Exhibit 10.6
EXECUTION COPY
CONVERTIBLE NOTE PURCHASE AGREEMENT
between
TOTAL NETWORK SOLUTIONS, INC.
and
CISCO SYSTEMS, INC.
Dated as of December 21, 1999
CONVERTIBLE NOTE PURCHASE AGREEMENT dated as of December 21, 1999
between TOTAL NETWORK SOLUTIONS INC., a New York corporation (the "COMPANY"),
and CISCO SYSTEMS, INC. (the "PURCHASER").
WHEREAS, the Company wishes to issue and sell to the Purchaser (i) a
convertible promissory note of the Company in the original principal amount of
$3,172,872.24 in the form annexed as Exhibit A-1 hereto and dated the Closing
Date (as defined below) (the "SERIES B NOTE"), (ii) a convertible promissory
note of the Company in the original principal amount of $9,000,004.68 in the
form annexed as Exhibit A-2 hereto and dated the Closing Date (the "SERIES C
NOTE") and (iii) a convertible promissory note of the Company in the original
principal amount of $4,416,150.00 in the form annexed as Exhibit B hereto and
dated the Closing Date (the COMMON STOCK Note" and, together with the Series B
Note and the Series C Note, the "CONVERTIBLE NOTES"); and
WHEREAS, the Purchaser wishes to purchase the Convertible Notes on the
terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
ARTICLE 1
THE CONVERTIBLE NOTES
SECTION 1.1. ISSUANCE, SALE AND DELIVERY OF THE CONVERTIBLE NOTES.
Subject to the terms and conditions of this Agreement and upon the basis of the
Purchaser's representations and warranties herein contained, the Company agrees
to issue and sell to the Purchaser and, upon the basis of the Company's
representations and warranties herein contained, the Purchaser agrees to
purchase from the Company at the closing (the "CLOSING"), the Convertible Notes.
SECTION 1.2. CLOSING. The Closing shall take place at the offices of
Xxxxxxx, Xxxxxxxx & Kotel, P.C., 00 Xxxx 00xx Xxxxxx, Xxx Xxxx, XX 00000. The
Closing shall take place at 10:00 a.m., New York time, on December 21, 1999 or
the earliest practicable date thereafter on which the conditions set forth in
Sections 4.1 and 4.2 have been satisfied (but not later than February 28, 2000
unless the Purchaser and the Company otherwise agree). The date and time of the
Closing are referred to herein as a "CLOSING DATE". At the Closing, the Company
shall issue and deliver to the Purchaser the Convertible Notes registered in the
name of the Purchaser. As payment in full for the Series B Note and against
delivery of the Series B Note as aforesaid, on the Closing Date the Purchaser
shall surrender to the Company for cancellation the 1,077,026 shares of the
Company's Series B Convertible Preferred Stock held by the Purchaser. As payment
in full for the Series C Note and against delivery of the Series C Note as
aforesaid, on the Closing Date the Purchaser shall (i) deliver to the Company a
cashier's or certified check, payable to the order of the Company, in the amount
of $9,000,004.68, (ii) transfer such sum to the account of the Company by wire
transfer of immediately available funds or (iii) deliver or
transfer such sum to the Company by any combination of such methods of payment.
As payment in full for the Common Stock Note and against delivery of the Common
Stock Note as aforesaid, on the Closing Date the Purchaser shall surrender to
the Company for cancellation the 4,500,000 shares of the Company's Common Stock
held by the Purchaser.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as of the date
hereof that, except as set forth in the Disclosure Schedule attached as Schedule
I (which Disclosure Schedule makes explicit reference to the particular
representation or warranty as to which exception is taken, which in each case
shall constitute the sole representation and warranty as to which such exception
shall apply) and except for (i) this Agreement, (ii) the Series C Convertible
Stock Purchase Agreement dated as of the date hereof among the Company and the
purchasers signatory thereto, and (iii) the agreements and instruments to be
executed pursuant to the agreements and instruments identified in clauses (i)
and (ii) above and the transactions contemplated by the agreements and
instruments identified in such clauses and in this clause (iii):
SECTION 2.1. ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER.
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of New York and is duly
licensed or qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification, except where failure to be so licensed
or to so qualify would not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the condition (financial or
otherwise), business, assets or results of operations of the Company and its
subsidiaries, taken as a whole (a "MATERIAL ADVERSE EFFECT"). The Company has
the corporate power and authority to own and hold its properties and to carry on
its business as now conducted and as proposed to be conducted, to execute,
deliver and perform this Agreement, the Second Amended and Restated Registration
Rights Agreement in the form attached as Exhibit C (the "REGISTRATION RIGHTS
AGREEMENT") and the Second Amended and Restated Shareholders Agreement in the
form attached as Exhibit D (the "SHAREHOLDERS AGREEMENT" and together with this
Agreement, the Convertible Notes and the Registration Rights Agreement, the
"TRANSACTION DOCUMENTS"), to issue, sell and deliver the Convertible Notes at
the Closing and to issue the shares of Preferred Stock, par value $0.001 per
share ("PREFERRED STOCK"), and Common Stock, par value $0.001 per share, of the
Company ("COMMON STOCK") issuable upon conversion of the Convertible Notes (such
shares of Common Stock being referred to herein as the "COMMON NOTE SHARES",
such shares of Preferred Stock being referred to herein as the "PREFERRED NOTE
SHARES" and the Common Note Shares and the Preferred Note Shares being referred
to collectively as the "NOTE SHARES").
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(b) The attached Schedule II contains a list of all subsidiaries of
the Company as of the date hereof and as of the date of Closing. Except for such
subsidiaries, the Company does not, as of the date hereof and as of the date of
Closing, (i) own of record or beneficially, directly or indirectly, (A) any
shares of capital stock or securities convertible into capital stock of any
other corporation or (B) any participating interest in any partnership, joint
venture or other non-corporate business enterprise or (ii) control, directly or
indirectly, any other entity. Each of the Company's subsidiaries is a
corporation duly incorporated, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation and is duly licensed or
qualified to transact business as a foreign corporation and is in good standing
in each jurisdiction in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such licensing or
qualification, except where the failure to be so licensed or to so qualify would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. Each of the Company's subsidiaries has the corporate power and
authority to own and hold its properties and to carry on its business as now
conducted and as proposed to be conducted. All of the outstanding shares of
capital stock of each of the Company's subsidiaries are owned beneficially and
of record by the Company, one of its other subsidiaries, or any combination of
the Company and/or one or more of its other subsidiaries, in each case free and
clear of any liens, charges, restrictions, claims or encumbrances of any nature
whatsoever (collectively, "LIENS"). There are no outstanding subscriptions,
warrants, options, convertible securities, or other rights (contingent or other)
pursuant to which any of the subsidiaries is or may become obligated to issue
any shares of its capital stock to any person other than the Company or one of
the other subsidiaries. As used in Sections 2.6 through 2.9, 2.11 through 2.17,
2.21 and 2.23 through 2.30 inclusive, the term "COMPANY" shall mean the Company
and each of its subsidiaries.
SECTION 2.2. AUTHORIZATION OF AGREEMENTS, ETC.
(a) The execution and delivery by the Company of the Transaction
Documents, the performance by the Company of its obligations thereunder and the
issuance, sale and delivery of the Convertible Notes have been duly authorized
by all requisite corporate action and will not (i) violate any provision of law,
any order of any court or other agency of government, the Restated Certificate
of Incorporation of the Company, as amended and restated by the charter
amendment (the "CHARTER AMENDMENT") attached hereto as Exhibit E (as so amended,
the "CHARTER"), or the Amended and Restated By-laws of the Company, as amended
(the "BY-LAWS") attached hereto as Exhibit H, (ii) violate any provision of any
indenture, agreement or other instrument to which the Company, any of its
subsidiaries or any of their respective properties or assets is bound, or
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument,
other than any such violation, conflict or default that would not reasonably be
expected to cause a Material Adverse Effect or (iii) result in the creation or
imposition of any Lien upon any of the properties or assets of the Company or
any of its subsidiaries.
(b) The Convertible Notes have been duly authorized, executed
and delivered by the Company and, when issued and delivered in accordance with
the terms of this Agreement,
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will constitute the valid and binding obligations of the Company, enforceable in
accordance with their respective terms (subject to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting the rights of
creditors generally and to general principles of equity, regardless of whether
enforcement is sought in equity or at law).
(c) The Preferred Note Shares have been duly authorized and,
when issued upon conversion of the Convertible Notes, will be validly issued,
fully paid and nonassessable shares of Series B Convertible Preferred Stock of
the Company ("SERIES B PREFERRED STOCK"), in the case of the Series B Note, or
Series C Convertible Preferred Stock of the Company ("SERIES C PREFERRED
STOCK"), in the case of the Series C Note, with no personal liability attaching
to the ownership thereof (other than such liability, if any, as may be (i)
imposed by Section 630 of the New York Business Corporation Law or (ii)
attributable to acts of the Purchaser) and will be free and clear of all Liens.
The issuance and delivery of the Preferred Note Shares is not subject to any
preemptive right of shareholders of the Company that has not been waived or to
any right of first refusal or other right in favor of any person that has not
been waived.
(d) The Common Note Shares have been duly authorized and, when
issued upon conversion of the Convertible Notes or the Preferred Note Shares, as
the case may be, will be validly issued, fully paid and nonassessable shares of
Common Stock with no personal liability attaching to the ownership thereof
(other than such liability, if any, as may be (i) imposed by Section 630 of the
New York Business Corporation Law or (ii) attributable to acts of the Purchaser)
and will be free and clear of all Liens. The issuance and delivery of the Common
Note Shares is not subject to any preemptive right of shareholders of the
Company that has not been waived or to any right of first refusal or other right
in favor of any person that has not been waived.
