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EXHIBIT 10.10
FORM OF
PROMISSORY NOTE
$__________ __________, 1999
Atlanta, Georgia
FOR VALUE RECEIVED, the undersigned, _________________ ("Borrower"),
promises to pay to the order of WITNESS SYSTEMS, INC., a Delaware corporation
(the "Lender"), in lawful money of the United States of America constituting
legal tender in payment of all debts and dues, public and private, the principal
amount of ____________________________________________ and No/100 ($_________).
1. INTEREST. From and after the date hereof (until maturity or
default as hereinafter provided), interest on the principal amount outstanding
shall accrue at the fixed rate equal to ____% per annum, compounded annually and
computed on the basis of a 365-day year.
2. PAYMENT.
(a) Interest on the outstanding principal balance of the
indebtedness evidenced hereby shall be payable annually with the initial payment
due on or before July 31, 2000.
(b) On July 31, 2003 (the "Maturity Date"), the entire
outstanding principal balance of the indebtedness evidenced hereby shall be due
and payable in full.
(c) Notwithstanding anything herein to the contrary, the
entire outstanding principal balance of the indebtedness evidenced hereby and
all accrued but unpaid interest shall be due and payable in full upon the first
to occur of the following:
(i) The Maturity Date;
(ii) Ninety (90) days following the Company's
consummation of a merger, consolidation or other
reorganization in each case, with respect to which persons who
were the shareholders of Company immediately prior to such
merger, consolidation or other reorganization, immediately
thereafter, do not own more than fifty percent (50%) of the
combined voting power entitled to vote generally in the
election of directors of the merged, consolidated or
reorganized Company's then outstanding voting securities;
provided, however, in the event that Borrower does not receive
cash or marketable securities pursuant to or immediately
following such transaction sufficient in value or amount to
pay such balance, Borrower shall be allowed to pay the
outstanding principal balance of the indebtedness evidenced
hereby and all accrued but unpaid interest in thirty-six (36)
monthly installments beginning ninety (90) days after such
transaction;
(iii) Ninety (90) days following consummation of a
sale of all or substantially all of the assets of Company;
provided, however, in the event that Borrower does not receive
cash or marketable securities pursuant to or immediately
following such transaction sufficient in value or amount to
pay such balance, Borrower shall be allowed to pay the
outstanding principal balance of the indebtedness evidenced
hereby and all accrued but unpaid interest in thirty-six (36)
monthly installments beginning ninety (90) days after such
transaction;
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(iv) Twenty-four (24) months following the sale
of common stock of the Company to the general public pursuant
to a registration statement filed with and declared effective
by the Securities and Exchange Commission (other than a
registration statement solely covering an employee benefit
plan or corporate reorganization);
(v) Ninety (90) days following the effective
date of termination of Xxxxxxxx's employment with the Company,
if such termination is by reason of Xxxxxxxx's voluntary
resignation or a termination by the Company for "cause," as
defined in any applicable Employment Agreement; or
(vi) Ninety (90) days following the effective
date of termination of Xxxxxxxx's employment with the Company,
if such termination is by the Company and other than for
"cause," as defined in any applicable Employment Agreement,
unless otherwise agreed to by Xxxxxx and Borrower.
3. PREPAYMENT. This Note may be prepaid in whole or in part
without penalty, provided that any partial prepayment shall be in integral
multiples of $1,000.00.
4. SECURITY. The indebtedness evidenced by this Note and the
obligations created hereby are secured by (i) those certain shares of common
stock of Lender purchased by Borrower pursuant to a Subscription Agreement of
even date herewith and (ii) such securities as described on EXHIBIT A hereto.
5. EVENT OF DEFAULT. If the Borrower fails to make any payment of
principal or interest as the same becomes due and payable, and such failure is
not cured within five (5) business days after written notice thereof or at any
time thereafter during the continuance of any such event, the holder may, with
or without notice to the Borrower, declare this Note and the indebtedness
evidenced hereby to be forthwith due and payable, whereupon this Note and the
indebtedness evidenced hereby shall become forthwith due and payable, without
presentment, demand, protest, or other notice of any kind, all of which are
hereby expressly waived.
6. RECOURSE. Borrower shall be personally liable for the
obligations evidenced hereby.
7. PAYMENT IN SHARES. Borrower may make any payment due and
payable or otherwise permitted hereunder by delivery of shares of Xxxxxx's
common stock owned (and fully vested) to Lender that have been owned (and fully
paid for) for at least six (6) months. For purposes of payments hereunder, any
shares of Xxxxxx's common stock shall be valued at the then fair market value
(as determined by the Board).
