Exhibit 10.10
STOCK PURCHASE AGREEMENT
by
and
among
USINTERNETWORKING, Inc.
and
The Parties Hereto
-------------------------
December 31, 1998
TABLE OF CONTENTS
PAGE
ARTICLE 1. DEFINITIONS............................................................................................1
1.1. Definitions................................................................................1
1.2. Accounting Terms; Financial Statements.....................................................6
1.3. Knowledge Standard.........................................................................6
1.4. Other Defined Terms........................................................................6
ARTICLE 2. AUTHORIZATION OF PREFERRED SHARES; PURCHASE AND SALE OF PREFERRED SHARES...............................7
2.1. Preferred Shares...........................................................................7
2.2. Purchase and Sale of Preferred Shares......................................................7
2.3. Closing....................................................................................7
2.4. Fees and Expenses..........................................................................8
2.5 Financial Accounting Positions; Tax Reporting...............................................8
ARTICLE 3. CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO PURCHASE THE PREFERRED SHARES........................8
3.1. Representations and Warranties.............................................................8
3.2. Compliance with Terms and Conditions of this Agreement.....................................9
3.3. Delivery of Certificates Evidencing the Shares.............................................9
3.4. Closing Certificates.......................................................................9
3.5. Secretary's Certificates...................................................................9
3.6. Documents..................................................................................9
3.7. Purchase Permitted by Applicable Laws......................................................9
3.8. Consents and Approvals....................................................................10
3.9. Amended and Restated Stockholders'Agreement...............................................10
3.10. Certificate..............................................................................10
3.11. No Material Judgment or Order............................................................10
3.12. Legal Opinion............................................................................10
3.13. Approval of Counsel to the Purchasers....................................................10
3.14. Pro Forma Balance Sheet..................................................................11
3.15. Good Standing Certificates...............................................................11
3.16. No Litigation............................................................................11
3.17. Siebel Systems, Inc. Memorandum of Understanding.........................................11
3.18. SBIC Forms...............................................................................11
3.19. Repayment of Notes.......................................................................12
ARTICLE 4. CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE..................................................12
4.1. Representations and Warranties............................................................12
4.2. Compliance with this Agreement............................................................12
4.3. Issuance Permitted by Applicable Laws.....................................................12
4.4. Payment of Purchase Price.................................................................12
4.5. Consents and Approvals....................................................................13
4.6. No Material Judgment or Order.............................................................13
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................................................13
5.1. Corporate Existence and Authority.........................................................13
5.2. Corporate Authorization; No Contravention.................................................14
5.3. Governmental Authorization; Third Party Consents..........................................14
5.4. Binding Effect............................................................................14
5.5. Capitalization............................................................................14
5.6. Private Offering..........................................................................16
5.7. Litigation................................................................................16
5.8. Financial Statements......................................................................17
5.9. Title and Condition of Assets.............................................................18
5.10. Contractual Obligations..................................................................18
5.11. Tax Matters..............................................................................18
5.12. Severance Arrangements...................................................................19
5.13. Investment Company/Government Regulations................................................19
5.14. Broker's, Finder's or Similar Fees.......................................................19
5.15. Labor Relations and Employee Matters.....................................................19
5.16. Employee Benefits Matters................................................................19
5.17. Outstanding Borrowings...................................................................20
5.18. Insurance Schedule.......................................................................21
5.19. Solvency.................................................................................21
5.20. No Other Agreements to Sell the Assets or Capital Stock of the Company...................21
5.21. Key Employees............................................................................21
5.22. Compliance with Law......................................................................21
5.23. Software.................................................................................22
5.24. Disclosure...............................................................................24
5.25. No Default or Breach.....................................................................24
5.27. Patents, Trademarks, Etc..................................................................24
5.28. Use of Real Property......................................................................25
5.29. ERISA-Prohibited Transactions............................................................26
5.30. Absence of Certain Changes or Events......................................................26
5.31. Environmental Matters.....................................................................26
5.32. Potential Conflicts of Interest...........................................................27
5.33. Trade Relations...........................................................................27
5.34. Acquisition Agreements....................................................................27
5.35. Location of Assets.........................................................................28
5.36. Regulatory Affiliate......................................................................28
ii
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS......................................................28
6.1. Existence and Authority...................................................................28
6.2. Organization; Authorization; No Contravention.............................................28
6.3. Binding Effect............................................................................29
6.4. Purchase for Own Account..................................................................29
6.5. Financial Condition.......................................................................29
6.6. Receipt of Information....................................................................30
6.7. Broker's, Finder's or Similar Fees........................................................30
6.8. Governmental Authorization; Third Party Consent...........................................30
6.9. Litigation................................................................................30
ARTICLE 7. COVENANTS OF THE COMPANY WITH RESPECT TO THE PERIOD FOLLOWING THE CLOSING............................30
7.1. Reservation of Shares.....................................................................30
7.2. Year 2000.................................................................................31
7.3. Regulatory Compliance.....................................................................31
7.4. Information and Reports for SBIC Purchasers...............................................33
7.5. Financial Statements and Other Information................................................34
7.5. Subsidiaries...............................................................................36
7.6. Notice of Corporate Changes................................................................36
7.7. No Defaults................................................................................36
7.8. Permitted Investments......................................................................37
7.9. Other Information..........................................................................37
7.10. Preservation of Corporate Existence.......................................................37
7.11. Payment of Obligations....................................................................37
7.12. Compliance with Laws......................................................................38
7.13. Inspection................................................................................38
7.14. Insurance.................................................................................38
7.15. Books and Records.........................................................................38
7.16. Use of Proceeds...........................................................................39
7.17. Board Nominees............................................................................39
7.18. Granting of Employee Options..............................................................39
7.19. Business Activities.......................................................................39
ARTICLE 8. INDEMNIFICATION.......................................................................................39
8.1. Indemnification...........................................................................39
8.2. Procedure; Notification...................................................................40
8.3. Amended and Restated Stockholders'Agreement...............................................41
ARTICLE 9. MISCELLANEOUS.........................................................................................41
9.1. Survival of Representations and Warranties................................................41
9.2. Notices...................................................................................42
iii
9.3. Successors and Assigns....................................................................42
9.4. Amendment and Waiver......................................................................42
9.5. Counterparts..............................................................................43
9.6. Headings..................................................................................43
9.7. Governing Law.............................................................................43
9.8. Jurisdiction..............................................................................43
9.9. Severability..............................................................................44
9.10. Rules of Construction....................................................................44
9.11. Entire Agreement.........................................................................44
9.12. Publicity................................................................................44
9.13. Further Assurances.......................................................................44
9.14. Waiver of Jury Trial.....................................................................45
9.15. Obligations of the Purchasers............................................................45
iv
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered
into as of this 31st day of December, 1998, by and among USINTERNETWORKING,
Inc., a Delaware corporation (the "Company"), and the other parties whose names
appear on the signature pages hereto (collectively, the "Purchasers").
RECITALS:
A. Upon the terms and subject to the conditions set forth in
this Agreement, the Company proposes to issue and sell shares of its 8% Series B
Cumulative Convertible Redeemable Preferred Stock ("Series B Preferred Stock",
as defined below) to the Purchasers.
B. Upon the terms and subject to the conditions set forth in
this Agreement, the Purchasers desire to purchase from the Company shares of the
Series B Preferred Stock as set forth on SCHEDULE 1 hereto.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1.
DEFINITIONS
1.1. DEFINITIONS.
As used in this Agreement, and unless the context requires a
different meaning, the following terms have the meanings indicated:
"AFFILIATE" means, with respect to any specified Person, any
Person that, directly or indirectly, controls, is controlled by, or is under
common control with, such specified Person, whether by contract, through one or
more intermediaries, or otherwise.
"AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT" means the
Amended and Restated Stockholders' Agreement substantially in the form attached
as EXHIBIT B.
"BUSINESS DAY" shall mean a day other than a Saturday or
Sunday or any federal holiday.
"CODE" means the Internal Revenue Code of 1986, as amended, or
any successor statute thereto.
1
"COMMISSION" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act (as
defined below).
"COMMON STOCK" means the common stock, par value $.001 per
share, of the Company, or any other capital stock of the Company into which such
stock is reclassified or reconstituted.
"COMPANY PARTIES" means the Company and each of its
Subsidiaries.
"CONDITION OF THE COMPANY" means the assets, business,
properties, operations, financial condition or prospects of the Company Parties,
taken as a whole.
"CONTINGENT OBLIGATION" as applied to any Person, shall mean
any direct or indirect liability, contingent or otherwise, of that Person: (i)
with respect to any indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such liability
will be protected (in whole or in part) against loss with respect thereto; (ii)
with respect to any letter of credit issued for the account of that Person or as
to which that Person is otherwise liable for reimbursement of drawings; or (iii)
under any foreign exchange contract, currency swap agreement, interest rate swap
agreement or other similar agreement or arrangement designed to alter the risks
of that Person arising from fluctuations in currency values or interest rates.
Contingent Obligations shall include (a) the direct or indirect guaranty,
endorsement (other than for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale with recourse by such
Person of the obligation of another, (b) the obligation to make take-or-pay or
similar payments if required regardless of nonperformance by any other party or
parties to an agreement, and (c) any liability of such Person for the
obligations of another through any agreement to purchase, repurchase or
otherwise acquire such obligation or any property constituting security
therefor, to provide funds for the payment or discharge of such obligation or to
maintain the solvency, financial condition or any balance sheet item or level of
income of another. The amount of any Contingent Obligation shall be equal to the
amount of the obligation so guaranteed or otherwise supported or, if not a fixed
and determined amount, the maximum amount so guaranteed.
"CONTRACTUAL OBLIGATIONS" shall mean as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other instrument to
which such Person is a party or by which it or any of its property is bound.
"EMPLOYEE PLANS" means all employee benefit plans within the
meaning of Section 3(3) of ERISA, in which employees of any Company Party
participate or have participated.
"EMPLOYEE STOCK OPTION PLAN" means an employee stock option
plan adopted by the Compensation Committee of the Board of Directors of the
Company, and approved by
2
the Board of Directors of the Company, providing for the issuance to certain
employees of the Company Parties of options to purchase a certain number of
shares of Common Stock at a certain exercise price per share the total number of
shares of Common Stock which may be issued under all such plans shall not exceed
6.5% of the total number of outstanding shares of common stock calculated on a
fully diluted basis, not including the options and shares issuable or issued on
exercise of options pursuant to the Employee Stock Option Plan.
"ENVIRONMENTAL LAWS" shall mean any applicable past, present
or future federal, state, territorial, provincial or local law, common law
doctrine, rule, order, decree, judgment, injunction, license, permit or
regulation relating to environmental matters, including those pertaining to land
use, air, soil, surface water, ground water (including, without limitation, the
protection, cleanup, removal, remediation or damage thereof), public or employee
health or safety or any other environmental matter, together with any other laws
(federal, state, territorial, provincial or local) relating to emissions,
discharges, releases or threatened releases of any pollutant or contaminant
including, without limitation, medical, chemical, biological, biohazardous or
radioactive waste and materials, into ambient air, land, surface water,
groundwater, personal property or structures, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, discharge or handling of any contaminant, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. 9601 ET SEQ.) ("CERCLA"), the Hazardous Material
Transportation Act (49 U.S.C. 1801 ET SEQ.), the Resource Conservation and
Recovery Act (42 U.S.C. 6901 ET SEQ.) ("RCRA"), the Federal Water Pollution
Control Act (33 U.S.C. 1251 ET SEQ.), the Clean Air Act (42 U.S.C. 1251 ET
SEQ.), the Toxic Substances Control Act (15 U.S.C. 2601 ET SEQ.), and the
Occupational Safety and Health Act (29 U.S.C. 651 ET SEQ.).
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"GAAP" means United States generally accepted accounting
principles, in effect from time to time, consistently applied.
"GOVERNMENTAL AUTHORITY" means the government of any nation,
state, city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"HAZARDOUS MATERIALS" shall mean (i) any chemical pollutant,
contaminant, pesticide, petroleum or petroleum product or byproduct radioactive
substance, solid waste (hazardous or extremely hazardous), special, dangerous or
toxic waste, hazardous or toxic substance, chemical or material regulated,
listed, referred to, limited or prohibited under any Environmental Law,
including without limitation: (i) friable or damaged asbestos,
asbestos-containing material, polychlorinated biphenyls (PCBs), solvents and
waste oil; (ii) any
3
"hazardous substance" as defined under CERCLA or any environmental law, statute,
regulation or rule; (iii) any hazardous waste defined under RCRA or any
Environmental Law; and (iv) even if not prohibited, listed, limited or regulated
by an Environmental Law, all pollutants, contaminants, hazardous, dangerous or
toxic chemical materials, wastes or any other substances, including, without
limitation, any industrial process or pollution control waste (whether or not
hazardous within the meaning of RCRA) which could pose a hazard to the
environment, or the health and safety of any Person or impair the use or value
of any portion of the property of the Company.
"INDEBTEDNESS" means, as to any Person: (a) all obligations,
whether or not contingent, of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, unfunded credit commitments, letters of credit and bankers' acceptances,
whether or not matured), (b) all indebtedness, obligations or liabilities of
such Person evidenced by notes, bonds, debentures or similar instruments,
whether matured or unmatured, liquidated or unliquidated, direct or indirect,
absolute or contingent, or joint or several, that should be classified as
liabilities in accordance with GAAP, including, without limitation, any items so
classified on a balance sheet and any reimbursement obligations in respect of
letters of credit or obligations in respect of bankers acceptances; (c) all
obligations of such Person representing the balance of deferred purchase price
of property or services, except trade accounts payable and accrued commercial or
trade liabilities arising in the ordinary course of business, (d) all interest
rate and currency swaps, caps, collars and similar agreements or hedging devices
under which payments are obligated to be made by such Person, whether
periodically or upon the happening of a contingency, (e) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (f) all obligations of
such Person under leases which have been or should be, in accordance with GAAP,
recorded as capital leases, (g) all indebtedness secured by any Lien (other than
Liens in favor of lessors under leases other than leases included in clause (f))
on any property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
non-recourse to the credit of that Person, and (h) any Contingent Obligations of
such Person.
