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EXHIBIT 10.2.1
TELERGY, INC.
STOCK PURCHASE AGREEMENT
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TELERGY INC.
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is entered into as
of November 10, 1998, by and among Telergy, Inc., a New York corporation with
offices at Xxx Xxxxxxx Xxxxxxx, Xxxx Xxxxxxxx, Xxx Xxxx 00000 (the "Company"),
and Niagara Mohawk Energy, Inc., a Delaware corporation with offices at 000 Xxxx
Xxxxxx, Xxxxxxxx, Xxx Xxxx 00000 (the "Purchaser") and, with respect to Sections
5.1 and 5.4 only, Xxxxx X. Xxxxx and Xxxxx X. Xxxxx (the "Founders").
RECITALS
WHEREAS, the Company desires to issue and sell an aggregate of
eighty-three thousand, three hundred thirty-four (83,334) shares of its Class A
common stock, $.0001 par value(the "Class A Common Stock") on the terms and
conditions set forth herein;
WHEREAS, the Purchaser desires to purchase an aggregate of eighty-three
thousand, three hundred thirty-four (83,334) shares of the Class A Common Stock
(the "Shares") on the terms and conditions set forth herein;
WHEREAS, the Company and the Purchaser are amending the Conversion
Rights Agreement, dated as of April 24, 1998 (the "Conversion Rights
Agreement"), between the Company and the Purchaser simultaneously with the
execution hereof; and
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. SALE OF THE SHARES
1.1 Sale and Purchase
Immediately following the execution hereof, the Company will issue and
sell to the Purchaser, and the Purchaser will purchase from the Company, the
Shares at a purchase price of $120 per Share for the aggregate purchase price of
Ten Million Eighty Dollars ($10,000,080), payable by certified check in
immediately available funds.
1.2 Deliveries by the Company
Upon receipt of the purchase price pursuant to Section 1.1, the
Company will deliver to the Purchaser a certificate representing the Shares.
Simultaneous therewith the Company will deliver to Purchaser (i) its Financial
Statements (as defined herein) subject to the Confidentiality Agreement by and
between the Company and the Purchaser, (ii) a certificate dated as of the date
hereof, signed by the Chief Executive Officer of the Company, certifying that
the representations and warranties set forth in Section 2 of this Agreement are
true and correct as of the date hereof, (iii) the opinion of internal legal
counsel of the Company substantially in the form attached hereto as Exhibit A,
and (iv) a copy of Amendment No. 1 to the Conversion Rights Agreement, dated as
of the date hereof, duly executed by an executive officer of the Company.
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2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As of the date hereof, the Company hereby represents and warrants to the
Purchaser as follows:
2.1 Organization, Good Standing, and Qualification
Each of the Company and each of its Subsidiaries is a corporation, limited
liability company, or partnership duly organized, validly existing and in good
standing under the laws of the State of New York (and in the case of Telergy
Canada, Inc., New Brunswick, Canada). For purposes of this Agreement, a
"Subsidiary" of the Company shall mean a corporation, partnership, limited
liability company, joint venture or other entity of which 50% or greater of the
voting power of the equity securities or other equity interests is owned,
directly or indirectly, by the Company or any Subsidiary of the Company. The
Company and each of its Subsidiaries has all requisite corporate power and
authority to own and operate its properties and assets, and to carry on its
business as presently conducted and as presently proposed to be conducted. Each
of the Company and each of its Subsidiaries is duly qualified and is authorized
to do business and is in good standing in all jurisdictions in which the nature
of its activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which failure to do
so would not have a material adverse effect on the Company or its business.
Exhibit B sets forth the Company's Subsidiaries and the other persons, if any,
holding equity interests in such Subsidiaries, including affiliates thereof.
Except as set forth in Section 2.1 of Schedule I, all of the equity interests of
the Company in such Subsidiaries are owned by the Company or another Subsidiary
of the Company, free and clear of any liens, and are not subject to any options,
warrants or other rights to purchase any such interests. Except as set forth on
Exhibit B, the Company does not have any direct or indirect equity interest in
any other corporation, partnership, limited liability company, joint venture or
other entity.
2.2 Capitalization; Voting Rights
As of the date hereof, the authorized capital stock of the Company
consists of (a) nine million, nine hundred ninety-nine thousand, nine hundred
(9,999,900) shares of Class A Common Stock, of which two million, seven hundred
forty-three thousand, four hundred and eighty-three (2,743,483) shares are
issued and outstanding (prior to the issuance of the Shares), and (b) one
hundred (100) shares of Class C Common Stock, $.0001 par value, all of which are
issued and outstanding. All issued and outstanding shares of the Company's Class
A Common Stock and Class C Common Stock and the equity interests in the
Subsidiaries (i) have been duly authorized and validly issued, (ii) are fully
paid and nonassessable, and (iii) were offered, sold, and issued in compliance
with all applicable state and federal laws concerning the offering, sale and
issuance of securities. Other than as set forth in Section 2.2 of Schedule I,
there are no outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal), proxy or shareholder agreements,
or agreements of any kind for the purchase or acquisition from the Company or
any Subsidiary of any of its securities, nor are there any securities
convertible into or exchangeable for any shares of capital stock of the Company
or any of its Subsidiaries. None of the Company nor any of its Subsidiaries has
any bond, debentures, notes or other obligations the holders of which have the
right to vote with the shareholders of the Company.
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When issued in compliance with the provisions of this Agreement, the Shares will
be validly issued, fully paid and nonassessable, and will be free of any liens
or encumbrances; provided, however, that the Shares may be subject to
restrictions on transfer under state and/or federal securities laws as set forth
herein or as otherwise required by such laws at the time a transfer is proposed.
Attached hereto as Exhibit C is a copy of the Company's Restated Certificate of
Incorporation, as amended through the date hereof.
2.3 Authorization; Binding Obligations
Except as set forth in Section 2.3 of Schedule I, all corporate action on
the part of the Company, its officers, directors and shareholders necessary for
the authorization of this Agreement, the performance of all obligations of the
Company hereunder and the authorization, sale, issuance and delivery of the
Shares pursuant hereto has been taken; and the Company has all requisite
corporate power and authority to execute this Agreement, to sell, issue, and
deliver the Shares and to carry out the provisions of this Agreement. This
Agreement is a valid and binding obligation of the Company enforceable in
accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; (ii) general principles of equity
that restrict the availability of equitable remedies; and (iii) to the extent
that the enforceability of the indemnification provisions in Section 6.6 may be
limited by applicable laws. The sale of the Shares are not and will not be
subject to any preemptive rights or rights of first refusal.
