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Exhibit 10.6
XXXXX-XXXXXXX & ASSOCIATES, INC.
$12,000,000 CONVERTIBLE SUBORDINATED DEBENTURES
DUE DECEMBER 1, 2000
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DEBENTURE PURCHASE AGREEMENT
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AS OF DECEMBER 19, 1994
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Xxxxx-Xxxxxxx & Associates, Inc.
Debenture Purchase Agreement
As of December 19, 1994
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EXHIBITS
Exhibit A - List of Lenders
Exhibit B - Form of Debenture
Exhibit C - Preferred Stock Terms
Exhibit D - Company Counsel Opinion
Exhibit E - Form of Non-Competition Agreement
Exhibit F - Form of Confidentiality and Invention Assignment Agreement
SCHEDULES
Schedule 2.4 - Capitalization
Schedule 2.5 - Subsidiaries; Investments
Schedule 2.6 - Financial Statements
Schedule 2.7 - Liabilities
Schedule 2.8 - Absence of Certain Developments
Schedule 2.9 - Accounts Receivable
Schedule 2.10 - Title of Properties
Schedule 2.11 - Tax Matters
Schedule 2.12 - Contracts and Commitments
Schedule 2.13 - Proprietary Rights
Schedule 2.14 - Litigation and Compliance with Laws
Schedule 2.15 - Customer and Supplier Actions
Schedule 2.16 - Employee Benefit Programs
Schedule 2.17 - Labor Laws
Schedule 2.19 - Environmental Matters
Schedule 2.21 - Product and Service Claims
Schedule 2.22 - Backlog
Schedule 2.23 - Information on Founders
Schedule 2.24 - Broker's Fee
Schedule 5.1(c) - Indebtedness
Schedule 6.9 - Affiliated Transactions
Schedule 6.10 - Management Compensation
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DEBENTURE PURCHASE AGREEMENT
AGREEMENT made as of the 19th day of December 1994 by and among
Xxxxx-Xxxxxxx & Associates, Inc., a Florida corporation (the "Company"), Xxxxxxx
Xxxxx and Xxxxx Xxxxxxx (each a "Founder" and collectively the "Founders") and
the persons named in EXHIBIT A hereto (collectively the "Lenders," and each
individually a "Lender").
WHEREAS, the Company has agreed to sell and the Lenders have agreed to
purchase convertible debentures due in the year 2000 from the Company in an
aggregate principal amount of $12,000,000.
WHEREAS, the proceeds from the purchase and sale of such convertible
debentures shall be used by the Company for the purpose of making corporate
distributions on the shares of capital stock held by the Company's existing
shareholders.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
SECTION 1. TERMS OF PURCHASE; PAYMENT TERMS
1.1 SALE AND PURCHASE. Subject to the terms and conditions herein set
forth, the Company shall issue and sell to each of the Lenders, and each Lender
shall purchase from the Company, a convertible debenture due 2000 in
substantially the form attached hereto as EXHIBIT B (a "Debenture" and
collectively, the "Debentures") in the principal amount set forth opposite the
name of such Lender in EXHIBIT A hereto for a purchase price equal to 100% of
the principal amount thereof (the "Purchase Price"). The Debentures, which will
aggregate to $12,000,000 in principal amount, will be dated the date of issuance
thereof, mature on December 1, 2000 (the "Maturity Date"), bear interest and be
payable as set forth in Section 1.2 hereof and be convertible as set forth in
Section 7 hereof.
1.2 TERMS OF THE DEBENTURES.
(a) INTEREST. The Debentures shall bear interest on the unpaid
principal amount thereof: (i) from the date of issuance thereof through and
until June 30, 1997 at the rate of ten (10%) per annum; and (ii) from and after
July 1, 1997 at a rate equal to fifteen percent (15%) per annum (the
"Interest"). The Interest shall be computed on the basis of a 360-day year and
the actual number of days elapsed, and be payable on each March 31, June 30,
September 30 and December 31 for the respective three-month periods ending on
each such date, commencing on March 31, 1995 and upon any other payment or
conversion of any principal amount of the Debentures.
(b) DEFAULT INTEREST. In the event that any principal amount
of the Debentures is not paid within fifteen (15) days of when due payable
(whether at stated maturity, by acceleration or otherwise), the Interest on that
portion of such principal amount which has not been so paid shall,
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notwithstanding anything herein to the contrary and until that portion of such
principal payment on the Debentures has been brought current, thereafter bear
interest at a rate of twenty percent (20%) per annum.
(c) PRINCIPAL PAYMENTS. Subject to prior conversion pursuant
to the terms of this Agreement and prepayments authorized under Section 1.2(f),
the Company shall pay the principal balance of the Debentures without set-off,
deduction or counterclaim in the following principal amounts on the payment
dates indicated, together in each case with all accrued interest thereon:
AMOUNT OF PRINCIPAL
PAYMENT DATE BALANCE REPAID
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DECEMBER 1, 1999 $ 6,000,000
DECEMBER 1, 2000 $ 6,000,000
(d) CONVERSION. The Debentures shall be convertible at the
option of a majority in interest of the Lenders into shares of Convertible
Participating Preferred Stock, par value $.01 per share ("Convertible Preferred
Stock"), and Redeemable Preferred Stock, par value $.01 per share ("Redeemable
Preferred Stock"), of the Company, all in accordance with, on the terms and
during the periods set forth in Section 7 hereof. No conversion of the
Debentures shall be permitted except as provided in Section 7 hereof.
(e) PAYMENTS ON THE DEBENTURES. All payments of principal and
interest on the Debentures shall be made by the Company in lawful money of the
United States of America in immediately available funds not later than 12:00
p.m., Boston time, on the date such payment is due, or, if such date is not a
Business Day, then on the next succeeding Business Day, at the address of the
Lenders stated in EXHIBIT A hereto or, if not so stated, at such other addresses
of which the Company shall have received written notice or, at the Company's or
the Lender's election, by crediting the Lender's account at a bank designated by
the Lender in writing to the Company.
(f) PREPAYMENT. The outstanding principal amount of the
Debentures may be prepaid, in whole but not in part, by the Company at any time
upon sixty (60) days prior written notice. The Debentures shall be subject to
mandatory prepayment upon the consummation of: (i) the sale of all or
substantially all of the assets of the Company; (ii) the sale or transfer of all
or a majority of the outstanding capital stock of the Company other than as
permitted under the terms of Section 9 hereof; (iii) an initial public offering
of the Company's Common Stock under the Securities Act of 1933, as amended; or
(iv) the merger or consolidation of the Company with or into another corporation
or entity (other than a wholly-owned subsidiary or in connection with an
acquisition permitted under the terms of Section 6.13 hereof).
1.3 CLOSING. A closing (the "Closing") of the sale and purchase of the
Debentures shall take place at such location, date and time as shall be mutually
agreed upon by the Company and the Lenders (the "Closing Date"). At the Closing,
the Company will deliver the Debentures being
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acquired by each Lender against payment of the full Purchase Price therefor by
or on behalf of each Lender to the Company by certified or bank cashier's check
or wire transfer of immediately available funds.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND FOUNDERS
In order to induce the Lenders to enter into the Agreement, each of the
Company and, to the best of their knowledge, the Founders hereby jointly and
severally agrees with the Lenders and represents and warrants to the Lenders
that, as of the date hereof:
2.1 ORGANIZATION, EXISTENCE AND AUTHORITY. The Company has been duly
formed and is validly existing as a corporation in good standing under the laws
of the State of Florida; the Company does not own or lease any real property
outside the State of Florida, and has no employees residing outside the State of
Florida. The Company has all requisite corporate power and authority, and all
material and necessary authorization, approvals, orders, licenses, certificates
and permits, to conduct its business as presently conducted and to enter into,
execute, deliver and perform all of its duties and obligations under this
Agreement and all related instruments and agreements executed in connection
herewith. A true and complete copy of the Company's Articles of Incorporation as
amended to date, certified by the Florida Secretary of State, and of the
Company's by-laws, as amended to date, certified by the Company's Secretary have
previously been delivered to the Lenders, are complete and correct, and, with
the exception of the amendment creating the Preferred Shares (as defined below),
no amendments thereto are pending. The Company is not in violation of any term
of its charter or by-laws, or, in any material respect, of any term of any
agreement, instrument, judgment, decree, order, statute, rule or government
regulation applicable to the Company or to which the Company is a party, which
would, in any individual instance, or in any series of related instances, have a
material adverse effect on the Company.
2.2 AUTHORIZATION. This Agreement and all documents and instruments
executed by the Company and the Founders pursuant hereto are valid and binding
obligations of the Company and, to the extent applicable, the Founders,
enforceable in accordance with their terms, except as the enforcement thereof
may be limited by bankruptcy and other laws of general application relating to
creditor's rights or general principles of equity. The execution, delivery and
performance of this Agreement and all documents and instruments contemplated
hereby, the issuance of the Debentures and, if converted, the Convertible
Preferred Stock and the Redeemable Preferred Stock (collectively, the "Preferred
Shares") issuable upon such conversion and, if the Convertible Preferred Stock
is converted into Common Stock, the Common Stock issuable upon such conversion
(the "Conversion Shares"), have been duly authorized by all necessary corporate
action of the Company. No consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority is required to be
obtained by the Company in connection with the execution and delivery of this
Agreement or the issuance, delivery, payment, redemption or conversion of the
Debentures in accordance with the terms of this Agreement or, if the Debentures
are converted, the Preferred
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Shares, or, if the Convertible Preferred Stock is converted, the Conversion
Shares, or the performance or consummation of any other transaction contemplated
hereby or thereby.
2.3 NON-CONTRAVENTION. The execution, delivery and performance by each
of the Company and the Founders of this Agreement and the other agreements
executed pursuant hereto to which they are a party and the consummation of the
transactions contemplated hereby does not and will not: (a) conflict with or
result in any default under any material contract, obligation or commitment of
the Company or either of the Founders or any charter provision, by-law or
corporate restriction applicable to the Company; (b) result in the creation of
any lien, charge or encumbrance of any nature upon any of the properties or
assets of the Company or either of the Founders; or (c) violate any instrument,
agreement, judgment, decree or order, or any statute, rule or regulation of any
federal, state or local government or agency, applicable to the Company or
either of the Founders or to which the Company or either of the Founders is a
party.
2.4 CAPITALIZATION. The authorized capital stock of the Company
consists of (i): 25,000,000 shares of common stock, $.01 par value per share
(the "Common Stock"), of which 5,263,100 shares are, or as of the Closing Date
will be, duly and validly issued, outstanding, fully paid and non-assessable and
(ii) 5,000,000 shares of preferred stock, $.01 par value per share, of which
22,557 shares have been designated as the Convertible Preferred Stock and 12,000
shares have been designated as the Redeemable Preferred Stock, of which no
shares are, or as of the Closing Date will be, issued or outstanding. 2,500,000
of such outstanding shares of Common Stock are owned beneficially, and of
record, by each of Xxxxxxx Xxxxx and Xxxxx Xxxxxxx, free and clear of any
adverse claims, and 263,100 of such outstanding shares of Common Stock are owned
beneficially and of record by Xxxxxx Xxxxxxx, free and clear of any adverse
claims. Except for the Debentures to be issued hereunder, there are no
outstanding warrants, options, rights, commitments, pre-emptive rights or
agreements of any kind for the issuance or sale of, or outstanding securities
convertible into, any additional shares of capital stock of any class of the
Company. The Company has duly and validly authorized and reserved 22,557 shares
of Convertible Preferred Stock and 12,000 shares of Redeemable Preferred Stock
for issuance upon conversion of the Debentures and 2,255,614 Conversion Shares
for issuance upon conversion of the Convertible Preferred Stock; and the shares
of Convertible Preferred Stock, Redeemable Preferred Stock and Common Stock so
issued will, upon such conversion, be validly issued, fully paid and
non-assessable. The relative rights, preferences, restrictions and other
provisions relating to the Convertible Preferred Stock and Redeemable Preferred
Stock are as set forth in EXHIBIT C attached hereto (the "Preferred Stock
Terms"). Except as disclosed in SCHEDULE 2.4 hereof or as set forth in the
Company's charter documents, there are no restrictions on the transfer of the
shares of capital stock of the Company other than those arising under federal
and state securities laws or under this Agreement. There are no rights to have
the Company's capital stock registered for sale to the public in connection with
the laws of any jurisdiction, other than rights set forth in the Registration
Rights Agreement.
2.5 SUBSIDIARIES: INVESTMENTS. The Company does not have any
subsidiaries. Except as disclosed in SCHEDULE 2.5, the Company does not own or
have, nor has it previously owned or had,
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any direct or indirect interest in, control over or loan or advance to, any
person, corporation, partnership, joint venture or other entity of any kind.
2.6 FINANCIAL STATEMENTS. Included in SCHEDULE 2.6 are the following
financial statements of the Company:
(a) Unaudited balance sheets of the Company as at
December 31, 1993 and December 31, 1992, and the related statements of
operations and cash flows for the twelve month periods ended on such
dates, in each case reviewed by Xxxxxxx X. Xxxxxxx, the Company's
independent certified public accountant; and
(b) Preliminary unaudited balance sheet of the
Company as at October 3, 1994 and preliminary unaudited statement of
operations for the nine-month period then ended.
All of such financial statements have been prepared on a cash
basis, fairly represent the financial condition of the Company in all material
respects as of the dates thereof on such basis, and are true, accurate and
complete in all material respects as of the dates thereof. Nothing has come to
the attention of the senior management of the Company since such dates which
would indicate that such financial statements were not true, accurate and
complete in all material respects as of the dates thereof.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
disclosed in SCHEDULE 2.7 and to the extent reflected or reserved against in the
unaudited balance sheet of the Company as of October 3, 1994 included in
SCHEDULE 2.6 (the "Base Balance Sheet"), the Company does not have any material
liability or liabilities arising out of any transaction or state of facts
existing prior to the date hereof and required to be disclosed in a balance
sheet prepared in accordance with general accepted accounting principals (GAAP)
and the Company has no other material contingent liability or liabilities
arising out of any transaction or state of facts existing prior to the date
hereof which are not specifically disclosed elsewhere in this Agreement or the
Schedules hereto, (other than contractual obligations to customers and vendors
arising out of transactions entered into in the ordinary course of the Company's
business).