SECTION 2.3. VALIDITY. This Agreement has been duly executed and
delivered by the Company and this Agreement and each of the other Transaction
Documents, when executed and delivered in accordance with this Agreement, will
constitute the valid and binding obligations of the Company, enforceable in
accordance with their respective terms, except as the enforcement of any of such
Transaction Documents may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally and by equitable principles.
SECTION 2.4. AUTHORIZED CAPITAL STOCK. As of the date hereof, the
authorized capital stock of the Company consists of 150,000,000 shares of Common
Stock and 5,000,000 shares of preferred stock, par value $0.001 per share
("PREFERRED STOCK"), of which 170,000 shares have been designated Series A
Senior Redeemable Preferred Stock, 1,620,700 shares have been designated Series
B Convertible Preferred Stock and 1,650,000 have been designated Series C
Convertible Preferred Stock. As of the date hereof and immediately prior to the
Closing, 76,371,375 shares of Common Stock (exclusive of shares of Common Stock
(the "ADDITIONAL OPTION SHARES") issued upon exercise of options that are
outstanding as of the date hereof or are issued after the date hereof pursuant
to the Company's Amended and Restated 1998 Stock Option Plan (the "1998 PLAN")),
99,804.2276 shares Series A Preferred Stock, and 1,077,026
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shares of Series B Preferred Stock will be validly issued and outstanding, fully
paid and nonassessable with no personal liability attaching to the ownership
thereof (other than such liability, if any, as may be (i) imposed by Section 630
of the New York Business Corporation Law or (ii) attributable to acts of the
Purchaser) and no shares of Series C Preferred Stock will have been issued. The
Company has reserved 21,303,000 shares of Common Stock for issuance pursuant to
the 1998 Plan of which 15,014,883 shares (plus such shares as are subject to
options issued under the 1998 Plan between the date of this Agreement and the
Closing Date) will be subject to outstanding unexercised options immediately
prior to the Closing. The shareholders of record and holders of subscriptions,
warrants, options, convertible securities, and other rights (contingent or
other) to purchase or otherwise acquire equity securities of the Company, and
the number of shares of Common Stock, Series A Preferred Stock and Series B
Preferred Stock and the number of such subscriptions, warrants, options,
convertible securities, and other such rights held by each as of the date
hereof, are as set forth in the attached Schedule III. The designations, powers,
preferences, rights, qualifications, limitations and restrictions in respect of
each class and series of authorized capital stock of the Company are as set
forth in the Charter, and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid, binding and enforceable
and in accordance with all applicable laws. Except as set forth in the attached
Schedule III, as of the date hereof and immediately prior to the Closing, (i) no
person (other than a person receiving capital stock of the Company in accordance
with the procedures set forth in the Amended and Restated Shareholders Agreement
of the Company dated as of May 13, 1999 (the "EXISTING SHAREHOLDERS AGREEMENT"))
owns or will own of record any share of Common Stock (except for Additional
Option Shares) or Preferred Stock, (ii) no subscription, warrant, option,
convertible security, or other right (contingent or other) to purchase or
otherwise acquire equity securities of the Company (other than stock options
issued after the date hereof pursuant to the 1998 Plan) is or will be authorized
or outstanding and (iii) except for options that the Company has committed to
issue to employees pursuant to the 1998 Plan that have not yet been issued,
there is or will be no commitment by the Company to issue shares, subscriptions,
warrants, options, convertible securities, or other such rights or to distribute
to holders of any of its securities any evidence of indebtedness or asset.
Except as set forth in this Agreement, in the attached Schedule III or in the
Charter, the Company will have no obligation (contingent or other) to purchase,
redeem or otherwise acquire any of its equity securities or any interest therein
or to pay any dividend or make any other distribution in respect thereof. Except
for this Agreement, the Existing Shareholders Agreement and the stock option
agreements between the Company and each option holder of the Company, to the
best of the Company's knowledge there are no voting trusts or agreements,
shareholders' agreements, pledge agreements, buy-sell agreements, rights of
first refusal, preemptive rights or proxies relating to any securities of the
Company or any of its subsidiaries (whether or not the Company or any of its
subsidiaries is a party thereto). All of the outstanding securities of the
Company were issued in compliance with all applicable Federal and state
securities laws.
SECTION 2.5. FINANCIAL STATEMENTS. The Company has furnished to the
Purchaser (i) the audited consolidated balance sheets of the Company and its
subsidiaries as of December 31, 1996, 1997 and 1998 and the related audited
consolidated statements of income, shareholders' equity and cash flows of the
Company and its subsidiaries for the years ended December 31,
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1996, 1997 and 1998 and (ii) the unaudited consolidated balance sheets of the
Company and its subsidiaries as of September 30, 1999 and the related unaudited
consolidated statements of income, shareholders' equity and cash flows of the
Company and its subsidiaries for the nine-month period ended September 30, 1999.
The unaudited consolidated balance sheet of the Company and its subsidiaries as
of September 30, 1999 is referred to herein as the "BALANCE SHEET" and, together
with the related unaudited consolidated statements of income, shareholders'
equity and cash flows of the Company and its subsidiaries for the nine months
then ended, as the "SEPTEMBER 30 STATEMENTS". (Complete copies of the September
30 Statements are attached hereto as Exhibit G.) All such financial statements
have been prepared in accordance with generally accepted accounting principles
consistently applied and fairly present the consolidated financial position of
the Company and its subsidiaries as of their respective dates, and the
consolidated results of their operations and cash flows for the periods then
ended. Since the date of the Balance Sheet, (i) there has been no change in the
assets, liabilities or financial condition of the Company and its subsidiaries
(on a consolidated basis) from that reflected in the September 30 Statements
except for changes in the ordinary course of business which, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect; and (ii) there has not otherwise occurred any Material Adverse Effect.
SECTION 2.6. EVENTS SUBSEQUENT TO THE DATE OF THE BALANCE SHEET. Since
the date of the Balance Sheet, the Company has not (i) issued any stock, bond or
other corporate security (other than stock options issued pursuant to the 1998
Plan and shares of Common Stock issued upon exercise of such options), (ii)
borrowed any amount or incurred or become subject to any liability (absolute,
accrued or contingent), except current liabilities incurred and liabilities
under contracts entered into in the ordinary course of business, (iii)
discharged or satisfied any Lien or incurred or paid any obligation or liability
(absolute, accrued or contingent) other than current liabilities shown on the
Balance Sheet and current liabilities incurred since the date of the Balance
Sheet in the ordinary course of business, (iv) declared or made any payment or
distribution to shareholders or purchased or redeemed any share of its capital
stock or other security, (v) mortgaged, pledged, encumbered or subjected to Lien
any of its assets, tangible or intangible, other than Liens of current taxes not
yet due and payable and minor imperfections of title, if any, not material in
nature or amount and not materially detracting from the value or impairing the
use of the property subject thereto or impairing the operations of the Company
and its subsidiaries, (vi) sold, assigned or transferred any of its tangible
assets except in the ordinary course of business, or canceled any debt or claim,
(vii) sold, assigned, transferred or granted any exclusive license with respect
to any patent, trademark, trade name, service xxxx, copyright, trade secret or
other intangible asset, (viii) suffered any loss of, or waived, any right of
substantial value whether or not in the ordinary course of business, (ix) made
any change in officer compensation except in the ordinary course of business and
consistent with past practice, (x) made any material change in the manner of
business or operations of the Company, (xi) entered into any transaction except
in the ordinary course of business or as otherwise contemplated hereby or (xii)
entered into any commitment (contingent or otherwise) to do any of the
foregoing.
SECTION 2.7. LITIGATION; COMPLIANCE WITH LAW. There is no (i) action,
suit, claim, proceeding or investigation pending or, to the Company's knowledge,
threatened against or
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affecting the Company, at law or in equity, before by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceeding relating to
the Company pending under collective bargaining agreements or otherwise or (iii)
governmental inquiry pending or, to the Company's knowledge, threatened against
or affecting the Company (including without limitation any inquiry as to the
qualification of the Company to hold or receive any license or permit), and, to
the Company's knowledge, there is no basis for any of the foregoing. The Company
is not in default with respect to any order, writ, injunction or decree known to
or served upon the Company of any court or of any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. There is no action or suit by the Company
pending, threatened or contemplated against others. The Company has complied in
all material respects with all material laws, rules, regulations and orders
applicable to its business, operations, properties, assets, products and
services. The Company has all necessary permits, licenses and other
authorizations required to conduct its business as conducted and as proposed to
be conducted, and the Company has been operating its business pursuant to and in
material compliance with the terms of all such permits, licenses and other
authorizations. There is no existing law, rule, regulation or order, whether
Federal, state, county or local, which would prohibit or restrict the Company
from, or otherwise materially adversely affect the Company in, conducting its
business in any jurisdiction in which it is now conducting business or, to the
Company's knowledge, in which it proposes to conduct business.
SECTION 2.8. PROPRIETARY INFORMATION OF THIRD PARTIES. No third party
has claimed or, to the Company's knowledge, has reason to claim that any person
employed by or affiliated with the Company has, in connection with such person's
employment or affiliation with the Company, (a) violated or may be violating any
of the terms or conditions of his employment, non-competition or non-disclosure
agreement with such third party, (b) disclosed or may be disclosing or utilized
or may be utilizing any trade secret or proprietary information or documentation
of such third party or (c) interfered or may be interfering in the employment
relationship between such third party and any of its present or former employees
in violation of any contractual obligation of such person to such third party.
