Warrant Issuance Agreement (the "Agreement") effective as of August 31,
1998 by and between VCS Technologies, Inc., a Delaware corporation (the
"Company"), and Xxxxxx X. Xxxxx, an individual with a business address at c/o
CBSI 000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000, Xxxxxxxxx, XX 00000 ("Xxxxx"). The
Company and Xxxxx may be referred to herein collectively as the "Parties" or
individually as a "Party."
In consideration of the promises and the mutual covenants contained herein,
the Parties hereby agree as follows:
1 Acknowledgments. The Parties acknowledge that on December 1, 1997, in
consideration for consulting services rendered to the Company by Xxxxx, the
Company issued to Xxxxx warrants to purchase 1,000 shares of the Company's
common stock (the "Common Stock") exercisable at an exercise price of $3.00 per
share (the "Existing Warrants"). The Parties further acknowledge that all
references herein to the Common Stock are effective as of the date of this
Agreement. Upon the effective date (if any) of an anticipated reverse stock
split of the outstanding Common Stock to be effected following the date of this
Agreement, all references to the Common Stock contained herein shall be deemed
adjusted in accordance with such reverse stock split.
2 Issuance of New Warrants; Cancellation of Existing Warrants. In consideration
for additional consulting services rendered to the Company by Xxxxx, and in
consideration for the surrender by Xxxxx of the Existing Warrants for
cancellation, the Company hereby agrees to issue to Xxxxx warrants to purchase
an aggregate of 1,000 shares of Common Stock, such warrants exercisable at an
exercise price of $0.10 per share for a period of five years following the date
hereof (the "New Warrants"). The Company will deliver to Xxxxx a certificate
evidencing the New Warrants as soon as practicable following the date of this
Agreement. The Existing Warrants are hereby canceled, null and void, and of no
further effect.
3 Representations and Warranties of the Company. The Company represents and
warrants to Xxxxx as follows:
3.1 The Company is duly organized, validly existing and in good standing
under the laws of the state of Delaware with full power and authority to operate
its business as currently conducted.
3.2 The authorized capital stock of the Company consists of 9,990,000
shares of Common Stock and 10,000 shares of Preferred Stock. Each outstanding
share of Common Stock is duly authorized, validly issued, fully paid and
non-assessable, and has not been issued and is not owned or held in violation of
any preemptive rights of stockholders. No shares of Preferred Stock are
currently outstanding.
3.3 The Company has all requisite power and authority to execute, deliver
and perform its obligations under this Agreement. This Agreement has been duly
authorized by the Company and, when executed and delivered by the Company will
constitute the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.
3.4 No consent, authorization, approval, order, license, certificate or
permit of or from, or declaration or filing with, any federal, state, local or
other governmental authority, or any court or any other tribunal, is required by
the Company for the execution, delivery or performance by the Company under this
Agreement (except for such filings as may be required under federal and state
securities laws).
4 Representations and Warranties of Xxxxx. Xxxxx hereby represents and warrants
to the Company as follows:
4.1 Xxxxx is a bona fide resident of the state set forth in Section 7.3 of
this Agreement and is legally competent to execute this Agreement.
4.2 Xxxxx has received, read carefully and is familiar with this Agreement.
Respecting the Company, Xxxxx is familiar with the Company's business and
financial condition and any other matters relating to the transactions
contemplated hereby; Xxxxx has received all materials which have been requested
by him, has had a reasonable opportunity to ask questions of the Company and its
representatives, and the Company has answered all inquiries that Xxxxx has put
to it. Xxxxx has taken all the steps necessary to evaluate the merits and risks
of the refinancing transactions contemplated hereby.
4.3 Xxxxx has been advised by the Company to consider retaining legal
counsel in connection with the preparation and the execution of this Agreement.
4.4 Xxxxx represents that he is an "accredited investor" as such term is
defined in Rule 501 of the Rules and Regulations promulgated under the
Securities Act of 1933, as amended (the "Securities Act").
4.5 Xxxxx has such knowledge and experience in finance, securities,
investments and other business matters so as to be able to evaluate the merits
and risks of his investment in the Company.
4.6 Xxxxx has adequate means of providing for his current and foreseeable
future needs and has no need for liquidity of his investment in the Company.
Xxxxx recognizes and is fully cognizant of the fact that his investment in the
Company involves a high degree of risk, and Xxxxx represents that he can afford
to bear such risk, including, without limitation, the risk of losing the entire
investment.
4.7 Xxxxx has been advised by the Company that (i) neither the Conversion
Shares, the New Warrants, nor the Common Stock underlying the New Warrants
(collectively, the "Securities") have been registered under the Securities Act,
and that the Securities will be issued on the basis of the statutory exemption
provided by Section 4(2) of the Securities Act or Regulation D promulgated
thereunder, or both, relating to transactions by an issuer not involving any
public offering, and under similar exemptions under applicable state securities
laws; (ii) none of the Securities have been registered or qualified with any
federal or state agency or self-regulatory organization, and (iii) the Company's
reliance on exemptions from federal and state registration or qualification
requirements is based in part upon the representations made by Xxxxx contained
in this Agreement.