2.4 Financial Statements
The Company has provided the Purchaser (i) its audited balance sheet as at
December 31, 1997 and audited statement of income for the year ending December
31, 1997 and (ii) its unaudited balance sheet as at June 30, 1998 and unaudited
statement of income for the six month period ending June 30, 1998 (collectively,
the "Financial Statements"). The Financial Statements, together with the notes
thereto, are complete and correct in all material respects, have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated, except as disclosed therein,
and present fairly the financial condition and position and results of operation
of the Company on a consolidated basis as of December 31, 1997 and June 30,
1998, provided, however, that the unaudited financial statements are subject to
normal year-end audit adjustments (which are not expected to be material in
amount or effect), and do not contain all footnotes and other presentation items
required under generally accepted accounting principles.
2.5 Liabilities
Except as set forth in Section 2.5 of Schedule I, the Company has no
material liabilities and, to the best of its knowledge, knows of no material
contingent liabilities not disclosed in the Financial Statements. The Company
and its Subsidiaries have no liability for any obligations of KCI Long Distance,
Inc. or any of its predecessors or successors.
2.6 Agreements; Action
Except as set forth in Section 2.6 of Schedule I:
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(a) There are no agreements, understandings or proposed
transactions between the Company or any of its Subsidiaries
and any of its, or their, officers and directors.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or
decrees to which the Company or any of its Subsidiaries are a
party or to its knowledge by which it is bound or to which its
assets are subject which may involve (i) obligations
(contingent or otherwise) of, or payments to, the Company and
its Subsidiaries in excess of $100,000 (other than obligations
of, or payments to, the Company or any of its Subsidiaries
arising from purchase or sale agreements entered into in the
ordinary course of business), or (ii) the license of any
patent, copyright, trade secret or other proprietary right to
or from the Company or any of its Subsidiaries (other than
licenses arising from the purchase of "off the shelf" or other
standard products), or (iii) provisions restricting or
affecting the development or distribution of services of the
Company or any of its Subsidiaries, or (iv) indemnification by
the Company or any of its Subsidiaries with respect to
infringements of proprietary rights (other than
indemnification obligations arising from purchase or sale
agreements entered into in the ordinary course of business).
(c) The Company and, with respect to (i), (iii) and (iv), any of
its Subsidiaries, has not (i) declared or paid any dividends,
or authorized or made any distribution upon or with respect to
any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or any other liabilities
(other than with respect to dividend obligations,
distributions, indebtedness and other obligations incurred in
the ordinary course of business or as disclosed in the
Financial Statements) individually in excess of $100,000 or,
in the case of indebtedness and/or liabilities individually
less than $100,000, in excess of $200,000 in the aggregate,
(iii) made any loans or advances to any person, other than
advances in the ordinary course of business not to exceed
$100,000 individually or $200,000 in the aggregate, or (iv)
sold, exchanged or otherwise disposed of any of its assets or
rights, other than in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings,
instruments, contracts and proposed transactions involving the
same person or entity (including persons or entities the
Company has reason to believe are affiliated therewith) shall
be aggregated for the purpose of meeting the individual
minimum dollar amounts of such subsections.
2.7 Obligations to Related Parties
There are no obligations of the Company or any of its Subsidiaries to
their respective officers, directors, shareholders, or employees other than (a)
for compensation for services rendered, (b) reimbursement for reasonable
expenses incurred on behalf of the Company or
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any of its Subsidiaries, and (c) for other standard employee benefits made or to
be made generally available to all employees (including stock option agreements
outstanding under any stock option plan approved by the Board of Directors of
the Company).
2.8 Changes
Except as set forth in Section 2.8 of Schedule I, since June 30,
1998, there has not been to the Company's knowledge:
(a) Any change in the assets, liabilities, financial condition or
operations of the Company or Telergy Central, LLC from that
reflected in the Financial Statements, other than changes in
the ordinary course of business, none of which individually or
in the aggregate has had or is expected to have a material
adverse effect on such assets, liabilities, financial
condition or operations of the Company and Telergy Central,
LLC, or any change in the assets, liabilities, financial
condition or operations of the other Subsidiaries, other than
changes in the ordinary course of business, none of which
individually or in the aggregate has had or is expected to
have a material adverse effect on such assets, liabilities,
financial condition or operations of such other Subsidiaries;
(b) Any resignation or termination of any key officers of the
Company or any of its Subsidiaries; and the Company, to the
best of its knowledge, does not know of the impending
resignation or termination of employment of any such officer;
(c) Any material change in the contingent obligations of the
Company or any of its Subsidiaries by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties,
business or prospects or financial condition of the Company
and its Subsidiaries, taken as a whole;
(e) Any waiver by the Company or any of its Subsidiaries of a
valuable right or of a material debt owed to it;
(f) Any direct or indirect loans made by the Company or any of its
Subsidiaries to any shareholder, employee, officer or director
of the Company or any of its Subsidiaries, other than advances
made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company or any Subsidiary of
the Company that is
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not wholly-owned;
(i) Any labor organization activity involving the Company or any
of is Subsidiaries;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company or any of its Subsidiaries, except
those for immaterial amounts or for current liabilities
incurred in the ordinary course of business;
(k) Any sale, assignment or transfer by the Company or any of its
Subsidiaries of any patents, trademarks, copyrights, trade
secrets or other intangible assets;
(l) Any change in any agreement to which the Company or any of its
Subsidiaries is a party or by which it is bound which is
reasonably likely to materially and adversely affect the
business, assets, liabilities, financial condition, operations
or prospects of the Company and its Subsidiaries, taken as a
whole, including compensation agreements with employees of the
Company or any of its Subsidiaries;
(m) Any capital expenditures greater than $10,000,000.00;
(n) Any loss or threatened loss of any supplier or customer of the
Company or any of its Subsidiaries which has had or could
reasonably be expected to have a material adverse effect on
the Company and its Subsidiaries; or
(o) Any other event or condition of any character that, either
individually or cumulatively, has materially and adversely
affected the business, assets, liabilities, financial
condition, operations or prospects of the Company.