No third party has requested information from the Company which suggests that
such a claim might be contemplated. To the Company's knowledge, no person
employed by or affiliated with the Company has employed or proposes to employ
any trade secret or any information or documentation proprietary to any former
employer, and to the Company's knowledge, no person employed by or affiliated
with the Company has violated any confidential relationship which such person
may have had with any third party, in connection with the development,
manufacture or sale of any product or proposed product or the development or
sale of any service or proposed service of the Company. To the Company's
knowledge, none of the execution or delivery of this Agreement, or the carrying
on of the business of the Company as officers, employees or agents by any
officer, director or key employee of the Company, or the conduct or proposed
conduct of the business of the Company, will conflict with or result in a breach
of the terms, conditions or provisions of or constitute a default under any
contract, covenant or instrument under which any such person is obligated.
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SECTION 2.9. PATENTS, TRADEMARKS, ETC. (a) Set forth in Schedule I is a
list and brief description, as of the date hereof, of all domestic and foreign
patents, patent rights, patent applications, trademarks, trademark applications,
service marks, service xxxx applications, trade names and copyrights, and all
applications for such which are in the process of being prepared, owned by or
registered in the name of the Company, or of which the Company is a licensor or
licensee or in which the Company has any right, and in each case a brief
description of the nature of such right.
(b) The Company owns or possesses adequate licenses or other rights to
use all patents, patent applications, trademarks, trademark applications,
service marks, service xxxx applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets, customer lists and know how (collectively,
"INTELLECTUAL PROPERTY") necessary or desirable to the conduct of its business
as conducted and as proposed to be conducted, and no claim is pending or, to the
Company's knowledge, threatened to the effect that the operations of the Company
infringe upon or conflict with the asserted rights of any other person under any
Intellectual Property, and to the Company's knowledge there is no basis for any
such claim (whether or not pending or threatened). No claim is pending or, to
the Company's knowledge, threatened to the effect that any such Intellectual
Property owned or licensed by the Company, or which the Company otherwise has
the right to use, is invalid or unenforceable by the Company, and, to the
Company's knowledge, there is no basis for any such claim (whether or not
pending or threatened). The Company has not granted or assigned to any other
person or entity any right to provide the services of the Company.
SECTION 2.10. TITLE TO PROPERTIES. The Company and its subsidiaries
have good, clear and marketable title to their respective properties and assets
reflected on the Balance Sheet or acquired by them since the date of the Balance
Sheet (other than properties and assets disposed of in the ordinary course of
business since the date of the Balance Sheet), and all such properties and
assets are free and clear of Liens (including without limitation, easements and
licenses), except for Liens for current taxes not yet due and payable and minor
imperfections of title, if any, not material in nature or amount and not
materially detracting from the value or impairing the use of the property
subject thereto or impairing the operations of the Company and its subsidiaries,
including without limitation, the ability of the Company and its subsidiaries to
secure financing using such properties and assets as collateral. To the
Company's knowledge, there are no condemnation, environmental, zoning or other
land use regulation proceedings, either instituted or planned to be instituted,
which would adversely affect the use or operation of the Company's and its
subsidiaries' properties and assets for their respective intended uses and
purposes, or the value of such properties, and neither the Company nor any
subsidiary has received notice of any special assessment proceedings which would
affect such properties and assets.
SECTION 2.11. LEASEHOLD INTERESTS. Each lease or agreement to which the
Company is a party under which it is a lessee of any property, real or personal,
is a valid and subsisting agreement, duly authorized and entered into, without
any material default of the Company thereunder and, to the best of the Company's
knowledge, without any material default thereunder of any other party thereto.
No event has occurred which, with due notice or lapse of time or both,
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would constitute a material default or event of default by the Company under any
such lease or agreement or, to the Company's knowledge, by any other party
thereto. The Company's possession of such property has not been disturbed and,
to the Company's knowledge, no claim has been asserted against the Company
adverse to its rights in such leasehold interests.
SECTION 2.12. INSURANCE. The Company holds valid policies covering
insurance reasonably deemed by the Company to comply with Section 5.3.
SECTION 2.13. TAXES. The Company has filed all tax returns required to
be filed by it (which returns are accurate and complete in all material
respects), and the Company has paid all taxes shown to be due by such returns as
well as all other taxes, assessments and governmental charges which have become
due or payable, including, without limitation, all taxes which the Company is
obligated to withhold from amounts owing to employees, creditors and third
parties. The Company has established adequate reserves for all taxes accrued but
not yet payable. Except as set forth in Schedule I, all material tax elections
of any type which the Company has made as of the date hereof are set forth in
the financial statements referred to in Section 2.5. The Federal income tax
returns of the Company have never been audited by the Internal Revenue Service.
No deficiency or assessment with respect to, or proposed adjustment of, the
Company's Federal, state, county or local taxes is pending or, to the best of
the Company's knowledge, threatened. There is no tax lien (other than for
current taxes not yet due and payable), whether imposed by any Federal, state,
county or local taxing authority, outstanding against the assets, properties or
business of the Company.
SECTION 2.14. OTHER AGREEMENTS. The Company is not a party to or
otherwise bound by any contractual obligation, written or oral, which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect. Except as set forth in the attached Schedule IV, as of
the date hereof, the Company is not a party to or otherwise bound by any written
or oral:
(a) consulting agreement or agreement with a client or customer;
(b) agreement with any labor union (and, to the knowledge of the
Company, no organizational effort is being made with respect to any of its
employees);
(c) agreement with any supplier containing any provision permitting
any party other than the Company to renegotiate the price or other terms upon
the occurrence of a failure by the Company to meet its obligations under the
agreement when due or the occurrence of any other event;
(d) agreement for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of its normal
operating requirements;
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(e) agreement for the employment of any officer, employee or other
person (whether of a legally binding nature or in the nature of informal
understandings) on a full-time or consulting basis;
(f) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option or other plan, agreement or
understanding pursuant to which benefits are provided to any employee of the
Company (other than group insurance plans which are not self-insured and are
applicable to employees generally);
(g) agreement relating to the borrowing of money or to the mortgaging
or pledging of, or otherwise placing a Lien on, any asset of the Company;
(h) guaranty of any obligation for borrowed money or otherwise;
(i) voting trust or agreement, shareholders' agreement, pledge
agreement, buy-sell agreement or first refusal or preemptive rights agreement
relating to any securities of the Company, other than this Agreement;
(j) agreement, or group of related agreements with the same party or
any group of affiliated parties, under which the Company has advanced or agreed
to advance money or has agreed to lease any property as lessee or lessor (except
for lease agreements under which the Company is the lessee and which are not,
individually or in the aggregate, material to the business of the Company);
(k) agreement or obligation (contingent or otherwise) to issue, sell
or otherwise distribute or to repurchase or otherwise acquire or retire any
share of its capital stock or any of its other equity securities, other than the
Charter;
(l) assignment, license or other agreement with respect to any form of
intangible property, including Intellectual Property;
(m) agreement under which it has granted any person any registration
rights;
(n) agreement under which it has limited or restricted its right to
compete with any person in any respect;
(o) other agreement or group of related agreements with the same party
involving more than $50,000 or continuing over a period of more than six months
from the date or dates thereof (including renewals or extensions optional with
another party), which agreement or group of agreements is not terminable by the
Company without penalty upon notice of 30 days or less; or
(p) other agreement, instrument, commitment, plan or arrangement, a
copy of which would be required to be filed with the Securities and Exchange
Commission (the "COMMISSION")
10
as an exhibit to a registration statement on Form S-1 if the Company were
registering securities under the Securities Act of 1933, as amended (the
"SECURITIES ACT").
The Company, and to the Company's knowledge, each other party thereto have in
all material respects performed all the obligations required to be performed by
them to date (or each non-performing party has received a valid, enforceable and
irrevocable written waiver with respect to its non-performance), have received
no notice of default and are not in default (with due notice or lapse of time or
both) under any agreement, instrument, commitment, plan or arrangement to which
the Company is a party or by which it or its property is bound. The Company has
no present expectation or intention of not fully performing all its obligations
under each such agreement, instrument, commitment, plan or arrangement, and the
Company has no knowledge of any breach or anticipated breach by the other party
to any agreement, instrument, commitment, plan or arrangement to which the
Company is a party. The Company is in full compliance with all of the terms and
provisions of its Restated Certificate of Incorporation and Bylaws.
SECTION 2.15. LOANS AND ADVANCES. As of the date hereof, the Company
does not have any outstanding loans or advances to any person and is not
obligated to make any such loans or advances, except, in each case, for advances
to employees of the Company in respect of reimbursable business expenses
anticipated to be incurred by them in connection with their performance of
services for the Company.
SECTION 2.16. ASSUMPTIONS, GUARANTIES, ETC. OF INDEBTEDNESS OF OTHER
PERSONS. As of the date hereof, the Company has not assumed, guaranteed,
endorsed or otherwise become directly or contingently liable on any outstanding
indebtedness of any other person (including, without limitation, liability by
way of agreement, contingent or otherwise, to purchase, to provide funds for
payment, to supply funds to or otherwise invest in the debtor, or otherwise to
assure the creditor against loss), except for guaranties by endorsement of
negotiable instruments for deposit or collection in the ordinary course of
business.
SECTION 2.17. SIGNIFICANT CLIENTS AND SUPPLIERS. As of the date hereof,
no client which accounted for five percent or more of the Company's revenues
during the period covered by the financial statements referred to in Section
2.5, or which has been significant to the Company thereafter, has terminated,
materially reduced or, to the Company's knowledge, threatened to terminate or
materially reduce its purchases from the Company, as the case may be. Schedule V
sets forth each client which accounted for five percent or more of the Company's
revenues during the periods covered by the financial statements referred to in
Section 2.5, or which has been significant to the Company thereafter and the
approximate total amount of revenues generated by such client during such
periods.