4.8 Xxxxx has been advised by the Company of, and/or he is otherwise
familiar with, the nature of the limitations on the transfer of the Securities
imposed by the Securities Act and the Rules and Regulations promulgated
thereunder. In particular, Xxxxx agrees that no sale, assignment or transfer of
any of the Securities shall be valid or effective (and agrees to not so sell,
assign or transfer any of the Securities), and the Company shall not be required
to give any effect to such a sale, assignment or transfer, unless the sale,
assignment or transfer is (i) registered under the Securities Act, it being
understood that none of the Securities are currently registered for sale; or
(ii) made in accordance with all the requirements and limitations of Rule 144
under the Securities Act. Xxxxx acknowledges that the Securities shall be
subject to a stop transfer order and that the certificate or certificates
evidencing the Securities shall bear the following legend (and such other
legends as may be required by state blue sky laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (1) A REGISTRATION
STATEMENT UNDER THE ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH
RESPECT TO THESE SECURITIES, OR (2) PURSUANT TO A SPECIFIC EXEMPTION
FROM REGISTRATION UNDER THE ACT BUT ONLY UPON A HOLDER HEREOF FIRST
HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE COMPANY, OR OTHER
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED
DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE ACT AS
WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR STATE SECURITIES LAW.
2
4.9 Xxxxx is acquiring the Securities for his own account for investment
and not with a view to the sale or distribution thereof or the granting of any
participation therein. Xxxxx has no present intention of distributing or selling
to others any of such interest or granting any participation therein.
4.10 It never has been represented, guaranteed or warranted by any of the
Company, the Company's officers, directors, stockholders, employees or agents,
or any other person, whether expressly or by implication, that (i) the Company
or Xxxxx will realize any given percentage of profits and/or amount or type of
consideration, profit or loss as a result of the Company's activities or Vahan's
investment; or (ii) the past performance or experience of the management of the
Company, or of any other person, will in any way indicate the predictable
results of the Company's activities or the ownership of the Securities.
4.11 Xxxxx is not acquiring the Securities as a result of or subsequent to
any advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, or
presented at any seminar or meeting, or any solicitation of a share exchange by
a person other than a representative of the Company with whom Xxxxx had a
pre-existing relationship.
4.12 Xxxxx is not relying on the Company with respect to the tax and other
economic considerations of an investment.
5 Indemnification.
5.1 Survival of Representations and Warranties. The representations and
warranties contained herein shall survive the execution and delivery of this
Agreement and shall continue forever thereafter.
5.2 Indemnification for the Benefit of the Company. Xxxxx acknowledges that
he understands the meaning and legal consequences of the representations and
warranties contained in Section 4 hereof, and agrees to indemnify and hold
harmless the Company and each of the Company's officers, directors, employees
and agents of from and against any and all loss, damage or liability due to or
arising out of a breach of any such representation or warranty.
5.3 Indemnification for the Benefit of Xxxxx. The Company acknowledges that
it understands the meaning and legal consequences of the representations and
warranties contained in Section 3 hereof, and agrees to indemnify and hold
harmless Xxxxx from and against any and all loss, damage or liability due to or
arising out of a breach of any such representation or warranty.
6 Company's Right of First Purchase.
6.1 Company's Right of First Purchase. For such time until the IPO Closing,
any shares of Common Stock held by Xxxxx (including, but not limited to, any of
the Securities) will be subject to the Company's right of first purchase. By
virtue of that right, (a) such shares of Common Stock may not be transferred
during Vahan's lifetime to any person other than members of Vahan's Immediate
Family (as defined below), a partnership whose members are Vahan's and/or
members of Vahan's Immediate Family, or a trust for the benefit of Xxxxx and/or
members of Vahan's Immediate Family, unless such transfer occurs within the 30
days immediately following either (i) the expiration of 30 days following
written notice by Xxxxx to the Company identifying the prospective transferee
and offering the Company the first opportunity to purchase such stock at its
Fair Market Value (as defined below) in cash; or (ii) the Company's election to
not purchase such shares of Common Stock after receipt of such notice; and (b)
upon Vahan's death, the Company will have the right to purchase all or some of
such stock at its Fair Market Value within nine months after the date of death.