2.8 ABSENCE OF CERTAIN DEVELOPMENTS. Except as disclosed on SCHEDULE
2.8 or elsewhere in this Agreement (including the Schedules hereto), since the
date of the Base Balance Sheet, there has been: (a) no material adverse change
in the condition, financial or otherwise, of the Company or in the assets,
liabilities, properties or business of the Company; (b) no declaration, setting
aside or payment of any dividend or other distribution with respect to, or any
direct or indirect redemption or acquisition of, any capital stock in the
Company; (c) no waiver of any valuable right of the Company or cancellation of
any material debt or claim held by the Company; (d) no material loan by the
Company to any officer, director, employee or shareholder of the Company, or any
agreement or commitment therefor; (e) no increase, direct or indirect, in the
compensation paid or payable to any officer, director, employee, agent or
shareholder of the Company (other than salary increases in
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the ordinary course of business consistent with past practice); (f) no material
loss, destruction or damage to any property of the Company, whether or not
insured; (g) no labor trouble involving the Company and no material change in
the senior management or other key personnel of the Company or the terms and
conditions of their employment; and (h) no acquisition or disposition of any
assets (or any contract or arrangement therefor) nor any other material
transaction by the Company otherwise than for fair value in the ordinary course
of business.
2.9 ACCOUNTS RECEIVABLE. Except to the extent reserved against in the
Base Balance Sheet or disclosed elsewhere in this Agreement (including the
Schedules hereto), all of the accounts receivable of the Company represent bona
fide completed sales made in the ordinary course of business, are valid and
enforceable claims and are, to the best knowledge of the Company, subject to no
set-off or counterclaim and collectible in the ordinary course. Except as
disclosed on SCHEDULE 2.9, the Company has no accounts receivable from any
person, firm or corporation which is affiliated with it or from any of its
directors, officers, employees or shareholders.
2.10 TITLE TO PROPERTIES. Except as disclosed in SCHEDULE 2.10 or in
the Base Balance Sheet, the Company has good and marketable title to all of its
properties and assets, free and clear of any liens, restrictions or encumbrances
which could materially and adversely affect the value of such properties or
interfere with the Company's use thereof. All machinery and equipment included
in such properties which is necessary to the business of the Company is in good
condition and repair, reasonable wear and tear excepted, and the Company is not
in default under any material leases of real or personal property to which it is
a party, and such leases by their terms afford the Company peaceful and
undisturbed possession of the subject matter of the lease. The Company is not in
violation, in any material respect, of any zoning, building or safety ordinance,
regulation or requirement or other law or regulation applicable to the operation
of its owned or leased properties, nor has it received any notice of violation
with which it has not complied, which would, in any individual instance, or any
series of related instances, have a material adverse effect on the Company.
2.11 TAX MATTERS. Except asset forth in SCHEDULE 2.11, the Company and
each of the Founders (it being understood that all representations made in this
Section 2. 11 relating to the Founders are made only to the extent they relate
to disclosure and payment of their personal income taxes related to the taxable
income of the Company) have timely and properly filed or received timely and
proper extensions for the filing of all Tax Returns required to be filed by
them, and all such Tax Returns were correct and complete in all material
respects. The Company and each of the Founders has paid all Taxes owed by them
(whether or not shown on any Tax Return), except Taxes which have not yet
accrued or otherwise become due. All Taxes and other assessments and levies
which the Company and each of the Founders was or is required to withhold or
collect from customers or employees have been withheld and collected and have
been paid over or will be paid over when due to the proper governmental
authorities. Except as set forth in SCHEDULE 2.11: (a) none of the Company or
either of the Founders has ever received notice of any audit or of any proposed
deficiencies from the Internal Revenue Service ("IRS") or any other taxing
authority (other than routine audits undertaken in the ordinary course and which
have been resolved on or prior to the date hereof without material adverse
effect on the Company or either of the Founders or their respective
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financial condition); (b) there are in effect no waivers of applicable statutes
of limitations with respect to any Taxes owed by the Company or either of the
Founders for any year; (c) neither the IRS nor any other taxing authority is now
asserting or, to the best knowledge of the Company and each of the Founders,
threatening to assert against the Company or either of the Founders any
deficiency or claim for additional Taxes or interest thereon or penalties in
connection therewith in respect of the income or sales of the Company; and (d)
none of the Company or either of the Founders has ever been a member of an
affiliated group of corporations filing a combined federal income Tax Return,
nor does the Company or either of the Founders have any liability for Taxes of
any other Person under Treasury Regulation ss. 1. 1502-6 (or any similar
provision of foreign, state or local law) or otherwise. None of the Company or
either of the Founders is a party to any Tax allocation or sharing arrangement.
The Company has, at all times since December 9, 1988, qualified and presently
qualifies as an entity properly taxable as an S corporation (as defined in
Section 1361 of the Code).
2.12 CONTRACTS AND COMMITMENTS. Except as set forth in this Agreement
(including the Schedules hereto), the Company is not a party to any contract,
obligation or commitment: (a) which involves a potential commitment or payment
in excess of $100,000 or which is otherwise material and not entered into in the
ordinary course of business; (b) with any of the Founders or its other officers
or key employees or persons or organizations related to or affiliated with any
such persons; (c) which relate to the purchase, redemption, transfer or voting
of its capital stock; or (d) relating to the licensing, distribution,
development, purchase, sale or servicing of software; except in each case as are
described in SCHEDULE 2.12, and copies of all such agreements have been
delivered or made available to the Lenders, (all such contracts and commitments
described on SCHEDULE 2.12 are collectively referred to as the "Material
Agreements"). Other than termination or expiration in the ordinary course of
business, the Company does not know of any basis for the termination, expiration
or modification of any of the Material Agreements within one year from the date
hereof nor has it received any notice thereof, which termination, expiration or
modification would not be at the Company's option and would have a material
adverse effect on the Company. The Company is not in default in any material
respect under any Material Agreement, and to the best knowledge of the Company
there is no state of facts which upon notice or lapse of time or both would
constitute such a default.
2.13 PROPRIETARY RIGHTS; EMPLOYEE RESTRICTIONS. Set forth in SCHEDULE
2.13 is a list and brief description of all patents, patent rights, patent
applications, trademarks, trademark applications, service marks, service mark
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. The Company owns or possesses adequate licenses or other rights to
use all patents, patent applications, trademarks, trademark applications,
service marks, service mark applications, trade names, copyrights, manufacturing
processes, programming processes, formulae, trade secrets and know how
(collectively "Intellectual Property") necessary to the conduct of its business
as presently conducted and as proposed to be conducted. The Company is not aware
of any infringement by any other person of any rights of the Company under any
Intellectual Property. No claim is pending or, to the best knowledge of the
Company,
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threatened against the Company to the effect that any Intellectual Property
owned or licensed by the Company, or which the Company otherwise has the right
to use, or the operation or products or services of the Company infringe upon or
conflict with the asserted rights of any other person under any Intellectual
Property, and there is no basis for any such claim (whether or not pending or
threatened). The Company has not received any notice from any other person
asserting that any of the Intellectual Property owned or licensed by the
Company, or which the Company otherwise has the right to use, or the operation
or products or services of the Company infringe upon or conflict with the
asserted rights of such person under any Intellectual Property. No claim is
pending or threatened against the Company to the effect that any 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 there is no
basis for any such claim (whether or not pending or threatened). The Company has
not received any notice from any other person asserting that any of the
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.
Except as set forth on SCHEDULE 2.13, the Company has taken commercially
reasonable actions to ensure the confidentiality of all non-patented technical
information developed by or belonging to the Company that is material to the
business of the Company. Except as disclosed in SCHEDULE 2.13, neither the
Company, the Founders, nor, to the best of the Company's knowledge, any of the
Company's other employees has any agreements or arrangements with former
employers of any past or present employees relating to any Intellectual Property
of such employers, which interfere or conflict with the performance of such
employee's duties for the Company or results in such employers having any rights
in, or claims on, the Company's Intellectual Property. The activities of the
Founders and, to the best knowledge of the Company, the Company's other
employees and agents on behalf of the Company do not violate any agreements or
arrangements which any such employees or agents have with former employers.
2.14 LITIGATION AND COMPLIANCE WITH LAWS.
(a) Except as set forth in SCHEDULE 2.14, there is no
investigation, action, suit or proceeding at law or in equity or by or before
any governmental instrumentality or other agency now pending or, to the best
knowledge of the Company, threatened against the Company or any Founder or key
employee of the Company, which calls or has a possibility of calling into
question the validity, or hindering the enforceability or performance. of this
Agreement or any action taken or to be taken pursuant hereto or by any of the
other agreements and transactions contemplated hereby; nor to the best knowledge
of the Company, has there occurred any event or does there exist any condition
on the basis of which any such litigation, proceeding or investigation should
reasonably be anticipated to be instituted and have a material adverse effect on
the Company or the business prospects of the Company.
(b) Except as to subject matter more specifically addressed
elsewhere in this Agreement and except as set forth in SCHEDULE 2.14, the
Company is, and at all times during its existence has been, in material
compliance with all laws and governmental rules and regulations, domestic or
foreign and all export control or similar laws or regulations, except where
non-compliance therewith, in any individual instance or any series of related
instances, would not
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have a material adverse effect on the Company. Except as set forth in SCHEDULE
2.14, the Company is not in default in any material respect with respect to any
judgment, order, writ, injunction, decree, demand or assessment, that the
Company or its assets are subject to or by which the Company is bound and which
has been issued by any court or any federal, state, municipal or other
governmental or self-regulatory agency, organization, board, commission, bureau,
instrumentality or department, domestic or foreign, relating to any aspect of
the business, affairs, properties or assets of the Company. Except as set forth
in SCHEDULE 2.14, the Company has not been charged or, to the best knowledge of
the Company, threatened with, or under investigation with respect to, any
material violation of material federal, foreign, state, municipal or other law
or any administrative rule or regulation, domestic or foreign in any matter
directly relating to or affecting the business, affairs, properties or assets of
the Company.
2.15 PERMITS; CUSTOMER AND SUPPLIER RELATIONS. The Company has all
necessary franchises, permits, licenses and other rights and privileges to own
its property and to conduct its business as it is presently or proposed to be
conducted, except for those the absence of which could not have a material
adverse effect on the Company. The Company believes that the relationships of
the Company with its major customers and its suppliers are good commercial
working relationships, and, except as set forth on SCHEDULE 2.15, no major
customer has terminated its relationship with the Company and the Company has
not received any notice within the last two years from any major customers or
suppliers of their intention to terminate, or otherwise modify such
relationships in a manner which could have a material adverse effect on the
Company.
2.16 EMPLOYEE BENEFIT PROGRAMS. Except as set forth on SCHEDULE 2.16
hereto, the Company does not maintain and has not in the past maintained any
Employee Program (as defined herein). For purposes of this Section 2.16,
"Employee Program" means (a) all employee benefit plans within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), including, but not limited to, Multiple employer welfare arrangements
(within the meaning of ERISA Section 3(4)), plans to which more than one
unaffiliated employer contributes and employee benefit plans (such as foreign or
excess benefit plans) which are not subject to ERISA; and (b) all stock option
plans, bonus or incentive award plans, severance pay policies or agreements,
deferred compensation agreements, supplemental income arrangements, vacation
plans, and all other employee benefit plans, agreements, and arrangements not
described in (a) above. An entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides benefits under such Employee Program, or
has any obligation (by agreement or under applicable law) to contribute to or
provide benefits under such Employee Program, or if such Employee Program
provides benefits to or otherwise covers employees of such entity (or their
spouses, dependents, or beneficiaries). The Company has not maintained any
employee benefit plan to which more than one employer contributes pursuant to
one or more collective bargaining agreements. SCHEDULE 2.16 sets forth a list of
every Pension Plan (as hereinafter defined) that has been maintained by the
Company at any time during the twelve-month period ending on the Closing Date.
The Company has not incurred (a) any material accumulated funding deficiency
within the meaning of ERISA, or (b) any material liability to the Pension
Benefit Guaranty Corporation established under ERISA (or any successor thereto
under ERISA) in connection with any Pension Plan established or maintained by
it. The Company has not
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had any tax assessed against it by the MS for any alleged violation under
Section 4975 of the Internal Revenue Code. The Company does not have any
unfunded liability under a Pension Plan or a contingent liability for withdrawal
from a multi-employer Pension Plan except as disclosed in the financial
statements. "Pension Plan" shall mean an employee benefit plan or other plan
maintained for the employees of the Company as described in Section 4021(a) of
ERISA.
2.17 LABOR LAWS. The Company employs approximately 150 individual
employees. The Company is not subject to any collective bargaining agreement or
other labor agreement. The Company is not delinquent in payments to any of its
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed for it to the date hereof or amounts
required to be reimbursed to such employees. Except as set forth on SCHEDULE
2.17, upon termination of the employment of any of said employees, the Company
will not by reason of anything done prior to the Closing be obligated to provide
advance notice of termination of employment or be liable to any of said
employees for so-called "severance pay." The Company is in material compliance
with all applicable laws and regulations respecting labor, employment, fair
employment practices, terms and conditions of employment, and wages and hours.
There are no charges of employment discrimination or unfair labor practices or
strikes, slowdowns, stoppages of work, or any other concerted interference with
normal operations existing, pending or threatened against or involving the
Company and no union has demanded or requested to represent or, to the best
knowledge of the Company, is currently attempting to represent, any of the
Company's employees.
