splits, combinations, and
similar recapitalizations affecting the Company's Class C Common Stock) per
share of the Company's Class C Common Stock (the "Stated Value"), with such
amount to be calculated as of the date of such payment.
ii. If, upon any Liquidation, the assets of the Company
available for distribution to its shareholders shall be insufficient (a
"Liquidation Insufficiency") to pay the holders of the Company's Class C Common
Stock and Class C Common Stock the full amount to which they shall be entitled
pursuant to Section 2.g.i., the
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holders of the Company's Class B Common Stock and the holders of the Company's
Class C Common Stock shall be entitled to receive, pari passu, all the assets of
the Company available for distribution to its shareholders.
iii. If there is no Liquidation Insufficiency and payment
shall have been made to the holders of the Company's Class B Common Stock and
the holders of the Company's Class C Common Stock of the full amount to which
they are entitled, the holders of the Company's Class B Common Stock and the
holders of the Company's Class C Common Stock shall then be entitled to share in
all remaining assets and funds of the Company ratably in proportion to the
number of shares of Company common stock held by such holder.
iv. Unless such transaction is approved by the directors
elected by the holders of the Company's Class B Common Stock, the merger or
consolidation of the Company into or with another corporation in which the
stockholders of the Company shall own less than Fifty Percent (50%) of the
voting securities of the surviving corporation or the sale, transfer or lease
(but not including a transfer or lease by pledge or mortgage to a bona fide
lender) of all or substantially all of the assets of the Company shall be deemed
to be a Liquidation as such term is used in this Section 2.g. The amount deemed
distributed to the holders of the Company's Class B Common Stock and the holders
of the Company's Class C Common Stock upon any such merger or consolidation
shall be the cash or the value of the property, rights or securities distributed
to such holder by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined by a competent
independent appraiser mutually agreed upon by the holders of the Company's Class
B Common Stock and the Company. The Company shall, upon receipt of such
appraiser's valuation, give prompt written notice of the appraiser's valuation
to the holders of the Company's Class B Common Stock and the holders of the
Company's Class C Common Stock. The fees of such
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appraiser shall be shared 50% by the Company, and 50% (shared pro rata) by the
holders of the Company's Class B Common Stock and the holders of the Company's
Class C Common Stock.
v. The Company's Articles of Incorporation shall contain
provisions consistent with this Section 2.g. until the earlier of (i) the
consummation of a Purchaser Approved Offering, or (ii) the redemption or
conversion of all outstanding shares of the Company's Class C Common Stock.
i. Representation on the Board of Directors; Visitation Rights. Until a
Purchaser Approved Offering has been consummated or Purchaser no longer owns any
equity interest in the Company, there shall be, and the Company's Articles of
Incorporation shall provide for, at least five (5) members on the Company's
Board of Directors, two (2) of whom shall be elected by the holders of the
Company's Class B Common Stock voting as a class, and the remainder of whom
shall be elected by the holders of the Company's Class A Common Stock voting as
a class. The holders of the Company's Class B Common Stock shall have the right
to remove and replace two (2) members of the Board at any time, and the holders
of the Company's Class A Common Stock shall have the right to remove and replace
the remaining members of the Board at any time. The Company shall pay each
director elected by the holders of the Company's Class B Common Stock a fee of
Two Thousand Five Hundred Dollars ($2,500.00) for attendance at each meeting of
the Board of Directors. Board meetings will occur at least quarterly. The
holders of the Company's Class C Common Stock shall have the right to appoint a
representative who shall have the right to attend meetings of the Company's
Board of Directors as a visitor.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In connection with the purchase of the Class C Shares hereunder, the
Company hereby represents and warrants to Purchaser as follows:
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a. Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas. The Company
has the requisite corporate power and authority to own or lease its properties
and to carry on its business as now conducted. The Company is duly qualified and
in good standing as a foreign corporation authorized to do business in each of
the jurisdictions in which the failure to be so qualified would have a material
adverse effect on the Company and has delivered to Purchaser a good standing
certificate for each such jurisdiction.
The Company has delivered to Purchaser true and complete copies of the
Company's Articles of Incorporation and Bylaws (the "Organizational Documents"),
in each case as amended to the date hereof, and such Organizational Documents
are in full force and effect on the date hereof. The Company has delivered to
Purchaser a true and complete list of all officers and directors of the Company.
The Company has no Affiliates (as defined in Rule 12b-2 of Regulation 12B
promulgated under the Securities Exchange Act of 1934, as amended), except for
officers, directors and shareholders disclosed to Purchaser pursuant to this
Agreement.
b. Capital Stock. The authorized capital stock of the Company consists
of Twenty-Five Million (25,000,000) shares of Class A Common Stock, no par value
per share, of which Four Million Six Hundred Twenty-Five Thousand (4,625,000)
shares are duly and validly issued and outstanding, fully paid and
non-assessable, Twenty-Five Million (25,000,000) shares of Class B Common Stock,
no par value per share, of which Four Million Three Hundred Thirty Thousand
Eight Hundred Fifty (4,330,850) shares will be duly and validly issued and
outstanding, fully paid and non-assessable upon Closing, and Twenty-Five Million
(25,000,000) shares of Class C Common Stock, no par value per share, of which
One Million Seven Hundred Fifty Thousand (1,750,000) shares will be duly and
validly issued and outstanding, fully paid and non-assessable upon Closing Eight
Hundred Seventy
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Five Thousand (875,000) shares to Purchaser, and Eight Hundred Seventy Five
Thousand (875,000) shares to Spotswood).
All of the outstanding Class A Common Stock of the Company is owned by
the Shareholders other than Funding, and all of the outstanding Class B Common
Stock of the Company is owned by Funding. The Company does not have any other
shares, classes of shares or other debt or equity securities which are
authorized, issued or outstanding. None of the stock has been issued in
violation of any preemptive rights.