SECTION 2.18. GOVERNMENTAL APPROVALS. Subject to the accuracy of the
representations and warranties of the Purchaser set forth in Article 3, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
the
11
Transaction Documents and the issuance, sale and delivery of the Convertible
Notes other than (i) any required filings pursuant to state securities laws (all
of which filings will have been made by the Company prior to or at the Closing,
other than those which are required to be made after the Closing and which will
be duly made on a timely basis) in connection with the sale of the Convertible
Notes and (ii) with respect to the Registration Rights Agreement, the
registration of the shares covered thereby with the Commission and filings
pursuant to state securities laws and (iii) filing with the Secretary of State
of the State of New York of the Charter Amendment, in the form attached as
Exhibit E, fixing and determining the terms of the Series C Preferred Stock.
SECTION 2.19. DISCLOSURE. Neither this Agreement, nor any Schedule or
Exhibit to this Agreement contains an untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein or
therein, in the light of the circumstances under which they were made, not
misleading. None of the statements, documents, certificates or other items
prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein, in the light
of the circumstances under which they were made, not misleading. There is no
fact which the Company has not disclosed to the Purchaser or its counsel and
which is known to the Company (other than facts known to the general public or
generally known in the Company's industry) which materially and adversely
affects or is reasonably likely to materially and adversely affect the business,
financial condition, operations or property of the Company or any of its
subsidiaries. The Company has supplied the Purchaser with all written
information reasonably requested by it.
SECTION 2.20. OFFERING OF THE CONVERTIBLE NOTES. Neither the Company
nor any person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering or sale of the Convertible Notes or
any security of the Company similar to the Convertible Notes has offered the
Convertible Notes or any such similar security for sale to, or solicited any
offer to buy the Convertible Notes or any such similar security from, or
otherwise approached or negotiated with respect thereto with, any person or
persons, and neither the Company nor any person acting on its behalf has taken
or will take any other action, in either case so as to subject the offering,
issuance or sale of the Convertible Notes to the registration provisions of the
Securities Act.
SECTION 2.21. BROKERS. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 2.22. OFFICERS. Set forth in Schedule I is a list of the names
of the titled officers of the Company as of the date hereof, together with the
title or job classification of each such person and the total compensation
anticipated to be paid to each such person by the Company and its subsidiaries
in 1999.
SECTION 2.23. TRANSACTIONS WITH AFFILIATES. No director, officer,
employee or shareholder of the Company, or member of the family of any such
person, or any corporation, partnership, trust or other entity in which any such
person, or any member of the family of any
12
such person, has a substantial interest or is an officer, director, trustee,
partner or holder of more than five percent of the outstanding capital stock
thereof, is a party to any transaction with the Company, including any contract,
agreement or other arrangement providing for the employment of, furnishing of
services by, rental of real or personal property from or otherwise requiring
payments to any such person or firm, other than employment-at-will arrangements
in the ordinary course of business.
SECTION 2.24. EMPLOYEES. No employee has advised the Company (orally or
in writing) that he or she intends to terminate employment with the Company. The
Company has complied in all material respects with all applicable laws relating
to the employment of labor, including provisions relating to wages, hours, equal
opportunity, collective bargaining and the payment of Social Security and other
taxes.
SECTION 2.25. ENVIRONMENTAL PROTECTION. The Company has not caused or
allowed, or contracted with any party for, the generation, use, transportation,
treatment, storage or disposal of any Hazardous Substances (as defined below) in
connection with the operation of its business or otherwise. The Company, the
operation of its business, and any real property that the Company owns or, to
the knowledge of the Company, leases or otherwise occupies or uses (the
"PREMISES") are in compliance with all applicable Environmental Laws (as defined
below) and orders or directives of any governmental authorities having
jurisdiction under such Environmental Laws, including, without limitation, any
Environmental Laws or orders or directives with respect to any cleanup or
remediation of any release or threat of release of Hazardous Substances. The
Company has not received any citation, directive, letter or other communication,
written or oral, or any notice of any proceeding, claim or lawsuit, from any
person relating to a violation of applicable Environmental Laws and arising out
of the ownership or occupation of the Premises, or the conduct of its
operations, and the Company is not aware of any basis therefor. The Company has
obtained and is maintaining in full force and effect all necessary permits,
licenses and approvals required to be obtained by it by all Environmental Laws
applicable to the Premises and the business operations conducted thereon
(including operations conducted by tenants on the Premises), and is in material
compliance with all such permits, licenses and approvals. The Company has not
caused or allowed a release, or a threat of release, of any Hazardous Substance
unto, at or near the Premises, and, to the best of the Company's knowledge,
neither the Premises nor any property at or near the Premises has ever been
subject to a release, or a threat of release, of any Hazardous Substance. For
the purposes of this Agreement, the term "ENVIRONMENTAL LAWS" shall mean any
Federal, state or local law or ordinance or regulation pertaining to the
protection of human health or the environment, including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Sections 9601, ET SEQ., the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. Sections 11001, ET SEQ., and the Resource
Conservation and Recovery Act, 42 U.S.C. Sections 6901, ET SEQ. For purposes of
this Agreement, the term "HAZARDOUS SUBSTANCES" shall include oil and petroleum,
products, asbestos, polychlorinated biphenyls, urea formaldehyde and any other
materials classified as hazardous or toxic under any Environmental Laws.
13
SECTION 2.26. ERISA. (a) Schedule I lists each Employee Plan that
covers any employee of the Company, copies or descriptions of all of which have
previously been made available or furnished to the Purchaser. With respect to
each Employee Plan, the Company has provided the most recently filed Form 5500
(if any such report was required) and an accurate summary description of such
plan.
(b) Schedule I also includes a list of each Benefit Arrangement of the
Company, copies or descriptions of all of which have been made available or
furnished previously to the Purchaser.
(c) No Employee Plan is a Multiemployer Plan and no Employee Plan is
subject to Title IV of ERISA. The Company and its affiliates have not incurred
any liability under Title IV of ERISA arising in connection with the termination
of any plan covered or previously covered by Title IV of ERISA.
(d) None of the Employee Plans or other arrangements listed on
Schedule I covers any non-United States employee or former employee of the
Company.
(e) No "prohibited transaction", as defined in Section 406 of ERISA or
Section 4975 of the Code, has occurred with respect to any Employee Plan.
(f) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is exempt from
tax pursuant to Section 501(a) of the Code. The Company has furnished to the
Purchaser copies of the most recent Internal Revenue Service determination
letters with respect to each such plan. Each Employee Plan has been maintained
in compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, which are applicable to such plan, except for violations which would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
(g) Each Employee Plan and each Benefit Arrangement has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Employee Plan and Benefit Arrangement, except for violations
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
(h) Except as disclosed in writing to the Purchaser prior to the date
hereof, there has been no amendment to, written interpretation of or
announcement (whether or not written) by the Company or any of its ERISA
Affiliates relating to, or change in employee participation or coverage under,
any Employee Plan or Benefit Arrangement that would increase materially the
expense of maintaining such Employee Plan or Benefit Arrangement above the level
of the expense incurred in respect thereof for the fiscal year ended prior to
the date hereof.
14
(i) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Company that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to the terms of Section 280G of the Code.
(j) No tax under Section 4980B of the Code has been incurred in
respect of any Employee Plan that is a group health plan, as defined in Section
5000(b)(1) of the Code.
(k) With respect to the employees and former employees of the Company,
there are no employee post-retirement medical or health plans in effect, except
as required by Section 4980B of the Code.
(l) No employee of the Company will become entitled to any bonus,
retirement, severance or similar benefit or enhanced benefit solely as a result
of the transactions contemplated hereby.
(m) The Company does not have, nor is it reasonably expected to have,
any liability under Title IV of ERISA.
SECTION 2.27. QUESTIONABLE PAYMENTS. Neither the Company nor any
subsidiary, nor, to the Company's knowledge, any of the Company's or any
subsidiary's current or former shareholders, directors, officers, agents,
employees or other persons associated with or active on behalf of the Company or
any subsidiary, has on behalf of the Company or any subsidiary or in connection
with their business (a) used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity;
(b) made any direct or indirect unlawful payments to foreign or domestic
government officials or employees from corporate funds; (c) violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended, or any rules
and regulations thereunder; (d) established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; (e) made any false or
fictitious entries on the books and records of the Company; or (f) made any
unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful
payment of any nature.
SECTION 2.28. FEDERAL RESERVE REGULATIONS. The Company is not engaged
in the business of extending credit for the purpose of purchasing or carrying
margin securities (within the meaning of Regulation G of the Board of Governors
of the Federal Reserve System), and no part of the proceeds of the Convertible
Notes will be used to purchase or carry any margin security or to extend credit
to others for the purpose of purchasing or carrying any margin security or in
any other manner which would involve a violation of any of the regulations of
the Board of Governors of the Federal Reserve System.
SECTION 2.29. NO UNDISCLOSED LIABILITIES. There are no liabilities of
the Company of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no existing condition,
situation or set of circumstances which could reasonably be expected to result
in such a liability, other than:
15
(a) liabilities provided for in the Balance Sheet;
(b) undisclosed liabilities which, individually or in the aggregate,
are not material to the Company; and
(c) liabilities incurred subsequent to the date of the Balance Sheet
in the ordinary course of business that would not reasonably be expected to
cause a Material Adverse Effect.
SECTION 2.30. NO CRIMINAL PROCEEDINGS. There are no pending actions,
charges, indictments, information, or investigations of the Company or, to the
Company's knowledge, of its agents, officers or employees, whether pending or
threatened, which involve allegations of criminal violations by the Company or
its agents, officers or employees of the Company of any Federal, state, or local
statute, law, or ordinance.
SECTION 2.31. YEAR 2000. To the knowledge of the Company, all of the
software and Hardware (as defined below) developed or obtained by the Company
for its customers, and all of the software and Hardware owned, used, or licensed
by the Company, are Year 2000 Compliant (as defined below). "Year 2000
Compliant" shall mean that the software and Hardware will correctly calculate,
compare, sort, extract, sequence, store, and otherwise process date related
information and associated date calculations, without creating any logical or
mathematical inconsistencies, or loss or degradation of functionality or
performance for dates before, during and after the year 2000. "Hardware" shall
mean any piece of equipment used in or for the operation of the Company or
obtained by the Company for its customers, as the case may be, including,
without limitation, any computer or communications system and network.
