Investment Restructuring Agreement (the "Agreement") dated as of August 12,
1998 by and between VCS Technologies, Inc., a Delaware corporation (the
"Company"), and Xxxxx Xxxxxx, an individual residing at 00-00 00xx Xxxxxx,
Xxxxxxx, XX 00000 ("Xxxxxx"). The Company and Xxxxxx may be referred to herein
collectively as the "Parties" or individually as a "Party."
WHEREAS the Parties have agreed to restructure Xxxxxx'x existing investment
in the Company for the purpose of facilitating a possible initial public
offering of securities (the "IPO") currently proposed to be conducted by the
Company during 1998,
NOW, THEREFORE, in consideration of the promises and the mutual covenants
contained herein, the Parties hereby agree as follows:
1 Acknowledgments. The Parties acknowledge that the provisions of this Section 1
accurately and completely list and describe all of the Company's securities
owned by Xxxxxx (together with all of the additional rights and privileges
pertaining thereto) and all of the indebtedness owed to Xxxxxx by the Company
(except for loans in the aggregate principal amount of $50,000 made to the
Company by Xxxxxx on or after August 14, 1997). The Parties further acknowledge
that all references herein to the Company's common stock (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. Accordingly, the Parties acknowledge the following:
1.1 Common Stock. Xxxxxx owns 166,700 fully paid and non-assessable shares
of Common Stock.
1.2 Warrants to Purchase Common Stock. Xxxxxx owns of record warrants (the
"Warrants") to purchase an aggregate of 157,967 shares of Common Stock at an
exercise price of $3.00 per share.
1.3 Convertible Debenture. Xxxxxx holds a convertible debenture issued by
the Company on June 1, 1997 in the principal amount of $600,000 (the
"Convertible Debenture"). Since its date of issuance, the Convertible Debenture
has accrued, and continues to accrue, simple interest at the rate of 14% per
annum. The principal amount of the Convertible Debenture is convertible at any
time into an aggregate of 171,429 shares of Common Stock at a conversion ratio
of $3.50 per share.
1.4 Existing Registration Rights. Xxxxxx holds certain registration rights
(the "Existing Registration Rights") granted to him by the Company with respect
to (i) the outstanding Common Stock currently owned by Xxxxxx, and (ii) the
Common Stock underlying and issuable upon the exercise of the Warrants and/or
the conversion of the Convertible Debenture.
1.5 Interest Indebtedness. The Company is obligated to pay to Xxxxxx
certain accrued and unpaid interest (the "Interest Indebtedness"). The Interest
Indebtedness consists entirely of (i) the aggregate amount of $11,025, which is
the total amount of unpaid interest accrued on all loans made by Xxxxxx to the
Company through July 14, 1997; and (ii) all unpaid interest accrued on the
Convertible Debenture from June 1, 1997 through the date 30 days prior to the
First Payment Date (as defined in Section 2 below). The Parties acknowledge that
no interest has accrued or will accrue on any portion of the Interest
Indebtedness.
2 Certain Definitions.
2.1 "IPO Closing" means the receipt by Company of all of the net proceeds
resulting from the IPO.
2.2 "First Payment Date" means (i) if the IPO Closing occurs on or prior to
November 30, 1998, then the first business day of the second full calendar month
following the IPO Closing; or (ii) if the IPO Closing does not occur on or prior
to November 30, 1998, then January 15, 1999.
3 Restructuring of Xxxxxx'x Investment in the Company. Xxxxxx hereby agrees as
follows:
3.1 Cancellation of the Convertible Debenture. As a result of the issuance
of the Term Note as provided in Section 4.1 below, the Convertible Debenture is
hereby canceled, null and void, and of no further effect.
3.2 Cancellation of the Warrants. The Warrants are hereby canceled, null
and void, and of no further effect.
3.3 Termination of the Existing Registration Rights. The Existing
Registration Rights are hereby terminated, null and void, and of no further
effect.