The Class C Shares are duly authorized and upon issuance to the
Purchaser shall be validly issued to Purchaser, free and clear of all liens or
rights of any nature whatsoever, and without violation of any preemptive rights
but subject, as to 258,521 of the Class C Shares, to the Voting Trust Agreement.
Except for the options described on Schedule 3.b., there are no outstanding
subscriptions, options, rights, warrants, calls, convertible securities or other
rights, agreements or commitments which obligate the Company to issue, call,
repurchase, redeem or transfer any of its capital stock, or that restrict the
transfer of or otherwise relate to the Company's capital stock.
c. Business. The Company is engaged primarily in the business of
hardware and service sales, Internet access, communications networking and
related consulting.
d. Investments. The Company does not own or have, directly or
indirectly, any material interest or investment (whether as equity or debt) in,
or own any of the capital stock of, any corporation, partnership, joint venture,
business, trust or other entity.
e. Authority. The Company has all requisite power and authority to
execute and deliver this Agreement and to perform all of its obligations
hereunder. The execution, delivery and performance of this Agreement and the
transactions contemplated hereby have been duly authorized
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by all necessary corporate actions of the Board of Directors and shareholders of
the Company. This Agreement is a valid and binding obligation of the Company,
enforceable against it in accordance with their respective terms and conditions.
f. No Consents. No consent, waiver, approval, license or authorization
of, or designation, declaration or filing with, any person or governmental or
regulatory authority on the part of the Company is required in connection with
the execution or delivery by the Company of this Agreement, nor the consummation
by the Company of the transactions contemplated hereby.
g. No Violation. Neither the execution and delivery of this Agreement,
nor the consummation by the Company of the transactions contemplated hereby,
shall (a) conflict with the Organizational Documents of the Company, (b) violate
or constitute a default under any contract or other agreement to which the
Company is a party or by which the Company is bound, (c) violate any law, rule
or regulation of any state or of the United States or any judgment, decree,
order, regulation or rule of any court or any governmental or regulatory
authority, or (d) result in or require the creation of any lien or other
encumbrance upon or with respect to the Class C Shares or any of the assets or
other securities of the Company.
h. Financial Statements. Attached hereto as Schedule 3.h. are unaudited
financial statements, balance sheets, income statements and cash flow statements
of the Company for the years ended December 31, 1996 and December 31, 1997 (the
"Financial Statements"). To the best knowledge of the Company, the Financial
Statements have been prepared in conformity with GAAP, and fairly and accurately
reflect the financial condition of the Company as of the respective dates
thereof in conformity with GAAP. To the best knowledge of the Company, all
interim financial statements for periods after December 31, 1997 that have been,
or pursuant to Section 5.c below will
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be, delivered to Purchaser, have been and will be prepared in conformity with
GAAP, and fairly and accurately reflect the financial condition of the Company
as of the respective dates thereof in conformity with GAAP.
The Company does not have any debts, liabilities or other obligations
of any nature (whether contingent or fixed, accrued or not accrued, liquidated
or not liquidated, known or unknown, asserted or not asserted, and including
without limitation any direct or indirect obligation to provide funds in respect
of, or to guarantee, act as surety for, or assume, any debt, liability or other
obligation of any nature of any individual, corporation, joint venture,
partnership or other entity) except (i) liabilities specifically disclosed or
reserved against on the Financial Statements, (ii) liabilities which in the
aggregate are not material, (iii) ordinary business expenses incurred in the
ordinary course of business since the date of the last Financial Statements, or
(iv) liabilities disclosed on Schedule 3.h. Except as disclosed on Schedule
3.h., the Company is current on all debts, accounts payable and lease payments
as of the date hereof.
i. No Material Adverse Change. Since the date of the most recent
Financial Statements there has been no material adverse change in the condition,
financial or otherwise, assets, liabilities or business of the Company, nor has
there been any event or condition of any character that has or may in the future
materially and adversely affect the business or prospects of the Company. Since
the date of the most recent Financial Statements there has been no dividend or
other distribution or payment in respect of the stock of the Company.
j. Taxes. The Company has paid or made adequate provision for payment
of all federal, state and local income, payroll, sales, property and other
taxes, assessments, liabilities, fees and other governmental charges (including
interest and penalties) whether or not in dispute, which have or may
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become due with respect to any period ending on or prior to the Closing Date,
and has filed all required tax returns and reports which are required to be
filed. No tax deficiency has been asserted, proposed or threatened against the
Company for taxes for the current year or for any prior period which has not
been fully settled or paid, nor has any issue been raised by the Internal
Revenue Service or any other taxing authority which reasonably can be expected
to result in a deficiency for any period. The Company's tax returns have never
been audited, nor has the Company received any notice of a planned audit or any
communication that would lead a reasonable person to believe that an audit is
currently being considered by a tax authority.
k. Contracts. The Company is not in material breach of or in material
default under any contract, commitment, agreement, loan, lease or other
instrument (the "Contracts") which materially and adversely affects the Company,
and the Company is not aware of any breach by any other party to any of the
Contracts. The terms of all Contracts are in all material respects arm's length
terms.
l. Property. Except for the property leased pursuant to the leases
listed on Schedule 3.l. (copies of which have been provided to Purchaser), and
the liens described on Schedule 3.1, the Company has good and marketable title
to all real and personal property reflected on the Financial Statements, and to
all assets acquired since the date of the most recent Financial Statements, free
and clear of any material liens, claims or encumbrances, except for liens for
taxes not yet due and payable and inventory which has either been used or
consumed or has been sold in the ordinary course of business. To the best of the
Company's knowledge, there are no material assets used by the Company in the
conduct of its business which are not either owned by the Company or leased to
the Company under one of the leases described in Schedule 3.l.
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m. Lawsuits. Except as set forth in Schedule 3.m., there is no pending
claim, suit or action, or legal, administrative, arbitration or other proceeding
or governmental investigation, nor is there any basis for any such action,
before any federal, state, local, or other court or governmental authority, nor
to the best of the knowledge of the Company, has any such action been
threatened, (i) against the Company or (ii) against any of the officers or
directors of the Company. The Company has delivered to Purchaser a true and
correct copy of the pleadings in all lawsuits in which the Company is a party.