SECTION 2.32. INVESTMENT COMPANY. The Company is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company as of the date
hereof that:
SECTION 3.1. ORGANIZATION. The Purchaser is organized and in good
standing under the laws of the State of California and the principal executive
office of the Purchaser is located in the State of California.
SECTION 3.2. POWER AND AUTHORIZATION. The execution, delivery and
performance by the Purchaser of the Transaction Documents are within the powers
of the Purchaser and have been
16
duly authorized by all necessary action on the part of the Purchaser. This
Agreement has been duly executed and delivered by the Purchaser and this
Agreement and each of the Transaction Documents, when executed and delivered in
accordance with this Agreement, will constitute a valid and binding agreement of
the Purchaser enforceable against the Purchaser in accordance with its terms,
except as the enforcement of any of such Transaction Documents may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally and by equitable
principles.
SECTION 3.3. PURCHASE FOR INVESTMENT.
(a) The Purchaser is an "accredited investor" within the
meaning of Rule 501 under the Securities Act and was not organized for
the specific purpose of acquiring the Convertible Notes;
(b) The Purchaser has sufficient knowledge and experience in
investing in companies similar to the Company in terms of the Company's
stage of development and other relevant factors so as to be able to
evaluate the risks and merits of its investment in the Company and it
is able financially to bear the risks thereof;
(c) The Purchaser has had an opportunity to discuss the terms
of the offering and sale of the Convertible Notes and the Company's
business, management and financial affairs with the Company's
management and to obtain any additional information regarding the
foregoing which the Company possesses or can acquire without
unreasonable effort or expense;
(d) The Convertible Notes are being acquired for the
Purchaser's own account and not with a view to, or the intention of,
any distribution in violation of the Securities Act or any applicable
state securities laws;
(e) The Purchaser understands that (i) neither the Convertible
Notes nor the Note Shares have been registered under the Securities Act
by reason of the issuance of the Convertible Notes in a transaction
exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under
the Securities Act, (ii) the Convertible Notes and the Note Shares must
be held indefinitely unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from such
registration, (iii) the Convertible Notes and the Note Shares will bear
a legend to such effect and (iv) the Company will make a notation on
its transfer books to such effect. Subject to the foregoing and to the
terms of the Shareholders Agreement, the Purchaser may at any time
after the Closing, or from time to time thereafter, distribute any or
all of its Convertible Notes or the Note Shares to a Permitted
Transferee (as defined in the Shareholders Agreement).
ARTICLE 4
17
CONDITIONS TO THE OBLIGATIONS
SECTION 4.1. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER. (a) The
obligation of the Purchaser to purchase and pay for the Convertible Notes is
subject to the satisfaction, on or before the date of the Closing, of the
following conditions:
(i) OPINION OF COMPANY'S COUNSEL. The Purchaser shall have
received from Xxxxxxx, Xxxxxxxx & Kotel, a Professional Corporation,
counsel for the Company, an opinion dated the date of the Closing, in
form and scope satisfactory to the Purchaser and its counsel, to the
effect that:
(A) The Company is a corporation duly incorporated,
validly existing and subsisting under the laws of its
jurisdiction of incorporation, except that such counsel shall
not be required to express any opinion with respect to the
Company's failure to file a General Corporate Business
Franchise Tax Return in New York with respect to its 1993 tax
year. Based solely on a review of good standing certificates
by such counsel, the Company is duly licensed or qualified to
transact business as a foreign corporation and is in good
standing in each other jurisdiction in which, to the knowledge
of such counsel, it is required to be so qualified, except
that such counsel shall not be required to express any opinion
with respect to the absence of qualification in Illinois,
Georgia, California or Texas. To the knowledge of such
counsel, Schedule II to this Agreement contains a complete
list of all subsidiaries of the Company and each of such
subsidiaries is wholly-owned, directly or indirectly, by the
Company. The Company has the corporate power and authority to
own and hold its properties and to carry on its business as
currently conducted. The Company has the corporate power and
authority to execute, deliver and perform the Transaction
Documents and to issue and deliver the Note Shares in
accordance with the terms of the Convertible Notes and the
Charter.
(B) The Transaction Documents have been duly
authorized, executed and delivered by the Company and
constitute the valid and binding obligations of the Company,
enforceable in accordance with their respective terms (subject
to applicable bankruptcy, reorganization, insolvency,
moratorium and similar laws affecting the rights of creditors
generally and to general principles of equity, regardless of
whether enforcement is sought in equity or at law), except
that such counsel need not express any opinion as to the
validity or enforceability of the indemnification and
contribution provisions of the Registration Rights Agreement.
(C) The execution and delivery by the Company of the
Transaction Documents, the performance by the Company of its
obligations thereunder and the issuance, sale and delivery of
the Convertible Notes, will not violate any provision of
federal or New York law, the Charter or By-laws of the
Company,
18
any order of any court or other agency of government known to
such counsel or any material indenture, agreement or other
instrument, identified to such counsel in an officer's
certificate provided by the Company, to which the Company or
any of its properties or assets is bound, or conflict with,
result in a breach of or constitute (with due notice or lapse
of time or both) a default under any such indenture, agreement
or other instrument, or result in the creation or imposition
of any Lien upon any of the properties or assets of the
Company or any of its subsidiaries pursuant to any such
indenture, agreement or other instrument. In rendering the
foregoing opinion, such counsel may assume full disclosure to
the Purchaser of all material facts and may rely, as to
factual matters, on the representations of the Purchaser and
the Company contained in the Transaction Documents and, with
respect to performance by the Company of its obligations under
the Registration Rights Agreement, may assume compliance by
the Company at such time with the registration requirements of
the Securities Act and with applicable state securities laws
and may disclaim any opinion as to the validity or
enforceability of the indemnification and contribution
provisions of the Registration Rights Agreement.
(D) The authorized capital stock of the Company
consists of (a) 5,000,000 shares of Preferred Stock, of which
170,000 shares have been designated Series A Preferred Stock,
1,620,700 have been designated Series B Preferred Stock and
1,650,000 have been designated Series C Preferred Stock and
(b) 150,000,000 shares of Common Stock. Immediately prior to
the Closing, based solely on a review of the Company's stock
transfer ledger, 76,371,375 shares of Common Stock (exclusive
of Additional Option Shares), 99,804.2276 shares of Series A
Preferred Stock, 1,077,026 shares of Series B Preferred Stock
and no shares of Series C Preferred Stock will have been
issued. The Company has reserved 21,303,000 shares of Common
Stock for issuance pursuant to the 1998 Plan of which, to such
counsel's knowledge, 15,014,883 shares (adjusted for the
issuance of options after the date of this Agreement) are
subject to outstanding unexercised options. To such counsel's
knowledge, immediately prior to the Closing, the shareholders
of record and holders of record of subscriptions, warrants,
options, convertible securities, and other rights (contingent
or other) to purchase or otherwise acquire equity securities
of the Company, and the number of shares of Common Stock and
the number of such subscriptions, warrants, options,
convertible securities, and other such rights held by each,
will be as set forth in Schedule III (subject to adjustment
for the issuance and exercise of employee stock options
between the date hereof and the date of the Closing and for
transfers in accordance with the Existing Shareholders
Agreement). The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of
each class or series of authorized capital stock of the
Company are as set forth in the Charter, and all such
designations, powers, preferences, rights, qualifications,
limitations and restrictions are valid, binding and
enforceable and in accordance with all applicable laws
(subject to applicable
19
bankruptcy, reorganization, insolvency, moratorium and similar
laws affecting the rights of creditors generally and to
general principles of equity, regardless of whether
enforcement is sought in equity or at law). Except as set
forth in Schedule III and except for the Convertible Notes and
employee stock options issued after the date hereof, to the
knowledge of such counsel, immediately prior to the Closing no
subscription, warrant, option, convertible security, or other
right (contingent or other) to purchase or acquire equity
securities of the Company will be authorized or outstanding
and there will be no commitment by the Company to issue
shares, subscriptions, warrants, options, convertible
securities, or other such rights or to distribute to holders
of any of its equity securities any evidence of indebtedness
or asset. Except as set forth in Schedule III or as provided
for in this Agreement and in the Charter, to the knowledge of
such counsel the Company has no obligation (contingent or
other) to purchase, redeem or otherwise acquire any of its
equity securities or any interest therein or to pay any
dividend or make any other distribution in respect thereof.
Except for this Agreement, the Existing Shareholders Agreement
and the stock option agreements between the Company and each
optionholder of the Company, to such counsel's knowledge there
are no voting trusts or agreements, shareholders' agreements,
pledge agreements, buy-sell agreements, rights of first
refusal, preemptive rights or proxies relating to any
securities of the Company or any of its subsidiaries (whether
or not the Company or any of its subsidiaries is a party
thereto).
(E) The issuance and delivery of the Note Shares have
been duly authorized by all required corporate action and,
when delivered against the purchase price therefore, said
shares will have been validly issued, and will be fully paid
and nonassessable with no personal liability attaching to the
ownership thereof (other than such liability, if any, as may
be (i) imposed by Section 630 of the New York Business
Corporation law or (ii) attributable to acts of the Purchaser)
and, to the knowledge of such counsel, will be free and clear
of all Liens. Such counsel will not be required to express any
opinion with respect to veil piercing or comparable bases of
liability. Neither the issuance, sale nor delivery of the Note
Shares is subject to any preemptive right of shareholders of
the Company arising under law or the Charter or By-laws of the
Company, each as amended, that has not been waived or, to the
knowledge of such counsel, to any contractual right of first
refusal or other right in favor of any person.