"LIEN" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other), restriction,
preference or priority right or other security interest or preferential
arrangement of any kind or nature whatsoever (excluding preferred stock or
equity related preferences) including, without limitation, those created by,
arising under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease obligation, or any
financing lease having substantially the same economic effect as any of the
foregoing.
"NOTES" means the convertible promissory notes, as amended,
originally issued by the Company to certain of the Purchasers pursuant to the
Note Purchase Agreement dated as of September 8, 1998 and the Note Purchase
Agreements dated as of December 16 and 24, 1998 by and among the Company and
certain of the Purchasers.
4
"OUTSTANDING BORROWINGS" means all Indebtedness of any Company
Party for borrowed money or capitalized lease obligations (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured).
"PERSON" means any individual, firm, corporation, limited
liability company, partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, Governmental Authority or other
entity of any kind, and shall include any successor (by merger or otherwise) of
such entity.
"PRO FORMA BALANCE SHEET" shall mean the pro forma
consolidated balance sheet of the Company Parties delivered pursuant to Section
3.15.
"REQUIREMENTS OF LAW" means, as to any Person, the provisions
of the Certificate of Incorporation and By-laws or other organizational or
governing documents of such Person, and any law, treaty, rule, regulation,
right, privilege, qualification, license or franchise, order, judgment, or
determination of an arbitrator or a court or other Governmental Authority, in
each case, applicable or binding upon such Person or any of its property or to
which such Person or any of its property is subject or applicable to any or all
of the transactions contemplated by or referred to in the Transaction Documents.
"SALE OF THE COMPANY" means (i) the sale or all or
substantially all of the Company's assets in a single transaction or series of
related transactions, or (ii) the sale of all or a controlling interest in the
Company's capital stock in a single transaction or a series of related
transactions pursuant to a sale or issuance of securities or a merger,
consolidation, or other business combination.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder.
"SERIES B PREFERRED STOCK" means the 8% Series B Cumulative
Convertible Redeemable Preferred Stock, par value $.01 per share, of the
Company.
"SOLVENT" shall mean, with respect to the Company Parties,
considered as a whole, based on the Pro Forma Balance Sheet, (i) the assets and
the property of the Company Parties, considered as a whole, exceed the aggregate
liabilities (including contingent and unliquidated liabilities) of the Company
Parties, considered as a whole, (ii) after giving effect to the transactions
contemplated by this Agreement, the Company Parties, considered as a whole, will
not be left with unreasonably small capital, and (iii) after giving effect to
the transactions contemplated by this Agreement, the Company Parties, considered
as a whole, are able both to service and to pay their liabilities as they
mature. In computing the amount of contingent or unliquidated liabilities at any
time, such liabilities will be computed as the amount that, in light of all the
facts and circumstances existing at such time, represents the amount that is
likely to become an actual or matured liability.
5
"SUBSIDIARY" shall mean, with respect to any Person, a
corporation or other entity of which 50% or more of the voting power of the
voting equity securities or equity interest is owned, directly or indirectly, by
such Person. Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Company.
"TRANSACTION DOCUMENTS" shall mean collectively, this
Agreement, the Amended and Restated Stockholders' Agreement, the Certificate and
the By-laws of the Company.
"TRANSACTION EXPENSES" means any and all reasonable
out-of-pocket (i) legal expenses for one counsel to Whitney and for one counsel
to certain of the other Purchasers in connection with the negotiation,
preparation, execution and delivery of the Transaction Documents, the
consummation of the transactions contemplated thereby and preparation for any of
the foregoing, including, without limitation, travel expenses, reasonable fees,
charges and disbursements of counsel and any similar or related legal costs and
legal expenses; (ii) other expenses incurred by X.X. Xxxxxxx & Co. and the
Purchasers in connection with the negotiation, preparation, execution and
delivery of the Transaction Documents, including, without limitation, expenses
incurred in connection with X.X. Xxxxxxx & Co.'s and the Purchasers' due
diligence investigation; and (iii) legal and other expenses, not to exceed
$15,000, incurred by Xxxxxx-Xxxxxx Media Partners in connection with the
foregoing.
"WHITNEY" means X. X. Xxxxxxx & Co., a New York limited
partnership, X. X. Xxxxxxx III, L.P., a Delaware limited partnership, and
Whitney Strategic Partners III, L.P., a Delaware limited partnership.
1.2. ACCOUNTING TERMS; FINANCIAL STATEMENTS.
All accounting terms used herein not expressly defined in this
Agreement shall have the respective meanings given to them in accordance with
GAAP.
1.3. KNOWLEDGE STANDARD.
When used herein, the phrase "to the knowledge of" any Person,
"to the best knowledge of" any Person or any similar phrase shall mean, (i) with
respect to any individual, the actual knowledge of such Person, (ii) with
respect to any corporation, the actual knowledge of the officers and directors
of such corporation and the knowledge of such facts that such persons should
have in the exercise of their duties after reasonable inquiry, and (iii) with
respect to a partnership, the actual knowledge of the officers and directors of
the general partner of such partnership and the knowledge of such facts that
such persons should have in the exercise of their duties after reasonable
inquiry.
1.4. OTHER DEFINED TERMS.
The following terms shall have the meanings specified in the
Sections set forth below:
6
TERM SECTION
---- -------
Actions 5.7
Certificate 2.1
Closing Date 2.2
Closing 2.3
Liabilities 8.1
Preferred Shares 2.1
Purchase Price 2.2
Regulatory Affiliate 7.3
SBA 3.18
SBIC 7.4
ARTICLE 2.
AUTHORIZATION OF PREFERRED SHARES;
PURCHASE AND SALE OF PREFERRED SHARES
2.1. PREFERRED SHARES.
The Board of Directors of the Company has authorized the
issuance and sale of up to 59,279 shares (the "Preferred Shares") of the Series
B Preferred Stock and has duly adopted resolutions establishing the rights,
preferences, privileges and restrictions of the Series B Preferred Stock. The
Preferred Shares will have the respective rights, preferences and privileges set
forth in the Company's First Amended and Restated Certificate of Incorporation
in the form attached hereto as EXHIBIT A (the "Certificate").
2.2. PURCHASE AND SALE OF PREFERRED SHARES.
Upon the terms and subject to the conditions herein contained,
on such day as the parties may agree (the "Closing Date"), but in any event
prior to December 31, 1998, the Company shall issue and sell to each Purchaser,
and each Purchaser shall acquire from the Company, the number of Preferred
Shares set forth next to such Purchaser's name on SCHEDULE 1 hereto. The
aggregate purchase price of such Preferred Shares to be paid by the Purchasers
shall be Sixty-Two Million Two Hundred Forty-Two Thousand Five Hundred Dollars
($62,242,500) (the "Purchase Price").
2.3. CLOSING.
The closing of the sale to and purchase by the Purchasers of
the Preferred Shares (the "Closing") shall occur at 11 o'clock A.M., local time
on the Closing Date at the offices of Xxxxxx & Xxxxxxx, 0000 Xxxxxxxxxxxx
Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000, or such other location as the parties may
agree. At the Closing, (i) the Company shall deliver to each Purchaser a stock
certificate evidencing the Preferred Shares being purchased by such Purchaser,
free and clear of any Liens of any nature whatsoever, other than those created
by the Certificate or the Amended and Restated Stockholders' Agreement,
registered in such Purchaser's name, and (ii) each Purchaser shall deliver to
the Company that portion of the Purchase Price, as set forth next to such
Purchaser's name on SCHEDULE 1 hereto, by cashier's or certified check or wire
7
transfer of immediately available funds, all or part of which shall, in the case
of each Purchaser holding a Note, be paid by crediting against the portion of
the Purchase Price due from such Purchaser the principal amount of such Note
that is to be converted into Preferred Shares, and any accrued but unpaid
interest thereon will be paid in cash at the Closing. To the extent that any
Purchaser holding a Note does not deliver at the Closing to the Company for
cancellation the Notes held by such Purchaser, the Closing shall be deemed to
have occured with respect to such Purchaser upon the payment of the cash
portion, if any, of such Purchaser's portion of the Purchase Price, but the
Company shall not deliver a stock certificate to such Purchaser until such
Purchaser's Note has been delivered to the Company for cancellation.
2.4. FEES AND EXPENSES.
Concurrently with or promptly after the Closing, the Company
shall reimburse X.X. Xxxxxxx & Co. and each Purchaser for the Transaction
Expenses, incurred by it which payment shall be made by wire transfer of
immediately available funds to an account or accounts designated by X.X. Xxxxxxx
& Co. or such Purchaser, as the case may be.
2.5 FINANCIAL ACCOUNTING POSITIONS; TAX REPORTING.
Each of the parties hereto agrees to take reporting and other
positions with respect to the Preferred Shares which are consistent with the
purchase price of the Preferred Shares set forth herein for all financial
accounting purposes, unless otherwise required by applicable GAAP or Commission
rules (in which case the parties agree only to take positions inconsistent with
the purchase price of the Preferred Shares set forth herein provided that the
Purchasers have consented thereto, which consent shall not be unreasonably
withheld). Each of the parties to this Agreement agrees to take reporting and
other positions with respect to the Preferred Shares which are consistent with
the purchase price of the Preferred Shares set forth herein for all other
purposes, including without limitation, for all federal, state and local tax
purposes.
ARTICLE 3.
CONDITIONS TO THE OBLIGATION OF THE
PURCHASERS TO PURCHASE THE PREFERRED SHARES
The obligation of each of the Purchasers to purchase the
Preferred Shares to be purchased by it hereunder, to pay, at the Closing, the
applicable portion of the Purchase Price therefor and to perform any of its
obligations hereunder shall be subject to the satisfaction as determined by, or
waived by, the Purchasers of the following conditions on or before the Closing
Date; PROVIDED, HOWEVER, that any waiver of a condition shall not be deemed a
waiver of any breach of any representation, warranty, agreement, term or
covenant or of any misrepresentation by the Company, except to the extent
expressly so waived.
3.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained in
Section 5 hereof shall be true and correct in all material respects at and as of
the date hereof and the Closing Date,
8
as if made at and as of such date (except for those representations and
warranties that are already qualified by materiality, which shall be true and
correct in all respects).
3.2. COMPLIANCE WITH TERMS AND CONDITIONS OF THIS
AGREEMENT.
The Company shall have performed and complied with all of the
agreements and conditions set forth herein that are required to be performed or
complied with by the Company on or before the Closing Date.
3.3. DELIVERY OF CERTIFICATES EVIDENCING THE SHARES.
The Company shall have delivered to the Purchasers the
certificates evidencing the Preferred Shares as set forth in Section 2.3.
3.4. CLOSING CERTIFICATES.
The Company shall have delivered to the Purchasers a
certificate executed by the Chief Executive Officer, President, or Chief
Financial Officer of the Company, certifying that the representations and
warranties of the Company are true and correct in all material respects on and
as of the date hereof and the Closing Date, as if made at and as of such date
(except for those representations and warranties that are already qualified by
materiality, which shall be true and correct in all respects), and that the
conditions set forth in this Section 3 to be satisfied by the Company have been
satisfied on and as of the Closing Date.
3.5. SECRETARY'S CERTIFICATES.
The Purchasers shall have received a certificate from the
Company, dated the Closing Date and signed by the Secretary or an Assistant
Secretary of the Company, certifying (a) that the attached copies of the
Certificate and By-laws of the Company (all of which will be in form and
substance consistent with this Agreement) and resolutions of the Board of
Directors and stockholders of the Company approving this transaction are all
true, complete and correct and remain unamended and in full force and effect ,
and (b) the incumbency and specimen signature of each officer of the Company
executing any Transaction Document to which it is a party or any other document
delivered in connection therewith on behalf of the Company.
3.6. DOCUMENTS.
The Purchasers shall have received true, complete and correct
copies of such documents and such other information as they may have reasonably
requested in connection with or relating to the sale of the Preferred Shares and
the transactions required to be performed herein.
3.7. PURCHASE PERMITTED BY APPLICABLE LAWS.
The acquisition of and payment for the Preferred Shares to be
acquired by the Purchasers hereunder and the consummation of the transactions
contemplated hereby and the other Transaction Documents (a) shall not be
prohibited by any Requirements of Law applicable
9
to any party hereto or such transactions, (b) shall not conflict with or be
prohibited by any Contractual Obligation of any Company Party and (c) shall not
subject any Purchaser to any penalty or other condition materially adverse to
the conduct of such Purchaser's business under or pursuant to any Requirements
of Law.
3.8. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by,
or notices to, or filings with, Governmental Authorities and other Persons in
respect of all Requirements of Law and with respect to the material Contractual
Obligations of each Company Party, which are necessary or required in connection
with the execution, delivery or performance (including, without limitation, the
issuance of the Preferred Shares and the issuance of the Common Stock upon
conversion of the Preferred Shares) by, or enforcement against, the Company of
the Transaction Documents, shall have been obtained and be in full force and
effect and all waiting periods shall have lapsed without extension or the
imposition of any conditions or restrictions.
3.9. AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
The Amended and Restated Stockholders' Agreement shall have
been executed and delivered by all parties thereto.
3.10. CERTIFICATE.
The Certificate shall have been filed with and endorsed by the
Secretary of State of the State of Delaware.
3.11. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of
competent jurisdiction or any ruling of any Governmental Authority or any
condition imposed under any Requirements of Law which, in the reasonable
judgment of the Purchasers, would (i) prohibit the purchase of the Preferred
Shares hereunder, (ii) subject the Purchasers to any penalty if the Preferred
Shares were to be purchased hereunder, or (iii) question the validity or
legality of the transactions required to be performed under this Agreement.
3.12. LEGAL OPINION.
The Purchasers shall have received an opinion of counsel for
the Company in the form attached as EXHIBIT C hereto.
3.13. APPROVAL OF COUNSEL TO THE PURCHASERS.
All actions and proceedings hereunder and all agreements,
schedules, exhibits, certificates, financial information, filings and other
documents required to be delivered by the Company hereunder or in connection
with the consummation of the transactions contemplated hereby, and all other
related matters, shall have been in form and substance reasonably acceptable to
counsel to the respective Purchasers.