2.9 Title to Properties and Assets; Liens, etc.
Except as set forth in Section 2.9 of Schedule I, the Company and
each of its Subsidiaries has good and marketable title to its properties and
assets, including the properties and assets reflected in the balance sheet as at
June 30, 1998 (included in the Financial Statements), and good title to its
leasehold estates, to the Company's knowledge, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (i) those
resulting from taxes which have not yet become delinquent, and (ii) minor liens
and encumbrances which do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company and its
Subsidiaries. The Company and its Subsidiaries have such title in the
rights-of-way granted to the applicable Subsidiary of the Company pursuant to
the right-of-occupancy agreements set forth in Section 2.9 of Schedule I as is
necessary for the Company and its Subsidiaries to operate in the manner in which
they have operated to the date hereof and intend to operate in the future to
install and operate fiber optic telecommunications facilities and to provide
telecommunications services
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to customers through such facilities.
2.10 Patents and Trademarks
The Company and each of its Subsidiaries owns or possesses sufficient
legal rights to all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information and other proprietary rights and processes necessary
for its business as now conducted and as proposed to be conducted, without any
known infringement of the rights of others. Except as set forth in Section 2.10
of Schedule I, there are no outstanding options, licenses or agreements of any
kind relating to the foregoing, nor is the Company or any of its Subsidiaries
bound by or a party to any options, licenses or agreements of any kind with
respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and other proprietary rights and processes
of any other person or entity other than such licenses or agreements arising
from the purchase "off the shelf" of standard products. Except as set forth in
Section 2.10 of Schedule I, neither the Company nor any of its Subsidiaries has
received any communications alleging that the Company or any of its Subsidiaries
has violated or, by conducting its business as proposed, would violate any of
the patents, trademarks, service marks, trade names, copyrights or trade secrets
or other proprietary rights of any other person or entity. Neither the Company
nor any of its Subsidiaries is aware that any of its employees is obligated
under any contract (including licenses, covenants or commitments of any nature)
or other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the Company or
any of its Subsidiaries or that would conflict with the business of the Company
and its Subsidiaries as proposed to be conducted. Neither the execution nor
delivery of this Agreement, nor the carrying on of the business of the Company
and its Subsidiaries by the employees of the Company and its Subsidiaries, nor
the conduct of the business of the Company and its Subsidiaries as proposed,
will, to the Company's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any employee is now obligated. The Company
does not believe it is or will be necessary to utilize any inventions, trade
secrets or proprietary information of any of its employees made prior to their
employment by the Company or any of its Subsidiaries, except for inventions,
trade secrets or proprietary information that have been assigned to the Company.
2.11 Compliance with Other Instruments
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Except as set forth of Section 2.11 of Schedule 1, the Company is not in
violation or default of any term of its Restated Articles or bylaws, or of any
provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order, writ or, to its knowledge, any statute, rule or regulation
applicable to the Company or any of its Subsidiaries which would materially and
adversely affect the business, assets, liabilities, financial condition,
operations or prospects of the Company and its Subsidiaries taken as a whole.
The execution, delivery, and performance of and compliance with this Agreement
and the issuance and sale of the Shares pursuant hereto, will not result in any
violation of, or be in conflict with or constitute a default under, any of the
foregoing, or result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the Company or any of its
Subsidiaries or the suspension, revocation, impairment, forfeiture or
non-renewal of any permit, license, authorization or approval applicable to the
Company or any of its Subsidiaries, their respective businesses or operations or
any of their respective assets or properties.
2.12 Litigation
Except as set forth in Section 2.12 of Schedule I, there is no action,
suit, proceeding or investigation pending or to the Company's knowledge
currently threatened against the Company that questions the validity of this
Agreement or the right of the Company to enter into such Agreement, or to
consummate the transactions contemplated hereby, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company and its Subsidiaries taken as a
whole, financially or otherwise, or any change in the current equity ownership
of the Company, nor is the Company aware that there is any basis for the
foregoing. The foregoing includes, without limitation, actions pending or
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the employees of the Company or any of its Subsidiaries,
their use in connection with the business of the Company or its Subsidiaries of
any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers.
Neither the Company nor any of its Subsidiaries is a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.
2.13 Tax Returns and Payments
The Company and each of its Subsidiaries has filed all tax returns
(federal, state and local) required to be filed by it. All taxes shown to be due
and payable on such returns, any assessments imposed, and to the Company's
knowledge all other taxes due and payable by the Company and each of its
Subsidiaries have been paid or will be paid prior to the time they become
delinquent.
2.14 Employees
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Neither the Company nor any of its Subsidiaries has any collective
bargaining agreement with any of its employees. There is no labor union
organizing activity pending or, to the knowledge of the Company or any of its
Subsidiaries, threatened with respect to the Company or any of its Subsidiaries.
Except as set forth in Section 2.14 of Schedule I, no employee has any agreement
or contract, written or verbal, regarding his employment. To the knowledge of
the Company and each of its Subsidiaries, no employee of the Company and each of
its Subsidiaries, nor any consultant with whom the Company and each of its
Subsidiaries has contracted, is in violation of any term of any employment
contract, patent disclosure agreement or any other agreement relating to the
right of any such individual to be employed by, or to contract with, the Company
or its Subsidiaries because of the nature of the business to be conducted by the
Company or its Subsidiaries; and to the knowledge of the Company and each of its
Subsidiaries, the continued employment by the Company and its Subsidiaries of
its present employees, and the performance of the contracts of the Company and
each of its Subsidiaries with its independent contractors, will not result in
any such violation. Neither the Company nor any of its Subsidiaries has received
any notice alleging that any such violation has occurred. Except as set forth in
Section 2.14 of Schedule I, each employee is employed on an "at will" basis and
has no right to any material compensation following termination of employment
with the Company or its Subsidiaries. Neither the Company nor any of its
Subsidiaries is aware that any officer or key employee, or that any group of key
employees, intends to terminate their employment with the Company or its
Subsidiaries, nor does the Company nor any of its Subsidiaries have a present
intention to terminate the employment of any officer, key employee or group of
key employees. Neither the Company nor any of its Subsidiaries has ever
maintained, sponsored or contributed to, or been obligated to contribute to, any
employee pension benefit plan as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended.
2.15 Obligations of Management
Each officer of the Company and its Subsidiaries is currently devoting
substantially all of such officer's business time to the conduct of the business
of the Company and the respective Subsidiaries. The Company is not aware of any
officer or key employee of the Company or its Subsidiaries planning to work less
than full time for the Company or its respective Subsidiaries in the future.
2.16 Registration Rights
Except as set forth in Section 2.16 of Schedule I or as required pursuant
to Section 4.3(b) and Article 6 hereof, the Company is presently not under any
obligation, and has not granted any rights, to register (as defined in Section
6.1 hereof) any of the Company's presently outstanding securities or any of its
securities that may hereafter be issued.