2.18 SOLVENCY. The Company has not: (a) made a general assignment for
the benefit of creditors; (b) filed any voluntary petition in bankruptcy or
suffered the filing of any involuntary petition by its creditors; (c) suffered
the appointment of a receiver to take possession of all, or substantially all,
of its assets; (d) suffered the attachment or other judicial seizure of all, or
substantially all, of its assets; (e) admitted in writing its inability to pay
its debts as they come due; or (f) made an offer of settlement, extension or
composition to its creditors generally. After giving effect to the transactions
provided for or contemplated herein (including the payment of the distribution
to the Company's existing shareholders to be made with the proceeds of the
Debentures), to the best knowledge of the Company: (a) it will be able to pay
its debts as they come due in the usual course of business and will have
adequate capital to conduct its business; and (b) its total assets will be
greater than its total liabilities (total assets for this purpose being
determined on the basis of the "fair saleable value" thereof). For purposes of
this Section 2.18, the "fair saleable value" of the assets of the Company means
the gross amount (without deduction for costs of sale, taxes or other payments)
of money that might be expected to be realized, as of the valuation date, from
an interested purchaser in a not theoretical market aware of all relevant
information and a seller, equally informed, who is interested in disposing of
the entire operation as a going-concern, neither party being under a compulsion
to act.
2.19 ENVIRONMENTAL MATTERS.
(a) Except as set forth in SCHEDULE 2.19 and except for
individual instances or any series of related instances which would not have a
material adverse effect on the assets, business or
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financial condition of the Company: (i) to the best knowledge of the Company,
the Company has never generated, transported, used, stored, treated, disposed
of, or managed any Hazardous Waste (as defined in Section 2.19(b) below), nor
has the Company contracted with any party for the generation, transportation,
use, storage, treatment, disposal or management of any Hazardous Waste; (ii) to
the best knowledge of the Company, the Company does not presently own, operate,
lease, or use, nor has it previously owned, operated, leased, or used any site
on which underground storage tanks are or were located or which contain or
contained any asbestos or asbestos-containing material, any polychlorinated
byphenyls ("PCBs") or equipment containing PCBs, or any urea formaldehyde foam
insulation; (iii) to the best knowledge of the Company, the Company has never
violated any Environmental Law (as defined in Section 2.19(b)(iii) below); and
(iv) the Company, the operations of its businesses, and any real property owned,
operated, leased, or used by the Company, and any facilities and operations of
the Company thereon, to the best of the Company's knowledge, are presently in
compliance in all material respects with all applicable Environmental Laws and
any and all orders or directives of any governmental authorities having
jurisdiction under such Environmental Laws, including, without limitation, any
orders or directives with respect to any clean-up or remediation of any release
or threat of release of any Hazardous Material.
(b) For purposes of this Section 2.19, (i) "Hazardous
Material" shall mean and include any hazardous waste, hazardous material,
hazardous substance, petroleum product, oil, asbestos, polychlorinated
byphenyls, urea formaldehyde, toxic substance,pollutant, contaminant, or other
substance which may pose a threat to the environment or tohuman health or
safety, as defined or regulated under any Environmental Law;(ii) "Hazardous
Waste* shall mean and include any hazardous waste as defined or regulated under
any Environmental Law; (iii) "Environmental Law" shall mean any environmental or
health and safety-related law, regulation, rule, ordinance, or by-law at the
federal. state, or local level existing as of the date hereof or previously
enforced; and (iv) the "Company" shall mean and include the Company and all
other entities for whose conduct the Company is or may be held responsible under
any Environmental Law including, but not limited to, lessees.
2.20 INVENTORY. The Company's inventory is of a quality and quantity
which is salable in the ordinary course of conduct of the Company's business and
the Company maintains adequate reserves against the cost basis of its inventory
based on the Company's historical and projected performance. None of the
Company's net inventory is obsolete or unsalable in a material amount.
2.21 PRODUCT AND SERVICE CLAIMS. Except as set forth on Schedule 2.21,
other than warranty claims substantially consistent with the Company's past
experience and which are not, in the aggregate, material to the Company, there
are no pending or, to the best of the Company's knowledge, threatened product or
service claims with respect to any products manufactured or services provided by
the Company prior to the Closing Date nor are there any facts upon which a claim
of such nature should reasonably be anticipated to be based. Except for on-going
price renegotiation with customers in the ordinary course of business, no claim
has been made against the Company for renegotiation or price of any business
transaction resulting from or relating to defective
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products or services, and, to the best of the Company's knowledge, there are no
facts upon which any such claim should reasonably be anticipated to be based.
2.22 BACKLOG. As of December 1, 1994, the Company had a backlog of firm
orders for the sale of products as set forth in SCHEDULE 2.22. All of the
Company's backlog represent and will, as of the Closing Date, represent orders
for products with specifications that can be met in accordance with the terms of
such orders and in the ordinary course of conduct of the Company's business
without undue delay or extraordinary expense.
2.23 INFORMATION SUPPLIED TO LENDERS. Neither this Agreement, nor the
Schedules referenced herein, nor any certificate or statement furnished to the
Lenders by or on behalf of the Company pursuant to the terms hereof, when taken
together, contains any untrue statement of a material fact, and none of this
Agreement, the Schedules or such other documents, omits to state a material fact
necessary in order to make the statements contained therein not misleading. To
the best of the Company's and each of the Founders' knowledge, there is no
material fact directly relating to the business, operations or condition of the
Company (other than facts which relate to general economic or computer software
industry trends or conditions) that materially adversely affects or in the
future in the reasonable business judgment of the Company (so far as the Company
may now foresee based upon material facts of which they are now aware) is likely
to materially adversely affect the same that has not been set forth in this
Agreement or in the Schedules hereto. Except as disclosed on Schedule 2.23,
neither of the Founders or any of their respective affiliates has been: (a)
subject to voluntary or involuntary petition under the federal bankruptcy laws
or any state insolvency law or the appointment of a receiver, fiscal agent or
similar officer by a court for his business or property; (b) convicted in a
criminal proceeding or named as a subject of a pending criminal proceeding
(excluding traffic violations and other minor offenses); (c) subject to any
order, judgment, or decree (not subsequently reversed, suspended or vacated) of
any court of competent jurisdiction permanently or temporarily enjoining him
from, or otherwise imposing limits or conditions on his, engaging in any
securities, investment advisory, banking, insurance or other type of business or
acting as an officer or director of a public company; or (d) found by a court of
competent jurisdiction in a civil action or by the Securities and Exchange
Commission or the Commodity Futures Trading Commission to have violated any
federal or state commodities, securities or unfair trade practices law, which
such judgment or finding has not been subsequently reversed, suspended, or
vacated.
2.24 BROKER'S -FEE. Except as set forth on SCHEDULE 2.24, the Company
has not incurred or become liable for any brokerage commission or finder's fee
relating to or in connection with the transactions contemplated by this
Agreement. The Company agrees to indemnify the Lenders against any claims
against the Lenders for brokerage fees or commissions payable to any broker or
finder retained by or on behalf of the Company or the Founders in connection
with the financing contemplated by this Agreement and to pay all expenses
incurred by the Lenders in connection with the defense of any action brought to
collect any brokerage fees or commissions by any such broker or finder.
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SECTION 3. CLOSING CONDITIONS OF LENDERS
The Lenders' obligation to purchase and pay for the Debentures shall be
subject to compliance by the Company with the following conditions, each of
which shall be presumed fulfilled to the Lenders' satisfaction upon execution of
this Agreement by the Lenders:
3.1 OPINIONS OF COMPANY COUNSEL. The Lenders shall have received from
counsel for the Company, Xxxxxxxxx, Xxxxxxx, Xxxxxxx, Xxxxxx, Xxxxx & Xxxxxxx,
P.A., their favorable opinion, dated the Closing Date, substantially in the form
attached hereto as EXHIBIT D.
3.2 AUTHORIZATION. The Company shall have duly adopted resolutions in
form reasonably satisfactory to the Lenders authorizing the Company to
consummate the transactions contemplated hereby in accordance with the terms
hereof, including, without limitation, the issuance of the Debentures, the
issuance of the Preferred Shares upon conversion of the Debentures and, upon
conversion of the Convertible Preferred Stock, the issuance of the Conversion
Shares, and the Lenders shall have received a duly executed certificate of an
authorized officer of the Company setting forth a copy of such resolutions and
such other matters as may be requested by the Lenders.
3.3 NON-COMPETITION AND OTHER AGREEMENTS. Each of the Founders shall
have entered into a Non-Competition Agreement with the Company in the form of
EXHIBIT E hereto. All senior management of the Company who are exposed to
technical and proprietary information of the Company shall have entered into
confidentiality and invention assignment agreements with the Company
substantially in the form attached as EXHIBIT F.
3.4 LIFE INSURANCE. The Company shall have delivered evidence to the
Lenders of the actions the Company has taken as of the date hereof to obtain key
man life insurance in accordance with the terms of Section 6.7 hereof.
3.5 CHARTER AMENDMENT. The Company shall have duly and properly
authorized and filed with the Florida Secretary of State an amendment and
restatement of its Articles of Incorporation which shall create the Preferred
Shares with the terms set forth on EXHIBIT C hereto.
3.6 DELIVERY OF DOCUMENTS. Concurrently with the Closing of the
transactions contemplated hereby, the Company shall have executed and delivered
to the Lenders (or shall have caused to be executed and delivered to the
Lenders, by the appropriate Persons), the following:
(a) The Debentures;
(b) Certified copies of resolutions of the Company authorizing
the execution and delivery of this Agreement and the Debentures;
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(c) A copy of the Company's Amended and Restated Articles of
Incorporation, as amended, certified as of a recent date by the Florida
Secretary of State and a copy of the Company's by-laws, as amended;
(d) The Registration Rights Agreement; and
(e) Such other supporting documents and certificates as the
Lenders may reasonably request and as may be required pursuant to this
Agreement.
3.7 USE OF PROCEEDS. All proceeds from the sale of the Debentures by
the Company to the Lenders may be used to make a corporate distribution to the
Company's existing shareholders.
3.8 NO VIOLATION OR INJUNCTION. The consummation of the transactions
contemplated by this Agreement shall not be in violation of any law or
regulation applicable to the Company or the Founders, shall not be subject to
any injunction, stay or restraining order and shall not require any filings,
approvals or consents which shall not have previously been made or obtained.
3.9 NO LITIGATION. No litigation, suit, action, claim or investigation
shall be pending, or threatened, which might impair or prevent the performance
of the Company or the Founders hereunder or the transactions contemplated
herein.
3.10 NO ADVERSE CHANGE. Between October 3, 1994 and the Closing Date,
there shall have been no material adverse change in the financial conditions,
prospects, properties. assets, liabilities, business or operations of the
Company, whether or not in the ordinary course of business.
3.11 ALL PROCEEDINGS SATISFACTORY. All corporate and other proceedings
taken by the Company and the Founders prior to or at the Closing in connection
with the transactions contemplated by this Agreement, and all documents and
instruments related thereto, shall be reasonably satisfactory in form and
substance to the Lenders, and the Lenders shall receive such copies thereof and
other materials (certified, if requested) as they may reasonably request in
connection therewith. The issuance and sale of the Debentures to the Lenders
shall be made in conformity with all applicable state and federal securities
laws.
SECTION 4. CLOSING CONDITIONS OF THE COMPANY
The Company's obligations to sell and issue the Debentures shall be
subject to the following conditions, each of which shall be presumed fulfilled
to the Company's satisfaction upon execution of this Agreement by the Company:
4.1 AUTHORIZATION. The Company shall have received a duly executed
certificate of an authorized officer or agent for each of the Lenders setting
forth the basis of such Xxxxxx's authorization to consummate the transactions
contemplated hereby in accordance with the terms
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hereof, including, without limitation, the purchase of the Debentures and such
other matters as may be requested by the Company.
4.2 NO VIOLATION OR INJUNCTION. The consummation of the transactions
contemplated by this Agreement shall not be in violation of any law or
regulation, shall not be subject to any injunction, stay or restraining order
and shall not require any filings, approvals or consents which shall not have
previously been made or obtained.
4.3 NO LITIGATION. No litigation, suit, action, claim or investigation
shall be pending, or threatened, which might impair or prevent the performance
of the Company or the Founders hereunder or the transactions contemplated
herein.
4.4 PURCHASE PRICE. The Company shall have received the entire Purchase
Price for the Debentures as specified in Section 1.3.
SECTION 5. FINANCIAL COVENANTS
The Company (which term shall be deemed to include, for purposes of
this Section 5, any subsidiary or subsidiaries of the Company formed after the
date of this Agreement) and, with respect to Section 5.3, each of the Founders
shall comply with the following covenants, from the date hereof and for so long
as any of the Debentures remains outstanding.
5.1 INDEBTEDNESS. The Company will not directly or indirectly, incur,
create, assume, become or be liable in any manner with respect to, or permit to
exist, any Indebtedness or liability, except:
(a) Indebtedness under the Debentures and any other
Indebtedness owed by the Company to the Lenders;
(b) Senior Debt in an aggregate outstanding principal amount
less than or equal to ten percent (10%) of the Company's gross revenues for the
then prior fiscal year as set forth on the audited financial statements
delivered pursuant to Section 6.1 hereof;
(c) Indebtedness (including Indebtedness owed to any
stockholders or affiliates of the Company) as described in SCHEDULE 5. 1 (C) .
(d) Indebtedness with respect to trade obligations (including
trade payables) and other normal accruals, including Taxes, assessments and
other governmental charges, arising in the ordinary course of business and not
yet due and payable, or which are being contested in good faith by appropriate
proceedings, and then only to the extent the amount thereof has been set aside
on the Company's books;
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(e) Indebtedness incurred for purchase money obligations and
Capital Leases, so long as: (i) the pertinent assets are acquired for use in the
ordinary course of the Company's business; and (ii) either the Indebtedness
secured thereby does not exceed the fair market value of such assets or the
purchase price thereof if such assets are acquired directly from the
manufacturer or an authorized dealer thereof, and
(f) Indebtedness in respect of guarantees by the Company to a
third party, to the extent that any such guarantee secures Indebtedness of the
Company which is specifically permitted to be incurred or to remain outstanding
under the provisions of this Section 5. 1.