10
3.14. PRO FORMA BALANCE SHEET.
The Company shall have delivered to the Purchasers a pro forma
consolidated balance sheet of the Company Parties, dated as of December 31,
1998, certified by the chief financial officer of the Company to the effect that
it fairly presents the pro forma adjustments reflecting the consummation of the
transactions contemplated by the Transaction Documents and the application of
the net proceeds therefrom, including the payment of all material fees and
expenses in connection therewith.
3.15. GOOD STANDING CERTIFICATES.
The Company shall have delivered to the Purchasers good
standing certificates for the Company, dated as of a recent date, for its
jurisdiction of incorporation and all other jurisdictions where the nature of
its business requires qualification as a foreign corporation.
3.16. NO LITIGATION.
No action, suit or proceeding before any court or any
Governmental Authority shall have been commenced or threatened, no investigation
by any Governmental Authority shall have been commenced and no action, suit or
proceeding by any Governmental Authority shall have been threatened against any
Purchaser or any Company Party (i) seeking to restrain, prevent or change the
transactions contemplated hereby or questioning the validity or legality of any
of such transactions, or (ii) which would, if resolved adversely to such
Purchaser or a Company Party, severally or in the aggregate, materially and
adversely affect the Condition of the Company.
3.17. SIEBEL SYSTEMS, INC. MEMORANDUM OF UNDERSTANDING.
The memorandum of understanding, dated as of December 23,
1998, between the Company and Siebel Systems, Inc., a copy of which is attached
hereto as Exhibit 3.17, shall be in full force and effect and shall not have
been amended, modified or terminated.
3.18. SBIC FORMS.
The Company shall have furnished to all Purchasers that are
SBICs all forms which such Purchasers shall have informed the Company (at least
five days prior to Closing) are required by the United States Small Business
Administration ("SBA") in connection with the transactions contemplated hereby,
including without limitation a Size Status Declaration on SBA Form 480, an
Assurance of Compliance on SBA Form 652-D, and a Portfolio Financing Report on
SBA Form 1031, which forms (except for execution by the respective licensee),
shall be in proper form for filing with the SBA. If such forms are requested by
a Purchaser that is an SBIC after the Closing Date, the Company will use
commercially reasonable efforts to supply such forms in timely fashion.
11
3.19. REPAYMENT OF NOTES.
The Company shall have repaid its note to Blue Chip Capital
Fund II Limited Partnership, including interest thereon.
3.20. EXCHANGE OF NOTE WARRANTS.
Purchasers holding warrants representing at least 90% of the
shares covered by all of the warrants issued pursuant to the Note Purchase
Agreement dated as of September 8, 1998 (the "Old Warrants"), shall have
evidenced their agreement to exchange those warrants for new warrants with like
terms for a like number of shares of Common Stock but with an exercise price of
$.43 per share (the "New Warrants").
ARTICLE 4.
CONDITIONS TO THE OBLIGATION OF
THE COMPANY TO CLOSE
The obligation of the Company to issue and sell the Preferred
Shares and to perform the other obligations of the Company hereunder shall be
subject to the satisfaction, as determined or waived by the Company, of the
following conditions on or before the Closing Date:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Purchasers contained
in Section 6 hereof shall be true and correct in all material respects at and as
of the date hereof and the Closing Date, as if made at and as of such date
(except for those representations and warranties that are already qualified by
materiality, which shall be true and correct in all respects).
4.2. COMPLIANCE WITH THIS AGREEMENT.
Each of the Purchasers shall have performed and complied with
all of the agreements and conditions set forth herein that are required to be
performed or complied with by such Purchaser on or before the Closing Date.
4.3. ISSUANCE PERMITTED BY APPLICABLE LAWS.
The issuance of the Preferred Shares to be issued by the
Company hereunder and the consummation of this Agreement (a) shall not be
prohibited by any Requirements of Law, and (b) shall not conflict with or be
prohibited by any Contractual Obligations of the Purchasers.
4.4. PAYMENT OF PURCHASE PRICE.
The Purchasers shall have tendered to the Company the Purchase
Price.
12
4.5. CONSENTS AND APPROVALS.
All consents, exemptions, authorizations, or other actions by,
or notices to, or filings with, Governmental Authorities and other Persons in
respect of all Requirements of Law and with respect to the material Contractual
Obligations of the Purchasers, which are necessary or required in connection
with the execution, delivery or performance by the Purchasers of the Transaction
Documents to which they are party shall have been obtained and be in full force
and effect and all waiting periods shall have lapsed without extension or
imposition of any conditions or restrictions.
4.6. NO MATERIAL JUDGMENT OR ORDER.
There shall not be any judgment or order of a court of
competent jurisdiction or any ruling of any Governmental Authority or any
condition imposed under any Requirements of Law which, in the reasonable
judgment of the Company would (i) prohibit the sale of the Shares or the
consummation of the other transactions hereunder, (ii) subject the Company to
any penalty if the Shares were to be sold hereunder or (iii) question the
validity or legality of the transactions required to be performed under this
Agreement.
4.7. EXCHANGE OF NOTE WARRANTS.
Purchasers holding Old Warrants representing at least 90% of
the shares covered by all of the Old Warrants shall have evidenced their
agreement to exchange those warrants for New Warrants.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to, and covenants with,
the Purchasers as of the date hereof and as of the Closing Date as follows:
5.1. CORPORATE EXISTENCE AND AUTHORITY.
Each of the Company Parties (a) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (b) has all requisite corporate power and
authority to own and operate its property, to lease the property it operates as
lessee and to conduct the business in which it is currently, or is currently
proposed to be, engaged, (c) has the corporate power and authority to execute,
deliver and perform its obligations under this Agreement and the related
agreements and other documents referred to herein to which it is or will be a
party; and (d) is duly qualified and in good standing as a foreign corporation
under the laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification, except to
the extent that the failure to do so would not, individually or in the
aggregate, have a material adverse effect on the Condition of the Company.
SCHEDULE 5.1 contains a true and correct list of each jurisdiction where a
Company Party's ownership, lease or operation of property or the conduct of its
business would require it to be qualified to do business as a foreign entity.
13
5.2. CORPORATE AUTHORIZATION; NO CONTRAVENTION.
The execution, delivery and performance by the Company of this
Agreement and each of the other Transaction Documents and the consummation of
the transactions contemplated hereby and thereby, including, without limitation,
the issuance of the Preferred Shares, (a) have been duly authorized by all
necessary corporate action, including without limitation, if required,
stockholder action, (b) do not conflict with or contravene the terms of the
Certificate or the By-laws of the Company, or any amendment thereof; (c) do not
conflict with or contravene the terms of the certificate of incorporation or the
by-laws of any of the Company's Subsidiaries, and (d) will not violate, conflict
with or result in any material breach or contravention of or creation of any
Lien under (i) any Contractual Obligation of any Company Party or (ii) any
Requirements of Law applicable to any Company Party.
5.3. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS.
No approval, consent, compliance, exemption, authorization, or
other action by, or notice to, or filing with, any Governmental Authority or any
other Person in respect of any applicable Requirements of Law and no lapse of a
waiting period under any applicable Requirements of Law is necessary or required
in connection with the execution and delivery of Transaction Documents by the
Company or the performance by the Company Parties or enforcement against the
Company Parties of any obligation of any Company Party under the Transaction
Documents, or the transactions to be performed hereunder or thereunder other
than such approvals, consents, compliance, exemptions, authorizations or filings
as will have been obtained or made prior to the Closing Date.
5.4. BINDING EFFECT.
This Agreement has been and each of the other Transaction
Documents will be, duly executed and delivered by the Company and this Agreement
constitutes, and the Amended and Restated Stockholders' Agreement will
constitute, the legal, valid and binding obligations of the Company enforceable
against it in accordance with their respective terms, except as enforceability
may be limited by applicable bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity relating to enforceability.
5.5. CAPITALIZATION.
(a) On the Closing Date immediately prior to the Closing, the
authorized capital stock of the Company will consist of (i) 600,000,000 shares
of Common Stock, of which 15,750,000 shares are issued and outstanding, (ii)
110,000 shares of Series A Preferred Stock, par value $.01 per share (the
"Series A Preferred Stock"), of which 55,000 shares are issued and outstanding,
and (iii) 115,000 shares of Series B Preferred Stock, of which no shares are
issued and outstanding. As of the Closing Date, after giving effect to the
transactions contemplated by the Transaction Documents, there will be: (i)
55,000 shares (the "Series A Preferred Shares") of Series A Preferred Stock
issued and outstanding; (ii) 59,279 shares of Series B Preferred Stock issued
and outstanding; (iii) 15,750,000 shares of Common
14
Stock issued and outstanding; (iv) 99,000,000 shares of Common Stock reserved
for issuance upon conversion of the Series A Preferred Shares; (v) 148,197,500
shares of Common Stock reserved for issuance upon conversion of the Preferred
Shares; (vi) 55,000 shares of Series A Preferred Stock reserved for issuance by
the Company, which shares may be issued by the Company, at its election, as
payment in kind dividends on the Series A Preferred Shares, in accordance with
the Certificate (the "Series A Dividend Shares"); (vii) 50,000 shares of Series
B Preferred Stock reserved for issuance by the Company, which shares may be
issued by the Company, at its election, as payment in kind dividends on the
Series B Preferred Shares, in accordance with the Certificate (the "Series B
Dividend Shares"); (ix) 99,000,000 shares of Common Stock reserved for issuance
upon conversion of the Series A Dividend Shares reserved for issuance as set
forth in clause (vi) hereof; (x) 125,000,000 shares of Common Stock reserved for
issuance upon conversion of the Series B Dividend Shares reserved for issuance
as set forth in clause (vii) hereof; (xi) 11,861,317 shares of Common Stock
reserved for issuance pursuant to the exercise of warrants ("Warrants"); and
(xii) 13,458,000 shares of Common Stock reserved for issuance pursuant to the
exercise of stock options issuable in accordance with the terms of the Employee
Stock Option Plan (the "Employee Options"). The Company has no shares of capital
stock held in treasury. The Warrants, the Employee Options and all shares of
capital stock of the Company outstanding as of the Closing Date, after giving
effect to the transactions contemplated by the Transaction Documents, have been
duly authorized by all necessary corporate action. All outstanding shares of
capital stock of the Company, after giving effect to the transactions
contemplated by the Transaction Documents, are, and the shares of Common Stock
issuable upon conversion of the Series A Preferred Shares and the Preferred
Shares and upon exercise of the Warrants and the Employee Options, when issued
in accordance with their respective terms, will be, validly issued, fully paid,
nonassessable and free and clear of any Liens, other than those created by the
Amended and Restated Stockholders' Agreement, and the issuance of the foregoing
has not been or will not be, as the case may be, subject to preemptive rights in
favor of any Person.
(b) SCHEDULE 5.5 sets forth, as of the Closing Date, after
giving effect to the transactions contemplated by the Transaction Documents, the
name of each holder of the issued and outstanding capital stock of the Company,
the number and class of shares of such capital stock held beneficially or of
record by each such holder and the name of each holder of warrants, options,
rights and securities convertible into capital stock of the Company, together
with the number and class of capital stock to be issued upon the exercise or
conversion of such warrants, options, rights and convertible securities and the
respective exercise prices and conversion rates of such warrants, options,
rights and convertible securities. On the Closing Date, after giving effect to
the transactions contemplated hereby and in the other Transaction Documents,
except as identified in this Section 5.5, there will be no outstanding
securities convertible into or exchangeable for capital stock of any Company
Party or options, warrants or other rights to purchase or subscribe to capital
stock of any Company Party or contracts, commitments, agreements, understandings
or arrangements of any kind to which any Company Party is a party relating to
the issuance of any capital stock of any Company Party, any such convertible or
exchangeable securities or any such options, warrants or rights. No Company
Party has issued any securities or taken any other action that in either case
has given rise to any
15
adjustments pursuant to any anti-dilution rights granted to any holder of
securities of any Company Party.
(c) SCHEDULE 5.5 sets forth a complete and accurate list of
all of the Subsidiaries of the Company together with their respective
jurisdictions of incorporation or organization. All of the outstanding shares of
capital stock of the Subsidiaries that are corporations are validly issued,
fully paid and nonassessable. Except as set forth on SCHEDULE 5.5, as of the
Closing Date, all of the outstanding shares of capital stock of, or other
ownership interests in, each of the Subsidiaries are owned by the Company or by
a wholly owned Subsidiary free and clear of any Liens. Except as set forth on
SCHEDULE 5.5, the Company has no Subsidiaries and does not own of record or
beneficially, directly or indirectly, (i) any shares of outstanding capital
stock or securities convertible into capital stock of any other corporation, and
(ii) any equity, voting or participating interest in any limited liability
company, partnership, joint venture or other non-corporate business enterprise.
(d) Except as set forth on SCHEDULE 5.5 and as may be
provided in the Amended and Restated Stockholders' Agreement, no Person has
any preemptive rights, rights of first refusal, "tag along" rights, rights of
co-sale or any similar rights with respect to the issuance of the Preferred
Shares contemplated hereby or the issuance of any additional shares of stock
by any Company Party. SCHEDULE 5.5 identifies all Persons holding any such
rights and describes the material terms of all such rights.
5.6. PRIVATE OFFERING.
No form of general solicitation or general advertising was
used by the Company or its representatives in connection with the offer or sale
of the Preferred Shares. No registration of the Preferred Shares, or of shares
of Common Stock issuable upon conversion of the Preferred Shares, pursuant to
the provisions of the Securities Act or any state securities or "blue sky" laws
will be required by the offer, sale or issuance of the Preferred Shares pursuant
to this Agreement, or the issuance of shares of Common Stock issuable upon the
conversion of the Preferred Shares. The Company agrees that neither it, nor
anyone authorized to act on its behalf, will offer or sell the Preferred Shares
or any other security so as to require the registration of the Preferred Shares,
or the shares of Common Stock issuable upon the conversion of the Preferred
Shares, pursuant to the provisions of the Securities Act or any state securities
or "blue sky" laws, unless such Preferred Shares, or shares of Common Stock
issuable upon the conversion of the Preferred Shares, are so registered.