(F) Except as described in Schedule I, to the
knowledge of such counsel, there is no (a) action, suit,
claim, proceeding or investigation pending or threatened by or
against the Company or any of its subsidiaries, at law or in
equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (b) arbitration
proceeding relating to the Company or any of its subsidiaries
pending under collective bargaining agreements or (c)
governmental inquiry pending or threatened against the Company
or any of its subsidiaries
20
(including, without limitation, any inquiry as to the
qualification of the Company or any of its subsidiaries to
hold or receive any license or permit). To the knowledge of
such counsel, neither the Company nor any of its subsidiaries
is in default with respect to any order, writ, injunction or
decree known to such counsel of any court or of any Federal,
state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign.
(G) Assuming the accuracy of the representations and
warranties of the Purchaser set forth in Article 3, no
registration or filing with, and no consent or approval of, or
other action by any Federal, state or other governmental
agency or instrumentality is or will be necessary for the
valid execution, delivery and performance by the Company of
the Transaction Documents, the issuance, sale and delivery of
the Convertible Notes or the issuance and delivery of the Note
Shares under the circumstances contemplated by the Transaction
Documents and the Charter other than filings pursuant to New
York securities laws (all of which filings, other than those
which are permitted to be made after the Closing, have been
made by the Company). In rendering the foregoing opinion with
respect to performance by the Company of its obligations under
the Registration Rights Agreement, such counsel may assume
compliance by the Company at such time with the registration
requirements of the Securities Act and with applicable state
securities laws and may disclaim any opinion as to the
validity or enforceability of the indemnification and
contribution provisions of the Registration Rights Agreement.
(H) To such counsel's knowledge, all of the
Convertible Notes to be issued to the Purchaser will be issued
in compliance with the registration requirements of the
Securities Act and all applicable New York securities laws.
(I) Other than approvals or consents which have been
obtained in accordance with all applicable laws and
agreements, no approval or consent of or from any holder of
indebtedness of which such counsel has knowledge or any
security of the Company of which such counsel has knowledge is
required by law or by the Certificate of Incorporation or
Bylaws, or by any indenture, agreement or other instrument,
identified to such counsel in an officer's certificate
provided by the Company, to which the Company or any
subsidiary is a party or by which its property is bound in
connection with the issuance and delivery of the Convertible
Notes or the Note Shares and the performance of the Company's
obligations under the Transaction Documents.
(ii) REPRESENTATIONS AND WARRANTIES TO BE TRUE. The
representations and warranties contained in Sections 2.1, 2.2, 2.3,
2.4, 2.5 (other than clause (i) of than the last sentence thereof and,
to the extent any Material Adverse Effect is attributable to activities
in furtherance of the Company's expansion of its business operations or
its financing activities with Xxxxx Brothers Xxxxxxxx, clause (ii) of
such sentence), 2.6 (but
21
only to the extent any failure of the representations and warranties
contained in such section to be true on and as of the Closing Date
shall have a Material Adverse Effect that is not attributable to
activities in furtherance of the Company's expansion of its business
operations or its financing activities with Xxxxx Brothers Xxxxxxxx),
2.7 (but only to the extent any failure of the representations and
warranties contained in such section to be true on and as of the
Closing Date shall have a Material Adverse Effect that is not
attributable to activities in furtherance of the Company's expansion of
its business operations or its financing activities with Xxxxx Brothers
Xxxxxxxx), 2.18, 2.21and 2.31 that are qualified as to materiality
shall be true and correct and the representations and warranties in
such sections that are not so qualified shall be true and correct in
all material respects on and as of the date of the Closing with the
same effect as though such representations and warranties had been made
on and as of such date (except to the extent that such representations
and warranties are made as of an earlier date), and the President and
Treasurer of the Company shall have certified to such effect to the
Purchaser in writing.
(iii) PERFORMANCE. The Company shall have performed and complied
in all material respects with all agreements contained herein required
to be performed or complied with by it prior to or at the date of the
Closing, and the President and Treasurer of the Company shall have
certified to the Purchaser in writing to such effect.
(iv) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and
other proceedings to be taken by the Company in connection with the
transactions contemplated hereby and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Purchaser
and their counsel, and the Purchaser and its counsel shall have
received all such counterpart originals or certified or other copies of
such documents as they reasonably may request.
(v) SUPPORTING DOCUMENTS. The Purchaser and its counsel shall
have received copies of the following documents:
(A) (a) the Charter, certified as of a recent date by
the Secretary of State of the State of New York, (b) a
certificate of said Secretary dated as of a recent date as to
the due incorporation and good standing of the Company, the
payment of all franchise taxes by the Company and listing all
documents of the Company on file with said Secretary and (c) a
certificate of the Secretary of State of the jurisdiction of
incorporation of each of the Company's subsidiaries dated as
of a recent date as to the due incorporation and good standing
of such subsidiary;
(B) a certificate of the Secretary or an Assistant
Secretary of the Company dated the date of the Closing and
certifying: (a) that attached thereto is a true and complete
copy of the By-laws of the Company as in effect on the date of
such certification; (b) that attached thereto is a true and
complete copy of all resolutions adopted by the Board of
Directors and the shareholders of the
22
Company authorizing the execution, delivery and performance of
the Transaction Documents and the issuance, sale and delivery
of the Convertible Notes, and that all such resolutions are in
full force and effect and are all the resolutions adopted in
connection with the transactions contemplated by the
Transaction Documents; (c) that the Charter has not been
amended since the date of the last amendment referred to in
the certificate delivered pursuant to clause (A)(b) above; and
(d) to the incumbency and specimen signature of each officer
of the Company executing any of the Transaction Documents or
any certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the
incumbency and signature of the officer signing the
certificate referred to in this clause (B); and
(C) such additional supporting documents and other
information with respect to the operations and affairs of the
Company as the Purchaser or its counsel reasonably may
request.
(vi) TRANSACTION DOCUMENTS. Each of the parties to each
Transaction Document (other than this Agreement), other than the
Purchaser, shall have executed and delivered such Transaction Document
and, assuming due execution and delivery of such Transaction Document
by the Purchaser, if applicable, such Transaction Document shall be in
full force and effect.
(vii) CERTAIN EMPLOYMENT ARRANGEMENTS. Each employee of the
Company whose employment commenced at least 10 business days prior to
the Closing Date shall have entered into an Employee Non-Solicitation
and Non-Disclosure Agreement in the form attached as Exhibit F and each
employee of Company who has been granted any stock options shall have
entered into a stock option agreement in the form attached as Annex B
to the Shareholders Agreement and each such agreement shall be in full
force and effect.
(viii) CHARTER. The Charter Amendment shall have been duly filed
with the Secretary of State of the State of New York and become
effective and the Charter shall read in its entirety as set forth in
Exhibit E. The Bylaws shall have been duly authorized and adopted in
form and substance as set forth in Exhibit H attached hereto, shall be
in full force and effect under the laws of New York as of the Closing
and shall not have been further amended or modified.
(ix) WAIVERS AND CONSENTS. All shareholders of the Company
having any preemptive, first refusal or other rights with respect to
the issuance of the Convertible Notes or the Note Shares shall have
irrevocably waived the same in writing. The Company shall have obtained
all other material consents and waivers necessary or advisable to
execute and deliver the Transaction Documents and issue and deliver the
Convertible Notes and the Note Shares and all such consents and waivers
shall be in full force and effect.
23
(x) FEES OF PURCHASER'S COUNSEL. The Company shall have paid
in accordance with Section 6.1 the reasonable fees and disbursements of
Purchaser's counsel (not in excess of $20,000) invoiced at or after the
Closing.
All such documents shall be satisfactory in form and substance to the
Purchaser and its counsel.
SECTION 4.2. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company to issue and deliver the Convertible Notes being
purchased by the Purchaser at the Closing is subject to the satisfaction, on or
before the date of the Closing, of the following conditions:
(i) REPRESENTATIONS AND WARRANTIES TO BE TRUE. The
representations and warranties contained in Article 3 shall be true on
and as of the date of the Closing with the same effect as though such
representations and warranties had been made on and as of such date;
and the Purchaser shall have certified to such effect to the Company in
writing.
(ii) CHARTER. The Charter Amendment shall have been duly filed
with the Secretary of State of the State of New York and become
effective and the Charter shall read in its entirety as set forth in
Exhibit E.