The Company does not know of any judgment, order, writ, injunction, decree or
award that has been issued by, or requested of, any court, administrative or
governmental agency, arbitrator or other authority which does or may result in
any material adverse change in the business, properties, assets or financial
condition of the Company.
n. Compliance with Laws. The Company is in substantial compliance, and
at all times the Company has conducted its business and affairs in substantial
compliance, with all federal, state and local statutes, laws, ordinances,
requirements, rules, regulations or orders applicable to its business, including
without limitation the Occupational Safety Health Act of 1970, as amended; the
Equal Employment Opportunity Act of 1972, as amended; federal, state and local
laws, rules and regulations of the Federal Trade Commission and other
governmental authorities relating to franchising; state and federal securities
laws; and laws and regulations requiring licenses or permits (including, without
limitation, permits relating to the handling or discharge of Hazardous
Materials) or the payments of taxes. The Company has not received any notice
asserting any noncompliance. The Company has all licenses, permits and approvals
necessary for the conduct of its business. The Company has not granted a license
or other right to use any tangible or intangible assets used in or related to
the business. From the Company's inception, none of the Company's directors or
officers
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have been arrested or convicted of any material crime, nor have any of them been
bankrupt or served as an officer or director of a bankrupt company.
o. Environmental Matters.
i. To the best of the Company's knowledge, neither the Company
nor any property owned or operated by the Company has been or is in violation
of, nor does the Company have any liabilities under, any Environmental Law (as
defined in Section 3.o.iii.). To the best of the Company's knowledge, there are
no actions, suits or proceedings, demands, claims, notices, or investigations
(including, without limitation, notices, demand letters or requests for
information from any Environmental Agency (as defined in Section 3.o.v.),
instituted, pending, or threatened, relating to any liability under any
Environmental Law of the Company or respecting any property owned or operated by
the Company.
ii. To the best of the Company's knowledge, no Hazardous
Materials (as defined in Section 3.o.iv.) have been generated, treated, stored
or disposed of at, or transported to or from, any properties owned or operated
by the Company at any time, except in compliance with applicable Environmental
Laws. To the best of the Company's knowledge, no friable asbestos containing
material is in use, or is or has been stored or disposed of, on or upon any
properties owned or operated by the Company. To the best of the Company's
knowledge, no polychlorinated biphenyls ("PCBs") are located on or in any
properties owned or operated by the Company in any form or device, including,
without limitation, in the form of electrical transformers, fluorescent light
fixtures with ballasts, or cooling oils, except in compliance with applicable
Environmental Laws. To the best of the Company's knowledge, no underground
storage tanks are located on any properties owned or
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operated by the Company or were located on any properties owned or operated by
the Company and subsequently removed or filled.
iii. "Environmental Law" means any federal, state, local or
foreign law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree, injunction or
agreement with any Environmental Agency relating to (i) the protection,
preservation or restoration of the environment (including, without limitation,
air water vapor, surface water, groundwater, drinking water supply, surface
soil, subsurface soil, plant and animal life or any other natural resource),
and/or (ii) the usage, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release, or disposal
of any substance presently listed, defined, designated or classified as
hazardous, toxic, radioactive or dangerous, or otherwise regulated, whether by
type or by quantity, including any material containing any such substance as a
component.
iv. "Hazardous Materials" means solid waste (as that term is
defined under the Resource Conservation and Recovery Act, 42 U.S.C.A. Section
6901 et seq. ("RCRA"), and the regulations adopted pursuant to RCRA), hazardous
waste (as that term is defined under RCRA and the regulations adopted pursuant
to RCRA), hazardous substances (as that term is defined in the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.A. Section 9601
et seq. ("CERCLA"), and the regulations adopted pursuant to CERCLA), and other
pollutants, including, without limitation, any solid, liquid, gaseous or thermal
irritant or contaminant, such as smoke, vapor, soot, fumes, acids, alkalis or
chemicals.
v. "Environmental Agency" means the United States
Environmental Protection Agency, any state agency in a state where the Company
owns or operates properties which is similar
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in jurisdiction to the United States Environmental Protection Agency, or any
other federal, state or local agency responsible for regulating or enforcing
laws, rules, regulations and ordinances relating to (i) the protection,
preservation or restoration of the environment (including, without limitation,
air, water vapor, surface water, groundwater, drinking water supply, surface
soil, subsurface soil, plant and animal life or any other natural resource),
and/or (ii) the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release, or disposal of any
substance presently listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, whether by type or by
quantity, including any material containing any such substance as a component.
p. Intellectual Property. The Company is the sole and exclusive owner
of, or has the valid and continuous right to use, free and clear of all liens,
claims, and encumbrances, all trademarks, service marks, trade names, trade
secrets, copyrights, patents, franchises and applications therefor, or other
intangible property, owned by, licensed to or otherwise used by the Company. The
Company also is the sole and exclusive owner of, or has the valid and continuous
right to use, free and clear of all liens, claims and encumbrances, all
background technologies and manufacturing procedures used by it in providing
services or products to its customers. The Company has not infringed or
otherwise violated any trademark, service xxxx, trade name, trade secret,
copyright, patent, franchise or other intangible property right of another.
Except as set forth on Schedule 3.p., the Company is not required to pay any
royalty, license fee, commission or other payment to any person or entity with
respect to any trademark, service xxxx, trade name, trade secret, copyright,
patent, franchise or other intangible property. The Company has not granted any
person or entity the right to use any of the Company's trademarks, service
marks, trade names, trade secrets, copyrights,
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patents, technology or other intangible property, nor is it aware of any such
use by another person or entity.
q. Insurance. Schedule 3.q. contains a true and correct list, together
with copies of certificates or cover pages, of all policies of insurance owned
and/or maintained by the Company. All physical properties and assets of the
Company are covered by fire and other insurance against casualty loss
customarily covering properties and assets of comparable businesses in this
region, in amounts which are reasonable in light of existing replacement costs.