2.17 Compliance with Laws; Permits
To its best knowledge, neither the Company nor any of its Subsidiaries is
in violation of any applicable statute, rule, regulation, order or restriction
of any domestic or foreign government or any instrumentality or agency thereof
in respect of the conduct of its business or the ownership of its properties
which violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company and
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its Subsidiaries taken as a whole. No governmental orders, permissions,
consents, approvals or authorizations are required to be obtained and no
registrations or declarations are required to be filed in connection with the
execution and delivery of this Agreement and the issuance of the Shares. The
Company and its Subsidiaries have, or is in the process of obtaining, all
franchises, permits, licenses and any similar authority necessary for the
conduct of their respective businesses as now being conducted by it, the lack of
which could materially and adversely affect the business, properties, prospects
or financial condition of the Company and its Subsidiaries taken as a whole and
the Company believes it or the applicable Subsidiary can obtain, without undue
burden or expense, any similar authority for the conduct of the business as
planned to be conducted.
2.18 Environmental and Safety Laws
To the Company's knowledge, and except for such matters that, alone or in
the aggregate, are not reasonably likely to have a material adverse effect on
the business assets, liabilities, financial condition, operations or prospects
of the Company and its Subsidiaries taken as a whole: (i) the Company and its
Subsidiaries have complied at all times with all applicable Environmental Laws;
(ii) no property currently owned or operated by the Company or any of its
Subsidiaries (including soils, groundwater, surface water, buildings or other
structures) is contaminated with any Hazardous Substances; (iii) no property
formerly owned or operated by the Company or any of its Subsidiaries was
contaminated with any Hazardous Substance during or prior to such period of
ownership or operation; (iv) except as may be provided in any right-of-way or
franchise agreement set forth in Schedule I, neither the Company nor any of its
Subsidiaries is subject to liability for any Hazardous Substance disposal or
contamination on any third party property; (v) neither the Company nor any of
its Subsidiaries has been associated with any release or threat of release of
any Hazardous Substance; (vi) neither the Company nor any of its Subsidiaries
has received any notice, demand, letter, claim or request for information
alleging that the Company or any of its Subsidiaries may be in violation of or
subject to liability under any Environmental Law; (vii) neither the Company nor
any of its Subsidiaries is subject to any order, decree, injunction or other
arrangement with any governmental entity or any indemnity or other agreement
with any third party relating to liability under any Environmental Law or
relating to Hazardous Substances; and (viii) except as may be provided in any
right-of-way or franchise agreement, there are no other circumstances or
conditions involving the Company or any of its Subsidiaries that could
reasonably be expected to result in any claim, liability, investigation, cost or
restriction on the ownership, use, or transfer of any property pursuant to any
Environmental Law.
As used herein, the term "Environmental Law" means any federal, state,
local or foreign statute, law, regulation, order, decree, permit, authorization,
opinion, common law or agency requirement relating to: (A) the protection,
investigation or restoration of the environment, health, safety, or natural
resources, (B) the handling, use, presence, disposal, release or threatened
release of any Hazardous Substance or (C) noise, odor, indoor air, employee
exposure, wetlands, pollution, contamination or any injury or threat of injury
to persons or property relating to any Hazardous Substance.
As used herein, the term "Hazardous Substance" means any substance that
is: (A) listed, classified or regulated pursuant to any Environmental Law; (B)
any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing,
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polychlorinated biphenyls, radioactive material or radon; and (C) any other
substance which may be the subject of regulatory action by any government entity
in connection with any Environmental Law.
2.19 Offering Valid
Assuming the accuracy of the representations and warranties of the
Purchaser contained in Section 4.3 hereof, the offer, sale and issuance of the
Shares will be exempt from the registration requirements of the Securities Act
of 1933, as amended (the "Securities Act") and will have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
2.20 Full Disclosure
This Agreement, the Exhibits and Schedule hereto, and all other documents
provided or made available by the Company to the Purchaser or its respective
attorneys or agents in connection herewith or with the transactions contemplated
hereby, do not contain any untrue statement of a material fact nor omit to state
a material fact necessary in order to make the statements contained herein or
therein not misleading and the Company has no knowledge of any facts or
circumstances that would make any of the information contained in such documents
untrue or inaccurate in any material respect, nor has anything occurred since
such information was provided to the Purchaser which renders any statement
therein untrue or inaccurate in any material respect. There are no facts which
(individually or in the aggregate) materially adversely affect the business,
assets, liabilities, financial condition, prospects or operations of the Company
and its Subsidiaries taken as a whole that have not been set forth in this
Agreement, the Exhibits and Schedule hereto, or in other documents delivered to
the Purchaser or its attorneys or agents in connection herewith.
2.21 Minute Books
The minute books of the Company made available to the Purchaser contain a
complete summary of all meetings and actions by written consent of directors and
shareholders since the time of incorporation.
2.22 Insurance
The Company has fire, liability and casualty insurance policies with
coverage customary for companies similarly situated to the Company.
2.23 Year 2000
The Company is reviewing its operations and those of its Subsidiaries and
major commercial counterparties with a view to assessing whether it or its
Subsidiaries' respective businesses networks or products will, in the receipt,
transmission, processing, manipulation, storage, retrieval, retransmission or
other utilization of data, be vulnerable to a Year 2000 Issue (including those
business and economic risks resulting from the failure of key
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customers, trade counterparties and suppliers of the Company and its
Subsidiaries to properly quantify, address and resolve a Year 2000 Issue). Based
on such review as of the date hereof, the Company has no reason to believe that
the businesses or operations of the Company or any of its Subsidiaries will
suffer a material adverse effect resulting from a Year 2000 Issue. For purposes
of this Agreement, the term "Year 2000 Issue", with respect to any person, shall
mean any significant risk that computer hardware, software or equipment
containing embedded microchips utilized in the business or operations of such
person will not, in the case of dates or time periods occurring after December
31, 1999, function at least as effectively and reliably as in the case of times
or time periods occurring before January 1, 2000, including the making of
accurate leap year calculations, and which will materially adversely affect the
Company and its Subsidiaries.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
As of the date hereof, the Purchaser hereby represents and warrants to the
Company as follows (such representations and warranties do not lessen or obviate
the representations and warranties of the Company set forth in this Agreement):
3.1 Requisite Power and Authority
The Purchaser has all necessary power and authority under all applicable
provisions of law to execute and deliver this Agreement and to carry out its
provisions. All action on the Purchaser's part required for the lawful execution
and delivery of this Agreement has been taken. Upon its execution and delivery,
this Agreement will be a valid and binding obligation of the Purchaser,
enforceable in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, (ii) general principles
of equity that restrict the availability of equitable remedies, and (iii) to the
extent that the enforceability of the indemnification provisions of Section 6.6
of Article 6 hereof may be limited by applicable laws.