5.7. LITIGATION.
No Company Party has received any notice of and, to its
knowledge, is not subject to any charge complaint, action, court order, writ,
injunction, judgment or decree outstanding or any dispute, claim, suit,
litigation or legal proceeding at law, in equity, in arbitration, or before any
Governmental Authority, (collectively, "Actions") which if adversely determined
would have a material adverse effect on (i) any Company Party or the Condition
of the Company or (ii) the transactions required to be performed by the Company
under this Agreement or any other Transaction Document and, to each Company
Party's knowledge, there is no valid basis therefor,
16
and no Action is threatened against any Company Party. No injunction, writ,
temporary restraining order, decree or any order of any nature has been issued
by any court or other Governmental Authority purporting to enjoin or restrain
the execution, delivery or performance of the Transaction Documents.
5.8. FINANCIAL STATEMENTS.
(a) The Company has furnished the Purchasers with true and
complete copies of (i) the audited consolidated and consolidating balance sheets
of the Company Parties as of June 30, 1998 and the related consolidated and
consolidating statements of income, stockholders' equity and cash flow, together
with the notes thereto, of the Company Parties for the period from January 14,
1998 to June 30, 1998, together with the report of Ernst & Young, LLP thereon
(the "Audited Financial Statements"), and (ii) the unaudited consolidated and
consolidating balance sheets of the Company Parties as of July 31, 1998, August
31, 1998 September 30, 1998, October 31, 1998 and November 30, 1998 (the last
being referred to as "Reference Balance Sheet") and the related consolidated and
consolidating statements of income, stockholders' equity and cash flow, together
with the notes thereto, of the Company Parties for July 31, 1998, the two-month
period ending August 31, 1998, the three-month period ending September 30, 1998,
the four-month period ending October 31, 1998, and the five-month period ended
November 30, 1998 (the "Interim Financial Statements"). The Audited Financial
Statements and the Interim Financial Statements (collectively, the "Financial
Statements") fairly present, in all material respects, the financial position of
the Company Parties as of the respective dates thereof, and the results of
operations and cash flows of the Company Parties for the respective periods set
forth therein, all in conformity with GAAP consistently applied during the
periods involved, except as otherwise set forth in the notes thereto and
subject, in the case of the Interim Financial Statements, to normal year-end
audit adjustments, which will not be materially adverse.
(b) The Pro Forma Balance Sheet delivered to the Purchasers
sets forth the assets and liabilities of the Company Parties as of December 31,
1998 on a pro forma consolidated basis assuming the consummation of the
transactions contemplated in this Agreement had taken place prior thereto. The
Pro Forma Balance Sheet has been prepared by the Company in accordance with
GAAP, consistently applied, and fairly presents in all material respects such
assets and liabilities on a pro forma basis as of November 30, 1998, as if the
transactions contemplated in this Agreement had been consummated on or prior to
such date and the fees and expenses associated therewith had been accrued or
paid, and based on the assumptions set forth in such Pro Forma Balance Sheet.
(c) The Company Parties' projections attached hereto as
SCHEDULE 5.8(B) were prepared by the Company's management in good faith, are
based on reasonable assumptions, represent management's best estimates of the
Company Parties' predicted operations and performance under the Company's
business plan and reflect actual subjective expectations of the Company's
management. The Company has no reason to believe that the results reflected in
such projections are not attainable. Such projections are the most current
projections prepared by any Company Party relating to the periods covered
thereby, and no Company Party has delivered to any Person any later dated
projections.
17
5.9. TITLE AND CONDITION OF ASSETS.
Except with respect to real and personal property leased from
other Persons pursuant to lease agreements disclosed pursuant to Section 5.10,
each of the Company Parties has good title to all of the properties and assets
used in the conduct of its business, including without limitation, the
properties and assets reflected on the Reference Balance Sheet, which properties
and assets are not subject to any Lien except (a) those which are shown and
described in the Reference Balance Sheet or (b) Liens for taxes and assessments
or governmental charges or levies not at the time due or in respect of which the
validity thereof shall currently be contested in good faith by appropriate
proceedings and for which adequate reserves have been provided in accordance
with GAAP.
5.10. CONTRACTUAL OBLIGATIONS.
SCHEDULE 5.10 lists all contracts, agreements and commitments
of each of the Company Parties as of the Closing Date, whether written or oral,
other than (a) the Transaction Documents, (b) purchase orders in the ordinary
course of business, and (c) any other contracts, agreements and commitments of
any of the Company Parties that do not extend beyond one year and involve the
receipt or payment of not more than $75,000. The Company has delivered to the
Purchasers true, complete and correct copies of all written contracts,
agreements and commitments required to be listed on SCHEDULE 5.10. Such
documents comprise a full and complete copy of all agreements and understandings
between the parties thereto with respect to the subject matter thereof and all
transactions related thereto, and there are no agreements or understandings,
oral or written, or side agreements not contained therein that materially modify
the substance thereof. Each of such documents to which it is a party has been
duly authorized by all necessary corporate action on the part of the applicable
Company Party, was validly executed and delivered by the applicable Company
Party and is the legal, valid and binding obligation of the applicable Company
Party, enforceable against the applicable Company Party in accordance with its
terms, except as limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws affecting creditors' rights
generally and by general principles of equity relating to enforceability. Each
of such documents is in full force and effect, and none of its provisions has
been waived by any party thereto.
5.11. TAX MATTERS.
Each of the Company Parties has filed all tax returns and
reports that it was required to file. All such tax returns and reports were
correct and complete in all material respects. All taxes of any nature owed by
any Company Party (whether or not shown on any tax return) have been paid. There
are no Liens on any of the assets of any of the Company Parties that arose in
connection with any failure (or alleged failure) to pay any tax. No Company
Party has any liability for the taxes of any Person other than itself and the
other Company Parties (i) under Treasury Regulation Section 1.1502-6 (or any
similar provision of state, local or foreign law), (ii) as a transferee or
successor, (iii) by Contractual Obligation, or (iv) otherwise.
18
5.12. SEVERANCE ARRANGEMENTS.
Except as set forth on SCHEDULE 5.12, no Company Party has
entered into any severance or similar arrangement in respect of any present or
former employee of such Company Party that will result in any obligation
(absolute or contingent) of such Company Party to make any payment to such
present or former employee of such Company Party following termination of
employment.
5.13. INVESTMENT COMPANY/GOVERNMENT REGULATIONS.
Immediately following the Closing, after giving effect to the
transactions contemplated by the Transaction Documents, no Company Party nor any
Person controlling, controlled by or under common control with a Company Party
will be an "investment company" within the meaning of the Investment Company Act
of 1940, as amended. No Company Party is subject to regulation under the Public
Utility Holding Company Act of 1935, as amended, the Federal Power Act, the
Interstate Commerce Act or any federal or state statute or regulation limiting
its ability to incur Indebtedness.
5.14. BROKER'S, FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar
fees or commissions payable in connection with the transactions contemplated
hereby based on any agreement, arrangement or understanding with any Company
Party or any officer, director, shareholder, or Affiliate of any Company Party
or any action taken by any such Person.
5.15. LABOR RELATIONS AND EMPLOYEE MATTERS.
(a) No Company Party is or has engaged in any unfair
labor practice.
(b) Except as set forth on SCHEDULE 5.10, no Company
Party is a party to any employment agreement (other than "at will" employment
relationships), collective bargaining agreement or covenant not to compete.
(c) No complaint under any statute or regulation
relating to employment has been filed or, to the knowledge of any of the Company
Parties, is threatened against any Company Party.
(d) No strike, labor dispute, slowdown or stoppage is
pending or, to the knowledge of any of the Company Parties, threatened against
any Company Party.
(e) No union representation question exists with
respect to the employees of any Company Party and no union organizing activities
are taking place.
5.16. EMPLOYEE BENEFITS MATTERS.
(a) Except as set forth on SCHEDULE 5.16, no
employees of any Company Party have participated in and no Company Party has
adopted, contributed to or
19
implemented any Employee Plan. The option agreements to which certain of the
employees are party are all in substantially the same form as the option
agreement previously furnished to Purchasers as representative of such
agreements, with the exception of the option agreement with Xxxxx Xxxxxx.
(b) PLAN COMPLIANCE. Each Company Party is in
compliance in all material respects with all reporting, disclosure and
registration requirements applicable to it under the Code, ERISA and all federal
and state securities laws, and Department of Labor, Internal Revenue Service and
Commission rules and regulations promulgated thereunder, with respect to all of
the Employee Plans, and is not subject to any material liability, whether
asserted or not, for any penalties to any Governmental Authority for late filing
of any return, report or other governmental filing. All of the Employee Plans
comply currently, and have complied in the past, both as to form and operation,
in all material respects, with their terms and with all requirements of
applicable law. All amounts that are currently owing to Employee Plan
participants, or contributions required to be made to the Employee Plans have
been timely paid or contributed with respect to all periods prior to the Closing
Date or provided for by adequate reserves on the Financial Statements.
(c) PROHIBITED TRANSACTIONS. Except as set forth on
SCHEDULE 5.16, no Employee Plan, nor any related trust, nor any Company Party,
nor any trustee, administrator or other "party in interest" or "disqualified
person" (within the meaning of Section 3(14) of ERISA or Section 4975(e)(2) of
the Code, respectively) with respect to the Employee Plans, has engaged in any
nonexempt "prohibited transaction" (within the meaning of Section 406 of ERISA
or Section 4975(c) of the Code, respectively) with respect to the participation
of any Company Party therein, which could subject any of the Plans or related
trusts, or any trustee, administrator or other fiduciary of any such Plan, or
any Company Party, or any Purchaser, or any other party dealing with the Plans,
to the penalties or excise tax imposed on prohibited transactions by Section 502
of ERISA or Section 4975 of the Code which could have a material adverse effect
on the Condition of the Company.
(d) COBRA. Except as set forth in SCHEDULE 5.16, each
of the Company Parties has complied with the continuation coverage requirements
of group health plans provided in Section 4980B of the Code, Sections 601 et
seq. of ERISA, the Family and Medical Leave Act of 1994, and the regulations
promulgated thereunder.
5.17. OUTSTANDING BORROWINGS.
SCHEDULE 5.17 lists (i) the amount of all Outstanding
Borrowings of each of the Company Parties as of the date hereof, (ii) the Liens
that relate to such Outstanding Borrowings and that encumber the assets of the
applicable Company Party, (iii) the name of each lender thereof, and (iv) the
amount of any unfunded commitments available to the applicable Company Party as
of November 30, 1998 in connection with any Outstanding Borrowings.
20
5.18. INSURANCE SCHEDULE.
SCHEDULE 5.18 contains a true and correct summary of each
Company Party's insurance policies in effect as of the date hereof. The
insurance binders previously provided to the Purchasers contain a true and
correct summary of the expiration date, amount of coverage, type of coverage,
annual premiums, exclusions and deductibles with respect to such policies. The
Company has no self-insurance program in effect, other than with respect to its
employee health program, which is self-insured but for which catastrophic losses
are covered by insurance. All such policies are in full force and effect, are
underwritten by financially sound and reputable insurers, are sufficient for all
applicable Requirements of Law and otherwise are in compliance with the criteria
set forth in Section 7.14 hereof. All such policies will remain in full force
and effect and will not in any way be affected by, or terminate or lapse by
reason of any of the transactions contemplated hereby.
5.19. SOLVENCY.
No Company Party has (i) made a general assignment for the
benefit of its creditors, (ii) filed any voluntary petition in bankruptcy or
suffered the filing of any involuntary petition in bankruptcy by its creditors,
(iii) suffered the appointment of a receiver to take possession of all or
substantially all of its assets or properties, or (iv) suffered the attachment
or other judicial seizure of all or substantially all of its assets. Each
Company Party is Solvent.
5.20. NO OTHER AGREEMENTS TO SELL THE ASSETS OR CAPITAL STOCK
OF THE COMPANY.
Other than as otherwise set forth in this Agreement, no
Company Party has a legal obligation, absolute or contingent, other than the
obligations of the Company under this Agreement or the Amended and Restated
Shareholders' Agreement, to any person or firm to (i) sell any capital stock of
any of the Company Parties or, outside of the ordinary course of business,
assets, or effect any merger, consolidation or other reorganization of any of
the Company Parties or (ii) enter into any agreement with respect any of the
foregoing.
5.21. KEY EMPLOYEES.
The performance by each Company Party's key employees of their
duties for such Company Party as contemplated by the Company's business plan
will not violate any provision of any agreement to which any of such persons or
such Company Party is a party, including any agreement with any former employer
of any such person, or give rise to any obligation or liability of any Company
Party to any third party or limit in any way such Company Party's ability to
conduct its business. None of the key employees of any Company Party is engaged,
directly or indirectly, or has any interest (other than as a shareholder of a
public company) in any entity which is engaged in competition with any Company
Party in its planned activities.
5.22. COMPLIANCE WITH LAW.
Each Company Party has complied in all material respects with
all applicable Requirements of Law.
21
5.23. SOFTWARE.
(a) For purposes hereof, (i) "Operational Software" shall mean
all software used by, or necessary for the operation of the business of, any of
the Company Parties, including, without limitation, all software purchased or
licensed from third parties ("Third Party Software") all or a portion of which
is incorporated in, linked to, or necessary for the proper functioning of, or
was a tool used in connection with the development of, any such Operational
Software used by, or necessary to the operation of the business of, any of the
Company Parties, and (ii) Applications Software shall mean all software
marketed, licensed, sublicensed or otherwise distributed by any of the Company
Parties to third parties, including, without limitation, all Third Party
Software all or a portion of which is incorporated in, linked to, or necessary
for the proper functioning of, or used as a tool in connection with the
development of, any such Applications Software marketed, licensed, sublicensed
or otherwise distributed by any of the Company Parties to third parties.
Operational Software and Applications Software are collectively referred to as
the "Company Software."