The Company maintains general liability, workers' compensation and other usual
types of insurance in reasonable amounts. The Company is not now in default
regarding the provisions of any policy of insurance, and has not and shall not
have failed to give any notice or present any claim thereunder in due and timely
fashion.
r. Books and Records. To the best of the Company's knowledge, the books
and accounts and other corporate records of the Company are complete and correct
in all material respects.
s. Employee Relations. Since the date of the most recent Financial
Statements, there has been no material adverse change in the relationship
between the Company and its employees nor any strike or labor disturbance by
such employees and, to the best of the Company's knowledge, such a change,
strike or labor disturbance is not likely. The Company is in substantial
compliance with all applicable laws relating to the employment of labor,
including without limitation any provisions thereof relating to wages and hours,
discrimination due to age, religion, sex, national origin, disability or
immigration status.
Schedule 3.s. contains true, complete and correct information as to the
names and rates of compensation (regardless of form) of all current employees of
the Company, together with
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information as to any bonus, incentive, insurance, compensation plan, welfare,
retirement, defined benefit, 401(k), pension, profit sharing, salary reduction,
deferred compensation, stock purchase, stock option, vacation, holiday and sick
pay or other similar benefit plans (said plans being referred to as the "Plans")
in which any such employees of the Company participate. All obligations of the
Company, whether arising by operation of law, by contract or by past custom, for
payment by it to trusts, retirement plans or other funds or any governmental
agency with respect to unemployment compensation benefits, social security
benefits or any other benefits for employees of the Company have been paid or
shall be paid by the Company at the time the Company is obligated to make such
payments. All benefits payable directly to the Company's employees have been
paid or shall be paid by the Company at the time the Company is obligated to
make such payments. All reasonably anticipated obligations of the Company,
whether arising by operation of law, by contract or by past custom, for vacation
and holiday pay, bonuses and other forms of compensation or benefits which are
or may become payable to employees or any of them have been paid, or shall be
paid, in accordance with the provisions of applicable laws, regulations, benefit
plans or policies.
t. Broker Fee. All broker, finder or professional fees associated with
the transactions contemplated by this Agreement have been disclosed in this
Agreement or on Schedule 3.t, and shall be paid by the Company as and when due.
u. Customers and Suppliers. The Company does not know of any customer
or supplier of the Company who intends to terminate or reduce its business with
the Company, whether as a result of this Agreement or otherwise. The Company is
not bound by any concession or arrangement with any customer or supplier which
is outside the ordinary course of the Company's business or not made generally
available to other customers or suppliers of the Company.
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v. Employee Benefit Plans. True, complete and correct copies of all
relevant documents with respect to the Plans, including, but not limited to,
each of the following documents: (i) a copy of the Plan and each related trust
or other funding agreement, including insurance contracts (and all amendments
thereto) (ii) the last filed Form 5500; (iii) the most recent determination
letter received from the United States Internal Revenue Service with respect to
each Plan that is intended to be qualified under Section 401 of the Internal
Revenue Code of 1986, as amended (the "Code"); and (iv) the summary plan
descriptions and all material modifications thereto, have been delivered to
Purchaser.
All Plans comply in all substantial respects and the Company has
administered and operated each such Plan in substantial compliance with the
requirements of applicable law, including, without limitation, the Employee
Retirement Income Security Act of 1974 as amended ("ERISA"), and the Code, and
no such Plan that is subject to Part 3 of Subtitle B of Title I of ERISA has
incurred any "accumulated funding deficiency" within the meaning of Section 302
of ERISA or Section 412 of the Code, whether or not waived.
The Company does not maintain and is not required to contribute to any
multi employer plan (as defined in Section 3(37) of ERISA) for the benefit of
employees or former employees of the Company.
The Pension Benefit Guaranty Corporation ("PBGC") has not instituted
proceedings to terminate any of the Company's defined benefit plans and no
condition exists that presents a risk that such proceedings shall be instituted.
There has been no "reportable event" within the meaning of Section 4043(b) of
ERISA with respect to any defined benefit plan and no defined benefit plan has
been terminated within the preceding six years or is expected to be terminated.
No liability (other
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than for the payment of premiums) to the PBGC has been or is expected to be
incurred by the Company or any officer, director, shareholder or employee of the
Company with respect to any defined benefit plan.
w. Unlawful Payments. Neither the Company nor any shareholder,
director, officer, agent, employee or other person associated with or acting on
the Company's behalf has directly or indirectly, used any corporate funds for
unlawful contributions, gifts, entertainment or for other unlawful expenses
relating to political activity; made any unlawful payment to foreign or domestic
governmental officials or employees or to foreign or domestic political parties
or campaigns from corporate funds; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on the books or records of the Company; or made any bribe,
rebate payoff, influence payment, kickback or other unlawful payment to any
person or entity, private or public, regardless of form, whether in money,
property, or services, to obtain favorable treatment in securing business or to
obtain special concessions or to pay for favorable treatment for business
secured or for special concessions already obtained.
x. Small Business Concern. The Company, taken together with its
"affiliates" (as that term is defined in Section 121.401 of Title 13 of the Code
of Federal Regulations), is a "Small Business Concern" within the meaning of
Section 103(5) of the SBIC Act, and the regulations thereunder including Title
13, Code of Federal Regulations, Section 121.3, and meets the applicable size
eligibility criteria set forth in Title 13, Code of Federal Regulations, Section
121.802(a)(2). The Company does not presently engage in any activities for which
a small business investment company is prohibited from providing funds by the
SBIC Act and the regulations thereunder, including Title 13, Code of Federal
Regulations, Section 107.