ARTICLE 5
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchaser that:
SECTION 5.1. FINANCIAL STATEMENTS, REPORTS, ETC. The Company shall
furnish to the Purchaser:
(a) within 90 days after the end of each fiscal year of the Company a
consolidated balance sheet of the Company and its subsidiaries, if any, as of
the end of such fiscal year and the related consolidated statements of income,
shareholders' equity and cash flows for the fiscal year then ended, prepared in
accordance with generally accepted accounting principles and audited by a firm
of independent public accountants of recognized national standing selected by
the Board of Directors of the Company or the Audit Committee thereof;
(b) within 20 days after the end of each month in each fiscal year
(other than the last month in each fiscal year) a profit and loss statement and
sales report for such month certified by the Chief Financial Officer (or if
there is none, the President) of the Company;
(c) within 45 days after the end of each quarter in each fiscal year
(other than the last quarter in each fiscal year) a consolidated balance sheet
of the Company and its subsidiaries, if
24
any, and the related consolidated statements of income, shareholders' equity and
cash flows, unaudited but prepared in accordance with generally accepted
accounting principles and certified by the Chief Financial Officer (or if there
is none, the President) of the Company, such consolidated balance sheet to be as
of the end of such quarter and such consolidated statements of income,
shareholders' equity and cash flows to be for such quarter and for the period
from the beginning of the fiscal year to the end of such quarter, in each case
with comparative statements for the prior fiscal year;
(d) at the time of delivery of each annual financial statement
pursuant to Section 5.1(a), a certificate executed by the Chief Financial
Officer (or if there is none, the President) of the Company stating that such
officer has caused this Agreement and the Series B Preferred Stock to be
reviewed and has no knowledge of any default by the Company in the performance
or observance of any of the provisions of this Agreement or the Series B
Preferred Stock or, if such officer has such knowledge, specifying such default
and the nature thereof;
(e) at the time of delivery of each quarterly statement pursuant to
Section 5.1(c), a management narrative report explaining all significant
variances from forecasts and all significant current developments related to
executive hiring and geographic expansion;
(f) prior to the start of each fiscal year, consolidated capital and
operating expense budgets, cash flow projections and income and loss projections
for the Company and its subsidiaries in respect of such fiscal year, all
itemized in reasonable detail and prepared on a monthly basis, and, promptly
after preparation, any material revisions to any of the foregoing;
(g) promptly following receipt by the Company, each audit response
letter, accountant's management letter and other written report submitted to the
Company by its independent public accountants in connection with an annual or
interim audit of the books of the Company or any of its subsidiaries;
(h) promptly after the commencement thereof, notice of all actions,
suits, claims, proceedings, investigations and inquiries of the type described
in Sections 2.7 and 2.30 that could materially adversely affect the Company or
any of its subsidiaries, if any;
(i) promptly upon sending, making available or filing the same, all
press releases, reports and financial statements that the Company sends or makes
available to its shareholders or files with the Commission; and
(j) promptly, from time to time, such other information regarding the
business, prospects, financial condition, operations, property or affairs of the
Company and its subsidiaries as the Purchaser reasonably may request, PROVIDED,
that the Company shall not be required to disclose to the Purchaser pursuant to
this Section 5.1, or otherwise pursuant to this Agreement, any information which
is the property of a third party and with respect to which the Company or any of
its subsidiaries is under an obligation of confidentiality ("PROTECTED THIRD
PARTY INFORMATION").
25
SECTION 5.2. CORPORATE EXISTENCE. The Company shall maintain and,
except as otherwise permitted by Section 5.10, cause each of its subsidiaries to
maintain, their respective corporate existence, rights and franchises in full
force and effect.
SECTION 5.3. PROPERTIES, BUSINESS, INSURANCE. The Company shall
maintain and cause each of its subsidiaries to maintain as to their respective
properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies similarly situated, which insurance
shall be deemed by the Company to be sufficient.
SECTION 5.4. INSPECTION, CONSULTATION AND ADVICE. The Company shall
permit and cause the of its subsidiaries to permit the Purchaser and such
persons as it may designate, at the Purchaser's expense, to visit and inspect
any of the properties of the Company and its subsidiaries, examine their books
and take copies and extracts therefrom, and discuss the affairs, finances and
accounts of the Company and its subsidiaries with their officers, employees and
public accountants (and the Company hereby authorizes said accountants to
discuss with the Purchaser and such designees such affairs, finances and
accounts), all at reasonable times and upon reasonable notice.
SECTION 5.5. CONFIDENTIALITY AGREEMENT. The Purchaser shall use its
best efforts to ensure that any information which is delivered by the Company to
the Purchaser pursuant to Section 5.1 or 5.4 will be kept confidential, not be
copied except for internal use, and be used solely to monitor and protect the
Purchaser's investment in the Convertible Notes; PROVIDED, that the foregoing
obligation shall not prohibit any the Purchaser from divulging any information,
whether or not confidential, (i) to the extent required, to any regulatory
authority having jurisdiction over the Purchaser, (ii) if the Purchaser is
compelled to do so by any judicial or administrative process or by other
requirements of law, after giving the Company notice and an opportunity to
oppose such disclosure or to seek confidential treatment in connection
therewith, in each case to the extent reasonably practicable or (iii) except for
(x) Protected Third Party Information or (y) in the case of any prospective
purchaser that is an actual or potential competitor of the Company, proprietary
or technical information of the Company or any of its subsidiaries, or
information the disclosure of which could reasonable be expected to result in a
competitive disadvantage to the Company or any of its subsidiaries, to any
prospective purchaser of Convertible Notes from the Purchaser in a transaction
exempt from the registration requirements of the Securities Act and not effected
through the facilities of a securities exchange or quotation system so long as
such prospective purchaser agrees to be bound by the confidentiality provisions
contained herein; and PROVIDED, FURTHER, that the foregoing obligation shall
remain in effect as to any confidential information except to the extent that
such information can be shown to have been (i) previously known on a
nonconfidential basis by the Purchaser, (ii) in the public domain through no
fault of the Purchaser, (iii) later lawfully acquired by the Purchaser from
sources other than the Company or any subsidiary other than information known by
the Purchaser to be acquired in violation of an existing confidentiality
agreement or (iv) independently developed by the Purchaser. The obligation of
the Purchaser to hold any
26
confidential information in confidence shall be satisfied if the Purchaser
exercises the same care with respect to such information as it would take to
preserve the confidentiality of its own similar information.
SECTION 5.6. RESTRICTIVE AGREEMENTS PROHIBITED. Neither the Company nor
any of its subsidiaries shall become a party to any agreement which by its terms
restricts the Company's performance of any of the Transaction Documents, or the
Charter as it may be amended from time to time.
SECTION 5.7. TRANSACTIONS WITH AFFILIATES. Except for transactions
contemplated by this Agreement or as otherwise approved by the Board of
Directors, neither the Company nor any of its subsidiaries shall enter into any
transaction with any director, officer, employee or holder of more than five
percent of the outstanding capital stock of any class or series of capital stock
of the Company or any of its subsidiaries, member of the family of any such
person, or any corporation, partnership, trust or other entity in which any such
person, or member of the family of any such person, is a director, officer,
trustee, partner or holder of more than five percent of the outstanding capital
stock thereof, except for transactions on customary terms related to such
person's employment.
SECTION 5.8. BY-LAWS. The Company shall at all times maintain
provisions in its By-laws and/or Charter indemnifying all directors against
liability and absolving all directors from liability to the Company and its
shareholders to the maximum extent permitted under the laws of the State of New
York.
SECTION 5.9. EMPLOYEE NON-SOLICITATION AND NON-DISCLOSURE AGREEMENTS.
The Company shall use commercially reasonable efforts to obtain, and shall cause
its subsidiaries to use commercially reasonable efforts to obtain, an Employee
Non-Solicitation and Non-Disclosure Agreement in substantially the form of
Exhibit F and a Noncompetition Agreement in substantially the form of Exhibit I
from all future officers and key employees of the Company or any of its
subsidiaries, upon their employment by the Company or any of its subsidiaries.
SECTION 5.10. ACTIVITIES OF SUBSIDIARIES. Except as approved by at
least 70% of the members of the entire Board of Directors, the Company will not
(a) organize or acquire any entity that is a subsidiary unless such subsidiary
is wholly-owned (directly or indirectly) by the Company; (b) permit any
subsidiary to consolidate or merge into or with or sell or transfer all or
substantially all its assets, except that any subsidiary may (i) consolidate or
merge into or with or sell or transfer assets to any other subsidiary, (ii)
merge into or sell or transfer assets to the Company or (iii) subject its assets
to the lien of, and the potential exercise of remedies contained in, an Approved
Third Party Credit Agreement (as defined in the Charter); (c) sell or otherwise
transfer any shares of capital stock of any subsidiary, except to the Company or
another subsidiary, or permit any subsidiary to issue, sell or otherwise
transfer any shares of its capital stock or the capital stock of any subsidiary,
except to the Company or another subsidiary; or (d) permit any subsidiary to
purchase or set aside any sums for the purchase of, or pay any dividend
27
or make any distribution on, any shares of its stock, except for dividends or
other distributions payable to the Company or another subsidiary.
SECTION 5.11. COMPLIANCE WITH LAWS. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could materially adversely affect its business
or condition, financial or otherwise.
SECTION 5.12. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company
shall keep, and cause each subsidiary to keep, adequate records and books of
account, in which complete entries will be made in accordance with generally
accepted accounting principles consistently applied, reflecting all financial
transactions of the Company and such subsidiary, and in which, for each fiscal
year, all reserves required by generally accepted accounting principles for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
SECTION 5.13. CHANGE IN NATURE OF BUSINESS. The Company shall not make,
or permit any subsidiary to make, any material change in the nature of its
business as it is conducted on the date hereof.
SECTION 5.14. RULE 144A INFORMATION. The Company shall, at all times
during which it is neither subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange
Act, provide in writing, upon the written request of the Purchaser or a
prospective buyer of Convertible Notes from the Purchaser, all information
required by Rule 144A(d)(4)(i) of the General Regulations promulgated by the
Commission under the Securities Act ("RULE 144A INFORMATION"). The Company also
shall, upon the written request of the Purchaser, cooperate with and assist the
Purchaser or any member of the National Association of Securities Dealers, Inc.
PORTAL system in applying to designate and thereafter maintain the eligibility
of the Convertible Notes for trading through PORTAL. The Company's obligations
under this Section shall at all times be contingent upon the Purchaser's
obtaining from the prospective buyer of Convertible Notes a written agreement to
take all reasonable precautions to safeguard the Rule 144A Information from
disclosure to anyone other than a person who will assist such buyer in
evaluating the purchase of any Convertible Notes.
SECTION 5.15. TERMINATION OF COVENANTS. (a) The covenants set forth in
Sections 5.1(a) through 5.1(d), 5.1(i) and 5.14 shall terminate and be of no
further force or effect when the Purchaser no longer beneficially owns any
shares of capital stock or rights to acquire capital stock of the Company.