5.2 LIENS. The Company will not, directly or indirectly, create, incur,
assume or suffer to exist any Lien (as defined below) of any nature whatsoever
on any of its assets (including any leasehold interests in property used by the
Company) or ownership interests now or hereafter owned, other than:
(a) Liens securing the payment of taxes and other government
charges, either not yet due or the validity of which is being contested in good
faith by appropriate proceedings, and as to which the Company shall have set
aside on its books adequate reserves to the extent required by generally
accepted accounting principles and provided that, in any event, payment of any
such tax, assessment, charge, levy or claim shall be made before any of the
Company's property shall be seized and sold in satisfaction thereof;
(b) Liens securing Indebtedness permitted under Sections
5.1(b), 5.1(c) and 5.1(e) above;
(c) Deposits under worker's compensation, unemployment
insurance and social security laws;
(d) Restrictions, easements, and minor irregularities in title
which do not and will not materially interfere with the occupation, use and
enjoyment of the properties of _________ in the normal course of business as
presently conducted or materially impair _________ such, assets for the purpose
of such business;
(e) Xxxxx imposed by law, such as mechanics', materialmen's,
landlords's, _____________ and carriers' Liens and other similar Liens, securing
obligations incurred in _________ course of business which are not past due or
which are being contested in good __________ appropriate proceedings and for
which appropriate reserves have been established;
(f) Liens, deposits or pledges to secure the performance of
bids, tenders, __________ than contracts for the payment of indebtedness),
leases (to the extent _________ the terms of this Agreement), public or
statutory obligations, surety, stay, ___________ity, performance or other
similar bonds, or other similar obligations arising in __________ course of
business;
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(g) Judgment and other similar Liens arising in connection
with court provided that the execution or other enforcement of such Xxxxx is
effectively __________ claims secured thereby are being actively contested in
good faith and by PROCEEDINGS; and
(h) Liens against the fee interest in real property leased by
the Company _______ring obligations of the owner of such property.
5.3 DISTRIBUTIONS OR REDEMPTIONS.
(a) Except as otherwise expressly authorized or permitted by
this ________ the Company will not: (i) make any distributions of cash, property
or securities ___________y with respect to any of its capital stock; (ii)
directly or indirectly redeem, otherwise acquire for consideration any shares of
its capital stock; or make any payments to the Founders.
(b) Notwithstanding the provisions of subsection 5.3(a) above,
the __________, subject to the terms hereof, make periodic cash distributions to
the __________ of the Company in an aggregate amount which does not exceed the
Company's __________ taxable income from January 1, 1994 (less any amounts
distributed prior to ____________ and any withholding excess or other state
taxes payable by the Company and without ________ excess of any original issue
discount deductions attributable to the Debentures __________ cash interest paid
thereon) and after the payment of all Interest on, and _________ the Debentures
which is then due and payable and so long as the Company, _________ to such
stockholder distributions has working capital which is sufficient to __________
business needs as they come (including all payments of interest on ________f,
the Debentures due within, the next year); PROVIDED, HOWEVER, that if the
__________ot properly qualified as an S corporation for federal income tax
purposes at any date hereof, the Company shall for any such periods ending on or
prior to June _________ be permitted to make cash distributions in an amount
equal to the Company's after-tax net income for such periods, and the Company
shall not make any cash distributions after June 30, 1997 unless such
distribution has been approved in advance by both the Company and the Lenders.
(c) If any amounts are distributed to the stockholders with
respect to any period prior to or after the date hereof on the assumption that
the Company was then qualified as an S corporation and it is later determined
that the Corporation was not an S corporation for Federal income tax purposes
during such period, each stockholder, by his signature hereto, agrees to
promptly contribute to the capital of the Company his proportionate share (based
on relative stockholdings at the time of the underlying distribution) of the
lesser of: (i) such distributions; or (ii) the aggregate amount of the Company's
federal and state income tax liabilities for such periods.
(d) The Lenders shall, from time to time and upon ten (10)
business days prior written notice, be entitled to date of each receive a
written statement from the Company setting forth the amount of any payments or
distributions hereunder and a certification by the Founders that such
distributions were in compliance with the terms hereof, together with the
calculations forming the basis for such distributions.
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(e) Notwithstanding the provisions of Section 5.3(a), the
Company may (i) make salary and bonus payments to the Founders as provided in
Section 6.10 hereof, and (ii) repurchase or redeem shares of Common Stock issued
pursuant to stock repurchase agreements under which the Company has the option
to repurchase such shares upon the occurrence of certain events, including the
termination of employment and involuntary transfers by operation of law, at a
repurchase price which does not exceed the purchase price paid to the Company
for such shares.
SECTION 6. OPERATING AND REPORTING COVENANTS
Without the prior written consent of the Lenders, the Company (which
term shall be deemed to include, for purposes of this Section 6, any subsidiary
or subsidiaries of the Company formed after the date of this Agreement) and,
solely to the extent of Sections 6.4 and 6.11, the Founders, shall comply with
the following covenants, for so long as any of the Debentures or any shares of
Convertible Preferred Stock remain outstanding or until the Company shall
successfully complete a Qualified Public Offering, whichever occurs first:
6.1 FINANCIAL STATEMENTS & MINUTES. The Company shall maintain a system
of accounts from which financial statements prepared in accordance with
generally accepted accounting principles consistently applied can be derived,
keep full and complete financial records and furnish to each of the Lenders the
following reports: (a) within 120 days after the end of fiscal year 1994, and
within 90 days after the end of each fiscal year thereafter, a copy of the
balance sheet of the Company as at the end of such year, together with
statements of operations and cash flow of the Company for such year, audited by
independent public accountants of recognized national standing reasonably
satisfactory to the Lenders, prepared on an accrual basis consistently applied,
and, commencing with fiscal year 1995, including in comparative form the
corresponding figures for the prior fiscal period; (b) within 45 days after the
end of each calendar quarter, an unaudited balance sheet of the Company as at
the end of such quarter, and unaudited statements of operations and cash flow
for the Company for such quarter and for the year to date, and, commencing with
fiscal year 1995, including in comparative form the corresponding figures for
the prior fiscal period; (c) within 30 days after the end of each month, an
unaudited balance sheet of the Company as at the end of such month and unaudited
statements of operations for the Company for such month and for the year to
date; (d) as soon as reasonably practicable after any meetings of the Board of
Directors of the Company, copies of the minutes of such meeting; (e) in
connection with the annual and quarterly financial statements delivered pursuant
to clauses (a) and (b) above, a certification from the Chief Financial Officer
of the Company if there exists any default or Event of Default under this
Agreement, or any set of facts or circumstances which, with the giving of notice
and/or the passage of time, could constitute such a default or Event of Default
and stating the relevant facts and the related consequences and what actions the
Company proposes to remedy them; and (f) such other financial information as the
Lenders may reasonably request. The Lenders or their authorized representatives
shall have the right to meet with the Company's independent auditors not less
than once each year to discuss the financial condition and results of operation
of the Company, its financial controls and the accounting principles applied in
the preparation of its financial statements.
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6.2 BUDGET AND STRATEGIC PLAN. The Company shall prepare and submit to
the Lenders a budget and strategic plan for the Company for each fiscal year of
the Company within 45 days after the first day of fiscal year 1995 and at least
30 days prior to commencement of each fiscal year thereafter, commencing fiscal
year 1996. The Company shall review the budget and strategic plan periodically
with the Lenders and shall promptly advise the Lenders of all material changes
therein and all material deviations therefrom.
6.3 CONDUCT OF BUSINESS. The Company will continue to engage
principally in the business now conducted by the Company or a business or
businesses similar thereto or reasonably compatible therewith. The Company will
use its best efforts, in its reasonable business judgment, to keep in full force
and effect its corporate existence and all intellectual property rights owned by
it and useful in its business (except such rights as the Company has reasonably
determined are not material to the Company's continuing operations).
6.4 PAYMENT OF TAXES, COMPLIANCE WITH LAWS, ETC. The Company shall pay
and discharge all lawful taxes, assessments and governmental charges or levies
imposed upon it or its property before the same shall become in default, as well
as an lawful claims for labor, materials and supplies which, if not paid when
due, might become a lien or charge upon its property or any part thereof,
Provided, however, that the Company shall not be required to pay and discharge
any such tax, assessment, charge, levy or claim so long as the validity thereof
is being contested by it in good faith by appropriate proceedings and an
adequate reserve therefor has been established. Each Founder shall pay and
discharge all lawful taxes, assessments, governmental charges or levies imposed
upon him or his property with respect to the earnings of the Company before the
same shall be in default, except those the validity of which are being contested
by them in good faith by appropriate proceedings. The Company will use its best
efforts to comply, in all material respects, with all applicable laws and
regulations in the conduct of its business, to the extent failure to comply
would have a material adverse effect on the Company and its business.
6.5 ADVERSE CHANGES. To the extent not disclosed in the financial
statements to be provided under Section 6.1, the Company will promptly advise
the Lenders of any event which represents a material adverse change in the
condition or business, financial or otherwise, of the Company, and of each suit
or proceeding commenced or threatened against the Company which, if adversely
determined, could result in such a material adverse change.
6.6 INSURANCE. The Company will keep its insurable properties insured,
upon reasonable business terms, against liability, errors and omissions, and the
perils of casualty, fire, business interruption, and extended coverage in
amounts of coverage substantially similar to those customarily maintained by
companies in the same or similar business, and of similar size, as the Company.
The Company will also maintain with such insurers insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner customary for companies engaged in the same or similar business, and of
similar size.
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6.7 LIFE INSURANCE. The Company will use its best efforts to obtain and
maintain, and continue to pay the premiums on, key man life insurance policies
from financially sound and reputable insurers on the life of each of the
Founders in the face amount of $5,000,000, which such policy shall (a) name the
Company as the beneficiary thereof, and (b) not be cancelled or materially
amended or changed without the prior written consent of the Lenders. The Company
will not transfer, borrow against or pledge said policies without the prior
written consent of the Lender. Notwithstanding the foregoing, the Company shall
not be required to obtain or maintain key man life insurance policies on either
of the Founders if the Company and the Lenders jointly determine that the cost
of obtaining or maintaining any such policy is unreasonably expensive.
6.8 MAINTENANCE OF PROPERTIES. The Company, in its reasonable
discretion, will maintain all properties used or useful in the conduct of its
business in good repair, working order and condition, ordinary wear and tear
excepted.
6.9 AFFILIATED TRANSACTIONS. Except as set forth on SCHEDULE 6.9 or
otherwise expressly provided in this Agreement, the Company will not engage in
any transactions with, or make any payments or distributions to or for the
benefit of, or any persons or entities controlled by, related to or affiliated
with either of the Founders, without the prior written consent of the Lenders;
PROVIDED, HOWEVER, that the Company shall be entitled to: (a) make the
distributions to Founders as provided in Section 5.3 hereof; (b) provide the
Founders with such health, disability, pension, profit sharing and other
benefits that are generally available to all officers and employees of the
Company; (c) make salary, bonus and other payments to the Founders as provided
in Section 6.10 hereof, and (d) accept capital contributions from the Founders
on their Common Stock.
6.10 MANAGEMENT COMPENSATION. Compensation paid by the Company to its
management (including the Founders) and other employees will be: (i) both
reasonably comparable to compensation paid to similarly-situated employees in
companies in the same or similar businesses of similar size and maturity and
with comparable financial performance and reasonable in relation to the
Company's overall compensation structure; or (ii) reasonably consistent with the
past practice of the Company as set forth on SCHEDULE 6.10; PROVIDED, HOWEVER,
that in no event shall the Company be required to decrease the cash compensation
payable to any such person below the amounts paid to such persons prior to the
date hereof.
6.11 BOARD OF DIRECTORS; INSPECTION. The Lenders shall be entitled to
send two representatives (the "Lender Representatives") to attend all meetings
of the Board of Directors of the Company, but such Lender Representatives shall
not be considered elected members of the Board of Directors of the Company. The
Company will ensure that meetings of the Board of Directors of the Company are
held at least once each calendar quarter and provide the Lender Representatives
with at least twenty (20) days prior written notice of all Board of Director
meetings as well as copies of all materials provided to the Directors. The
Company will reimburse the Lender Representatives for their reasonable travel
expenses, including the cost of air fare and any necessary meals and lodging,
incurred in connection with attending such meetings or performing such other
business on behalf of the Company as may be approved by the Company in advance.
The Company will notify the Lenders
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in writing five (5) business days prior to the effectiveness of any action to be
taken by written consent of directors or stockholders, except with respect to
ministerial matters, and will provide reasonable opportunity for consultation
with the Lenders with regard to the matters covered thereby during such five-day
period prior to the effectiveness of such consents. The Company's Board of
Directors shall consist, initially, of the two (2) Founders; PROVIDED, HOWEVER,
that the Founders shall use their best efforts to find and appoint at least one
qualified, unaffiliated person willing to serve as a Director of the Company
within twelve (12) months after the Closing Date and the Board of Directors
shall, at that time, be expanded correspondingly. Upon conversion of the
Debentures and for so long as the Lenders continue to hold Debentures,
Convertible Preferred Stock or Conversion Shares representing 15% of the common
equity in the Company on a fully-diluted basis, the Board of Directors shall be
increased so as to permit the Lenders, as a group, to designate two (2)
representatives to be elected as members of the Board of Directors of the
Company and the Founders agree to vote their shares so as to elect the
individuals so designated by the Lenders. The Company shall ensure that the
stock certificates held by the Founders and their Permitted Transferees are
properly legended to reference this voting agreement. The Lenders' Director
designees shall be entitled to reimbursement of all reasonable travel expenses
incurred in connection with their attendance at all Board meetings and the
Lenders' Director designees shall be entitled to receive the same board fees and
other compensation, if any, paid to any outside Directors. The Company will,
upon reasonable prior notice to the Company, permit authorized representatives
of the Lenders to visit and inspect any of the properties of the Company,
including its books of account, and to discuss its affairs, finances and
accounts with its agents, officers and independent accountants, all at such
reasonable times and as often as may be reasonably requested, in all cases so as
not to interfere with the Company's operations or personnel.