4 Consideration. In consideration for the restructuring of Xxxxxx'x investment
in the Company as provided in Section 3 above, the Company hereby agrees as
follows:
4.1 Issuance of Term Note. Simultaneously with the signing of this
Agreement the Company shall deliver to Xxxxxx a fixed-term promissory note in
the principal amount of $600,000 in the form attached hereto as Exhibit A (the
"Term Note"). Commencing on the date 30 days prior to the First Payment Date,
simple interest shall accrue on the unpaid principal amount of the Term Note at
the rate of 14% per annum (computed on the basis of a 360-day year of 12 30-day
months). The entire principal amount and accrued interest of the Term Note shall
be paid to Xxxxxx in 60 equal monthly payments, the first payment due on the
First Payment Date.
4.2 Issuance of Common Stock. The Company agrees to issue to Xxxxxx 157,967
fully paid and non-assessable shares of Common Stock (the "New Shares") upon the
signing of this Agreement. The Company will deliver to Xxxxxx a certificate
evidencing the New Shares as soon as practicable following the date of this
Agreement.
4.3 Grant of Registration Rights. The Company hereby grants to Xxxxxx the
following registration rights: if at any time following the IPO the Company
registers under the Securities Act of 1933, as amended (the "Securities Act"),
any of the Common Stock owned by Xxxxxxx Xxxxxxx III ("Wheaton"), the Company
will include in such registration statement an amount of Xxxxxx'x Common Stock
equal in proportion to Xxxxxx'x total ownership of Common Stock as the amount of
Wheaton's registered Common Stock bears to Wheaton's total ownership of Common
Stock. The Company shall bear all of the expenses incurred in connection with
the such registration, except any commissions which may be due to any person for
the sale of Xxxxxx'x Common Stock shall be paid directly by Xxxxxx.
5 Payment of the Interest Indebtedness. The Parties agree that the Company shall
pay the Interest Indebtedness to Xxxxxx as follows: (i) if the IPO Closing
occurs on or prior to November 30, 1998, then in a single lump sum cash payment
made on the last business day of the calendar month in which the IPO Closing
occurs; or (ii) if the IPO Closing does not occur on or prior to November 30,
1998, then in 12 equal monthly payments, the first payment due on January 15,
1999. No interest will accrue on the Interest Indebtedness.
6 Representations and Warranties of the Company. The Company represents and
warrants to Xxxxxx as follows:
6.1 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.
6.2 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.
2
6.3 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.
6.4 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).
6.5 The New Shares issued to Xxxxxx pursuant to Section 4.2 above have been
duly reserved for such issuance. Such shares are duly authorized and validly
issued, fully paid and non-assessable, and have not been issued in violation of
any preemptive or other rights of stockholders or other parties.
7 Representations and Warranties of Xxxxxx. Xxxxxx hereby represents and
warrants to the Company as follows:
7.1 Xxxxxx is a bona fide resident of the state set forth in Section 10.3
of this Agreement and is legally competent to execute this Agreement.
7.2 Xxxxxx has received, read carefully and is familiar with this
Agreement. Respecting the Company, Xxxxxx is familiar with the Company's
business and financial condition and any other matters relating to the
transactions contemplated hereby; Xxxxxx 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
Xxxxxx has put to it. Xxxxxx has taken all the steps necessary to evaluate the
merits and risks of the refinancing transactions contemplated hereby.
7.3 Xxxxxx has been advised by the Company to consider retaining legal
counsel in connection with the preparation and the execution of this Agreement.
7.4 Xxxxxx 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").
7.5 Xxxxxx 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.
7.6 Xxxxxx has adequate means of providing for his current and foreseeable
future needs and has no need for liquidity of his investment in the Company.
Xxxxxx recognizes and is fully cognizant of the fact that his investment in the
Company involves a high degree of risk, and Xxxxxx represents that he can afford
to bear such risk, including, without limitation, the risk of losing the entire
investment.