(b) With respect to all Operational Software, each
Company Party has all rights to modify, duplicate, display, incorporate, execute
and use all applicable Third Party Software necessary in order to conduct its
business as currently conducted or proposed to be conducted.
(c) With respect to all Applications Software, each
Company Party has all rights to modify, duplicate, display, incorporate,
distribute, execute, use and grant sublicenses in, market or otherwise
distribute all applicable Third Party Software necessary in order to conduct its
business as currently conducted or proposed to be conducted.
(d) Except with respect to Third Party Software, the
Company Parties own the entire right, title and interest in and to the Company
Software and to each component thereof, including the source code, object code,
flowcharts, programmers' notes and annotations thereto (the "Development
Materials").
(e) All licenses in and to Third Party Software are
valid and existing and in full force and effect. No Company Party has received
any notice that any such license has been terminated or that any event has
occurred which, if not cured, will result in the termination of any such
license, and no Company Party is aware of the occurrence of any such event.
(f) Each Company Party has taken all steps
reasonably necessary to maintain the Company Software, including all components
thereof, which it owns ("Owned Software") as a trade secret or as its
copyrighted material. No third party has access to the Development Materials
relating to any Owned Software or is otherwise in a position to duplicate or
make any unauthorized use of any Owned Software, except for (i) licensees of the
Company Parties who have or may acquire access thereto in the ordinary course of
business pursuant to written agreements under which such licensees are required
to maintain such Development Materials in confidence and who, to the Company
Parties' knowledge, have not violated such requirements, and (ii) OEM purchasers
who may have or may acquire access thereto in
22
accordance with written OEM agreements, true and complete copies of which have
been delivered to Purchasers.
(g) Current and complete documentation and source
code exists with respect to all Owned Software.
(h) The Owned Software is not subject to any legal
or contractual restriction which would prevent such Owned Software from being
licensed, sublicensed, marketed, incorporated in other software, modified, or
otherwise used or sold by any of the Company Parties without restriction. The
consummation of the transactions contemplated hereby will not alter any of the
rights described in the preceding sentence.
(i) No Person has disputed any Company Party's
right, title or interest in or to any of the Owned Software. With respect to the
Owned Software, neither such Software nor the use or licensing thereof infringes
upon, violates, misappropriates or conflicts with any patent, copyright, trade
secret or other proprietary right or right of exclusion of any third party. No
Company Party is aware of any breach of any confidentiality agreement in favor
of a Company Party relating to the Software either by its employees or
consultants.
(j) None of the Company Software has manifested any
significant operating problems, other than any such problems that have been
corrected or are correctable in the ordinary course of business. Such problems
will not in the aggregate result in a material amount of losses or expenses for
any of the Company Parties.
(k) All royalties due and payable to licensors of
any Third Party Software by any of the Company Parties on or prior to the date
hereof have been paid in full.
(l) To its knowledge, all computer software or
hardware owned or used by any of the Company Parties, or licensed by any of the
Company Parties, as licensor or as licensee is "Year 2000 Compliant" (as
hereinafter defined). For purposes of this Agreement, "Year 2000 Compliant"
shall mean (i) all such software or hardware shall operate in four-digit year
format, without errors in the recognition, calculation and processing of date
data relating to century recognition, leap years, single and multi-century
formulae, date values and interfaces of date-related functionalities; (ii) all
date processing shall be conducted in a four-digit year format and all date
sorting that includes a "year field" or "year category" shall be based upon a
four-digit year format; and (iii) any date arithmetic programs or calculators in
the software or hardware shall operate in accordance with the related user
documentation in the Year 2000, and the years following, without degrading
functionality or performance. No Company Party is aware of any inability on the
part of any customer, insurance company or service provider with which any of
the Company Parties transacts business to remedy any failure to be Year 2000
Compliant on a timely basis. The Company has requested certification or
comparable assurances from each supplier or licensor of the Company's Third
Party Software that such Third Party Software is Year 2000 Compliant. SCHEDULE
5.23(1) sets forth a complete list of suppliers or licensors of Third Party
Software that have provided to the Company (i) such certification or comparable
assurances or (ii) a warranty that such Third Party Software is Year 2000
Compliant. SCHEDULE 5.23(2) sets forth a complete list of customers who have
agreed that the Company shall
23
have no liability for any failure of Third Party Software to be Year 2000
Compliant. Based upon such certifications or assurances heretofore received, and
upon communications had with all suppliers and licensors of Third Party
Software, and upon such independent analyses as the Company has undertaken in
the exercise of good business judgment, the Company believes that the software
licensed, installed, integrated or maintained by the Company is either Year 2000
Compliant or that the suppliers or licensors thereof are using commercially
reasonable efforts to make such software Year 2000 Compliant.
5.24. DISCLOSURE.
Each Company Party has, to the best of its knowledge, fully
responded to all requests for information, and each Company Party has accurately
answered all questions from the Purchasers concerning the Condition of the
Company, and has not knowingly withheld any facts relating thereto which it
reasonably believes to be material with respect to the Condition of the Company
or the ability of each Company Party to perform its obligations under the
Transaction Documents, or any other material agreement to which it is a party.
No information in this Agreement or in any Exhibit or Schedule attached to this
Agreement, contains or will contain any untrue statement of a material fact or
when considered together with all such information delivered to the Purchasers
omits to state any material fact necessary in order to make the statements
contained herein or therein not misleading. The disclosures made in writing by
the Company Parties in connection with this Agreement and any and all documents
describing the business and financial condition of the Company Parties provided
to the Purchasers by the Company Parties when read in the light of the
circumstances when made and taken as a whole, did not when made contain any
untrue statement of a material fact.
5.25. NO DEFAULT OR BREACH.
No Company Party is in, and the incurrence of the obligations
of any of the Company Parties contemplated by the Transaction Documents do not
constitute, nor with the giving of notice or lapse of time or both would
constitute, a default under or with respect to any Contractual Obligation of any
Company Party.
5.27 PATENTS, TRADEMARKS, ETC.
Each Company Party owns or is licensed or otherwise has the
right to use all patents, trademarks, service marks, trade names, copyrights,
licenses, franchises and other rights (collectively, the "Rights") being used to
conduct its businesses as now operated. SCHEDULE 5.27 sets forth a complete list
of licenses or other contracts relating to each Company Party's Rights and
registrations of patents, trademarks, service marks and copyrights including any
applications therefor constituting such Rights. Except as identified on Schedule
5.27, no Right or product, process, method, substance or other material
presently sold by or employed by any of the Company Parties, or which any of the
Company Parties contemplate selling or employing, infringes upon the Rights that
are owned by others, and no litigation is pending and no claim has been made
against any Company Party or, to the knowledge of any of the Company Parties, is
threatened, contesting the right of a Company Party to sell or use any Right or
product, process, method, substance or other material presently sold by or
employed by such Company Party. No
24
Company Party has asserted any claim of infringement, misappropriation or misuse
by any Person of any Rights owned by a Company Party or to which it has
exclusive use. Except as set forth on SCHEDULE 5.27, no employee, officer or
consultant of any of the Company Parties has any proprietary, financial or other
interest in any Rights owned or used by each Company Party in its businesses.
Except as set forth on SCHEDULE 5.27, no Company Party has any obligation to
compensate any Person for the use of any Rights and no Company Party has granted
any license or other right to use any of the Rights of any of the Company
Parties, whether requiring the payment of royalties or not. Each Company Party
has taken all reasonable measures to protect and preserve the security,
confidentiality and value of their Rights, including trade secrets and other
confidential information. All trade secrets and other confidential information
of each of the Company Parties are presently valued and protectible and are not
part of the public domain or knowledge, nor have they been used, divulged or
appropriated for the benefit of any Person other than the Company Parties or
otherwise to the detriment of any of the Company Parties. No employee or
consultant of any Company Party has wrongfully used any trade secrets or other
confidential information of any other Person in the course of his work for such
Company Party. To the knowledge of the Company no patent, statute, law, rule,
regulation, standard or code is pending or proposed which would restrict a
Company Party's ability to use any of the Rights.
5.28 USE OF REAL PROPERTY.
Each Company Party holds all of the right, title and interest
of the tenant under the leases reflected on the Reference Balance Sheet or used
in its business free and clear of all Liens, liabilities and rights except as
provided on SCHEDULE 5.28. Except as set forth on SCHEDULE 5.28, the owned and
leased real properties reflected on the Reference Balance Sheet or used in
connection with the business of any of the Company Parties are used and operated
in compliance and conformity with all applicable leases, contracts, commitments,
licenses and permits, except to the extent that the failure so to comply would
not, individually or in the aggregate, materially adversely affect the Condition
of the Company. Except as set forth on SCHEDULE 5.28, all structures,
improvements and other buildings that are owned or covered by leases reflected
on the Reference Balance Sheet or used in connection with the business of any of
the Company Parties comply with all applicable ordinances, codes, regulations
and requirements (if required) have a valid and subsisting certificate of
occupancy for their present use (if required), and no Company Party has received
any written notice from any Governmental Authority which is still outstanding of
any failure to obtain any certificate, permit, license or approval with respect
to the real property, or of any intended revocation, modification or
cancellation of same, and no law or regulation presently in effect or condition
precludes or materially restricts continuation of the present use of such
properties. Each Company Party enjoys peaceful and undisturbed possession under
each lease relating to leased real property reflected on the Reference Balance
Sheet or used in connection with the business of such Company Party. There are
no service contracts, maintenance contracts, union contracts, concession
agreements, licenses, agency agreements or any other written contracts or
agreements affecting the real property or the leased property reflected on the
Reference Balance Sheet or used in connection with the business of any of the
Company Parties, or the operation thereof, other than those listed on SCHEDULE
5.28, except for contracts or agreements (oral or written) which are cancelable
on no more than thirty (30) days' notice.
25
5.29 ERISA - PROHIBITED TRANSACTIONS.
The execution and delivery of the Transaction Documents, the
purchase and sale of the Preferred Shares hereunder and the consummation of the
transactions contemplated thereby will not result in any prohibited transaction
within the meaning of Section 406 of ERISA or Section 4975 of the Code.
5.30 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since November 30, 1998, except as set forth on SCHEDULE 5.30,
no Company Party has (i) issued any stock, bonds or other corporate securities,
(ii) borrowed any amount or incurred any liabilities (absolute or contingent),
other than in the ordinary course of business, in excess of $75,000, (iii)
discharged or satisfied any Lien or incurred or paid any obligation or liability
(absolute or contingent), other than in the ordinary course of business, in
excess of $75,000, (iv) declared or made any payment or distribution to
stockholders or purchased or redeemed any shares of its capital stock or other
securities, (v) mortgaged, pledged or subjected to Lien any of its assets,
tangible or intangible, (vi) sold, assigned or transferred any of its tangible
assets, or canceled any debts or claims, (vii) sold, assigned or transferred any
patents, trademarks, trade names, copyrights, trade secrets or other intangible
assets, (viii) suffered any losses of property, or waived any rights of
substantial value, (ix) suffered any adverse change in the Condition of the
Company, (x) expended any material amount, granted any bonuses or extraordinary
salary increases, (xi) entered into any transaction involving consideration in
excess of $75,000 except as otherwise contemplated hereby or (xii) entered into
any agreement or transaction, or amended or terminated any agreement, with an
Affiliate.
5.31 ENVIRONMENTAL MATTERS.
Except as described on SCHEDULE 5.31, the property, assets and
operations of the Company Parties are and have been in compliance with all
applicable Environmental Laws; there are no Hazardous Materials stored or
otherwise located in, on or under any of the property or assets of any of the
Company Parties, including, without limitation, the groundwater, except in
compliance with applicable Environmental Laws; and there have been no releases
or threatened releases of Hazardous Materials in, on or under any property
adjoining any of the property or assets of any of the Company Parties that have
not been remediated to the satisfaction of the appropriate Governmental
Authorities and in compliance with Environmental Laws.
(a) None of the property, assets or operations of
any of the Company Parties is the subject of any Federal, state or local
investigation evaluating whether (i) any remedial action is needed to respond to
a release or threatened release of any Hazardous Materials into the environment
or (ii) any release or threatened release of any Hazardous Materials into the
environment is in contravention of any Environmental Law.
(b) None of the Company Parties is or was the owner
or operator of any property which (i) pursuant to any Environmental Law has been
placed on any list of Hazardous Materials disposal sites, including, without
limitation, the "National Priorities List" or "CERCLIS List," (ii) has, or had,
any subsurface storage tanks located thereon, or (iii) has ever
26
been used as or for a waste disposal facility, a mine, a gasoline service
station or, other than for petroleum substances stored in the ordinary course of
business, a petroleum products storage facility.
(c) No Company Party has received any notice or
claim, nor are there any pending, or, to the knowledge of any Company Party, any
threatened or reasonably anticipated, lawsuits or proceedings against it, with
respect to violations of an Environmental Law or in connection with the presence
of or exposure to any Hazardous Materials in the environment or any release or
threatened release of any Hazardous Materials into the environment, and no
Company Party has any present or contingent liability in connection with the
presence either on or off the property or assets of any of the Company Parties
of any Hazardous Materials in the environment or any release or threatened
release of any Hazardous Materials into the environment.
5.32 POTENTIAL CONFLICTS OF INTEREST.
Except as set forth on SCHEDULE 5.32, no officer, director,
stockholder or other security holder of any Company Party: (a) owns, directly or
indirectly, any interest in (excepting less than 5% stock holdings for
investment purposes in securities of publicly held and traded companies), or is
an officer, director, employee or consultant of, any Person that is, or is
engaged in business as, a competitor, lessor, lessee, supplier, distributor,
sales agent or customer of, or lender to or borrower from, any Company Party;
(b) owns, directly or indirectly, in whole or in part, any tangible or
intangible property that the Company Parties uses in the conduct of business; or
(c) has any cause of action or other claim whatsoever against, or owes or has
advanced any amount to, any of the Company Parties, except for claims in the
ordinary course of business such as for accrued vacation pay, accrued benefits
under employee benefit plans, and similar matters and agreements existing on the
date hereof.