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y. Small Business Administration Documentation. The Company has
provided the Purchaser with a Small Business Administration ("SBA") Form 480
(Size Status Declaration) and SBA Form 652 (Assurance of Compliance) which have
been completed and executed by the Company, and SBA Form 1031 (portfolio Finance
Report), Part A of which has been completed by the Company.
z. No Omission. The Company has not intentionally omitted to state to
Purchaser any material fact relating to the Company that is necessary in order
to make the statements made to Purchaser in this Agreement, in the light of the
circumstances under which they were made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
In connection with the sale of the Class C Shares hereunder, Purchaser
hereby represents and warrants to the Company that:
a. Organization. Purchaser is a limited liability company duly
organized, validly existing and in good standing under the laws of North
Carolina.
b. Authority. Purchaser has all requisite power and authority to
execute and deliver this Agreement and to perform all of its obligations
hereunder. The execution, delivery and performance of this Agreement and the
transactions contemplated hereby have been duly authorized by all necessary
action of Purchaser. This Agreement is a valid and binding obligation of
Purchaser, enforceable against it in accordance with its terms and conditions.
c. No Violation. Neither the execution and delivery of this Agreement,
nor the consummation by Purchaser of the transactions contemplated hereby, shall
(i) conflict with the Articles of Organization or Operating Agreement of
Purchaser, (ii) violate or constitute a default
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under any contract or other agreement to which Purchaser is a party or by which
Purchaser is bound, or (iii) violate any law, rule or regulation of any state or
of the United States or any judgment, decree, order, regulation or rule of any
court or any governmental or regulatory authority, which would have a material
adverse effect on the Company or the transactions contemplated herein.
d. No Consents. No consent, waiver, approval, license or authorization
of, or designation, declaration or filing with, any person or governmental or
regulatory authority on the part of Purchaser is required in connection with the
execution or delivery by Purchaser of this Agreement or the consummation by
Purchaser of the transactions contemplated hereby or thereby, except to the
extent obtained by Purchaser prior to Closing or to the extent that their
failure to be obtained would not have a material adverse effect on the Company
or the transactions contemplated hereby.
5. AFFIRMATIVE COVENANTS AND AGREEMENTS
From the date hereof, until the consummation of a Purchaser Approved
Offering or the sale by Purchaser of all of its equity interests in the Company,
the Company shall comply with the following:
a. Conduct of Business. The Company (a) shall conduct its business in
the ordinary course and, without the prior written consent of Funding, except in
the ordinary course of business, shall not enter into, or permit the Company or
any assets of the Company to become bound by or subject to, any Contract, and
(b) shall continue to manage the inventories, accounts receivable, accounts
payable and payroll of the Company in accordance with past practice in the
ordinary course of business. The Company shall promptly notify Purchaser of any
actions or proceedings of the type described in Section 3.m.
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b. Corporate Examination and Investigations. Purchaser, shall be
entitled, through its employees and representatives, including, without
limitation, Purchaser's counsel and accountants, on a reasonable basis, to make
such investigation of the assets, properties, business and operations of the
Company and such examination of its books, records and financial condition, as
Purchaser wishes. Any such investigation and examination shall be conducted at
reasonable times and under reasonable circumstances and the Company shall
cooperate fully therein. No such investigation undertaken by Purchaser shall
relieve the Company of any liability hereunder. In order that Purchaser may have
full opportunity to make such business, accounting and legal review, examination
or investigation, the Company shall make available at its principal office to
the representatives of Purchaser during such period all such information and
copies of such documents concerning the affairs of the Company as such
representatives may reasonably request and shall cause the officers, employees,
consultants, agents, accountants and attorneys of the Company to cooperate fully
with such representatives in connection with such review and examination. The
information obtained by Purchaser shall remain confidential and shall be
disclosed only to the officers, employees managers, members, prospective members
and representatives of Purchaser or the SBA.
c. Delivery of Financial Materials. The Company shall deliver to
Purchaser (i) within thirty (30) days of the end of each month, monthly
year-to-date financial statements prepared in accordance with GAAP (including
profit and loss, cash flow, and balance sheet) and certified by the Company's
chief financial officer, a backlog report, customer contract job status report,
accounts receivable, accounts payable agings and a monthly one-page management
summary of operations; and (ii) within ninety (90) days after the fiscal year
end, (a) an annual independent certified audit from an
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outside accounting firm designated by the Company and reasonably acceptable to
Funding and (b) projections for the next year in the same format as the
financial statements.
d. Other Deliveries. The Company shall deliver to Purchaser the
following documents or information as applicable: (i) within thirty (30) days
after filing, a copy of all material documents filed with government agencies,
including without limitation, the Internal Revenue Service, the Environmental
Protection Agency and the Securities Exchange Commission; (ii) within thirty
(30) days after filing, a copy of any pleadings of any lawsuits filed by or
against the Company; (iii) within ten (10) days after receipt, a copy of any
notification received by the Company of any defaults under any Contracts to
which the Company is a party, and (iv) within ten (10) days after delivery to
the Company's senior lender, a copy of any reports, certificates or information
provided to the Company's senior lender.
e. Insurance. The Company shall carry and maintain in effect insurance
coverage with reputable insurers, which coverage in respective amounts, types
and risks insured is adequate for the business conducted by the Company as
reasonably determined by Funding. Such insurance coverage shall include, without
limitation, directors' and officers' liability insurance.
f. Activities and Proceeds.
(i) Neither the Company nor any of its subsidiaries will
engage in any activities or use directly or indirectly the proceeds
from the Class C Shares for any purpose for which a small business
investment company is prohibited from providing funds by the SBIC Act
and the regulations promulgated thereunder, including Title 13, Code of
Federal Regulations, Section 107.