8. WAIVERS. Borrower hereby waives demand, presentment for
payment, notice of dishonor, protest, and notice of protest and diligence in
collection or bringing suit and agree that the holder hereof may accept partial
payment, or release or exchange security or collateral, without discharging or
releasing any unreleased collateral or the obligations evidenced hereby.
Borrower further waives any and all rights of exemption, both as to personal and
real property, under the constitution or laws of the United States or the State
of Georgia.
9. ATTORNEYS' FEES. Xxxxxxxx agrees to pay reasonable attorneys'
fees and costs actually incurred by the holder hereof in collecting on this
Note, whether by suit or otherwise.
10. UNCONDITIONAL PAYMENT. Borrower is and shall be obligated to
pay principal and any and all other amounts which become payable hereunder
absolutely and unconditionally and without any
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abatement, postponement, diminution or deduction and without any reduction for
counterclaim or setoff. In the event that at any time any payment received by
Lender hereunder shall be deemed by a court of competent jurisdiction to have
been a voidable preference or fraudulent conveyance under any bankruptcy,
insolvency or other debtor relief law, then the obligation to make such payment
shall survive any cancellation or satisfaction of this Note or return thereof to
Borrower and shall not be discharged or satisfied with any prior payment thereof
or cancellation of this Note, but shall remain a valid and binding obligation
enforceable in accordance with the terms and provisions hereof, and such payment
shall be immediately due and payable upon demand.
11. TRANSFER OF SECURITIES. Borrower hereby acknowledges that the
Securities will not be transferable pursuant to Rule 144 promulgated under the
Securities Exchange Act of 1933 until the entire principal balance of this Note
is paid in full.
12. MISCELLANEOUS. As used herein, the terms "Borrower," "Lender"
and "holder" shall be deemed to include their respective successors, legal
representatives and assigns, whether by voluntary action of the parties or by
operation of law. This Note is given under the seal of the party hereto, and it
is intended that this Note is and shall constitute and have the effect of a
sealed instrument according to law. This Note has been negotiated, and is being
executed and delivered in the State of Georgia, or if executed elsewhere, shall
become effective upon the Lender's receipt and acceptance of the executed
original of this Note in the State of Georgia; provided, however, that the
Lender shall have no obligation to give, nor shall Borrower be entitled to
receive, any notice of such acceptance for this Note to become a binding
obligation of Borrower. Borrower hereby submits to jurisdiction in the State of
Georgia. This Note shall be governed by and be construed in accordance with the
laws of the State of Georgia. It is intended, and the Borrower and the holder
hereof specifically agree, that the laws of the State of Georgia governing
interest shall apply to this Note and to this transaction. This Note may not be
modified except by written agreement signed by the Borrower and the holder
hereof, or by their respective successors or assigns.
13. TIME OF ESSENCE. TIME IS OF THE ESSENCE in connection with
this Note.
IN WITNESS WHEREOF, Xxxxxxxx has caused this Note to be executed and
delivered as of the date first set forth above.
BORROWER:
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Witness Name:
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EXHIBIT A
FORM OF
SUBSCRIPTION AGREEMENT
WITNESS SYSTEMS, INC.
THE SHARES TO WHICH THIS SUBSCRIPTION AGREEMENT PERTAINS HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OF THE UNITED STATES OF
AMERICA (THE "1933 ACT"), OR APPLICABLE STATE SECURITIES LAWS, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE REGULATORY AUTHORITY PASSED UPON
THE ACCURACY OR ADEQUACY OF THE MEMORANDUM OR ENDORSED THE MERITS OF THIS
OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. THE SHARES ARE OFFERED
PURSUANT TO EXEMPTIONS PROVIDED BY SECTION 4(2) OF THE 1933 ACT, REGULATION D
THEREUNDER, CERTAIN STATE SECURITIES LAWS, AND CERTAIN RULES AND REGULATIONS
PROMULGATED PURSUANT THERETO. THE SHARES MAY NOT BE TRANSFERRED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. THE SHARES ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS AS CONTAINED IN A SHAREHOLDERS' AGREEMENT, A COPY OF
WHICH IS ON FILE AT THE COMPANY AND WHICH IS AVAILABLE WITHOUT CHARGE UPON
REQUEST TO THE SECRETARY OF COMPANY.
1. Offer to Subscribe. __________ (hereinafter, the "Investor")
hereby offers to subscribe for ______ shares (the "Shares") of the common stock,
$0.01 par value (the "Common Stock"), of Witness Systems, Inc., a Delaware
corporation (the "Company"), at a price of $____ per share. The Investor
acknowledges that the Company will rely on this offer, which may not be
canceled, rescinded or otherwise revoked by the Investor.