5.33 TRADE RELATIONS.
Set forth on SCHEDULE 5.33 is a true and correct list of (i)
the twenty largest customers of the ACR and the twenty largest customers of IIT,
in terms of sales during the nine-month period ended November 30, 1998, and all
of the Company's current customers; and (ii) the five largest suppliers of goods
or services to each of the Company Parties in terms of purchases during the
nine-month period ending November 30, 1998, as well as any sole source suppliers
of goods or services for which there is no ready alternative to the Company on
comparable terms. There exists no actual or, to the knowledge of the Company,
threatened termination, cancellation or limitation of, or any adverse
modification or change in, the business relationship of the Company with any
customer or any group of customers whose purchases are individually or in the
aggregate material to the business of the Company, or with any material
supplier.
5.34 ACQUISITION AGREEMENTS.
To the Company's knowledge, the representations and warranties
made in the Stock Purchase Agreement, dated as of August 28, 1998, by and among
the Company, IIT
27
Holding, Inc., and the selling stockholders named therein; and the Stock
Purchase Agreement, dated as of October 2, 1998, by and among the Company,
Advanced Communication Resources, Inc. and the selling stockholders named
therein (collectively, the "Acquisition Agreements") by each of the parties
thereto were true, correct and accurate in all material respects as of the date
of each such Acquisition Agreement as of the closing of each such acquisition,
and as of the date hereof.
5.35 LOCATION OF ASSETS.
The chief executive offices of the Company Parties and the
books and records of each Company Party concerning its accounts (as such term is
defined in the Uniform Commercial Code) are located only at the address set
forth on SCHEDULE 5.34 identified as such, and the only other places of business
and locations of assets of each of the Company Parties, if any, are the
addresses set forth on SCHEDULE 5.35.
5.36 REGULATORY AFFILIATE.
The Company is not and will not, after giving effect to the
transactions contemplated hereunder, be a Regulatory Affiliate of US West.
ARTICLE 6.
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, hereby represents
and warrants, as to itself, to the Company as of the date hereof as follows:
6.1. EXISTENCE AND AUTHORITY
Such Purchaser (a) is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its formation, (b) has all
requisite power and authority to own its assets and operate its business, and
(c) has all requisite power and authority to execute, deliver and perform its
obligations under the Transaction Documents to which it is or will be a party.
6.2. ORGANIZATION; AUTHORIZATION; NO CONTRAVENTION.
The execution, delivery and performance by such Purchaser of
the Transaction Documents to which it is a party or will be a party and the
consummation of the transactions contemplated thereby, including, without
limitation, the acquisition of the Preferred Shares: (a) is within such
Purchaser's authority, and has been duly authorized by all necessary action on
the part of such Purchaser; (b) does not conflict with or contravene the terms
of such Purchaser's constituent documents; and (c) will not violate, conflict
with or result in any material breach or contravention of (i) any Contractual
Obligation of such Purchaser, or (ii) the Requirements of Law or any order or
decree applicable to such Purchaser.
28
6.3. BINDING EFFECT.
This Agreement has been duly executed and delivered by such
Purchaser, and this Agreement constitutes the legal, valid and binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability.
6.4. PURCHASE FOR OWN ACCOUNT.
The Preferred Shares, and the shares of Common Stock to be
issued upon conversion of the Preferred Shares, are being or will be acquired by
such Purchaser for its own account and with no intention of distributing or
reselling such securities or any part thereof in any transaction that would be
in violation of the securities laws of the United States of America, or any
state, without prejudice, however, to the rights of such Purchaser at all times
to sell or otherwise dispose of all or any part of the Preferred Shares or the
shares of Common Stock issuable upon conversion of the Preferred Shares under an
effective registration statement under the Securities Act, or under an exemption
from such registration available under the Securities Act, and subject,
nevertheless, to the disposition of such Purchaser's property being at all times
within its control. If such Purchaser should in the future decide to dispose of
any of the Preferred Shares or the shares of Common Stock issuable upon
conversion of the Preferred Shares, such Purchaser understands and agrees that
it may do so only in compliance with the Securities Act and applicable state
securities laws, as then in effect. Such Purchaser agrees to the imprinting, so
long as required by law, of a legend on certificates representing all of the
Preferred Shares or the shares of Common Stock to be issued upon conversion of
the Preferred Shares to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT OR SUCH LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN THE AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT, DATED DECEMBER 31, 1998. A COPY OF SUCH AGREEMENT MAY
BE OBTAINED FROM THE COMPANY UPON REQUEST."
6.5. FINANCIAL CONDITION.
Such Purchaser's financial condition is such that it is able
to bear the risk of holding the Preferred Shares for an indefinite period of
time and can bear the loss of its entire investment in the Preferred Shares.
Such Purchaser has such knowledge and experience in financial and business
matters and in making high risk investments of this type that it is capable of
evaluating the merits and risks of the purchase of the Preferred Shares.
29
6.6. RECEIPT OF INFORMATION.
Such Purchaser has been furnished access to the business
records of the Company and such additional information and documents as such
Purchaser has requested and has been afforded an opportunity to ask questions of
and receive answers from representatives of the Company concerning the terms and
condition of this Agreement, the purchase of the Preferred Shares, the
prospective operations, market potential, capitalization, financial conditions,
and prospects of the business to be conducted by the Company, and all other
matters deemed relevant by such Purchaser.
6.7. BROKER'S, FINDER'S OR SIMILAR FEES.
There are no brokerage commissions, finder's fees or similar
fees or commissions payable in connection with the transactions contemplated
hereby based on any agreement, arrangement or understanding with such Purchaser
or any action taken by such Purchaser.
6.8. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT.
No approval, consent, compliance, exemption, authorization, or
other action by, or notice to, or filing with, any Governmental Authority or any
other Person in respect of any Requirements of Law (excluding any state
securities or "Blue Sky" laws), and no lapse of a waiting period under any
Requirements of Law, is necessary or required in connection with the execution,
delivery or performance by such Purchaser (including, without limitation, the
acquisition of the Preferred Shares) or enforcement against such Purchaser of
this Agreement or the related agreements referred to herein to which it is or
will be a party or the transactions contemplated thereby.
6.9. LITIGATION.
No Actions are pending, or to the best knowledge of such
Purchaser, threatened relating to or affecting the transactions required to be
performed by such Purchaser under this Agreement or the related agreements
referred to herein to which it is or will be a party.
ARTICLE 7.
COVENANTS OF THE COMPANY WITH RESPECT
TO THE PERIOD FOLLOWING THE CLOSING
Until all Preferred Shares are no longer outstanding due to
conversion or otherwise and until the payment by the Company of all other
amounts due to the Purchasers under this Agreement or the related agreements and
other documents referred to herein or the Certificate, except for such longer
survival periods as are specifically provided in Section 7.3 and 7.5(a), the
Company hereby covenants and agrees with the Purchasers as follows:
7.1. RESERVATION OF SHARES.
The Company shall at all times reserve and keep available out
of its authorized Common Stock, solely for the purpose of issuance or delivery
upon conversion of the Preferred
30
Shares as provided in the Certificate, the maximum number of shares of Common
Stock that may be issuable or deliverable upon such conversion. Such shares of
Common Stock shall, when issued or delivered in accordance with the provisions
of the Certificate, be duly authorized, validly issued and fully paid and
non-assessable. The Company shall issue such Common Stock in accordance with the
provisions of the Certificate and shall otherwise comply with the terms thereof.
7.2. YEAR 2000.
The Company undertakes promptly to inform the Purchasers of
any material deficiency or expected cost in connection with the Company Parties
becoming Year 2000 Compliant on a timely basis. The Company will use its
commercially reasonable efforts to ensure that (i) the Company Software is Year
2000 Compliant, and (ii) each of the Company Parties will, under any agreement
between a Company Party and any third party or parties entered into after the
date hereof, expressly limit the Company Party's liability to such third party
or parties for the failure of any Company Software to be Year 2000 Compliant.
The Company will appoint a Year 2000 Compliance manager and will initiate a Year
2000 Compliance program within the first quarter of 1999.
7.3. REGULATORY COMPLIANCE.
(a) CERTAIN REDEMPTIONS AND ACQUISITIONS. The
Company shall give US WEST Communications, Inc. ("US WEST") not less than 15
days prior written notice of any redemption or repurchase of its equity
securities (including options, warrants and unconvertible securities) and shall
not redeem (other than as required pursuant to the Certificate) or repurchase
any of its equity securities to the extent that such redemption or repurchase
would cause the Company to become a Regulatory Affiliate of US WEST. US WEST
shall not acquire any of the Company's equity securities (whether from the
Company or from a third party) to the extent that such acquisition would cause
the Company to become a Regulatory Affiliate of US WEST. Any transaction in
violation of this subsection shall be void. To the extent such transaction has
taken place before either the Company or US WEST was aware that it violated this
subsection, the Company and US WEST agree to use their best commercially
reasonable efforts to cause the transaction to be rescinded. In any event, the
provisions of subsection (b) below will apply to the extent that the Company has
become a Regulatory Affiliate of US WEST.
(b) PUT AND CALL RIGHTS. In the event that the
Company at any time after the Closing Date (i) provides in-region interLATA
services that US WEST would be prohibited from providing under 47 U.S.C. ss.271,
and (ii) becomes an "Affiliate" of US WEST, as that term is defined in Section
3(1) of the Communications Act of 1934, as amended, 47 U.S.C. ss. 153(1), by
virtue of US WEST's ownership of an equity interest in the Company (in such
circumstances, a "Regulatory Affiliate"), then US WEST shall have the right to
cause the Company to purchase its "Excess Shares" (as defined below) (the "US
WEST Put") and the Company shall have the right to cause US WEST to sell to the
Company its Excess Shares (the "Company Call" and, collectively with the US WEST
Put, the "Regulatory Rights") on the following terms and conditions:
31
(i) The party seeking to exercise the Regulatory
Rights shall give notice to the other party promptly after the Company has
become a Regulatory Affiliate and in no event later than 30 days after such
party first becomes aware of the fact that the Company has become a Regulatory
Affiliate. In the event that the other party disagrees that the Company has
become a Regulatory Affiliate, that party shall provide notice of such
disagreement within three Business Days of the notice from the party, and both
parties' regulatory counsel shall thereupon consult with each other to come to
an agreement on whether or not the Company has become a Regulatory Affiliate
seeking to exercise the Regulatory Rights. In the event that the regulatory
counsel do not reach an agreement within ten (10) days, the matter will be
submitted to expedited arbitration by a counsel mutually agreeable to the other
two counsel. The closing of the sale of the Excess Shares shall take place
within five Business Days of the original notice (assuming no regulatory
consents are required) if the party not seeking to exercise the Regulatory
Rights has not timely objected to the notice; if the party not seeking to
exercise the Regulatory Rights had timely objected to the notice, then the
closing shall take place within five Business Days of the arbitral resolution of
the dispute. In the event that the Company exercises the Company Call and the
purchase price for the Excess Shares is not paid entirely in cash, US WEST shall
have the right, for a period of 60 days from the date of consummation of the
purchase of the Excess Shares, to cause the Company to sell the Excess Shares to
US WEST's designee for a purchase price equal to the purchase price in fact paid
by the Company for such shares (that is, including the Company's promissory note
as set forth in subparagraph (iii) below as well as cash to the extent cash was
included in payment of the purchase price).
(ii) The Excess Shares shall be the minimum amount
of shares of the Company's equity securities that are required to be disposed of
in order that the Company not be deemed a Regulatory Affiliate.
(iii) The purchase price per share for the Excess
Shares shall be the Quoted Price (as defined in the Certificate). The purchase
price shall be paid (A) in cash to the extent of the amount that can permissibly
be paid consistent with the terms of any indentures governing the Company's debt
and the terms of any of the Company's senior and subordinated credit facilities;
and (B) the balance of the purchase price, if the purchase price has not been
paid fully in cash, shall be paid in the form of the Company's promissory note
in favor of US WEST (the "US WEST Note"), which US WEST Note shall (w) bear
interest at a rate of 12% per annum, (x) be for a term equal to the term of the
longest of the Company's then-outstanding indebtedness plus one day, subject to
mandatory prepayment in the event of a Sale of the Company, a public offering
(to the extent the proceeds thereof are not used to repay senior indebtedness)
or the refinancing of all or substantially all of the Company's indebtedness,
(y) be freely transferable (subject to applicable securities laws) and
convertible at the option of the holder (to the extent that the Company would
not become a Regulatory Affiliate as a result thereof) into a number of Shares
of Convertible Preferred Stock (split between Series A Preferred Stock and
Series B Preferred Stock in proportion to US West's then-current holdings)
determined by dividing the unpaid principal amount of such US WEST Note by the
price utilized in connection with the exercise of the US WEST Put or the Company
Call resulting in the issuance of such US WEST Note (and the accrued but unpaid
interest shall be payable in cash), and (z) be subordinated (including as to the
payment of interest) to the minimum extent required
32
by the Company's senior and subordinated lenders and the terms of the Company's
indentures.
(c) CERTAIN TRANSFERS. In the event that US WEST is
required by applicable law to dispose of some or all of the Company's equity
securities that it then holds in order to prevent the Company from becoming a
Regulatory Affiliate, the Company and US WEST shall take all commercially
reasonable actions to restructure US WEST's investment in the Company in a
manner that will cause the Company not to be deemed a Regulatory Affiliate. In
the event that such a restructuring cannot be effectuated, the Company shall
waive the restrictions set forth in Section 2(b) of the Amended and Restated
Stockholders' Agreement to the extent that the proposed transferee is not a
direct competitor of the Company. In any event, the provisions of subsection (b)
above will apply to the extent that the Company has become a Regulatory
Affiliate.
(d) COOPERATION. In the event of any challenge by an
regulatory authority or any third party to the transactions contemplated by this
Agreement, the Company and US WEST agree to vigorously defend against such
challenge, to cooperate in such defense and to provide the other party such
information as it may reasonably request to assist in such defense
(e) CERTAIN ACTIONS. Without the consent of the
holders of a majority of the Series A Preferred Stock then outstanding and
two-thirds of the Series B Preferred Stock then outstanding, the Company will
not take any action that would result in the Company being deemed a Regulatory
Affiliate.