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ii. The Company will use the proceeds from the Class C Shares
to provide working capital to develop existing and future projects. The
Company will deliver within ninety (90) days of the Closing to
Purchaser a written report, certified as correct by the Company's chief
financial officer, verifying the purposes and the amounts for which
proceeds from the Class C Shares have been disbursed, and, if the
proceeds have not been fully disbursed within that ninety-day period,
an additional report also so certified, delivered not later than the
end of each succeeding ninety-day period, verifying the purposes and
the amounts for which proceeds have been disbursed. The Company will
supply to Purchaser such additional information and documents as
Purchaser reasonably requests with respect to use of proceeds and will
permit Purchaser to have access to any and all Company records and
information and personnel as Purchaser deems necessary to verify how
proceeds have been or are being used and to assure that the proceeds
have been used for the purposes specified. The Company agrees that any
diversion by the Company of the proceeds of the Class C Shares for any
purpose other than those set forth above, without the prior written
consent of Purchaser, will constitute a breach of the covenants of the
Company under this Agreement (a "Proceeds Event of Default").
iii. The Company will not, without obtaining the prior written
approval of Purchaser, change within one (1) year of the Closing the
Company's business activity from that described above to a business
activity which a small business investment company is prohibited from
providing funds by the SBIC Act and the regulations promulgated
thereunder. The Company agrees that any such changes in its business
activity without such prior written
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consent of Purchaser will constitute a breach of the covenants of the
Company under this Agreement (an "Activity Event of Default").
iv. If either a Proceeds Event of Default or an Activity Event
of Default occurs, Purchaser hereunder shall have the right to demand
immediate repayment of the purchase price of the Class C Shares,
together with interest at the rate of 12% per annum to the date of
repayment, and the Company will immediately make such payment within
three (3) days of receipt of a demand. The payment remedy is in
addition to any and all other rights and remedies against the Company
and others to which Purchaser may be entitled.
6. FOREBEARANCES OF THE COMPANY
Except with the prior written consent of Funding, or the affirmative
vote of the directors elected by the holder of the Class B Shares, until the
consummation of a Purchaser Approved Offering or sale by Purchaser of all of its
equity interests in the Company, the Company shall not:
a. carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, change its
corporate structure or establish or acquire any new subsidiary or invest in any
Affiliates;
b. enter into (i) any material agreement, arrangement, lease or
commitment not made in the ordinary course of business;
c. issue or sell any shares of capital stock representing in excess of
One Percent (1%) of the outstanding shares of the Company (except pursuant to
the exercise of options described on Schedule 3.b., or options issued to
employees pursuant to the terms of the Company's Stock Option Plan as in effect
on the date hereof), or create any new class or series of securities;
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d. issue, grant or authorize any options (except options described on
Schedule 3.b., or options issued to employees pursuant to the terms of the
Company's Stock Option Plan as in effect on the date hereof), convertible debt
or preferred stock representing, in the aggregate, in excess of One Percent (1%)
of the outstanding shares of the Company, or redeem any outstanding shares of
the Company representing, in the aggregate, in excess of One Percent (1%) of the
outstanding shares of the Company.
e. amend or repeal its Organizational Documents;
f. merge with any other corporation or permit any other corporation to
merge into it or consolidate with any other corporation; acquire control over
any other corporation or organization or create any subsidiary; or liquidate,
sell or otherwise dispose of any assets or acquire any assets, other than in the
ordinary course of its business consistent with past practice;
g. fail to maintain its corporate existence in good standing or fail to
comply in any material respect with any laws, regulations, ordinances or
governmental actions applicable to it and to the conduct of its business;
h. transact any business or enter any agreement with the Company's
Board of Directors, any shareholder, or any other individual officer of the
Company, unless such transaction is negotiated and consummated at arm's length;
i. increase the rate of compensation of, pay or agree to pay any bonus
to, or provide any other employee benefit or incentive to, any of its directors,
officers or employees, except in a manner consistent with past practice and
approved by the Compensation Committee of the Company's Board of Directors;
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j. change the location or nature of its business operations or invest
any funds in any entity not strictly related to its business;
k. file any bankruptcy or receivership petition or make an assignment
for the benefit of creditors;
l. agree to do any of the foregoing.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
The obligation of Purchaser to enter into and complete the Closing is
subject, at its option, to the fulfillment on or prior to the Closing Date of
the following conditions, the imposition of which is solely for the benefit of
Purchaser, any one or more of which may be waived by Purchaser:
a. The representations and warranties of the Company contained in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
b. The Company shall have performed in all material respects all
obligations and complied with all covenants or forebearances required by this
Agreement to be performed or complied with by the Company on or prior to the
Closing Date.
c. The Company shall have delivered a certificate to Purchaser, dated
the Closing Date and signed by the President and the Secretary or Treasurer of
the Company, to the effect that the applicable conditions set forth in this
Section have been satisfied.
d. The Company shall have delivered a certificate to Purchaser, dated
the Closing Date and signed by the Secretary or an Assistant Secretary of the
Company, certifying and attaching a copy of the Company's Organizational
Documents as in effect as of the Closing Date.
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e. Purchaser shall have received an opinion of counsel to the Company,
dated the Closing Date, as to such matters as Purchaser may reasonably request
with respect to the transactions contemplated hereby.
f. Purchaser shall have received all such certified resolutions,
certificates, documents or instruments with respect to the Company as Purchaser
may reasonably require to carry out the intent and purpose of this Agreement.
g. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, which has or may have, in the
opinion of Purchaser, a materially adverse effect on the assets, properties,
business, operations or condition (financial or otherwise) of the Company.
h. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated hereby or to seek
damages or a discovery order in connection with such transactions.
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligation of the Company to enter into and complete the Closing is
subject, at its option, to the fulfillment on or prior to the Closing Date of
the following conditions, the imposition of which is solely for the benefit of
the Company, any one or more of which may be waived by the Company:
a. The representations and warranties of Purchaser contained in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
b. Purchaser shall have performed in all material respects all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by Purchaser on or prior to the Closing Date.
c. Purchaser shall have delivered a certificate to the Company, dated
the Closing Date and signed by the President and the Secretary or Treasurer of
the general partner of Purchaser, to the effect that the applicable conditions
set forth in this Section have been satisfied.
d. The Company shall have received all such certified resolutions,
certificates, documents or instruments with respect to Purchaser as the Company
may reasonably require to carry out the intent and purpose of this Agreement.
e. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated hereby or to seek
damages or a discovery order in connection with such transactions.