(b) All of the other covenants set forth in this Article 5 shall
terminate and be of no further force or effect upon the earlier to occur of (i)
the Purchaser having sold or otherwise disposed of more than 75% of the number
of shares of Common Stock beneficially owned (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as amended) by it (appropriately
adjusted to reflect stock splits, stock dividends, combinations of shares and
the
28
like) immediately following the Closing or (ii) the completion of an
underwritten public offering of equity securities of the Company pursuant to an
effective registration statement under the Securities Act other than pursuant to
a registration statement on Form S-4 or Form S-8 or any successor or similar
form in which at least $20 million of gross proceeds are received by the
Company; PROVIDED that the covenant set forth in Section 5.5 shall terminate and
be of no further force or effect on the third anniversary of the termination of
all other covenants in this Article 5 as provided in this sentence.
ARTICLE 6
MISCELLANEOUS
SECTION 6.1. EXPENSES. Each party hereto will pay its own expenses in
connection with the transactions contemplated by the Transaction Documents,
whether or not such transactions shall be consummated; PROVIDED that the Company
shall pay up to $20,000 of the reasonable fees and disbursements of the
Purchaser's special counsel, Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP, in connection with
such transactions and any subsequent amendment, waiver, consent or enforcement
thereof, but only if the Closing is consummated.
SECTION 6.2. SURVIVAL OF AGREEMENTS. All covenants, agreements,
representations and warranties made in any of the Transaction Documents or any
certificate or instrument delivered to the Purchaser pursuant to or in
connection with any of the Transaction Documents, shall survive the execution
and delivery of all of the Transaction Documents, the issuance, sale and
delivery of the Convertible Notes, and all statements contained in any
certificate or other instrument delivered by the Company hereunder or thereunder
or in connection herewith or therewith shall be deemed to constitute
representations and warranties made by the Company.
SECTION 6.3. BROKERAGE. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
SECTION 6.4. STAMP TAX. The Company will pay all federal or New York
stamp and other taxes, if any, which may be payable in respect of the sale of
the Convertible Notes to the Purchaser and the issuance thereof to the
Purchaser, and will save the Purchaser harmless against any loss or liability
resulting from nonpayment or delay in payment of any such tax.
SECTION 6.5. PARTIES IN INTEREST. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Notwithstanding the
foregoing, neither this Agreement nor any right, remedy, obligation or liability
arising hereunder or by reason hereof shall be assignable (including by
operation of law)
29
by any party without the consent of the other parties hereto; PROVIDED that (i)
all representations, covenants and agreements benefiting the Purchaser (other
than Sections 5.1(e) through 5.1(h), 5.1(j), 5.4 and 6.1, which shall be
transferable only to a Permitted Transferee (as defined in the Shareholders
Agreement) of a Purchaser), shall inure to the benefit of any and all subsequent
holders from time to time of the Convertible Notes to whom the Purchaser shall
have executed a written assignment of its rights with respect to such
representations, covenants and agreements, which subsequent holders shall,
subject to clause (iii) below, collectively be deemed to be the "Purchaser" for
the purposes of this Agreement; (ii) the Purchaser may not transfer its rights
under Sections 5.1(a) through 5.1(d) and 5.1(i) to more than one person (who
shall be the sole holder of such rights) and (iii) a person to whom such
assignment is made who is not a Permitted Transferee shall not constitute the
"Purchaser" for purposes of Section 5.15 hereof with respect to the time at
which any obligation of the Company shall terminate. Nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto, and their respective successors and permitted assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
SECTION 6.6. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier, addressed as follows:
(a) if to the Company, at 000 Xxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx
Xxxx, 00000, Attention: Xxxx Xxxxxxxx, President, telecopier number (917)
542-5525, with a copy to Xxxxxxx X. Xxxxxxxxxx, Esq., Xxxxxxx, Xxxxxxxx & Kotel,
a Professional Corporation, 00 Xxxx 00xx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx
00000, telecopier number (000) 000-0000; and
(b) if to the Purchaser, at the address of the Purchaser set forth on
the signature pages hereof, with a copy to Xxxxxxx X. Xxxxxx, Esq., Xxxxxxx,
Xxxxxxx & Xxxxxxxx, LLP, Two Embarcadero Place, 0000 Xxxx Xxxx, Xxxx Xxxx,
Xxxxxxxxxx 00000-0000, telecopier number (000) 000-0000;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 6.7. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the conflicts of law principles thereof.
SECTION 6.8. ENTIRE AGREEMENT. The Transaction Documents constitute the
entire agreement and understanding between the parties hereto and thereto in
respect of the subject matter contained herein and therein, and there are no
restrictions, promises, representations, warranties, covenants, or undertakings
with respect to the subject matter hereof or thereof, other than those expressly
set forth or referred to herein or therein; PROVIDED that all Schedules and
Exhibits hereto are hereby incorporated herein by reference. The Transaction
Documents
30
supersede all prior agreements and understandings between the parties hereto and
thereto with respect to the subject matter hereof and thereof. No statement,
representation, warranty, covenant or agreement of any kind not expressly set
forth in the Transaction Documents shall affect, or be used to interpret, change
or restrict, the express terms and provisions of the Transaction Documents. The
Series B Convertible Preferred Stock Purchase Agreement dated as of May 13, 1999
between the Company and Cisco and any rights and remedies of the parties
thereunder shall terminate upon the Closing.
SECTION 6.9. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 6.10. WAIVERS; AMENDMENTS. (a) No failure or delay on the part
of any party in exercising any right, power or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided shall be cumulative and
not exclusive of any rights or remedies provided by law.
(b) Any provision of this Agreement may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed, in the case of an
amendment, by the parties hereto or, in the case of a waiver, by the party or
parties against whom the waiver is to be effective.
SECTION 6.11. SEVERABILITY. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 6.12. TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
SECTION 6.13. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(a) "AFFILIATE" means with respect to any person, any other person
directly or indirectly controlling, controlled by or under common control with
such person. For the purposes of this definition, the term "CONTROL" (including
its correlative meanings, the terms "CONTROLLING", "CONTROLLED BY" and "UNDER
COMMON CONTROL WITH"), as used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities, by contract or otherwise.
31
(b) "BENEFIT ARRANGEMENT" means each employment, severance or other
similar contract, arrangement or policy (written or oral) and each plan or
arrangement (written or oral) providing for severance benefits, insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits or for deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation rights or other forms of incentive compensation or
postretirement insurance, compensation or benefits which (i) is not an Employee
Plan and (ii) covers any employee or former employee of the Company.
(c) "BENEFICIAL OWNER" has the meaning ascribed to such term pursuant
to Rule 13d-3 under the Exchange Act.
(d) "EMPLOYEE PLAN" means each "EMPLOYEE BENEFIT PLAN," as such term
is defined in Section 3(3) of ERISA, that (A)(i) is subject to any provision of
ERISA and (ii) is maintained or contributed to by the Company, or (B)(i) is
subject to any provision of Title IV of ERISA and (ii) is maintained or
contributed to by any of the Company's ERISA Affiliates.
(e) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(f) "ERISA AFFILIATE" of any entity means any other entity that,
together with such entity, would be treated as a single employer under Section
414 of the Code.
(g) information "KNOWN" by any entity means that the individuals
associated with such entity who, in the ordinary course of carrying their
employment function, would be expected to acquire such information have in fact
acquired such information and are consciously aware of the same.
(h) "MULTIEMPLOYER PLAN" means each Employee Plan that is a
multiemployer plan, as defined in Section 3(37) of ERISA.
(i) "PERSON" means an individual, corporation, trust, partnership,
limited liability company, joint venture, unincorporated organization,
government agency or any agency or political subdivision thereof, or other
entity.
(j) "SUBSIDIARY" means, as to the Company, any corporation of which
more than 50% of the outstanding stock having ordinary voting power to elect a
majority of the Board of Directors of such corporation is at the time directly
or indirectly owned by the Company, or by one or more of its subsidiaries, or by
the Company and one or more of its subsidiaries.
SECTION 6.14. INDEMNIFICATION. The Company shall indemnify and hold
harmless each holder of Convertible Notes against and from any losses, claims,
expenses, damages or liabilities, insofar as such losses, claims, expenses,
damages or liabilities (or actions in respect thereof) arise
32
out of or are based upon (i) the falsity or incorrectness of any representation
or warranty of the Company contained in or made pursuant to Article 2 hereof or
(ii) the existence of any condition, event or fact constituting, or which with
notice or passage of time, or both, would constitute a default in the observance
of any of the Company's undertakings or covenants hereunder, under the other
Transaction Documents, or pursuant to the Charter. The Company shall also pay
all attorney's and accountant's fees and costs and court costs incurred by any
holder of Convertible Notes in enforcing the indemnification provided for in
this Section (provided, however, that where more than one person is requesting
the indemnification provided for in this Section, the Company shall only be
obligated to attorney's fees of one counsel to represent all such persons).
Notwithstanding the foregoing, the Company expressly agrees and acknowledges
that the right of indemnification granted herein to each holder of Convertible
Notes shall not be deemed to be the exclusive remedy available to such holder
for any of the matters described in this Section.
SECTION 6.15. DELIVERY OF CERTAIN SIGNATURE PAGES. Concurrently with
the execution of this Agreement, the parties are executing and delivering to
counsel for the Company signature pages to the Registration Rights Agreement,
the Shareholders Agreement, the Convertible Notes and a letter agreement
establishing certain procedures relating to potential acquisitions and asset
sales involving the Company. The parties hereto hereby agree that such signature
pages are being delivered to counsel for the Company for safekeeping pending the
Closing and that neither such agreements and instruments nor any other Closing
documents delivered to counsel for the Company shall have effect prior to the
satisfaction (or the waiver by the party entitled to insist on performance
thereof) of the conditions to the Closing contained in Article 4,
notwithstanding that such agreements and instruments may be dated prior to the
Closing Date.
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IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
TOTAL NETWORK SOLUTIONS, INC.
By:
------------------------------
Name: Xxxx Xxxxxxxx
Title: President
PURCHASER:
CISCO SYSTEMS, INC.
By:
------------------------------
Name:
Title:
Address:
Fax:
34