6.12 ISSUANCE OF CAPITAL STOCK, CONVERTIBLE SECURITIES, OPTIONS,
WARRANTS OR RIGHTS. The Company covenants and agrees that it will not sell or
issue any shares of capital stock or bonds, certificates of indebtedness,
debentures or other securities convertible into or exchangeable for shares of
capital stock, or options, warrants or rights carrying any rights to purchase
shares of capital stock or convertible or exchangeable securities of the Company
other than pursuant to or as referenced in this Agreement; PROVIDED, HOWEVER,
that the Company may: (a) issue Common Stock, options, stock appreciation rights
or other common stock equivalents to employees of the Company representing up to
395,722 shares of Common Stock with the prior written consent of the Lenders (it
being expressly understood that no third party beneficiary rights are intended
hereby nor shall any be inferred ;(b) engage in a Qualified Public Offering of
its common stock; and (c) issue the Preferred Shares upon conversion of the
Debentures and the Conversion Shares upon conversion of the Convertible
Preferred Stock.
The Lenders may, in their sole discretion, condition any waiver of the
provisions of this Section 6.12 upon the Company offering each of the Lenders
(on a pro rata basis with an overallotment option as to any amounts thereof not
taken up by any other Lender) the right to participate in all or any portion of
such proposed financing, on the most favorable terms and conditions proposed to
be extended by the Company.
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6.13 MERGER, CONSOLIDATION, REORGANIZATION, SALE OF ASSETS,
ACQUISITION. The Company will not: (a) sell, lease or otherwise dispose of
(whether in one transaction or a series of related transactions) all or any
substantial portion of its assets, other than sales of inventory in the ordinary
course of business, sales of obsolete assets and sales of other assets in any
one fiscal year which have a book value of less than $100,000; (b) merge with or
into or consolidate with another corporation, partnership or other entity (other
than a wholly-owned subsidiary or in connection with an acquisition permitted
under clause (c) below); or (c) acquire any other corporation or business
concern, whether by acquisition of assets, capital stock or otherwise, and
whether in consideration of the payment of cash, the issuance of shares of
capital stock or otherwise where the consideration of any individual acquisition
exceeds $1,000,000 or the consideration for all such acquisitions in the
aggregate exceeds $5,000,000, and subject to the other limitations contained
herein.
6.14 NO AMENDMENTS TO CHARTER DOCUMENTS. The Company will not make any
amendment or modification to, or waiver of any of the terms of, the Company's
Amended and Restated Articles of Incorporation.
6.15 RESTRICTIONS ON OTHER AGREEMENTS. Other than as provided in or
contemplated by Section 11 of this Agreement, the Company will not enter into
any agreement with any party which by its express terms: (a) restricts the
payments due the holders of the Debentures; or (b) otherwise conflicts with or
impairs any of the rights or privileges granted to the Lenders hereunder.
6.16 ENFORCEMENT OF EMPLOYEE CONFIDENTIALITY AND INVENTION ASSIGNMENT
AGREEMENTS AND NON-COMPETITION AGREEMENTS. The Company agrees that it will
diligently enforce all of its rights under: (a) the Non-Competition Agreements
referred to in Section 3.3 hereof; and (b) subject to the exercise of its
reasonable judgment, the employee confidentiality and inventions assignment
agreements referred to in Section 3.14 hereof, in its reasonable discretion.
6.17 STAY, EXTENSION AND USURY LAWS. For so long as any of the
Debentures remain outstanding, the Company covenants (to the extent that it may
lawfully do so) that it will not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Agreement; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impede the execution of any power herein granted to the
Lenders, but will suffer and permit the execution of every such power as though
no such law has been enacted.
Notwithstanding anything herein or in the Debentures which may be to
the contrary, in no event, contingency, or circumstances whatsoever shall the
interest or any amount deemed to be interest payable by the Company hereunder
with respect to the Debentures exceed the maximum amount permitted by applicable
law and, to the extent that any payments in excess of such permitted amount are
finally determined to have been received by the Lenders, such excess shall be
considered payments in respect of the principal of the Debentures, and, if the
principal of the Debentures has
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been paid in full, shall be refunded to the Company. All sums paid or agreed to
be paid to any Lender for the use, forbearance, or detention of the Debentures
shall, to the extent permitted by law, be amortized, prorated, allocated, and
spread throughout the entire term of the Debentures.
SECTION 7. CONVERSION
At any time upon and after the earliest of: (a) June 30, 1997; (b) the
Company successfully completing an initial public offering of its Common Stock;
(c) the Company selling, leasing or otherwise disposing of all or any
substantial portion of its assets other that in the ordinary course of business;
(d) the Company merging or consolidating with or into another corporation,
partnership or other entity (other than as expressly permitted under Section
6.13 above); (e) the Founders transferring, selling or otherwise disposing of
any of their ownership interest in the Company other than as expressly permitted
under Section 9, (f) the Company's issuance of a written notice to the Lenders
exercising its voluntary prepayment right; or (g) the occurrence of an Event of
Default pursuant to subsection (f) or (g) of Section 8.1 hereof (following any
applicable remedy period, including the 60 day period in which an Involuntary
Petition may be dismissed or, stayed), Lenders holding a majority in interest of
the Debentures may, upon 30 days prior written notice, require that all of the
then outstanding Debentures be converted into 22,556.14 shares of Convertible
Preferred Stock and for each $1,000 in principal amount of the Debentures being
converted one (1) share of Redeemable Preferred Stock; PROVIDED, HOWEVER, that
in the event that any principal of the Debentures shall have been prepaid prior
to conversion, such prepayment shall only reduce the amount of Redeemable
Preferred Stock received upon conversion and shall not reduce the amount of
Convertible Preferred Stock received upon such conversion. Except as
contemplated by Section 9.3 hereof, no partial conversion of the Debentures
shall be permitted.
Notwithstanding anything in this Agreement to the contrary, the
Debentures: (a) may be partially converted pursuant to Section 9.3 hereof; and
(b) may not be prepaid as a result of the events set forth in Section 1.2(f)
hereof unless the Lenders shall have (i) received at least sixty (60) days prior
written notice of such event and the related prepayment of the Debentures and
(ii) been afforded an opportunity to convert the Debentures prior to the
consummation of such event. In connection with the conversion of Debentures
under this Section 7, the Company shall pay to the Lenders, in cash, all accrued
but unpaid Interest on the Debentures through the date of such conversion and
each Leader shall surrender all of its Debentures, marked cancelled, and
acknowledged by the Lenders to be paid-in-full, to the Company at the Company's
principal office in exchange for the shares of Convertible Preferred Stock and
Redeemable Preferred Stock and interest payments described above. Upon delivery
of the Debentures to the Company, marked cancelled, the Lenders shall be deemed
to be shareholders in the Company holding their respective shares of Convertible
Preferred Stock and Redeemable Preferred Stock. The Company shall make such
filings as are required and obtain all necessary consents and approvals
necessary to consummate such conversion, including, if applicable, all necessary
filings and approvals under Title 11 of the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended. The Company shall take all other action
that the Lenders may reasonably request to evidence and effectuate the Lenders
becoming shareholders holding shares of Convertible Preferred Stock and
Redeemable Preferred Stock in the Company. The Company will comply with
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all applicable state "blue sky" or securities laws in connection with the
issuance and sale of the Debentures, any of the securities into which the
Debentures may be converted and the other securities issued by the Company. Upon
such conversion, the Company's Board of Directors shall be expanded to include
an additional two members in accordance with Section 6.11 hereof.
SECTION 8. EVENTS OF DEFAULT; REMEDIES
8.1 EVENTS OF DEFAULT.
In each case of the happening of the following events while any of the
Debentures are outstanding (each of which is herein sometimes referred to as an
"Event of Default"):
(a) if a default occurs in the payment of any premium,
installment of the principal of, interest on, or other obligation with respect
to, the Debentures, whether at the due date thereof or upon acceleration
thereof, and, solely in the case of any such default in the payment of interest,
charges, fees or expenses, such default continues for more than five (5) days
after the due date thereof; i
(b) if any material representation or warranty made herein or
in any agreement executed in connection with, or in any schedule, certificate,
financial statement or other instrument furnished in connection with, this
Agreement shall prove to have been false or misleading when made in any material
respect;
(c) if a default occurs in the due observance or performance
of any covenant, condition or agreement on the part of the Company to be
observed or performed pursuant to the provisions of Sections 5, 6.9, 6.10, 6.12
or 6.13 of this Agreement and such default remains uncured for thirty (30) days
after the occurrence thereof, or for such longer period if the default cannot
reasonably be cured within such 30-day period and the Company is diligently
pursuing cure of the default, but in no event for a period greater than 90 days
after written notice thereof has been delivered by the Lenders to the Company,
PROVIDED, HOWEVER, that if such default cannot be remedied, then such default
shall be deemed to be an Event of Default as of the date of the occurrence
thereof,
(d) if a default occurs in the due observance or performance
of any covenant, condition or agreement on the part of the Company to be
observed or performed pursuant to any of the provisions of this Agreement not
referenced in subsections (b) or (c) above and such default remains uncured for
forty-five (45) days after written notice thereof has been delivered by the
Lenders to the Company, or for such longer period if the default cannot
reasonably be cured within such 45-day period and the Company is diligently
pursuing cure of the default, but in no event for a period greater than 90 days
after written notice thereof has been delivered by the Lenders to the Company,
PROVIDED, HOWEVER , that if such default cannot be remedied, then such default
shall be deemed to be an Event of Default as of the date of the occurrence
thereof;
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(e) if a default occurs with respect to any other Indebtedness
of the Company for borrowed money in an aggregate amount in excess of $500,000
and such default is not remedied or waived within thirty (30) days of the date
thereof;
(f) if the Company shall (i) discontinue its business, (ii)
apply for or consent to the appointment of a receiver, trustee, custodian or
liquidator of it or any of its property, (iii) admit in writing its inability to
pay its debts as they mature, (iv) make a general assignment for the benefit of
creditors, or (v) file a voluntary petition in bankruptcy, or a petition or an
answer seeking reorganization or an arrangement with creditors, or to take
advantage of any bankruptcy, reorganization, insolvency, readjustment of debt,
dissolution or liquidation laws or statutes, or an answer admitting the material
allegations of a petition filed against it in any proceeding under any such law,
or if corporate action shall be taken for the purpose of effecting any of the
foregoing;
(g) there shall be filed against the Company an involuntary
petition seeking reorganization of the Company or the appointment of a receiver,
trustee, custodian or liquidator of the 'Company or a substantial part of its
assets, or an involuntary petition under any bankruptcy, reorganization or
insolvency law of any jurisdiction, whether now or hereafter in effect (any of
the foregoing petitions being hereinafter referred to as an "Involuntary
Petition");
(h) if final judgment(s) from a court of competent
jurisdiction for the payment of money in excess of an aggregate of $500,000
shall be rendered against the Company and the same shall remain unstayed or
undischarged for a period of thirty (30) consecutive days, during which time
execution shall not be effectively stayed; or
(i) if there occurs any attachment of any property of the
Company in an amount exceeding $500,000, which shall not be discharged or bonded
within thirty (30) days of the date of such attachment;
then, upon each and every such Event of Default and at any time thereafter
during the continuance of such Event of Default at the election of the Lenders,
the Debentures shall immediately become due and payable, both as to principal
and interest, without presentment, demand, or protest, all of which are hereby
expressly waived, anything contained herein or in the Debentures to the contrary
notwithstanding (except in the case of an Event of Default under subsections (f)
or (g) of this Section, in which event such Indebtedness shall automatically
become due and payable). In the event of an acceleration of the Debentures as a
result of the filing of an Involuntary Petition as specified in subsection (g)
of this Section, such acceleration shall be rescinded, and the Company's rights
hereunder reinstated, if, within sixty (60) days following the filing of such
Involuntary Petition, such Involuntary Petition shall have been dismissed or
stayed, and there shall exist no other Event of Default under this Agreement.
8.2 REMEDIES ON DEFAULT, ETC. In case any one or more Events of Default
shall occur and be continuing, the Lenders may proceed to protect and enforce
their rights by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement
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contained in this Agreement or the Debentures, or for an injunction against a
violation of any of the terms hereof or thereof or in and of the exercise of any
power granted hereby or thereby or by law. No right conferred upon the Lenders
hereby or the Debentures shall be exclusive of any other right referred to
herein or therein or now or hereafter available at law, in equity, by statute or
otherwise. Notwithstanding anything in this Agreement or the Debentures to the
contrary, the Lenders shall only have recourse against the Founders hereunder,
whether on account of an Event of Default or otherwise, for: (i) fraud; (ii)
intentional or knowing misrepresentation; or (iii) breach by the Founders of
Sections 5.3, 6.9 or 6.10, and . in no event shall the Lenders be entitled,
except as otherwise provided hereunder or in Section 12 hereof, to seek payment
from the Company or the Founders in excess of the then outstanding principal
amount of the Debentures, all accrued interest thereon and any collection costs
incurred by the Lenders.
SECTION 9. FOUNDER COVENANT
Until the Company shall successfully complete a Qualified Public
Offering, each of the Founders shall comply with the following covenant during
the period that any of the Debentures or any shares of Convertible Preferred
Stock remain outstanding. The Company shall ensure that the stock certificates
held by the Founders and their Permitted Transferees are properly legended to
reference these restrictions on transfer.
9.1 PROHIBITED AND PERMITTED TRANSFERS; DEFINITIONS.
(a) From and after the Closing Date, neither of the Founders
shall sell, assign, transfer, pledge, hypothecate, mortgage, encumber or dispose
of all or any of his Shares except in compliance with the terms of this Section
9. Notwithstanding the foregoing, the Founders' Shares may be transferred
without complying with Sections 9.2 or 9.3 hereof as provided in the following
clauses (individuals receiving shares from the Founders pursuant to any of the
following permitted transfers are collectively referred to as the "Permitted
Transferees"): (i) by way of gift to their respective spouse or to their
siblings or lineal descendants or ancestors or to any trust for the benefit of
any one or more of the foregoing or to an unleveraged partnership or corporation
in which all of the equity interests are beneficially owned by any one or more
of the foregoing; provided that any such transferee shall agree in writing with
the Lenders, as a condition to such transfer, to be bound by all of the
provisions of this Agreement with respect to such Shares to the same extent as
the Founders and provided, further, that such transfers in the aggregate
represent less than 50% of the applicable Founder's Shares; (ii) by any sale or
disposition of Shares pursuant to a registered public offering in which the
Lenders have rights to participate pursuant to the Registration Rights
Agreement; (iii) any transfer, disposition, assignment, sale or hypothecation of
Shares pursuant to a merger or consolidation of the Company with any other
entity approved by the Lenders; or (iv) any transfer upon the death of a
Founder.