2. Acceptance of Subscription. The Investor agrees that this
subscription is subject to acceptance by the Company, and that the Company
reserves the right to reject this subscription without notice. The Investor
hereby agrees to become subject to that certain Xxxxxxx and Restated
Stockholders' Agreement, dated on or about the date hereof (the "Stockholders'
Agreement"), a copy of which has been provided to the Investor, and the Investor
agrees to take all actions necessary to evidence his agreement to be so bound,
including executing a joinder to the Stockholders' Agreement.
3. Representations and Agreements of Investor. In order to induce
the Company to accept this subscription, the Investor warrants, represents,
covenants and agrees as follows, acknowledging that the Company is relying on
the accuracy and completeness of these representations and agreements in
complying with its obligations under applicable securities laws:
a. Risks of Investment. The Investor recognizes that
investment in the Company involves a high degree of risk which may result in the
loss of the total amount of the investment. The Investor acknowledges that he
has carefully considered all risks incident to the purchase of the Shares,
including but not limited to the following:
(i) There is no assurance that the Company's operations
will be profitable in the future. The likelihood of success of the
Company is speculative and the Investor is familiar with the many
problems, difficulties, complications and delays frequently encountered
in the operation and development of expanding businesses.
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(ii) The purchase price for the Shares has been determined
by the Company and may not bear any relationship to the anticipated
assets, book value, earnings or net worth of the Company or any other
recognized criteria and cannot be considered to be indication of the
anticipated value of the Company.
(iii) The Company expects to spend a significant amount of
funds to expand its business. The Company's capital requirements will
depend on numerous factors, including the commercial acceptance of the
Company's services and its success in obtaining government contracts.
To the extent that funds generated from operations together with the
net proceeds from this offering are insufficient, the Company will have
to raise additional funds to meet its capital requirements. If
additional funds are raised through the issuance of equity securities,
the percentage ownership of the shareholders of the Company will be
reduced and shareholders may experience additional dilution. No
assurance can be given that additional financing will be available on
acceptable terms, if at all. If adequate funds are not available, the
Company may have to, among other things, reduce substantially or
eliminate expenditures for the development and marketing of its
products.
(iv) The market in which the Company competes is extremely
competitive. There can be no assurance that the Company's competitors
will not succeed in developing products or technologies that will gain
greater market acceptance than those of the Company or that would
render the Company's products and technologies obsolete. The Company
may also face increased competition in the future from new entrants
into its markets. In addition, many of the Company's competitors have
substantially greater financial, technical, marketing and human
resources capabilities than the Company.
(v) The Company is engaged in a business characterized by
rapid developments and intense competition. Competition can be expected
to increase as technological advances are made and commercial
applications broaden, and other companies attempt to infringe, if they
have not already infringed, intellectual property owned by the Company.
The Company competes with companies, many of which have more capital,
more extensive development capabilities and greater marketing and human
resources than the Company.
(vi) The Investor understands that, by virtue of being a
minority shareholder of the Company, it, he will have limited control
over or influence in the management or control of the Company.
b. Additional Information. The Investor has previously
been advised that the Investor would have an opportunity to review all pertinent
facts concerning the Company and obtain any additional information that the
Investor might request, to the extent possessed or obtainable without
unreasonable effort and expense. The Investor acknowledges that it has chosen
not to request any additional information. If additional information is
requested, then a written request should be submitted.
c. Status of Investor. The Investor (i) has substantial
knowledge and experience in business and financial matters which enable him to
evaluate the merits and risks of making investment decisions of this type; (ii)
has the ability to bear the economic risk of this investment and the ability, at
the present time, to afford a complete loss of such investment; and (iii) has
adequate means of providing for his current needs and possible personal and
business contingencies and has no need for liquidity of this investment.
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d. Consultation with Own Advisors. The Investor has been
advised to consult with the Investor's own attorney regarding legal matters
concerning the Company and to consult with independent tax advisors regarding
the tax consequences of investing in the Company.
e. Unregistered Securities. The Investor understands
that the Shares have not been registered under the 1933 Act, in reliance upon
the exemption from the registration requirements thereof provided in Section
4(2) of the 1933 Act, and that the Shares have not been registered under state
securities laws. The Investor understands that, consequently, the Investor must
bear the economic risk of the investment for an indefinite period of time
because the Shares cannot be offered for sale or sold without registration under
the 1933 Act and applicable state securities laws or compliance with applicable
exemptions from registration.
f. Transfer Restrictions. The Investor recognizes that
he may not be able to sell or dispose of the Shares, as no public market for the
Shares exists. In addition, the Investor is aware that the Investor's right to
transfer the Shares will be subject to the provisions of the Stockholders'
Agreement, a copy of which has been given to the Investor.