(f) SUPERSEDING AGREEMENT. The provisions of this
Section 7.3 hereby supersede and replace the provisions of Section 7.4 of the
Stock Purchase Agreement between the Company and US WEST, which Section the
Company and US WEST hereby agree is of no further force or effect.
(g) SURVIVAL. The provisions of this Section 7.3
shall survive until US WEST ceases to hold any Preferred Shares or shares of
Common Stock issued upon conversion thereof and until the payment by the Company
of all other amounts due to US WEST under this Agreement or the related
agreements and other documents referred to herein or the Certificate.
7.4. INFORMATION AND REPORTS FOR SBIC PURCHASERS.
The Company will furnish to any Purchaser that is a Small
Business Investment Company ("SBIC") such financial data and other information
relating to the business of Company as such Purchaser reasonably may request
from time to time. The Company, upon reasonable request, will cooperate fully
with such Purchaser, its representatives and counsel, in the preparation of any
document or other material which may be required by the SBA or any other
governmental agency as a predicate to or result of the transaction herein
contemplated. In addition to the foregoing, no later than ninety (90) days after
the Closing, the Company shall furnish to any Purchaser that is an SBIC a
certificate executed by the president of the Company itemizing the use of
proceeds from the sale of the Preferred Shares, and the Company shall cooperate
with such Purchaser in connection with a post-closing review. Within ninety (90)
days after the end of each fiscal year of the Company, the Company will, if
required by law, submit to
33
any Purchaser that is an SBIC an economic impact
report in form reasonably satisfactory to such Purchaser.
7.5. FINANCIAL STATEMENTS AND OTHER INFORMATION.
The Company shall maintain, and cause each of its Subsidiaries
to maintain, a system of accounting established and administered in accordance
with sound business practices to permit preparation of financial statements in
conformity with GAAP (it being understood that monthly financial statements are
not required to have footnote disclosures). The Company shall deliver to the
Purchasers each of the financial statements and other reports described below:
(a) MONTHLY AND QUARTERLY FINANCIAL INFORMATION. As
soon as available and in any event within thirty (30) days after the end of each
month, the Company shall deliver (i) the consolidated and consolidating balance
sheets of the Company and its Subsidiaries, as at the end of such month and the
related consolidated and consolidating statements of income, stockholders'
equity and cash flow for such month and for the period from the beginning of the
then current fiscal year of the Company to the end of such month (and, with
respect to financial statements delivered for months that are also the last
month of any fiscal quarter, accompanied by the related consolidated and
consolidating statements of income, stockholders' equity and cash flow for such
fiscal quarter) and (ii) a schedule of the outstanding Indebtedness for borrowed
money of the Company and its Subsidiaries describing in reasonable detail each
such debt issue or loan outstanding and the principal amount and amount of
accrued and unpaid interest with respect to each such debt issue or loan.
Notwithstanding the foregoing to the contrary, from and after January 1, 2001,
the financial information required to be delivered pursuant to this paragraph
shall be delivered as soon as available following the end of each fiscal
quarter, but in no event later than thirty (30) days after the end of such
fiscal quarter. After the consummation of an IPO, as defined in the Certificate
(an "IPO") the Company's obligations under this paragraph (a) shall continue
until the second anniversary of the date of this Agreement, but the financial
information shall be provided to the Company's Board of Directors and observers,
not to the Purchasers.
(b) YEAR-END FINANCIAL INFORMATION. As soon as
available and in any event within ninety (90) days after the end of the fiscal
year of the Company, the Company shall deliver (i) the consolidated and
consolidating balance sheets of the Company and its Subsidiaries as at the end
of such year and the related consolidated and consolidating statements of
income, stockholders' equity and cash flow for such fiscal year, (ii) a schedule
of the outstanding Indebtedness for borrowed money of the Company and its
Subsidiaries describing in reasonable detail each such debt issue or loan
outstanding and the principal amount and amount of accrued and unpaid interest
with respect to each such debt issue or loan, and (iii) a report with respect to
the financial statements from Ernst & Young, LLP or another "Big Five" firm of
certified public accountants selected by the Company and reasonably acceptable
to the Purchasers, which report shall be issued pursuant to an audit conducted
by such firm of certified public accountants in conformity with generally
accepted accounting standards. The Company shall use its best commercially
reasonable efforts to ensure that such report shall contain an "Unqualified"
opinion (as such term is defined in AU Section 508.10 of the American Institute
of Certified Public Accountants Professional Standards).
34
(c) COMPANY'S COMPLIANCE CERTIFICATE. Until the
consummation of an IPO, the Company shall deliver or cause to be delivered
within thirty (30) days after the end of each fiscal quarter a fully and
properly completed compliance certificate (in substantially the form attached
hereto as EXHIBIT D (or in such other form or substance as shall be satisfactory
to Purchasers) and referred to as a "Compliance Certificate") signed by the
chief executive officer or chief financial officer of the Company.
(d) ACCOUNTANTS' REPORTS. Promptly upon receipt
thereof, the Company shall deliver copies of all significant reports submitted
by the Company's firm of certified public accountants in connection with each
annual, interim or special audit or review of any type of the financial
statements or related internal control systems of the Company and its
Subsidiaries made by such accountants, including any comment letter submitted by
such accountants to management in connection with their services.
(e) MANAGEMENT REPORTS. Until the consummation an of
IPO, the Company will deliver within thirty (30) days after the end of each
fiscal quarter a management report (i) describing the operations and financial
condition of the Company and its Subsidiaries for the month then ended and the
portion of the current fiscal year then elapsed (or for the fiscal year then
ended in the case of year-end financials), (ii) setting forth in comparative
form the corresponding figures for the corresponding periods of the previous
fiscal year and the corresponding figures from the most recent projections for
the current fiscal year delivered pursuant to subsection 7.5(f) and (iii)
discussing the reasons for any significant variations. The information above
shall be presented in reasonable detail and shall be certified by the chief
financial officer of the Company to the effect that such information fairly
presents the results of operations and financial condition of the Company and
its Subsidiaries as at the dates and for the periods indicated.
(f) PROJECTIONS. No earlier than sixty (60) days
prior nor later than fifteen (15) days prior to the end of each fiscal year
beginning with the current fiscal year, the Company shall prepare and deliver
to Purchasers projections of the Company and its Subsidiaries for the next
succeeding fiscal year, on a month to month basis and for the following four
(4) fiscal years on a quarter to quarter basis, including a balance sheet as
of the end of each relevant period and income statements and statements of
cash flows for each relevant period and for the period commencing at the
beginning of the fiscal year and ending on the last day of such relevant
period.
(g) SEC FILINGS AND PRESS RELEASES. Promptly upon
their becoming available, the Company shall deliver copies of (i) all financial
statements, reports, notices and proxy statements sent or made available by the
Company or any of its Subsidiaries to their security holders, (ii) all regular
and periodic reports and all registration statements and prospectuses, if any,
filed by the Company or any of its Subsidiaries with any securities exchange or
with the Commission or any governmental or private regulatory authority, and
(iii) all press releases and other statements made available by the Company or
any of its Subsidiaries to the public concerning material developments in the
business the Company or any of its Subsidiaries.
35
(h) EVENTS OF DEFAULT, ETC. Promptly upon any of the
Company Party's obtaining knowledge of any of the following events or
conditions, the Company shall deliver copies of all notices given or received by
the Company or any of its Subsidiaries with respect to any such event or
condition and a certificate of the Company's chief executive officer specifying
the nature and period of existence of such event or condition and what action
the Company has taken, is taking and proposes to take with respect thereto: (i)
any condition or event that constitutes a material breach of any provision of
this Agreement; (ii) any notice that any Person has given to the Company or any
Subsidiary, or any other action, taken with respect to a claimed default in any
agreement evidencing Indebtedness or any other material agreement to which the
Company or any Subsidiary is a party; or (iii) any event or condition that could
reasonably be expected to result in any material adverse effect on the Condition
of the Company.
(i) LITIGATION. Promptly upon any of the Company
Party's obtaining knowledge of (i) the institution of any action, suit,
proceeding, governmental investigation or arbitration against or affecting the
Company or any of its Subsidiaries or any property of the Company or any of its
Subsidiaries not previously disclosed by the Company to the Purchasers or (ii)
any material development in any action, suit, proceeding, governmental
investigation or arbitration at any time pending against or affecting the
Company or any of its Subsidiaries or any property of the Company or any of its
Subsidiaries which, in each case, is reasonably possible to have a material
adverse effect on the Condition of the Company, the Company will promptly give
notice thereof to the Purchasers and provide such other information as may be
reasonably available to them to enable the Purchasers and their counsel to
evaluate such matter.
7.5A SUBSIDIARIES.
The Company shall cause each Subsidiary acquired or created
after the date hereof to comply with the covenants and agreements herein as if
such Subsidiary had been a Subsidiary on the date hereof.
7.6 NOTICE OF CORPORATE CHANGES
The Company shall provide prompt written notice to the
Purchasers of (i) all jurisdictions in which the Company or any of its
Subsidiaries becomes qualified after the Closing Date to transact business, and
(ii) any material change after the Closing Date in the authorized and issued
capital stock or other equity interests of the Company or any of its
Subsidiaries or any other material amendment to their charter, by-laws or other
organization documents, such notice, in each case, to identify the applicable
jurisdictions or capital structures, as applicable.
7.7 NO DEFAULTS.
The Company shall deliver to the Purchasers concurrently with
the delivery of the financial statements referred to in subsection 7.5(b), a
certificate of the Company's chief financial officer stating that to his
knowledge no breach of this Agreement or any Transaction Document shall have
occurred during the period covered thereby, except as specified in such
certificate.
36
7.8 PERMITTED INVESTMENTS.
The Company may invest the proceeds of the sale of the
Preferred Shares pending use of the proceeds pursuant to Section 7.16, in
government securities, certificates of deposit, or bank accounts, or in such
high-grade, short-term investment vehicles as may be approved by the Audit
Committee of the Board of Directors.
7.9 OTHER INFORMATION.
With reasonable promptness, the Company shall deliver such
other information and data with respect to the Company or any of its
Subsidiaries as from time to time may be reasonably required by any Purchaser.
7.10 PRESERVATION OF CORPORATE EXISTENCE.
The Company shall, and shall cause each of its Subsidiaries
to:
(a) preserve and maintain in full force and effect
its corporate existence;
(b) conduct its business in accordance with sound
business practices, keep its properties in good working order and condition
(normal wear and tear excepted), and from time to time make all needed repairs
to, renewals of or replacements of its properties (except to the extent that any
of such properties are obsolete or are being replaced); and
(c) file or cause to be filed in a timely manner all
reports, applications, estimates and licenses that shall be required by a
Governmental Authority.
7.11 PAYMENT OF OBLIGATIONS.
The Company shall, and shall cause each of its Subsidiaries
to, pay and discharge as the same shall become due and payable, all their
respective obligations and liabilities, including without limitation:
(a) all Tax liabilities, assessments and
governmental charges or levies upon it or its properties or assets, unless the
same are being contested in good faith by appropriate proceedings and adequate
reserves in accordance with GAAP are being maintained by the Company or such
Subsidiary;
(b) all lawful claims which the Company and each of
its Subsidiaries is obligated to pay, which are due and which, if unpaid, might
by law become a Lien upon its property, unless the same are being contested in
good faith by appropriate proceedings and adequate reserves in accordance with
GAAP are being maintained by the Company or such Subsidiary; and
(c) all payments of principal, interest and other
amounts when due on Indebtedness.
37
7.12 COMPLIANCE WITH LAWS.
The Company shall comply, and shall cause each of its
Subsidiaries to comply, in all material respects with all Requirements of Law
and with the directions of any Governmental Authority having jurisdiction over
them or their business or property (including all applicable Environmental
Laws).
7.13 INSPECTION.
The Company will permit, and will cause each of its
Subsidiaries to permit, representatives of the Purchasers to visit and inspect
any of their properties, to examine their corporate, financial and operating
records and make copies thereof or abstracts therefrom, and to discuss their
affairs, finances and accounts with their respective directors, officers and
independent public accountants, all at such reasonable times during normal
business hours and as often as may be reasonably requested, upon reasonable
advance notice; PROVIDED, HOWEVER, that no such inspection, examination or
inquiry, the failure to conduct same, nor any knowledge of any Purchaser,
including, without limitation, any knowledge obtained by such Purchaser in
connection with any such inspection, investigation or inquiry, shall constitute
a waiver of any rights Purchasers may have under any representation, warranty,
covenant, term or agreement under any of the Transaction Documents.
7.14 INSURANCE.
The Company and its Subsidiaries shall maintain or cause to be
maintained in good repair, working order and condition all material properties
used in their respective businesses and will make or cause to be made all
appropriate repairs, renewals and replacements thereof. The Company and its
Subsidiaries will maintain or cause to be maintained with financially sound and
reputable insurers that have a rating of "A" or better as established by Best's
Rating Guide (or an equivalent rating with such other publication of a similar
nature as shall be in current use), public liability and property damage
insurance with respect to their respective businesses and properties against
loss or damage of the kinds customarily carried or maintained by companies of
established reputation engaged in similar businesses and in amounts acceptable
to Purchasers and will deliver evidence thereof to Purchasers. Without limiting
the foregoing, the Company and its Subsidiaries will establish no later than
three (3) months after the Closing Date and maintain at all times thereafter
directors' and officers' liability insurance coverage for each of the members of
the Board of Directors of the Company in amounts satisfactory to the Purchasers;
provided, however, that the Company shall not be obligated to purchase such
insurance in the event that reasonable terms and pricing are not commercially
available. All such insurance policies shall provide that they may not be
canceled unless the insurance carrier gives at least 30 days prior written
notice of such cancellation to Purchasers.
7.15 BOOKS AND RECORDS.
The Company shall, and shall cause each of its Subsidiaries
to, keep proper books of record and account, in which full and correct entries
shall be made of all financial transactions
38
and the assets and business of the Company and each of its Subsidiaries in
accordance with GAAP consistently applied to the Company and its Subsidiaries
taken as a whole.