(b) As used in this Section 9, "Shares" shall mean and
include: (i) with respect to the Lenders, all Debentures, and all shares of
Convertible Preferred Stock, Conversion Shares and Redeemable Preferred Stock
into which the Debentures are ultimately convertible; (ii) with respect
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to the Founders (which term, for the purpose of this Section 9 shall be deemed
to include all Permitted Transferees of the Founders), all shares of Common
Stock, and any options or other securities exercisable or convertible into
Common Stock and/or other capital stock of the Company now owned or hereafter
acquired by any of the Founders or their Permitted Transferees and, in each case
together with any securities acquired as a result of any conversion, stock
split, stock dividend, recapitalization or the like. For all purposes of this
Section 9, options and other securities convertible into or exchangeable for
capital stock shall be deemed to be equivalent to the number of shares of
capital stock which they may be exercised for or converted into, as of the
applicable date, with appropriate adjustments to reflect applicable exercise
prices, if any.
9.2 RIGHT OF FIRST REFUSAL.
(a) If at any time either of the Founders desires to sell or
otherwise transfer all or any part of his Shares pursuant to a bona fide offer
from a third party (the "Proposed Transferee"), such Founder shall submit a
written offer (the "Offer") to sell such Shares (the "Offered Shares") to the
Lenders or the then holders of the Debentures on terms and conditions including
price, not less favorable than those on which such Founder proposed to sell such
Offered Shares to the Proposed Transferee. The Offer shall be submitted to the
Lenders at least 45 days prior to the proposed transfer and shall disclose the
identity of the Proposed Transferee, the number of Offered Shares proposed to be
sold, the total number of Shares owned by such Founder, the terms and
conditions, including price, of the proposed sale, and any other material facts
relating to the proposed sale. The Offer shall further state that the Lenders
and/or their designees and assigns may purchase all, but not less than all, of
the Offered Shares for the price and upon the other terms and conditions,
including deferred payment (if applicable), set forth therein and shall also
advise the Lenders of their co-sale rights pursuant to Section 9.3 hereof,
provided, however, that notwithstanding anything contained herein to the
contrary, (i) the Lenders may assign all or a portion of their rights to accept
the Offer to their respective affiliates who are not direct customers or
competitors of the Company and (ii) any such assignment shall only be permitted
with respect to a proposed sale by the Founders where the sale price equals or
exceeds $10 million. Each Lender who desires to purchase any of the Offered
Shares shall communicate in writing its election to purchase to the applicable
Founder, which communication shall state the number of Offered Shares that such
Lender desires to purchase, and shall be given within 30 days of the date on
which notice of the Offer is given. In the event that the Lenders elect to
purchase an aggregate number of Offered Shares that is greater than the number
of Offered Shares, then each Lender will be deemed to have elected to purchase
that number of Offered Shares that is equal to the total number of Offered
Shares multiplied by a fraction, the numerator of which is the total number of
Offered Shares that such Lender elected to purchase and the denominator of which
is the total number of Offered Shares that all of the Lenders electing to
purchase Offered Shares elected to purchase.
(b) Any communication of acceptance from the Lenders shall,
when taken in conjunction with the Offer and except as provided in Section
9.2(c) hereof, be deemed to constitute a valid, legally binding and enforceable
agreement for the sale and purchase of such Offered Shares. Sales of the Offered
Shares to be sold to the Lender shall be made at the offices of the Company
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within 60 days after the Offer was first made. Such sale shall be effected by
the applicable Founder's delivery of a certificate or certificates evidencing
the Offered Shares to be sold, duly endorsed for transfer against payment of the
purchase price therefor.
(c) If the Lenders collectively do not elect to purchase all
of the Offered Shares, none of the Offered Shares shall be sold to or purchased
by the Lenders, and the Offered Shares may be sold by the applicable Founder(s)
at any time within the 90-day period after the expiration of all applicable
periods referred to in Section 9.3(b) hereof. Any such sale shall be to the
Proposed Transferee(s), at not less than the price and upon other terms and
conditions, if any, not, more favorable to the Proposed Transferee(s) than those
specified in the Offer and shall be subject to Section 9.3 hereof. Any Offered
Shares not sold within such 90-day period shall continue to be subject to the
requirements of this Section 9.2 and Section 9:3 hereof. If Offered Shares are
sold pursuant to this Section 9.2 to any person who is not a party to this
Agreement, the Offered Shares so sold shall no longer be subject to the
restrictions or benefits imposed by this Section 9.2.
(d) The Lenders may assign their rights under this Section 9.2
to any transferee of Debentures or securities of the Company (or its successors)
held by them upon conversion of the Debentures or an affiliate; provided,
however, that no assignment may be made to any entity which is (or which has an
affiliate which is) a direct competitor or customer of the Company.
9.3 RIGHT OF PARTICIPATION IN SALES.
(a) If at any time either Founder or his Permitted Transferees
desire to sell all or any part of the Shares owned by them to any person other
than to a Permitted Transferee or to the Lenders pursuant to Section 9.2 (such
person or entity referred to herein as a "Third Party Purchaser"), each, Lender
shall have the right to sell to the Third Party Purchaser, as a condition to
such sale by the applicable Founder, at the same price per share and otherwise
upon other terms and conditions that are in the aggregate the same as involved
in such sale by such Founder, up to such Xxxxxx's Pro Rata Share (as defined
below) of the total number of Shares proposed to be sold by such Founder and/or
his Permitted Transferees (subject to subsection (b) below). For purposes of
this Section 9.3, the term "Pro Rata Share" shall mean the percentage of voting
stock that the Debentures, Convertible Preferred Shares and Conversion Shares
held by the Lenders then represent on a fully-diluted basis of all voting stock
then outstanding. In connection with the exercise of their rights hereunder, the
Lenders shall, notwithstanding anything herein or in the Company's charter to
the contrary, be entitled to partially convert the Debentures.
(b) At the time of the initial notice described in Section
9.2(a) above, any transferring Founder shall also provide each Lender with a
calculation as to the number of shares that may be sold by them to the Third
Party Purchaser pursuant to this Section 9.3. Each Lender wishing to participate
in any sale under this Section 9.3 shall notify the transferring Founder in
writing within 30 days after the giving of the notice described in Section
9.2(a). Except as provided in Section 9.3(d) below, no Shares may be purchased
by the Third Party Purchaser from the transferring Founder unless the Third
Party Purchaser simultaneously purchases from the Lenders all Shares which
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they have elected to sell pursuant to this Section 9.3, with the sales to such
Third Party Purchaser to be consummated not prior to the expiration of all
notice periods described in this Section 9.3(b) and (in the case of the
transferring Founder) not after the expiration of the 90-day period described in
Section 9.2(c).
(c) Any Shares sold to a Third Party Purchaser pursuant to
this Section 9.3 shall no longer be subject to the restrictions or benefits
imposed by this Section 9.3.
(d) If the Lenders do not hold securities of the type being
offered under this Section 9.3 by the transferring Founder, (i) the Lenders
shall have the right to convert and sell such portion of their securities as is
convertible into the number of securities (or equivalent securities) which the
Lenders would otherwise have been entitled to sell under this Section 9.3 to the
Third Party Purchaser, and (ii) in the event that the Lenders hold Debentures
and, notwithstanding anything herein or in the Company's charter to the
contrary, they shall be entitled to payment from the Company of all accrued but
unpaid Interest through the sale date and any portion of the principal which is
not convertible into equity securities that are substantially equivalent to the
Shares held by the transferring Founder.
(e) The Lenders may assign their rights under this Section 9.3
to any transferee of Debentures or securities of the Company (or its successors)
held by them upon conversion of the Debentures; PROVIDED, HOWEVER, that no
assignment may be made to any entity which is (or which has an affiliate which
is) a competitor or customer of the Company.
SECTION 10. REPRESENTATIONS AND WARRANTIES OF THE LENDERS
10.1 REPRESENTATION OF LENDERS. In order to induce the Company and the
Founders to enter into this Agreement, each Lender hereby severally represents
and warrants to and agrees with the Company and each of the Founders with
respect to such Xxxxxx's purchase of Debentures hereunder that as of the date
hereof:
(a) The execution of the Agreement has been duly authorized by
all necessary action on the part of the Lender, and this Agreement has been duly
executed and delivered, and constitutes a valid, legal and binding agreement of
the Lender enforceable in accordance with its terms, except as the enforcement
thereof may be limited by bankruptcy and other laws of general application
relating to creditor's rights or general principles of equity. The Lender
understands and acknowledges that there can be no assurances that the conversion
privilege on the Debentures will be of any future value or that it is
substantially certain to be exercisable.
(b) The Lender is acquiring the Debentures for its own
account, for investment, and not with a view to any "distribution" thereof
within the meaning of the Securities Act. The Lender has not been formed for the
specific purpose of making the investment contemplated by this Agreement, the
information concerning the state of residence of each Lender supplied to counsel
for the Company is true and correct as of the date hereof and, except with
respect to TA Venture
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Investors, the Lender is an "accredited investor, as defined under the
Securities Act and the regulations promulgated thereunder. The Lender will not
transfer any interests in the Debentures, or any shares of Convertible Preferred
Stock, Redeemable Preferred Stock or Conversion Shares unless such transfers are
(i) registered under all applicable federal and state securities laws or are
exempt from such registration or (ii) exempt from registration; provided,
however, that in no event shall any transfers be made to entities who are direct
competitors or customers of the Company.
(c) The Lender understands that because the Debentures have
not been registered under the Securities Act, it cannot dispose of any or all of
the Debentures unless such Debentures are subsequently registered under the
Securities Act or exemptions from such registration are available. The Lender
acknowledges and understands that, except as provided in the Registration Rights
Agreement, it has no independent right to require the Company to register the
Debentures, that the Company has no intention to register the Debentures, and
that the Company may not accomplish a public offering of the Debentures or the
securities into which they are convertible.
(d) The Lender is knowledgeable and experienced in the making
of investments in private enterprises, is able to bear the economic risk of loss
of its investment in the Company, has been granted the opportunity to
investigate the affairs of the Company, and has availed itself of such
opportunity either directly or through its authorized representative.
(e) The Lender has been advised that the Debentures have not
been and are not being registered under the Securities Act or under the
securities or "blue sky" laws of any jurisdiction and that the Company in
issuing the Debentures is relying upon, among other things, the representations
and warranties of each Lender contained in this Section 10 in concluding that
each such issuance is a "private offering" and does not require compliance with
the registration provisions of the Securities Act.
(f) The Company will not be responsible for, and the Lender
will hold the Company and the Founders harmless from, brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement which are based on any arrangement or agreement
expressly made by or on behalf of the Lender.
(g) The Lender has had access to or been supplied with all
material information. regarding the Company, its financial condition and
historical results of operations, and all questions concerning the Company have
been answered to its satisfaction.
(h) The Lender agrees that all representations contained in
this Section shall be repeated and reaffirmed at the time of each subsequent
conversion of the Debentures into Shares of the Convertible Preferred Stock and
Redeemable Preferred Stock, or conversion of the Convertible Preferred Stock
into Conversion Shares.
10.2 CONFIDENTIALITY. Each Lender agrees and covenants with the Company
that until the Company has completed an initial public offering, it will keep
all Confidential Information strictly
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confidential and shall not publicly disclose any part or all of the Confidential
Information for any reason whatsoever without the consent of the Company;
PROVIDED, HOWEVER, that this Section 10.2 shall not prohibit any of the Lenders
from disclosing the Company's financial results or condition in periodic reports
to their respective investors or as otherwise required by applicable law.
For purposes of this Section 10.2, "Confidential Information" shall
mean all information disclosed by the Company in writing as and only to the
extent it involves development, design, production, testing or manufacturing of
the products of the Company or the financial results of the Company's operation
prior to the completion of a public offering or a sale of the Company.
Notwithstanding the foregoing, Confidential Information shall not include
information which is: (i) already in a Lenders' possession at the time of its
disclosure to such Lender or is subsequently developed or discovered by the
Lenders without the use of Confidential Information of the Company, (ii) is
generally known to the public or in the trade, or becomes so known other than as
a result of a breach of the Lenders' obligations hereunder, (iii) is disclosed
to the Lenders on a nonconfidential basis by a person other than the Company,
provided that such person is not known by the Lenders to be in violation of a
confidentiality agreement with the Company in making such disclosure.
10.3 CALL RIGHT ON CONVERSION SHARES.
(a) At the election of the Company, the Company may repurchase
all, but not less than all, of the Conversion Shares then outstanding at any
time between December 1, 2000 and December 1, 2001, so long as: (i) the Company
has not completed a public offering of its Common Stock under the Securities Act
of 1933, as amended, on or prior to such date; and (i) the Redeemable Preferred
Stock shall have been redeemed in full on or prior to such date. If the Company
elects to repurchase the Conversion Shares, it shall give written notice of such
election at least 90 days prior to the date of repurchase, together with the
Company's estimate of the Fair Market Value of the Conversion Shares and the
date of repurchase, to the holders of the Conversion Shares and all of the
Conversion Shares shall be repurchased on, or within 90 days after, the date
specified for repurchase in the Company's notice (the "Repurchase Date") for a
per share cash purchase price equal to the Fair Market Value (as determined in
Section 3(d) below) of the Conversion Shares plus any accumulated and unpaid
dividends (the "Repurchase Price"). On or after the Repurchase Date, each holder
of Conversion Shares called for repurchase shall surrender the certificate
evidencing such shares to the Company.