This right of first purchase will continue to apply to any such shares of Common
Stock after the transfer during Vahan's lifetime of such shares of Common Stock
to a member of Vahan's Immediate Family or to a family partnership or trust as
aforesaid, and after any transfer of such shares of Common Stock with respect to
which the Company expressly waived its right of first purchase without also
waiving it as to any subsequent transfers thereof, but it will not apply after a
transfer of such shares of Common Stock with respect to which the Company was
offered but did not exercise or waive its right of first purchase or
3
more than nine months after Vahan's death. The Company may assign all or any
portion of its right of first purchase to any one or more of its stockholders,
or to a pension or retirement plan or trust for employees of the Company, who
may then exercise the right so assigned. The Company's right of first purchase
shall terminate upon the IPO Closing.
6.2 Certain Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms will have the following definitions:
6.2.1 Fair Market Value. The "Fair Market Value" of Common Stock will
mean the price at which one could reasonably expect such stock to be sold in an
arm's length transaction, for cash, other than on an installment basis, to a
person not employed by, controlled by, in control of or under common control
with the issuer of such stock. Such Fair Market Value will be that which has
currently or most recently been determined for this purpose by the Board of
Directors of the Company, or at the sole discretion of the Board by an
independent appraiser or appraisers selected by the Board, in either case giving
due consideration to recent transactions involving shares of such stock, if any,
the issuer's net worth, prospective earning power and dividend-paying capacity,
the goodwill of the issuer's business, the issuer's industry position and its
management, that industry's economic outlook, the values of securities of
issuers whose stock is publicly traded and which are engaged in similar
businesses, the effect of transfer restrictions to which such stock may be
subject under law and under the applicable terms of any contract governing such
stock, the absence of a public market for such stock and such other matters as
the Board or its appraiser or appraisers deem pertinent. The determination by
the Board or its appraiser or appraisers of the Fair Market Value will be
conclusive and binding notwithstanding the possibility that other persons might
make a different determination. If the Fair Market Value to be used was thus
fixed more than sixteen months prior to the day as of which Fair Market Value is
being determined, it will in any event be no less than the book value of the
stock being valued at the end of the most recent period for which financial
statements of the Company are available.
6.2.2 Immediate Family. An individual's "Immediate Family" includes
only his or her spouse, parents or other ancestors, and children and other
direct descendants of that individual or of his or her spouse (including such
ancestors and descendants by adoption).
7 Miscellaneous.
7.1 Confidentiality. Xxxxx hereby acknowledges and agrees that this
Agreement is confidential, and that its terms and contents shall not be
disclosed to any person other than through a press release of the Company.
7.2 Payment of Expenses. Except as expressly otherwise provided, each of
the Parties hereto shall pay all expenses and disbursements incurred by its
officers, employees, attorneys, accountants, financial advisers and other agents
and representatives in connection with this Agreement and the performance of its
obligations hereunder.
7.3 Notices. Any notices required or permitted to be given to, or served
upon, either Party hereto pursuant to this Agreement shall be sufficiently given
or served if sent to such Party by registered or certified mail, addressed to it
at its address, as set forth below, or to such other address as it shall
designate by written notice to the other parties addressed as follows:
VCS Technologies, Inc.
000 Xxxxxxxxx Xxxx
Xxxxxxxx, XX 00000
Attn: Xxxxxxx Xxxxxxx III, President and CEO
Xxxxxx X. Xxxxx
c/o CBSI
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000
4
7.4 Counterparts. This Agreement may be executed in any number of
counterparts and each counterpart shall constitute an original instrument, but
all such separate counterparts shall constitute only one and the same
instrument.
7.5 Entire Agreement. This agreement constitutes the entire agreement
between the Parties hereto and supersedes all prior agreements, understandings
and arrangements, oral or written, between the Parties hereto with respect to
the subject matter hereof.
7.6 Amendments and Waivers. This Agreement may not be modified or amended
except by an instrument or instruments in writing signed by the Party against
whom enforcement of any such modification or agreement is sought. Either Party
hereto may, by an instrument in writing, waive compliance by the other Party
with any term or provision of this Agreement to be performed or complied with by
such other Party hereto. The waiver by any Party of a breach of any term or
provision of this Agreement shall not be construed as a waiver of any subsequent
breach.
7.7 Assignment. This Agreement is personal in nature and neither of the
Parties shall, without the written consent of the other, assign or transfer his
or its rights or obligations hereunder to another person or entity, except as
herein expressly provided or permitted and except that the Company may transfer
all or any portion of its rights or obligations hereunder to any of its
affiliates without such prior written consent. Subject to the foregoing
provisions of this Section 8.7, this Agreement shall be binding upon and inure
to the benefit of the Parties hereto and their respective successors and
assigns.
7.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of New York and all disputes arising hereunder shall be
adjudicated solely before the courts of New York to whose jurisdiction the
Parties hereto consent.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement and
caused the same to be delivered on their behalf as of the date first above
written.
VCS Technologies, Inc.
/s/ Xxxxxx X. Xxxxx By: /s/ Xxxxxxx Xxxxxxx
------------------------- --------------------------------------
Xxxxxx X. Xxxxx Xxxxxxx Xxxxxxx, President and CEO
5