7.7 Xxxxxx has been advised by the Company that (i) neither the New Shares
nor the Term Note have been registered under the Securities Act, and that the
New Shares and the Term Note 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) neither the New Shares nor the Term Note has 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 Xxxxxx contained in this Agreement.
7.8 Xxxxxx has been advised by the Company of, and/or he is otherwise
familiar with, the nature of the limitations on the transfer of the New Shares
and the Term Note imposed by the Securities Act and the rules and regulations
promulgated thereunder. In particular, Xxxxxx agrees that no sale,
3
assignment or transfer of any of the New Shares or the Term Note shall be valid
or effective (and agrees to not so sell, assign or transfer any of the New
Shares or the Term Note), 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
neither the New Shares nor the Term Note are currently registered for sale; or
(ii) made in accordance with all the requirements and limitations of Rule 144
under the Securities Act. Xxxxxx acknowledges that the New Shares and the Term
Note shall be subject to a stop transfer order and that the certificate or
certificates evidencing the New Shares and the Term Note 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.
7.9 Xxxxxx is acquiring the New Shares and the Term Note for his own
account for investment and not with a view to the sale or distribution thereof
or the granting of any participation therein. Xxxxxx has no present intention of
distributing or selling to others any of such interest or granting any
participation therein.
7.10 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 Xxxxxx 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
Xxxxxx'x 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 New
Shares or the Term Note.
7.11 Xxxxxx is not acquiring the New Shares or the Term Note 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 Xxxxxx had a pre-existing relationship.
7.12 Xxxxxx is not relying on the Company with respect to the tax and other
economic considerations of an investment.
8 Indemnification.
8.1 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.
8.2 Indemnification for the Benefit of the Company. Xxxxxx acknowledges
that he understands the meaning and legal consequences of the representations
and warranties contained in Section 7 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.
4
8.3 Indemnification for the Benefit of Xxxxxx. The Company acknowledges
that it understands the meaning and legal consequences of the representations
and warranties contained in Section 6 hereof, and agrees to indemnify and hold
harmless Xxxxxx from and against any and all loss, damage or liability due to or
arising out of a breach of any such representation or warranty.
9 Company's Right of First Purchase.
9.1 Company's Right of First Purchase. For such time until the IPO Closing,
any shares of Common Stock held by Xxxxxx (including, but not limited to, the
New Shares) 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
Xxxxxx'x lifetime to any person other than members of Xxxxxx'x Immediate Family
(as defined below), a partnership whose members are Xxxxxx'x and/or members of
Xxxxxx'x Immediate Family, or a trust for the benefit of Xxxxxx and/or members
of Xxxxxx'x Immediate Family, unless such transfer occurs within the 30 days
immediately following either (i) the expiration of 30 days following written
notice by Xxxxxx 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
Xxxxxx'x 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 Xxxxxx'x lifetime of such shares of Common Stock
to a member of Xxxxxx'x 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 more than
nine months after Xxxxxx'x 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.
9.2 Certain Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms will have the following definitions:
9.2.1 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.
5
9.2.2 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).
10 Miscellaneous.
10.1 Confidentiality. Xxxxxx 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.
10.2 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.
10.3 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
Att: Xxxxxxx Xxxxxxx III, President and CEO
Xxxxx Xxxxxx
00-00 00xx Xxxxxx
Xxxxxxx, Xxx Xxxx 00000
10.4 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.
10.5 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.
10.6 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.
10.7 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 10.7, this Agreement shall be binding upon and inure
to the benefit of the Parties hereto and their respective successors and
assigns.
10.8 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.
Xxxxx Xxxxxx VCS Technologies, Inc.
/s/ Xxxxx Xxxxxx By: /s/ Xxxxxxx Xxxxxxx
---------------- -------------------
Xxxxx Xxxxxx Xxxxxxx Xxxxxxx, President and CEO
7