(b) From and after the Repurchase Date, unless there shall
have been a default in payment or tender by the Company of the Repurchase Price,
all rights of the holders with respect to such repurchased Conversion Shares
(except the right to receive the Repurchase Price in accordance with the terms
hereof upon surrender of their certificate) shall cease and such shares shall
not thereafter be transferred on the books of this Company or be deemed to be
outstanding for any purpose whatsoever; PROVIDED HOWEVER that the holders of the
Conversion Shares shall, in the event of an offering by the Company of equity
securities or securities convertible into or exchangeable for equity securities,
a sale of all or any substantial portion of the asset or outstanding capital
stock of the Company or a merger or consolidation of the Company with or into
another corporation or entity,
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in any such case occurring within two years of the Repurchase Date, be entitled
upon the consummation of such transaction to receive the excess of: (i) the
consideration which such holders would have been entitled to receive on their
Conversion Shares had they been outstanding on such date or, in the event of a
securities offering, been sold in such offering; over (ii) the aggregate
Repurchase Price previously received by such holders.
(c) If the funds of the Company legally available for
repurchase of the Conversion Shares on the Repurchase Date are insufficient to
repurchase the total number of Conversion Shares, the Company shall use those
funds which are legally available to redeem the maximum possible number of such
shares ratably among the holders of such Conversion Shares to be repurchased. At
any time thereafter when additional funds of the Company are legally available
for the repurchase of the Conversion Shares, such funds will immediately be used
to repurchase the balance of the Conversion Shares which the Company has become
obligated to repurchase on the Repurchase Date but which it has not redeemed at
the Repurchase Price together with any accrued interest thereon as provided
below. If any Conversion Shares are not repurchased because the Company failed
to pay or tender to pay the aggregate Repurchase Price on all outstanding
Conversion Shares, all Conversion Shares which have not been repurchased shall
remain outstanding and entitled to all the rights and preferences provided
herein, and the Company shall pay interest on the unpaid portion of the
Repurchase Price on the remaining Conversion Shares at an aggregate per annum
rate equal to twenty percent (20%) or the maximum rate of interest permitted
under applicable law, whichever is less.
(d) If the holders of a majority in interest of the Conversion
Shares do not object in writing to the Company's estimate of the Fair Market
Value of the Conversion Shares within fifteen (15) days after receipt of the
Company's written notice of redemption, such estimate shall be the Fair Market
Value for purposes of determining the Redemption Price of the Conversion Shares.
If the holders of the Conversion Shares do timely object to the Company's
estimate of Fair Market Value, the Company and such holders shall seek for a ten
(10) day period thereafter to negotiate the Fair Market Value in good faith. If
the Company and the holders of a majority in interest of the Conversion Shares
are unable to agree upon such Fair Market Value by the end of such period, each
of the Company and the holders (acting by a majority in interest) shall, within
ten (10) days thereafter, select an unaffiliated investment banking firm of
nationally recognized standing in the software industry to appraise the Fair
Market Value of the Conversion Shares. Each such firm will deliver its appraisal
of the Fair Market Value within fifteen (15) days thereafter, and if the lower
appraisal is at least 90% of the higher appraisal, the arithmetic mean of the
two shall be the Fair Market Value. If the two appraisals vary by more than 10%,
the two firms shall promptly select a third investment banking firm of
nationally recognized standing in the software industry. Such third firm shall,
within ten (10) days thereafter, deliver its appraisal of the Fair Market Value
of the Conversion Shares, the two appraisals which are closest together in value
shall be averaged and such amount shall be the Fair Market Value for purposes of
determining the Redemption Price. The Fair Market Value of the Conversion Shares
shall be determined: (i) without regard to the illiquid nature of such stock or
for any discount attributable to the minority interest represented by such
stock; (ii) with the Company valued as a going concern (including all net
working capital); and (iii) on the basis of what a willing
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xxxxx would pay to a seller under no compunction to sell. All costs of the
appraisals hereunder shall be borne by the Company.
SECTION 11. INTERCREDITOR MATTERS
11.1 SUBORDINATION TO PAYMENT. Notwithstanding anything in this
Agreement, in the Debentures or in any of the other documents and instruments
executed and, or, delivered pursuant thereto or in connection therewith to the
contrary, the Debentures shall be subordinate and junior in right of payment to
the Senior Debt of the Company to the extent and in the manner set forth in this
Section 11. Except as specifically provided for otherwise in this Section 11,
payments an account of the Debentures may be made by the Company and such
payments may be received and retained by the Lenders as and when due.
11.2 BANKRUPTCY OR LIQUIDATION. Upon the event of: (a) any insolvency
or bankruptcy proceedings, or any receivership, liquidation, reorganization or
other similar proceedings with respect to the Company; (b) any proceedings for
voluntary liquidation, dissolution or other winding up of the Company (whether
or not involving insolvency or bankruptcy proceedings); or (c) any distribution,
division or application, partial or complete, voluntary or involuntary, by
operation of law or otherwise, of all or substantially all of the property,
assets or business of the Company or the proceeds thereof to any creditor or
creditors other than in the ordinary course of business (including without
limitation any marshaling of assets), all Senior Debt shall be paid in full in
cash (or other property acceptable to the holders of Senior Debt in their sole
determination) before any payment or distribution, direct or indirect, whether
in cash, securities, property or otherwise, shall thereafter be made on the
Debentures; PROVIDED, HOWEVER, that this provision shall not preclude the
Lenders from (i) exercising their conversion rights under Section 7 hereof and
receiving the Preferred Shares issuable upon such conversion or (ii) exchanging
the Debentures for other securities which are subordinated in right of payment
to the Senior Debt on terms which are no more favorable to the Lenders than the
terms of this Section 11.
11.3 PAYMENT DEFAULT ON SENIOR DEBT. Except as specifically provided
otherwise in Section 11.8 hereof, during the continuance of any default (without
regard to any applicable grace or cure periods) in the payment of any sums
(principal, interest or otherwise) due and payable on any Senior Debt (whether
as a result of a periodic payment, maturity, acceleration or a mandatory
prepayment), no payment on the Debentures, direct or indirect, whether in cash,
securities, property or otherwise, shall be made after written notice of the
foregoing default is given to the Company and the Lenders, unless and until the
default under such Senior Debt shall have been cured in full or arrangements for
such cure, which are accepted in writing by the holder of such Senior Debt,
shall have been made.
11.4 NON-PAYMENT DEFAULT ON SENIOR DEBT. Except as specifically
provided otherwise in Section 11.8 hereof, upon the occurrence of a default on
any Senior Debt (without regard to any applicable grace or cure periods), other
than a default described in Section 11.2 or 11.3 above, no payment on
Debentures, direct or indirect, whether in cash, property, securities or
otherwise shall be made from the date that written notice of the foregoing
default is given to the Company and the
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Lenders and for a period of 120 days thereafter, unless and until the default
under such Senior Debt shall have been cured in full or arrangements for such
cure, which are accepted in writing by the holder of such Senior Debt, shall
have been made PROVIDED; HOWEVER , that: (i) no more than two (2) payment
blockage periods may be declared hereunder in any 365-day period; and (ii) no
default may be cited as the basis for two (2) separate payment blockages in any
365-day period.
11.5 LIMITATION ON THE EXERCISE OF CERTAIN RIGHTS. The Lenders agree
that, upon written notice to it from any holder of Senior Debt specifying such
holder's name and address, they will not thereafter, without at least one day's
prior written notice to the holder of such Senior Debt, make any request or
demand for, accelerate or bring any action with respect to, the payment of the
Debentures.
11.6 SUBROGATION. Upon the payment in full of all Senior Debt, the
Lenders shall be subrogated to the rights of the holders of Senior Debt to
receive payments or distributions of assets of the Company made on the Senior
Debt until all of the obligations or the Debentures shall be paid in full.
Except as may be otherwise ordered by a court with respect to the payments
contemplated under Section 11.2 hereof, no payments or distributions to the
holders of the Senior Debt of cash, property, securities or otherwise (including
any amounts paid on account of the Debentures which are subsequently paid over
to or held in trust for the benefit of the holders of any Senior Debt) shall, as
between the Company, the Lenders and the Company's other creditors, be deemed to
be a payment by the Company on account of the Debentures. The provisions of this
Section 11 are intended solely to define the relative rights of the Lenders, on
the one hand, and the holders of Senior Debt, on the other hand, VIS A VIS, the
Company.
11.7 ABSOLUTE OBLIGATION. Nothing contained in this Section 11 is
intended to or shall impair, as among the Company, its creditors other than
holders of Senior Debt and the Lenders, the obligation of the Company, which is
absolute and unconditional, to pay to the Lenders any and all sums outstanding
under the Debentures as and when the same shall become due and payable in
accordance with the terms thereof. Nor is anything contained in this Section 11
intended to: (a) affect the relative rights of the Lenders and creditors of the
Company other than the holders of Senior Debt, or (b) prevent the Lenders from
exercising all remedies otherwise permitted by applicable law upon default,
subject to the limitations set forth in Section 11.5 hereof and to the rights
under this Section III of the holders of Senior Debt with respect to cash,
property or securities of the Company received upon the exercise of any such
remedy. The failure of the Company to make any payment on the Debentures by
reason of any provision of this Debenture shall not be construed as preventing
the occurrence of an Event of Default under Section 8.
11.8 CONVERSION. Nothing contained in this Section 11 shall be deemed
to Prohibit the rights of the Lenders to convert the Debentures pursuant to
Section 7 hereof and to receive the Preferred Shares issuable upon such
conversion.
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SECTION 12. INDEMNIFICATION
(a) The Company shall, to the full extent permitted by law,
and in addition to any such rights which any Indemnified Party (as defined
herein) may have pursuant to statute, the Company's charter, the Company's
by-laws, or otherwise, indemnify and hold harmless each Lender (including its
respective directors, officers, partners, employees and agents, an Indemnified
Investor") and each person (a "Controlling Person" and collectively with
Indemnified Investors, the "Indemnified Parties") who controls any of them
within the meaning of Section 15 of the Securities Act of 1933, as amended (the
"Securities Act"), or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), from and against any and all losses, claims,
damages, expenses and liabilities, joint or several, including any
investigation, legal and other expenses incurred in connection with the
investigation, defense, settlement or appeal of, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted ("Losses" or
"Loss"), to which they, or any of them, may become subject by reason of their
status as a security holder, creditor, director, agent, representative or
controlling person of the Company, (including, without limitation, any and all
Losses under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, which relates directly
or indirectly to the registration, purchase, sale or ownership of any securities
of the Company or to any fiduciary obligation owed with respect thereto);
PROVIDED, HOWEVER, that the Company will not be liable to the extent that such
Loss arises from and is based on an untrue statement or omission or alleged
untrue statement or omission in a registration statement or prospectus which is
made in reliance on and in conformity with written information furnished to the
Company in an instrument duly executed by or on behalf of such Indemnified Party
specifically stating that it is for use in the preparation thereof The
indemnification and contribution provided for in this Section 12 will remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Parties or any officer, director, employee, agent or Controlling
Person of the Indemnified Parties.
(b) If the indemnification provided for in Section 12(a) above
for any reason is held by a court of competent jurisdiction to be unavailable to
an Indemnified Party in respect of any Losses referred to therein, then the
Company, in lieu of indemnifying such Indemnified Party thereunder, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Lenders, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Lenders in connection with the action or inaction which resulted in such Losses,
as well as any other relevant equitable considerations. In connection with the
registration of the Company's securities, the relative benefits received by the
Company and the Lenders shall be deemed to be in the same respective proportions
that the net proceeds from the offering (before deducting expenses) received by
the Company and the Lenders, in each case as set forth in the table on the cover
page of the applicable prospectus, bear to the aggregate public offering price
of the securities so offered. The relative fault of the Company and the Lenders
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates
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to information supplied by the Company or the Lenders and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Lenders agree that it would not be just and
equitable if contribution pursuant to this Section 12(b) were determined by pro
rata or per capita allocation or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. In connection with the registration of the Company's
securities, in no event shall an Investor be required to contribute any amount
under this Section 12(b) in excess of the lesser of (i) that proportion of the
total of such Losses indemnified against equal to that proportion of the total
securities sold under such registration statement which is being sold by such
Lender or (ii) the proceeds received by such Lender from its sale of securities
under such registration statement. No person found guilty of fraudulent
misrepresentation (within the meaning of Section II(f) of the Securities Act)
shall be entitled to contribution from any person who was not found guilty of
such fraudulent misrepresentation.
(c) Any Indemnified Party that proposes to assert the right to
be indemnified under this Section 12 will, promptly after receipt of notice of
commencement of any claim or action against such party in respect of which a
claim is to be made against the Company under this Section 12, notify the
Company of the commencement of such action, enclosing a copy of all papers
served, but the omission so to notify the Company will not relieve the Company
from any liability that the Company may have to any Indemnified Party under the
foregoing provisions of this Section 12 unless, and only to the extent that,
such omission results in the forfeiture of substantive rights or defenses by the
Company. The Indemnified Party will have the right to retain its own counsel in
any such action and all fees, disbursements and other charges incurred in the
investigation, defense and/or settlement of such action shall be advanced and
reimbursed by the Company promptly as they are incurred; PROVIDED, HOWEVER, that
the Indemnified Party shall agree to repay any expenses so advanced hereunder if
it is ultimately determined by a court of competent jurisdiction that the
Indemnified Party to whom such expenses are advanced is not entitled to be
indemnified as a matter of law; and PROVIDED FURTHER that so long as the
Indemnified Party has reasonably concluded that no conflict of interest exists,
the Company may assume the defense of any action hereunder with counsel
reasonably satisfactory to the Indemnified Party. The Company shall not settle
any action or claim for which indemnification is sought under this Section 12
without the prior written consent of the Indemnified Party.
SECTION 13. DEFINITIONS
Unless the context specifically requires otherwise, capitalized terms
used in this Agreement shall have the meaning specified below:
"Capital Lease" means any lease of property (real, personal or mixed) which in
accordance with generally accepted accounting principles consistently applied,
would be capitalized on the lessee's balance sheet or for which the amount of
the asset and liability thereunder should be disclosed in a note to such balance
sheet as if so capitalized.