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9. EXPENSES
At Closing, the Company shall (i) pay Geneva Associates, LLC a total
advisory fee of $87,000 for its services in connection with the transactions
contemplated hereunder and under the Stock Purchase Agreement with Spotswood
dated the date hereof, and (ii) pay all reasonable out-of-pocket costs and
expenses (including, without limitation, legal, accounting and consulting fees)
incurred by Purchaser in connection with its due diligence and the negotiation,
preparation, execution and performance of this Agreement and the transactions
contemplated hereby. Amounts to be paid by the Company at Closing under Section
9(ii) shall be paid directly out of the payment of the purchase price for the
Class C Shares at Closing.
10. INDEMNIFICATION
a. Obligation of the Company to Indemnify. The Company agrees to
indemnify, defend and hold harmless Purchaser against and in respect of any and
all claims, demands, costs, expenses, obligations, liabilities, damages,
recoveries and deficiencies, including, without limitation, interest, penalties
and reasonable attorneys' fees ("Losses"), which directly or indirectly arise,
result from or relate to the breach by the Company of, or the failure by the
Company to comply with or perform, the Company's representations, warranties,
covenants or agreements contained in this Agreement. To compensate Purchaser for
the reduction in the capitalization of the Company as the result of any
indemnification payment by the Company hereunder, the amount of any
indemnification payment hereunder shall be equal to the sum of (i) the amount of
Purchaser's Losses plus (ii) an amount such that, following the indemnification
payment, Purchaser would be in the same position as if the shareholders of the
Company (other than Purchaser) had made such indemnification payment to
Purchaser directly.
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b. Obligation of Purchaser to Indemnify. Purchaser agrees to indemnify,
defend and hold harmless the Company against and in respect of any and all
Losses which directly or indirectly arise, result from or relate to the breach
by Purchaser of, or the failure by Purchaser to comply with or perform, any of
its representations, warranties, covenants or agreements contained in this
Agreement.
11. TERMINATION
a. This Agreement may be terminated subject to this Section 11, as
follows:
i. At any time on or prior to the Closing Date, by the mutual
written consent of the Company and Purchaser;
ii. At any time on or prior to the Closing Date, by Purchaser
in writing, if the Company has, or by the Company in writing if Purchaser has,
in any material respect, breached (i) any covenant or undertaking contained
herein or (ii) any representation or warranty contained herein, and in the case
of (i) and (ii) if such breach has not been cured by the earlier of ten (10)
days after the date on which written notice of such breach is given to the party
committing such breach or the Closing Date;
iii. On the Closing Date, by either Purchaser or the Company
in writing, if any of the conditions precedent to the obligations of such party
to consummate the transactions contemplated hereby have not been satisfied or
fulfilled; or
iv. By either Purchaser or the Company in writing, if the
Closing Date has not occurred by the close of business on July 15, 1998.
b. Effect of Termination. In the event of a termination of this
Agreement for any reason, each party may seek any remedies available to it,
including claims for damages, specific performance or injunctive relief.
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12. CLAIMS FOR INDEMNIFICATION
Any claim for indemnification which is based upon a final judgment,
decree or award of a court of competent jurisdiction requiring the payment of
money by any party to this Agreement or any of its officers, directors or
controlling persons, shall be conclusive as to the amount of such claim,
provided a certified copy of such judgment, decree or award accompanies the
notice relating to such claim and provided further that the party seeking
indemnification shall have complied with Section 14 of this Agreement.
Any claim for indemnification shall be conclusive in all respects
thirty (30) days after receipt by the other party of notice thereof, unless
within such period the indemnifying party shall have sent to the party seeking
indemnification, and the party seeking indemnification shall have received,
notice questioning the propriety of the claim, in which case such claim, unless
settled by agreement of the parties, shall be promptly referred to arbitration
as provided in Section 13. In the event that a party makes a claim for
indemnification, and the indemnifying party contests that claim but the claim is
not settled or referred to arbitration within sixty (60) days after receipt by
the indemnifying party of notice of the claim from the party seeking
indemnification, such claim shall be regarded as conclusive in all respects.
13. DISPUTE RESOLUTION
All disputes arising hereunder between the parties shall be referred to
arbitration under the Uniform Arbitration Act as adopted in Delaware, according
to the rules of the American Arbitration Association. Judgment upon the award by
the arbitrator may be entered in any court having jurisdiction thereof. As part
of such award, the arbitrator shall be promptly paid by the party that initiates
the proceeding, but the portion of each such fee and expenses which represents
the same
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percentage thereof as the percentage of the amount of the claim represented by
the amount awarded shall be added to the amount of the award and shall be borne
by the indemnifying party. Any award shall be a conclusive determination of the
matter and shall be binding upon Purchaser and the Company and shall not be
contested by either of them. Arbitration proceedings shall be held in the city
of Dover, Delaware unless the parties agree upon another location. In any such
action the prevailing party, in the judgment of the arbitrator, shall be
entitled to an award of its costs and attorneys' fees incurred in the action.