g. Shares Being Acquired for Investment. The Investor is
the sole party in interest as to his participation in and subscription to the
Company. The Investor is acquiring the Shares solely for investment for the
Investor's own account and has no present intent, agreement, understanding or
arrangement to subdivide, sell, assign, transfer or otherwise dispose of all any
part of the Shares to any other person or entity.
h. Accuracy of Information. All information that the
Investor has provided to the Company concerning the Investor, the Investor's
financial position and the Investor's knowledge of financial and business
matters including all information contained herein, is correct and complete as
of the date hereof and if there should be any adverse change in such information
prior to this subscription being accepted, the Investor will immediately provide
the Company with such information. The Investor recognizes that the sale of the
Shares to the Investor will be based upon the Investor's representations,
warranties and statements set forth herein and hereby agrees to indemnify the
Company and each officer, director or other controlling person thereof, for any
liability or expense, including costs and reasonable attorney's fees, which they
may incur by reason of, or in connection with, any misrepresentation made by the
Investor in this Subscription Agreement, any breach of the Investor's warranties
and/or failure by the Investor to fulfill any of the Investor's covenants or
agreements set forth herein or arising out of the sale or distribution of any
Shares by the Investor in violation of the 1933 Act or any other applicable
state or federal securities laws.
i. Legends. The undersigned understands and agrees that
the following restrictions and limitations are applicable to the undersigned's
purchase and resales or other transfers of the Shares pursuant to the 1933 Act.
(i) The undersigned agrees that the Shares shall
not be sold or otherwise transferred unless the Shares are registered under the
1933 Act and state securities laws or are exempt therefrom.
(ii) Legends in substantially the following form
have been or will be placed on the certificate(s) or other document(s), if any,
evidencing the Shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
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THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE. WITHOUT SUCH REGISTRATION, SUCH SECURITIES MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED, EXCEPT UPON DELIVERY TO
THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT REGISTRATION IS NOT REQUIRED FOR SUCH
TRANSFER OR THE SUBMISSION TO THE CORPORATION OF SUCH OTHER
EVIDENCE AS MAY BE SATISFACTORY TO THE CORPORATION TO THE
EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS OR ANY RULE OF REGULATION PROMULGATED
THEREUNDER.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
AN AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT DATED ON OR
ABOUT THE DATE HEREOF, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE CORPORATION, AND SUCH SHARES MAY NOT
BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT IN STRICT ACCORDANCE WITH THE
TERMS OF SUCH STOCKHOLDERS' AGREEMENT. A COPY OF SUCH
STOCKHOLDERS' AGREEMENT WILL BE FURNISHED WITHOUT CHARGE TO
THE RECORD HOLDER OF THIS CERTIFICATE UPON RECEIPT BY THE
CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED
OFFICE OF A WRITTEN REQUEST FROM THE RECORD HOLDER REQUESTING
SUCH COPY.
(iii) Stop transfer instructions have been or will
be imposed with respect to the Shares so as to restrict resale or other transfer
thereof, subject to the further items hereof, including the provisions of the
legends set forth in subparagraph b above.
4. Representations and Warranties of the Company. The Company
represents to the Investor as follows:
(a) Organization and Standing; Corporate Power. The
Company is a corporation duly organized and validly existing under and by virtue
of, the laws of the State of Delaware and is in good standing under such laws.
The Company has all requisite corporate power and authority to enter into this
Subscription Agreement and to carry out and perform its other obligations
hereunder.
(b) Authorization. All corporate action on the part of
the Company and its directors, officers and shareholders necessary for the
authorization, execution,, delivery and performance of all obligations of the
Company under the Subscription Agreement and any document contemplated thereby,
for the authorization, issuance and delivery of the Shares.
(c) Validity of Stock. The Shares, when issued, sold and
delivered in compliance with the provisions of this Subscription Agreement, will
be validly issued, fully paid and nonassessable, will be free of any liens or
encumbrances.
5. Miscellaneous.
(a) No Assignment of Subscription. The Investor agrees
not to transfer or assign this Subscription Agreement or any of the Investor's
interest herein.
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(b) Entire Agreement. This Subscription Agreement
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and may be amended only by a writing executed by all
parties.
(c) Governing Law. This Subscription Agreement will be
enforced, governed and construed in all respects in accordance with the laws of
the State of Georgia.
IN WITNESS WHEREOF, subject to acceptance by the Company, the
undersigned has completed this Subscription Agreement to evidence his
subscription to the Company by his execution on this _______ day of _________,
1999.
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Name:
THIS SUBSCRIPTION AGREEMENT IS
XXXXXX ACCEPTED AS OF THE ____
DAY OF _______________, 1999.
WITNESS SYSTEMS, INC.
By:
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Xxxxx Xxxxx, President
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