3.2 Consents
No consents, approvals, orders, authorizations, registrations,
qualifications, designations, declarations or filings with any governmental or
banking authority on the part of the Purchaser are required in connection with
the consummation of the transactions contemplated in this Agreement.
3.3 Investment Representations
The Purchaser understands that the Shares have not been registered under
the Securities Act. The Purchaser also understands that the Shares are being
offered and sold pursuant to an exemption from registration contained in the
Securities Act based in part upon the Purchaser's representations contained in
this Agreement. The Purchaser hereby represents and warrants as follows:
14
(a) Purchaser Bears Economic Risk
The Purchaser has substantial experience in evaluating and investing
in private placement transactions of securities in companies similar to the
Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests. The
Purchaser must bear the economic risk of this investment indefinitely unless the
Shares are registered pursuant to the Securities Act, or an exemption from
registration is available. Except as otherwise contemplated herein, the
Purchaser understands that the Company has no present intention of registering
the Shares. The Purchaser also understands that there is no assurance that any
exemption from registration under the Securities Act will be available and that,
even if available, such exemption may not allow such Purchaser to transfer all
or any portion of the Shares under the circumstances, in the amounts or at the
times such Purchaser might propose.
(b) Acquisition for Own Account
The Purchaser is acquiring the Shares for the Purchaser's own
account for investment only, and not with a view towards their distribution.
(c) Purchaser Can Protect Its Interest
The Purchaser represents that by reason of its, or of its
management's, business or financial experience, the Purchaser has the capacity
to protect its own interests in connection with the transactions contemplated in
this Agreement. Further, the Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in this
Agreement.
(d) Accredited Investor
The Purchaser represents that it is an accredited investor within
the meaning of Regulation D under the Securities Act.
(e) Company Information
The Purchaser has received and read the Financial Statements (and
such other Company documents delivered in response to the Purchaser's formal due
diligence request) and has had an opportunity to discuss the Company's business,
management and financial affairs with directors, officers and management of the
Company and has had the opportunity to review the Company's operations and
facilities. The Purchaser has also had the opportunity to ask questions of and
receive answers from the Company and its management regarding the terms and
conditions of this investment.
(f) Rule 144
The Purchaser acknowledges and agrees that the Shares must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from such registration is available. The Purchaser has been advised
or is aware
15
of the provisions of Rule 144 promulgated under the Securities Act,
which permits limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being through an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934) and the number of shares
being sold during any three-month period not exceeding specified limitations.
4. RETURN OF INVESTMENT
4.1 Current Return
The Company will pay the Purchaser a twenty percent (20%) per annum simple
rate of return on the purchase price of the Shares (the "Current Return") on the
terms and conditions set forth in this Article 4. The Current Return will be
paid annually on the anniversary date of this Agreement until the earliest to
occur of two specific trigger points ("Trigger Points") and will be based upon a
365 day year. The Current Return may be paid in cash or additional shares of
Class A Common Stock at the election of the Company. If paid in shares, such
shares will be valued at $100 per share for purposes of such payments.
4.2 Capital Return
In addition to the Current Return, the Company may pay the Purchaser a
further return (the "Capital Return") at the Trigger Points as set forth in this
Article 4. The Current Return and the Capital Return are together referred to in
this Agreement as the "Return".
4.3 Payment of the Return
(a) The first Trigger Point for the payment of the Return is the
date the Purchaser may sell all of its Shares in the public
market following an initial public offering of shares of Class
A Common Stock by the Company, which date is the date on which
any market stand-off period under Section 6.4 expires and the
Purchaser is permitted to sell all of its Shares under Rule
144 or another exemption under the Securities Act. The Company
will notify the Purchaser of the occurrence of such date (the
"Expiration Date") and will promptly pay the Purchaser the
Current Return calculated from the last payment date of the
Current Return through the Expiration Date. If the Fair Market
Value is less than $180 per Share (the "Target Price") then
the Company will also pay to the Purchaser a Capital Return
per Share equal to the difference between the Target Price and
the Fair Market Value. For purposes of this Section 4.3(a),
"Fair Market Value" shall mean the average of: the closing
prices quoted on any exchange on which the Company's Common
Stock is listed; the closing prices of the Company's Common
Stock on the NASDAQ National Market or NASDAQ SmallCap Market;
or the bid and asked prices of the Company's Common Stock
quoted in the Over-the-Counter Market Summary if not listed on
any exchange or
16
the NASDAQ system; as reported in the Eastern Edition of The
Wall Street Journal for the ten (10) trading days immediately
prior to the Expiration Date. The Capital Return may be paid
in cash or additional shares of Class A Common Stock at the
election of the Purchaser, provided, however, to the extent
the Purchaser elects to receive the Capital Return in cash,
such amount shall be due and payable within thirty (30) days
after the Expiration Date. If paid in shares, such shares
would be valued at the Fair Market Value on the Expiration
Date.
(b) If the Company has not completed an initial public offering of
shares of Class A Common Stock prior to November 1, 2001, the
Purchaser may thereafter notify the Company of its desire to
have its Shares repurchased by the Company by delivering to
the Company a notice to such effect (the "Repurchase Notice").
The second Trigger Point for the payment of the Return is the
date the Repurchase Notice is deemed given to the Company (as
determined by Section 7.9 below, the "Repurchase Date"). Upon
delivery of the Repurchase Notice, the Company will promptly
pay the Purchaser the Current Return calculated from the last
payment of Current Return through the Repurchase Date. In
addition, subject to the terms of this Section 4.3, within
thirty (30) days after receipt of the Repurchase Notice, the
Company will repurchase the Shares at a per Share price in
cash equal to the sum of (i) the initial purchase price ($120
per share); and (ii) an assumed Capital Return ($60 per Share)
(the "Assumed Capital Return"). If the Company does not have
funds sufficient to repurchase the Shares or is contractually
or otherwise prohibited from repurchasing the Shares, the
Company will have six (6) months from the Repurchase Date in
which to obtain the funds necessary to repurchase the Shares
and complete the repurchase; or, in lieu thereof, at the
Purchaser's election, the Company will promptly file a
registration statement with the Securities and Exchange
Commission, registering the Shares and such additional shares
of Class A Common Stock to be issued by the Company as may be
required to pay the Return in accordance with Article 6. The
number of shares to be registered will be equal to (x) the
initial number of Shares purchased plus (y)(i) shares
representing the Assumed Capital Return based upon a per share
price equal to the anticipated offering price and (ii) shares
representing the Current Return calculated from the last
payment of Current Return through the Repurchase Date and
based upon a $100 per share price (the "Demand Registration
Price").