14. THIRD PARTY CLAIMS
In the event that any legal proceeding shall be instituted, or any
claim or demand shall be asserted, by any third party in respect of which
indemnity may be sought by Purchaser or the Company pursuant to the provisions
of this Agreement, the party seeking indemnification, with reasonable promptness
after obtaining knowledge of such proceeding, claim or demand shall give written
notice thereof to the other party, who shall then have the right, at its option
and expense, to be represented by counsel of its choice in connection with such
matter, which counsel shall be reasonably satisfactory to the party seeking
indemnification, and to defend against, negotiate, settle or otherwise deal with
any such proceeding, claim or demand; provided, however, that without the prior
written consent of the party seeking indemnification, which consent shall not be
unreasonably withheld, the indemnifying party shall not consent to the entry of
any judgment in or agree to any settlement of any such matters; and provided
further that the party seeking indemnification may retain counsel, at its own
expense, to represent it and participate in connection with any such proceeding
or claim or demand. Failure by the indemnifying party to notify the party
seeking indemnification of the indemnifying party's election to defend any
proceeding, claim or demand with respect to which
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indemnity is sought within thirty (30) days after notice thereof shall have been
given by the party seeking indemnification shall be deemed a waiver by the
indemnifying party of its right to defend against such matter. If the
indemnifying party assumes defense of any such proceeding, claim or demand, it
shall take or cause to be taken all steps necessary in connection with such
defense, and the party seeking indemnification shall in all events be entitled
to indemnity with respect to such matter, as provided in this Agreement. In the
event that the indemnifying party does not elect to defend any proceeding, claim
or demand with respect to which indemnity is sought, the party seeking
indemnification may defend against, settle or otherwise deal with any such
proceeding, claim or demand in such matter as it may in its good faith
discretion deem appropriate and the indemnifying party shall be liable for
indemnification with respect to such matter, including without limitation the
reasonable costs of such defense, as provided in this Agreement. In the event of
any proceeding, claim or demand by a third party with respect to which a claim
for indemnification is made hereunder, the parties hereto agree that they will
cooperate fully with each other in connection with the defense or settlement of
such matter.
15. MISCELLANEOUS.
a. Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
b. Waiver of Compliance. Any failure of Purchaser or of the Company to
comply with any obligation, agreement or condition contained herein may be
expressly waived in writing by the Company or Purchaser, respectively, but such
waiver or failure to insist upon strict compliance with such obligation,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to,
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any subsequent or other failure. No waiver shall be binding unless executed in
writing by the party or parties making such waiver.
c. Assignment; Binding on Successors. This Agreement may not be
assigned by any party hereto without the written consent of the other parties
hereto, provided, however, that Purchaser may assign any or all of its rights
and obligations hereunder to any person or entity to whom Purchaser transfers
any of the Class C Shares; provided, however, that the Purchaser shall be the
sole representative of any such transferee in dealing with all matters
pertaining to this Agreement. This Agreement shall be binding on, and inure to
the benefit of, the parties to it and their respective legal representatives,
successors and permitted assigns.
d. Representations and Warranties. All representations, warranties and
agreements of the parties contained in this Agreement, or in any Schedule,
instrument, certificate or other writing provided for herein, shall survive the
Closing.
e. Notices. Except as provided in this Section 15.e., all notices or
other communications hereunder shall be in writing and shall be effective (a)
when personally delivered by courier or otherwise to the party to be given such
notice or other communication, or (b) on the business day following the day such
notice or other communication is sent by telex, facsimile or similar electronic
device, fully prepaid, which telex, facsimile or similar electronic
communication shall promptly be confirmed by written notice or (c) on the fifth
day following the date of deposit in the United States mail if such notice or
other communication is sent by certified or registered air mail (or its
equivalent) with return receipt requested and postage thereon fully prepaid. The
addresses for such notices shall be as follows:
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If to Purchaser:
Blue Ridge Investors Limited Partnership
c/o Blue Ridge Investors Group, Inc.
First Union Tower
P. O. Xxx 00000
Xxxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxx and Xxxxxx X. XxXxxxxx
Facsimile: (000) 000-0000
With a copy to:
Brooks, Pierce, XxXxxxxx, Xxxxxxxx & Xxxxxxx, L.L.P.
Xxxx Xxxxxx Xxx 00000
Xxxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxx X. Xxxxxx
Facsimile (000) 000-0000
If to the Company:
I 3S, Inc.
0000 Xxxxx Xxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: President
Facsimile: (000) 000-0000
With a copy to:
Xxxx X. Xxxxx, Xx.
0000 Xxxxxx Xxxx
Xxxx Xxxxxx Xxx 0000
Xxxxxx, Xxxxx 00000
Facsimile: (000) 000-0000
Any party hereto may, by notice to the other parties hereto, change its address
for receipt of notices hereunder.
f. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
g. Entire Agreement. This Agreement, including the Schedules, Exhibits
and other documents referred to herein which form a part hereof, embodies the
entire agreement and
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understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, warranties, covenants or
understandings, other than those expressly set forth or referred to herein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by all of the parties
hereto.
h. Headings; References. The headings appearing in this Agreement are
for convenience of reference only and shall not affect the interpretation of
this Agreement. All references herein to Sections, Exhibits and Schedules refer
to the Sections contained in, and the Exhibits and Schedules attached to, this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives on the day and year first
above written.
ATTEST: I 3S, INC.
/s/ illegible By: /s/ Xxxxx X. Xxxxx
---------------------------- --------------------------
Xxxxx X. Xxxxx, President
(CORPORATE SEAL)
BLUE RIDGE INVESTORS LIMITED
PARTNERSHIP
By: Blue Ridge Investors Group, Inc.
By: /s/ Xxxx X. Xxxxx
---------------------------------
Xxxx X. Xxxxx, President
The Shareholders execute this Agreement solely for the purpose of
agreeing to the provisions of Section 2 hereof and waiving any and all
preemptive rights with respect to the issuance of the Class C Shares hereunder,
which rights are hereby waived.
/s/ Xxxxx X. Xxxxx
-------------------------------------
Xxxxx X. Xxxxx
/s/ Xxxx X. Xxxxxxx
-------------------------------------
Xxxx X. Xxxxxxx
/s/ Xxxx X. Xxxxx, Xx.
-------------------------------------
Xxxx X. Xxxxx, Xx.
/s/ Charles Bo Price
-------------------------------------
Charles Bo Price
/s/ Xxxxxx Xxxxxx
-------------------------------------
Xxxxxx Xxxxxx
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I3S FUNDING I, L.L.C.
By: GENEVA ASSOCIATES, L.L.C., Manager
By: /s/ Xxxx X. Xxxxx
------------------------------
Xxxx X. Xxxxx, Member-Manager
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