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"Founders" means Xxxxxxx Xxxxx and Xxxxx Xxxxxxx.
"Indebtedness" means with respect to any Person, (i) any liability, contingent
or otherwise, of such Person (A) for borrowed money (whether or not recourse of
the lender is to the whole of the assets of such Person or only to a portion
thereof), (B) evidenced by a note, debenture or similar instrument (including a
purchase money obligation) given in connection with the acquisition of any
property or assets, (C) for any letter of credit or performance bond in favor of
such Person, (D) for the payment of money relating to a capitalized lease
obligation, or (E) any liability, contingent or otherwise, of such Person to any
other Person for any purchase price associated with any acquisition of assets,
business or otherwise (including any deferred purchase price, assumption of
Indebtedness, noncompetition payments or other forms of consideration); (ii) any
liability of others of the kind described in the preceding clause (i), which the
Person has guaranteed or which is otherwise its legal liability, contingent or
otherwise; (iii) any obligation secured by a Lien to which the property or
assets of such Person are subject, whether or not the obligations secured
thereby shall have been assumed by or shall otherwise be such Person's legal
liability; (iv) all other items (except items of capital stock, capital or
paid-in surplus or of retaining earnings) which in accordance with generally
accepted accounting principles, would be included as a liability on the balance
sheet of such Person on the date of determination; and (v) any and all
deferrals, renewals, extensions or refinancing of, or amendments, modifications
of supplements to, any liability of the kind, described in any of the preceding
clauses (i), (ii), (iii) or (iv).
"Lien" means any interest in, or claim. against, property relating to an
obligation owed to, or claim by, a Person other than the owner of the property,
whether such interest is. based on the common law, statute or contract, and
including but not limited to any security interest lien arising from a mortgage,
encumbrance, pledge, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes, any rights of first refusal, charges, claims,
liabilities, limitations, conditions, restrictions or other adverse claims;
provided, however, that "Lien" shall not include the interest retained by the
lessor under a lease which is not a Capital Lease. For the purposes of this
Agreement, the Company shall be deemed to be the owner of any property which it
has acquired or holds subject to a conditional sale agreement, financing lease
or other arrangement pursuant to which title to the property has been retained
by or vested in some other person or entity for security purposes and such
retention or vesting shall be deemed to be a Lien.
"Person" means any individual, corporation, partnership, joint venture, trust or
unincorporated organization or any government or any agency or political
subdivision thereof.
"Qualified Public Offering" means an underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933 covering the
offer and sale of Common Stock of the Company to the public in which the
proceeds received by the Company and selling shareholders, net of underwriting
discounts and commissions, equal or exceed $20,000,000 or such lesser amount as
shall be mutually acceptable to the Company and the Lenders.
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"Registration Rights Agreement" means the Registration Rights Agreement, dated
as of the date hereof, by and among the Company and the Lenders, as amended,
supplemented or modified from time to time.
"Securities Act" means the Securities Act of 1933 and the rules and regulations
promulgated thereunder, each as amended from time to time.
"Senior Debt" means the aggregate principal amount of any for money borrowed in
accordance with the provisions of Section 5. 1 (b) hereof from an unaffiliated
bank, insurance company or other financial institution.
"Tax" means any federal, state, local, or foreign income, gross receipts,
capital stock, franchise, profits, windfall profits, withholding, payroll,
social security (or similar), unemployment, disability, real property, personal
property, excise, occupation, sales, use, transfer, value added, alternative
minimum, environmental, customs, duties, estimated or other tax, including any
interest, penalty or addition thereto, whether disputed or not.
"Tax Returns" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto and including any amendment thereof.
The following terms shall have the meanings assigned to them in the
provisions of this Agreement referred to below:
Advent - 10.1
Affiliate - 2.17
Base Balance Sheet - Section 2.6
CERCLIS - 2.20(a)
Closing - Section 1.3
Closing Date - Section 1.3
Common Stock - 2.3
Company - preamble
Conversion Shares - 2.2
Convertible Preferred Stock - 1.2(d)
Debentures - Preamble
Employee Program - 2.17
Employee Stock Plan - 2.3
Environmental Law - Section 2.20(c)
ERISA - Section 2.17
Event of Default -
Section 8.1 GAAP - 2.7
Hazardous Material - Section 2.20(c)
Hazardous Waste - Section 2.20(c)
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Intellectual Property - 2.12
Interest - Section 1.2(a)
Involuntary Petition - Section 8.1(g)
IRS - Section 2. 10
Lender Representatives - 5.4
Lenders - preamble
Material Agreement - 2.11
Maturity Date - 1.1
Offer - 9.2(a)
Offered Shares - 9.2(a)
PCBs - Section 2.20(a)
Pension Plan - Section 2.17
Permitted Transferees - 9.1(a)
Preferred Shares - 2.2
Proposed Transferee - 9.2(a)
Pro Rata Share - 9.3(a)
Shares - 9.1(b)
Third Party Purchaser - 9.3(a)
SECTION 14. GENERAL
14.1 AMENDMENTS, WAIVERS AND CONSENTS. For the purposes of this
Agreement and all agreements, documents and instruments executed pursuant
hereto, except as otherwise specifically set forth herein or therein, no course
of dealing between the Company and any Lender and no delay on the part of any
party hereto in exercising any rights hereunder or thereunder shall operate as a
waiver of the rights hereof and thereof. No covenant or other provision hereof
or thereof may be waived otherwise than by a written instrument signed by the
party so waiving such covenant or other provision; PROVIDED, HOWEVER, that
except as otherwise provided herein or therein, changes in or additions to, and
any consents required by, or requests or demands made pursuant to, this
Agreement may be made, and compliance with any term, covenant, condition or
provision set forth herein may be omitted or waived (either generally or in a
particular instance and either retroactively or prospectively) by a written
instrument or instruments signed by a majority in interest of the Lenders and
the Company. Any amendment or waiver effected in accordance with this Section
14.1 shall be binding upon each holder of Debentures purchased under this
Agreement at the time outstanding (including securities into which such
Debentures have been converted), each future holder of all such securities and
the Company.
14.2 SURVIVAL OF COVENANTS: ASSIGNABILITY OF RIGHTS. All covenants,
agreements, representations and warranties of the Company made herein and to be
performed prior to or at the Closing and in the certificates, lists, exhibits,
schedules or other written information delivered or furnished to any Lender
pursuant to the terms of this Agreement shall be presumed to have been material
and to have been relied upon by such Lender, and, except as otherwise provided
in this Agreement, shall survive the delivery of the Debentures and shall bind
the Company's successors and
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assigns, whether so expressed or not, and, except as otherwise provided in this
Agreement, all such covenants, agreements, representations and warranties shall
inure to the benefit of the Lenders' successors and assigns and to transferees
of the Debentures or any securities received upon conversion thereof, whether so
expressed or not. Notwithstanding the foregoing or anything to the contrary
contained in this Agreement: (a) the Lenders' transfer or assignment of their
rights hereunder are expressly subject to such successor or assignee, as a
condition to such transfer or assignment, agreeing in writing with the Company
and the Founders to be bound by all of the provisions hereof; (b) all
representations and warranties of the Company or the Founders contained or
referenced in Section 2 hereof shall survive only for a period of two (2) years
from the date of this Agreement, and any claim based upon any misrepresentations
or breach of warranty by the Company or the Founders under Section 2 must be
made within such period.
14.3 GOVERNING LAW; JURISDICTION; VENUE. THIS AGREEMENT SHALL BE DEEMED
TO BE A CONTRACT MADE UNDER, AND SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE COMMONWEALTH OF MASSACHUSETTS. The Company and each Founder hereby agree
that the state and federal court of The Commonwealth of Massachusetts shall have
jurisdiction to hear and determine any claims or disputes between the Lenders
and the Company or either of the Founders pertaining directly or indirectly to
this Agreement and all documents, instruments and agreements executed pursuant
hereto, or to any matter arising therefrom (unless otherwise expressly provided
for therein). To the extent permitted by law, the Company and each of the
Founders hereby expressly submit and consent in advance to such jurisdiction in
any action or proceeding commenced by the Lenders in any of such courts, and
agrees that service of such summons and complaint or other process or papers may
be made by registered or certified mail addressed to. the Company and to each of
the Founders at the address to which notices are to be sent pursuant to this
Agreement. The Company and each of the Founders waive any claim that Boston,
Massachusetts is an inconvenient form or an improper forum based on lack of
venue. The choice of forum set forth in this section 14.4 shall not be deemed to
preclude the enforcement of any judgment obtained in such forum or the taking of
any action to enforce the same in any other appropriate jurisdiction.
14.4 SECTION HEADINGS. The descriptive headings in this Agreement have
been inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provision thereof or hereof.
14.5 COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original; but such counterparts shall together constitute but one
and the same document.
14.6 NOTICES AND DEMANDS. Any notice or demand which, by any provision
of this Agreement or any agreement, document or instrument executed pursuant
hereto or thereto, except as otherwise provided therein, is required or provided
to be given shall be deemed to have been sufficiently given observed and
received for all purposes when delivered in hand, by facsimile transmission with
receipt acknowledged or by express delivery providing receipt of delivery, to
the
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following addresses and numbers: if to the Company, at its address as shown on
the signature page hereof, or at any other address designated by the Company to
the Lenders in writing; if to a Lender, at its mailing address and facsimile
number, if applicable, as shown on Exhibit A hereto, or at any other address or
facsimile number designated by such Lender to the Company and the other Lenders
in writing; and if to an assignee of a Lender, at its address or facsimile
number as designated to the Company and the other Lenders in writing. Unless the
context otherwise indicates, Advent VII L.P. shall be the Lenders'
representative for receiving all notices and giving all consents required or
permitted to be given hereunder. Any consent given by Advent VII L.P. to the
Company or the Founders shall be binding on each of the Lenders and their
respective successors and assigns.
14.7 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such,
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
14.8 EXPENSES. The Company shall pay all costs and expenses that it
incurs (including, without limitation, those of its accountants and lawyers)
with respect to the negotiation, execution, delivery, performance and
enforcement of this Agreement and the agreements, documents and instruments
contemplated hereby or executed pursuant hereto, and the Lenders shall pay all
costs and expenses that they incur with respect to the negotiation, execution
and delivery of this Agreement and the agreements, documents and instruments
contemplated hereby or executed pursuant hereto, except that upon and after the
Closing pursuant to this Agreement, the Company shall reimburse the Lenders for
all out-of pocket costs thereafter incurred by them on account of any filing
fees, transfer taxes or documentary stamp taxes due on account of the issuance
of the Debentures, the Preferred Shares or the Conversion Shares, or in
connection with their attendance at Board of Directors meetings as provided in
Section 6.11, or enforcement of this Agreement, the Registration Rights
Agreement or the terms of the Preferred Shares upon or after a breach thereunder
(including the reasonable legal fees and disbursements of their counsel).
14.9 INTEGRATION. This Agreement, including the exhibits, documents and
instruments referred to herein or therein, constitutes the entire agreement, and
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above written.
XXXXX-XXXXXXX & ASSOCIATES, INC.
By: /s/ Xxxxxxx Xxxxx
------------------------------------
Name: Xxxxxxx Xxxxx
Title: President
ADVENT VII L.P.
By: TA Associates VII L.P.,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: /s/ Xxxxxxxxxx X. Xxxxx
------------------------------------
Xxxxxxxxxx X. Xxxxx
Managing Director
ADVENT ATLANTIC AND PACIFIC II L.P.
By: TA Associates AAP II Partners,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: /s/ Xxxxxxxxxx X. Xxxxx
------------------------------------
Xxxxxxxxxx X. Xxxxx
Managing Director
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CHESTNUT CAPITAL INTERNATIONAL
III LIMITED PARTNERSHIP
By: TA Associates VI L.P.,
its Attorney-in-Fact
By: TA Associates, Inc.,
its General Partner
By: /s/ Xxxxxxxxxx X. Xxxxx
------------------------------------
Xxxxxxxxxx X. Xxxxx
Managing Director
ADVENT NEW YORK L.P.
By: TA Associates VI L.P.,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: /s/ Xxxxxxxxxx X. Xxxxx
------------------------------------
Xxxxxxxxxx X. Xxxxx
Managing Director
ADVENT INDUSTRIAL II L.P.
By: TA Associates VI L.P.,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: /s/ Xxxxxxxxxx X. Xxxxx
------------------------------------
Xxxxxxxxxx X. Xxxxx
Managing Director
TA VENTURE INVESTORS LIMITED
PARTNERSHIP
By: /s/ Xxxxxxxxxx X. Xxxxx
------------------------------------
Xxxxxxxxxx X. Xxxxx
General Partner
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FOUNDERS:
/s/ Xxxxxxx Xxxxx
---------------------------------------
Xxxxxxx Xxxxx
/s/ Xxxxx Xxxxxxx
---------------------------------------
Xxxxx Xxxxxxx
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EXHIBIT A
LIST OF LENDERS
Aggregate Amount of Debentures
Name Purchased
---- ------------------------------
Advent VII L.P. $6,000,000
c/o TA Associates
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxxxxxxx 00000
Facsimile Number: (000) 000-0000
Advent Atlantic and Pacific II L.P. $3,572,000
c/o TA Associates
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxxxxxxx 00000
Facsimile Number: (000) 000-0000
Chestnut Capital International M Limited Partnership $ 450,000
c/o TA Associates
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxxxxxxx 00000
Facsimile Number: (000) 000-0000
Advent New 'York L.P. $ 600,000
c/o TA Associates
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxxxxxxx 00000
Facsimile Number: (000) 000-0000
Advent Industrial II L.P. $1,288,000
c/o TA Associates
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxxxxxxx 00000
Facsimile Number: (000) 000-0000
TA Venture Investors Limited Partnership $ 90,000
c/o TA Associates
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxxxxxxx 00000
Facsimile Number: (000) 000-0000
TOTAL $12,000,000
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