(c) Additional terms and conditions of the registration are set
forth in Article 6. The specific prices and values per Share
set forth in this Section 4.3, including among others, the
Target Price, initial purchase price, Assumed Capital Return,
and the Demand Registration Price will be appropriately
adjusted for stock splits, stock combinations, stock dividends
and recapitalizations and reorganizations by the Company.
17
5. COVENANTS
5.1 Board of Representation
As soon as practicable following the date hereof, the Board of Directors
of the Company shall be composed of and fixed at seven members, one whom shall
be designated by the Purchaser. So long as the Purchaser holds 62,500 shares of
Class A Common Stock (or such other number of shares of Class A Common Stock or
other securities into which 62,500 shares may be converted or exchanged as a
result of any stock split, stock dividend, reverse stock split, recombination,
reclassification, recapitalization, reorganization, merger, consolidation or any
other similar action), the Founders shall vote or cause to be voted its shares
of the Company's capital stock in favor of the re-election of the Purchaser's
designee to the Board. Such designee shall be entitled to access such
information of the Company and its Subsidiaries as shall permit such designee to
effectively function as a director. Likewise, the Purchaser agrees that, so long
as it is the beneficial owner of capital stock of the Company, it shall vote or
cause to be voted all of its shares in favor of the re-election of the Founders
to the Board.
5.2 Additional Shares
The Company may sell to any other persons shares of Class A Common Stock
(the "Additional Shares") within the period commencing on the date hereof and
ending on the six (6) month anniversary of the date hereof, only pursuant to one
or more stock purchase agreements, which shall be on terms no more advantageous
to such persons then the terms hereof are to the Purchaser and only at a per
share purchase price of not less than $120.
5.3 "Market Stand-Off" Agreement
Except for sales in connection with an initial public offering and in
accordance with Section 6.3, or pursuant to Section 4.3(b), the Purchaser
agrees, if requested by the Company and the underwriter of Class A Common Stock
of the Company, not to sell or otherwise transfer or dispose of any Class A
Common Stock of the Company held by the Purchaser during the one hundred eighty
(180) day period following the effective date of any registration statement of
the Company filed under the Securities Act with respect to any underwritten
public offering of Class A Common Stock by the Company, provided that:
(a) such agreement shall only apply to the first such registration
statement of the Company; and
(b) The Company's officers and directors as well as the holders of
a majority of the capital stock not held by officers and
directors of the Company shall also enter into similar
agreements.
Such agreement shall be in writing in a form satisfactory to the Company, the
Purchaser and such underwriter. The Company may impose stop-transfer
instructions with respect to the securities subject to the foregoing
restrictions until the end of said one hundred
18
eighty (180) day period.
5.4 Intercompany Transactions
The Company covenants and agrees that any transactions between the Company
and its Subsidiaries or between the Company (and its Subsidiaries), and either
the Founders or companies controlled by the Founders or their immediate family
members shall be at arms-length upon commercially reasonable terms and
conditions, and the Founders covenant and agree that actions taken by them as
Directors of the Company shall at all times be consistent with and satisfy their
fiduciary obligations under New York law.
6. REGISTRATION RIGHTS
6.1 Certain Definitions. As used in this Article 6, the following terms
have the following meanings:
"Commission" shall mean the Securities and Exchange Commission.
"Registrable Securities" shall mean (i) the Shares, (ii) shares of Class A
Common Stock issued pursuant to Article 4, (iii) any Class A Common Stock issued
in respect of that certain Conversion Rights Agreement dated April 24, 1998 by
and between the Company and the Purchaser, as amended by Amendment No. 1 dated
November 10, 1998, and (iv) any Class A Common Stock issued in respect of such
securities upon any stock split, stock dividend, recapitalization or similar
event.
"Registration" and the related terms "register" and "registered" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company in
compliance with Section 6.2 or Section 6.3 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursement of counsel for the Company, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company and expenses
of regular annual and periodic audits, which shall be paid in any event by the
Company) and the expenses associated with the Company's obligations under
Section 6.5 hereof.
"Restricted Securities" shall refer collectively to the securities of the
Company required to bear a legend under applicable securities laws.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder, all as the
same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel
19
for the Purchaser.
6.2 Required Registration. If required pursuant to Section 4.3 hereof, the
Company shall register shares of Class A Common Stock for the Purchaser in
accordance with the terms of this Article 6. Upon the obligation to register
shares of Class A Common Stock for Purchaser, the Company shall notify all other
parties having piggyback registration rights as of the date hereof of its intent
to register such shares and include in such registration any Registrable
Securities such other parties which they request by notice be included in such
registration. Except for the foregoing and for securities for the Company's own
account, no other securities may be included in such registration statement.
Subject to the terms and conditions of this Article 6, the Company shall
promptly effect such registration (and any related qualification under state
blue sky laws and other compliance filings). Only Registrable Securities may be
included in any registration.
6.3 Piggyback Registration Rights
(a) If the Company shall determine to register any of its
securities either for its own account or the account of any
security holder or holders (other than the Purchaser), other
than a registration relating solely to employee benefit plans
or pursuant to a registration statement on Form S-4 or the
then equivalent of such form, the Company will:
(i) Promptly give to the Purchaser written notice thereof;
and
(ii) Except as set forth in Section 6.3(b), include in such
registration (and any related qualification under state
blue sky laws and other compliance filings, and in any
underwriting involved therein), all the Registrable
Securities specified in a written request or requests,
given by the Purchaser within fifteen (15) days after
the written notice from the Company is given.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the
Company shall so advise the Purchaser as part of the written
notice given pursuant to Section 6.3(a)(i). In such event the
right of the Purchaser to registration pursuant to this
Section 6.3 shall be conditioned upon the Purchaser's
participation in such underwriting and the inclusion of the
Purchaser's Registrable Securities in the underwriting to the
extent provided herein. The Purchaser, together with the
Company and the other persons distributing their securities
through such underwriting, shall enter into an underwriting
agreement in customary form with the underwriter or
underwriters selected or approved for underwriting by the
Company. Notwithstanding any other provision of this Section
6.3, if the underwriter determines that marketing factors
require a limitation on the number of shares to be
underwritten, the underwriter may (subject to the allocation
20
priority set forth below) exclude from such registration and
underwriting some or all of the Purchaser's Registrable
Securities which would otherwise be underwritten pursuant
hereto. The Company shall so advise all persons requesting
registration of the number of shares of securities that are
entitled to be included in the registration and underwriting,
allocated in the following manner: (i) first, the number of
securities which the Company proposes to offer and sell for
its own account, and (ii) to the extent permitted by the
underwriter, there shall be included in such registration that
number of securities which persons having registration rights
shall have requested to be included in such registration, with
any limitation on the number of securities so included to be
imposed pro rata on Purchaser and all other persons to the
extent they request inclusion therein. If the Purchaser or any
other security holder requesting registration disapproves of
the term of any such underwriting, such person may elect to
withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities
excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
6.4 Expense of Registration. All Registration Expenses incurred on behalf
of the Purchaser in connection with any registration, qualification or
compliance pursuant to this Article 6 shall be borne by the Company, and all
Selling Expenses (other than Selling Expenses incurred pursuant to Section
4.3(b) hereof which shall be borne by the Company) shall be borne by the
Purchaser and all other holders of the securities so registered pro rata on the
basis of the number of their shares so registered.
6.5 Registration Procedures. In the case of each registration effected by
the Company pursuant to this Article 6, the Company will advise the Purchaser in
writing as to the initiation of each registration and as to the completion
thereof. The Company will:
(a) Keep such registration effective for a period of ninety (90)
days or until the Purchaser has completed the distribution
described in the registration statement relating thereto,
whichever first occurs.
(b) Furnish such number of prospectuses and other documents
incident thereto as the Purchaser from time to time may
reasonably request.
(c) Register or qualify the Registrable Securities covered by such
registration under such other securities or blue sky laws of
such jurisdiction (subject to the approval of any managing
underwriter involved) as the Purchaser shall reasonably
request, and do any and all other acts and things which may be
reasonably necessary or advisable to enable the Purchaser to
consummate the disposition in such jurisdictions of the
Registrable Securities; provided, however,
21
that the Company shall not be obligated, by reason thereof, to
qualify as a foreign corporation in any jurisdiction where it
would not otherwise be required to qualify or consent to
general service of process in any such jurisdiction or subject
itself to taxation as doing business in any such jurisdiction.
(d) Notify the Purchaser promptly after the Company shall receive
notice or have knowledge that any registration statement,
supplement or amendment has become effective, any registration
statement is required to be amended or supplemented, any stop
order has been issued, the suspension of the qualification of
the Registrable Securities for sale in any jurisdiction or the
initiation of a proceeding for that purpose, or of the
happening of any event as a result of which, the prospectus
included in such registration statement as then in effect,
includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the
light of the circumstances under which they were made.
(e) Make every reasonable effort to obtain at the earliest
possible moment the withdrawal of any order suspending the
effectiveness of a registration statement or suspending the
qualification of any of the Registrable Securities for sale in
any jurisdiction.
(f) Promptly prepare and furnish to the Purchaser a reasonable
number of copies of a supplement to or an amendment of a
prospectus as may be necessary so that such prospectus shall
not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances under which they were made.
(g) Include the Registrable Securities for listing on any national
securities exchange or the NASDAQ system on which the
Company's Class A Common Stock is listed.
(h) Make available for inspection by a representative of the
Purchaser, any underwriters participating in any disposition
pursuant hereto, and any attorney or accountant retained by
the Purchaser or such underwriters, upon reasonable notice
during normal business hours all financial and other records,
pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in
connection with such registration; provided that any such
records, information or documents that are designated by the
Company in writing as confidential shall be kept confidential
by such persons unless disclosure of such records, information
or documents is required by court or administrative order.
22
(i) Make generally available to its securities holders earning
statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder.
6.6 Indemnification
(a) In the event of the registration of the Purchaser's
Registrable Securities under the Securities Act pursuant to
this Article 6, the Company will indemnify and hold harmless
the Purchaser, each underwriter, if any, of such shares, and
each other person, if any, who controls the Purchaser or any
such underwriter within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or
several, to which the Purchaser, the underwriter or
controlling person may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or
are based upon any untrue statement or alleged untrue
statement of any material fact contained, on the effective
date thereof, in any registration statement under which such
Registrable Securities were registered under the Securities
Act, any preliminary prospectus or final prospectus contained
therein (as such may be amended or supplemented), or arise out
of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements contained therein not
misleading (including, without limitation, all information
incorporated by reference in such registration statements and
prospectuses), and will reimburse the Purchaser, each such
underwriter, and each such controlling person for any legal or
any other expenses reasonably incurred by the Purchaser, such
underwriter or controlling person in connection with
investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will
not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based
upon any untrue statement or alleged untrue statement or
omission or alleged omission made in such registration
statement, such preliminary prospectus, or such final
prospectus (as such may be amended or supplemented) in
reliance upon and in conformity with, written information
furnished to the Company by the Purchaser, the underwriter or
controlling person specifically for use in preparation
thereof.
(b) In the event of the registration by the Company of any of the
Purchaser's Registrable Securities, the Purchaser will
indemnify and hold harmless the Company, each underwriter and
each person who controls the Company or any such underwriter
within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which the
Company, such underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue
23
statement or alleged untrue statement of any material fact
contained in any registration statement under which such
Registrable Securities were registered under the Securities
Act, any prospectus or preliminary prospectus contained
therein, or amendment or supplement thereto, or arises out of
or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements contained therein not
misleading, which untrue statement or alleged untrue statement
or omission or alleged omission was made therein in reliance
upon and in conformity with, written information furnished to
the Company by the Purchaser specifically for use in
connection with the preparation thereof; and will reimburse
the Company, each such controlling person, and each such
underwriter for any legal or other expenses reasonably
incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action.
(c) Each party entitled to indemnification under this Section 6.6
(the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of
any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the
defense of such claim or any litigation resulting therefrom,
shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 6.6.
No Indemnifying Party, in the defense of any such claim of
litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect
to such claim or litigation.
6.7 Information by the Purchaser. The Purchaser shall furnish in writing
to the Company such information regarding the Purchaser as the Company may
reasonably request and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Article 6.
6.8 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of the
Restricted Securities to the public without registration, the Company agrees to:
(a) Use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule
144 under the
24
Securities Act, at all times from and after ninety (90) days
following the effective date of the first registration under
the Securities Act filed by the Company for an offering of its
securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company
under the Securities Act and the Securities Exchange Act of
1934, as amended (the "Exchange Act") at any time during which
it is subject to such reporting requirements; and
(c) So long as the Purchaser owns any Restricted Securities,
furnish to the Purchaser forthwith upon request a written
statement by the Company as to its compliance with the
reporting requirements of Rule 144 (at any time from and after
ninety (90) days following the effective date of the first
registration statement filed by the Company for an offering of
its securities to the general public), and of the Securities
Act and the Exchange Act (at any time during which it is
subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such
other reports and documents so filed as the Purchaser may
reasonably request in availing itself of any rule or
regulation of the Commission allowing the Purchaser to sell
any such securities without registration.
6.9 Transfer of Registration Rights. The right to cause the Company to
register Registrable Securities pursuant to this Article 6 may be assigned by
the Purchaser to a transferee of Registrable Securities, provided (i) the
Company is, within a reasonable time after such transfer furnished with written
notice of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned; and (ii) the
transferee or assignee agrees in writing to be bound by the provisions of this
Agreement.
6.10 Termination of Registration Rights. The right to cause the Company to
register securities granted by the Company under this Article 6 shall terminate
with respect to any Purchaser at such time as all of the Registrable Securities
of such Purchaser can be sold (in a single transaction) in accordance with Rule
144.
7. MISCELLANEOUS
7.1 Governing Law
This Agreement shall be governed in all respects by the laws of the State
of New York as such laws are applied to agreements between New York residents
entered into and performed entirely in New York.
7.2 Survival
The representations and warranties made herein shall survive any
investigation made by the Purchaser and the closing of the transactions
contemplated hereby for a period of two (2) years, except that the
representations and warranties set forth in Section 2.1 and 2.3 shall
25
survive until the termination of the Company's existence. The covenants and
agreements made herein shall survive until they expire by their own terms. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date
hereof.
7.3 Successors and Assigns
Except as otherwise expressly provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each person who shall be a holder of the Shares
from time to time.
7.4 Entire Agreement
This Agreement, the Exhibits and Schedule hereto, and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and no party
shall be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein and
therein.
7.5 Separability
In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
7.6 Amendment
This Agreement may be amended or modified only upon the written consent of
the Company and holders of at least a majority of the Shares.
7.7 Waiver
The obligations of the Company and the rights of the holders of the Shares
under this Agreement may be waived only with the written consent of the holders
of at least a majority of the Shares.
7.8 Delays or Omissions
It is agreed that no delay or omission to exercise any right, power or
remedy accruing to any party, upon any breach, default or noncompliance by
another party under this Agreement or the Restated Articles, shall impair any
such right, power or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of or in
any similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent or approval of any kind
26
or character on the Purchaser's part of any breach, default or noncompliance
under this Agreement or under the Restated Articles or any waiver on such
party's part of any provisions or conditions of this Agreement must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement, the Restated Articles,
bylaws, or otherwise afforded to any party, shall be cumulative and not
alternative.
7.9 Notices
All notices required or permitted hereunder shall be in writing and shall
be deemed effectively given: (i) upon personal delivery to the party to be
notified; (ii) when sent by confirmed telex or facsimile if sent during normal
business hours of the recipient, if not, then on the next business day; (iii)
five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (iv) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to the Company, to:
Telergy, Inc.
Xxx Xxxxxxx Xxxxxxx
Xxxx Xxxxxxxx, XX 00000
Attn: Chief Executive Officer
Facsimile: (000) 000-0000
with a copy to:
Telergy, Inc.
00 Xxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Attn: General Counsel
Facsimile: (000) 000-0000
with an additional copy to:
Pepe & Hazard LLP
Xxxxxxx Square
000 Xxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
(b) if to the Founders, to:
Messrs. Xxxxx and Xxxxx Xxxxx
c/o Telergy, Inc.
Xxx Xxxxxxx Xxxxxxx
00
Xxxx Xxxxxxxx, XX 00000
Attn: Chief Executive Officer
Facsimile: (000) 000-0000
with a copy to:
Telergy, Inc.
00 Xxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Attn: General Counsel
Facsimile: (000) 000-0000
with an additional copy to:
Pepe & Hazard LLP
Xxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
(c) if to the Purchaser, to:
Niagara Mohawk Energy, Inc.
000 Xxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: Treasurer
Facsimile: (000) 000-0000
with a copy to:
Niagara Mohawk Energy, Inc.
000 Xxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: General Counsel
Facsimile: (000) 000-0000
with an additional copy to:
Xxxxxxxx & Xxxxxxxx
0000 Xxxxxxxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxxxx, Esq.
Facsimile: (000) 000-0000
7.10 Expenses
Each of the parties shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement.
28
7.11 Attorney's Fees
In the event that any dispute among the parties to this Agreement should
result in litigation, the prevailing party in such dispute shall be entitled to
recover from the losing party all fees, costs and expenses of enforcing any
right of such prevailing party under or with respect to this Agreement,
including without limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
7.12 Titles and Subtitles
The titles of the sections and subsections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement.
7.13 Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
7.14 Broker's Fees
Each party hereto represents and warrants that no agent, broker,
investment banker, person or firm acting on behalf of or under the authority of
such party hereto is or will be entitled to any broker's or finder's fee or any
other commission directly or indirectly in connection with the transactions
contemplated herein. Each party hereto further agrees to indemnify each other
party for any claims, losses or expenses incurred by such other party as a
result of the representation in this Section 7.14 being untrue.
[Remainder of page has been intentionally left blank]
29
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth in the first paragraph hereof.
COMPANY:
TELERGY, INC.
By: /s/Xxxxx Xxxxx
-----------------------
Name: Xxxxx Xxxxx
Title: C.E.O.
NIAGARA MOHAWK ENERGY, INC.
By: /s/J. Xxxxxxx Xxxxxxxx
-----------------------
Name: J. Xxxxxxx Xxxxxxx
Title: C.F.O. & President
FOUNDERS
(only as to Sections 5.1 and 5.4 hereof)
/s/Xxxxx X. Xxxxx
----------------------------
Xxxxx X. Xxxxx, individually
/s/Xxxxx Xxxxx
----------------------------
Xxxxx X. Xxxxx, individually