7.16 USE OF PROCEEDS.
The Company shall use the proceeds of the sale of Preferred
Shares hereunder only as follows: (i) for the payment of fees and expenses in
connection with the transactions contemplated hereunder and in the other
Transaction Documents, (ii) for capital expenditures, (iii) to repay a note
(including accrued but unpaid interest thereon) pursuant to Section 3.19 and the
interest on the Notes, and (iv) for general corporate purposes.
7.17 BOARD NOMINEES.
The Company shall maintain a Board of Directors consisting of
the number of directors specified in the Amended and Restated Stockholders'
Agreement, as such agreement may be amended from time to time, and use its best
efforts to have the nominees designated pursuant to such agreement elected to
the Board of Directors in accordance with, and subject to, the terms thereof.
7.18 GRANTING OF EMPLOYEE OPTIONS.
The Company may grant no more Employee Options than would
represent 6.5% of the Company's outstanding Common Stock on a fully diluted
basis, not including the options and shares issuable or issued on exercise of
options pursuant to the Employee Stock Option Plan. If the Employee Options are
granted, the Company shall grant the Employee Options at an exercise price equal
to at least the per share fair market value of the Common Stock (as determined
by the Company's Board of Directors) at the time of such grant or grants, as the
case may be.
7.19 BUSINESS ACTIVITIES.
Neither the Company nor any of its Subsidiaries shall engage
in any business or transaction other than the business in which they currently
propose to engage and the transactions contemplated by, or permitted under, the
Transaction Documents.
ARTICLE 8.
INDEMNIFICATION
8.1. INDEMNIFICATION.
(a) In addition to all other sums due hereunder or
provided for in this Agreement, the Company shall defend, indemnify and hold
harmless the Purchasers and their Affiliates and each of their respective
officers, directors, agents, employees, subsidiaries, partners, attorneys,
accountants, controlling persons and assigns (each a "Purchasing Indemnified
Party") to the fullest extent permitted by law from and against any and all
losses, costs, claims, damages, expenses (including, without limitation,
reasonable fees, disbursements and other charges of counsel, as limited by
Section 8.2 below, incurred by a Purchasing Indemnified Party
39
in any action or proceeding between the Company and such Purchasing Indemnified
Party (or Purchasing Indemnified Parties) or between a Purchasing Indemnified
Party (or Purchasing Indemnified Parties) and any third party or otherwise) and
other liabilities or losses or diminution in value (collectively, "Liabilities")
incurred or suffered by any Purchasing Indemnified Party resulting from or
arising out of (i) any breach by the Company of any representation or warranty,
covenant or agreement of the Company in this Agreement or any other of the
Transaction Documents, including without limitation, the failure to make payment
when due of amounts owing pursuant to this Agreement or the other Transaction
Documents, on the due date thereof (whether at the scheduled maturity, by
acceleration or otherwise) or any legal, administrative or other actions
(including, without limitation, actions brought by any Purchaser, the Company,
any of its Subsidiaries or any equity holders of the Company or any of its
Subsidiaries or derivative actions brought by any Person claiming through or in
the name of the Company or any Subsidiary of the Company), proceedings or
investigations (whether formal or informal), or written threats thereof, based
upon, relating to or arising out of the Transaction Documents, the transactions
contemplated thereby, or any Purchasing Indemnified Party's role therein or in
the transactions contemplated thereby, or (ii) without limiting the scope of
Clause (i) but without duplication, any material liability of the Company on the
Closing Date not disclosed in this Agreement, including the Exhibits and
Schedules thereto; PROVIDED, HOWEVER, that the Company shall not be liable under
this Section 8.1 to any Purchasing Indemnified Party to the extent that it is
finally judicially determined that such Liabilities resulted primarily from the
material breach by such Purchasing Indemnified Party of any representation,
warranty, covenant or other agreement of such Purchasing Indemnified Party
contained in this Agreement; PROVIDED, FURTHER, that if and to the extent that
such indemnification is unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of such Liabilities which
shall be permissible under applicable laws. In connection with the obligation of
the Company to indemnify for expenses as set forth above, the Company further
agrees, upon presentation of appropriate invoices containing reasonable detail,
to reimburse each Purchasing Indemnified Party for all such expenses (including,
without limitation, reasonable fees, disbursements and other charges of counsel
incurred by a Purchasing Indemnified Party in any action or proceeding between
the Company and such Purchasing Indemnified Party (or Purchasing Indemnified
Parties) or between a Purchasing Indemnified Party (or Purchasing Indemnified
Parties) and any third party or otherwise) as they are incurred by such
Purchasing Indemnified Party; PROVIDED, HOWEVER, that if a Purchasing
Indemnified Party is reimbursed hereunder for any expenses, such reimbursement
of expenses shall be refunded to the extent it is finally judicially determined
that the Liabilities in question resulted primarily from (i) the willful
misconduct or gross negligence of such Purchasing Indemnified Party or (ii) the
breach by such Purchasing Indemnified Party of any representation, warranty,
covenant or other agreement of such Purchasing Indemnified Party contained in
this Agreement or any other Transaction Document.
8.2. PROCEDURE; NOTIFICATION.
Each Purchasing Indemnified Party under this Article 8 will,
promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Purchasing Indemnified
Party in respect of which indemnity may be sought from the Company under this
Article 8, notify the Company in writing of the commencement thereof.
40
The omission of any Purchasing Indemnified Party so to notify the Company of
any such action shall not relieve the Company from any liability which it may
have to such Purchasing Indemnified Party unless, and only to the extent that,
such omission results in the Company's forfeiture of substantive rights or
defenses. In case any such action, claim or other proceeding shall be brought
against any Purchasing Indemnified Party and it shall notify the Company of the
commencement thereof, the Company shall be entitled to assume the defense
thereof at its own expense, with counsel satisfactory to such Purchasing
Indemnified Party in its reasonable judgment; PROVIDED, HOWEVER, that any
Purchasing Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense. Notwithstanding the foregoing, in any action, claim
or proceeding in which the Company, on the one hand, and a Purchasing
Indemnified Party, on the other hand, is, or is reasonably likely to become, a
party, such Purchasing Indemnified Party shall have the right to employ separate
counsel at the Company's expense and to control its own defense of such action,
claim or proceeding if, in the reasonable opinion of counsel to such Purchasing
Indemnified Party, a conflict or potential conflict exists between the Company,
on the one hand, and such Purchasing Indemnified Party, on the other hand, that
would make such separate representation advisable; PROVIDED, HOWEVER, that in no
event shall the Company be required to pay fees and expenses under this Article
8 for more than one firm of attorneys in any jurisdiction in any one legal
action or group of related legal actions. The Company agrees that it will not,
without the prior written consent of the Purchaser through whom the Purchasing
Indemnified Party is entitled to indemnification, settle, compromise or consent
to the entry of any judgment in any pending or threatened claim, action or
proceeding relating to the matters contemplated hereby (if any Purchasing
Indemnified Party is a party thereto or has been actually threatened to be made
a party thereto) unless such settlement, compromise or consent includes an
unconditional release of such Purchaser and each other Purchasing Indemnified
Party from all liability arising or that may arise out of such claim, action or
proceeding. The Company shall not be liable for any settlement of any claim,
action or proceeding effected against any Purchasing Indemnified Party without
its written consent, which consent shall not be unreasonably withheld. The
rights accorded to Purchasing Indemnified Parties hereunder shall be in addition
to any rights that any Purchasing Indemnified Party may have at common law, by
separate agreement or otherwise.
8.3. AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT.
Notwithstanding anything to the contrary in this Article 8,
the indemnification and contribution provisions of the Amended and Restated
Stockholders' Agreement shall govern any claim made with respect to registration
statements filed pursuant thereto or sales made under such registration
statements.
ARTICLE 9.
MISCELLANEOUS
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties made herein shall
survive the execution and delivery of this Agreement, the Closing, any
investigation by or on behalf of the Purchasers, acceptance of the Preferred
Shares and payment therefor, or termination of this Agreement.
41
9.2. NOTICES.
All notices, demands and other communications provided for or
permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested (with receipt confirmed),
courier service or personal delivery or via facsimile:
(a) If to the Purchasers, to their respective
address as set forth on Schedule 1.
(b) If to the Company: USinternetworking, Inc.
One USi Plaza
000 Xxxxxxx Xxxxxxxx Xxxxx
Xxxxx 000
Xxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxxxxxx X. XxXxxxxx
with a copy to: Xxxxxx & Xxxxxxx
0000 Xxxxxxxxxxxx Xxxxxx, X.X.
Xxxxx 0000
Xxxxxxxxxx, X.X. 00000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; when delivered
by courier, if delivered by commercial overnight courier service; if delivered
by facsimile, upon confirmation of such transmission; and five business days
after being deposited in the mail, postage prepaid, if mailed.
9.3. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding
upon the successors and permitted assigns of the parties hereto. Subject to
applicable securities laws and the Amended and Restated Stockholders' Agreement,
any Purchaser may assign any of its rights under any of the Transaction
Documents to any Person and any holder of the Preferred Shares or the Common
Stock issued upon conversion of the Preferred Shares may assign, in whole or in
part, the Preferred Shares or the Common Stock issuable upon conversion of the
Preferred Shares to any Person. The Company may not assign any of its rights
under this Agreement without the written consent of the Purchasers, and any such
purported assignment by the Company without the prior written consent of the
Purchasers shall be void and of no effect. Except as provided in this Section
9.3, no Person other than the parties hereto and their successors and permitted
assigns is intended to be a beneficiary of any of this Agreement or the related
agreements referred to herein.
9.4. AMENDMENT AND WAIVER.
(a) No failure or delay on the part of the Company
or the Purchasers in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further
42
exercise thereof or the exercise of any other right, power or remedy. The
remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company or the Purchasers at law, in
equity or otherwise.
(b) Any amendment, supplement or modification of or
to any provision of this Agreement shall be effective only if made in a writing
signed by all parties hereto. Any waiver of any provision of this Agreement, and
any consent to any departure by any party from the terms of any provision of
this Agreement, shall be effective (i) only if it is made or given in writing
and signed by Purchasers holding, in the aggregate, at least two-thirds of the
then outstanding Series B Preferred Stock, provided that any such amendment,
supplement, modification or waiver applies equally to the Preferred Shares held
by all Purchasers, and (ii) only in the specific instance and for the specific
purpose for which made or given. Except where notice is specifically required by
this Agreement, no notice to or demand on any party in any case shall entitle
any party hereto to any other or further notice or demand in similar or other
circumstances.
9.5. COUNTERPARTS.
Telefacsimile transmissions of any executed original document
and/or retransmission of any executed telefacsimile transmission shall be deemed
to be the same as the delivery of an executed original. At the request of any
party hereto, the other parties hereto shall confirm telefacsimile transmissions
by executing duplicate original documents and delivering the same to the
requesting party or parties. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
9.6. HEADINGS.
The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
9.7. GOVERNING LAW.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
principles of conflicts of law of such state.
9.8. JURISDICTION.
Each party to this Agreement hereby irrevocably agrees that
any legal action or proceeding arising out of or relating to this Agreement or
any agreements or transactions contemplated hereby may be brought in the courts
of the State of Maryland or the State of New York or the United States District
Court for the District of Maryland or the United States District Court for the
Southern District of New York and hereby expressly submits to the nonexclusive
personal jurisdiction and venue of such courts for the purposes thereof and
expressly waives any claim of improper venue and any claim that such courts are
an inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts in any
43
such suit, action or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, to the address set forth in Section 9.2,
such service to become effective 10 days after such mailing.
9.9. SEVERABILITY.
If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
9.10. RULES OF CONSTRUCTION.
Unless the context otherwise requires, "or" is not exclusive,
and references to sections or subsections refer to sections or subsections of
this Agreement.
9.11. ENTIRE AGREEMENT.
This Agreement, together with the exhibits and schedules
hereto and the other related agreements referred to herein, is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement, together with the exhibits and
schedules hereto, and the other related agreements referred to herein supersede
all prior agreements and understandings between the parties with respect to such
subject matter.
9.12. PUBLICITY.
Except as may be required by applicable law, none of the
parties hereto shall issue a publicity release or announcement or otherwise make
any public disclosure concerning this Agreement or the transactions contemplated
hereby, without prior approval by the other parties hereto, provided that a
Purchaser may nonetheless communicate with its partners concerning such
transactions and investment in the Company and may publish a "tombstone" in the
customary form with respect to its investment. If any announcement is required
by law to be made by any party hereto, prior to making such announcement such
party will deliver a draft of such announcement to the other parties and shall
give the other parties an opportunity to comment thereon.
9.13. FURTHER ASSURANCES.
Each of the parties shall execute such documents and perform
such further acts (including, without limitation, obtaining any consents,
exemptions, authorizations, or other actions by, or giving any notices to, or
making any filings with, any Governmental Authority or any other Person) as may
be reasonably required or desirable to carry out or to perform the provisions of
this Agreement.
44
9.14. WAIVER OF JURY TRIAL.
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY
LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT,
TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
9.15. OBLIGATIONS OF THE PURCHASERS.
The obligations of each Purchaser shall be several and not
joint and no Purchaser shall be liable or responsible for the acts or omissions
of any other Purchaser.
45
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their respective officers hereunto
duly authorized as of the date first above written.
USINTERNETWORKING, INC.
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
X. X. XXXXXXX III, L.P.
By: X. X. Xxxxxxx Equity Partners III, LLC,
Its General Partner
By:
----------------------------------------
Name:
A Managing Member
WHITNEY STRATEGIC PARTNERS III, L.P.
By: X. X. Xxxxxxx Equity Partners III, LLC,
Its General Partner
By:
----------------------------------------
Name:
A Managing Member
BLUE CHIP CAPITAL FUND II LIMITED
PARTNERSHIP
By: BLUE CHIP VENTURE COMPANY, LTD.
Its General Partner
By:
----------------------------------------
Xxxx X. Xxxxx
Manager
46
MIAMI VALLEY VENTURE FUND L.P.
By: BLUE CHIP VENTURE COMPANY OF
DAYTON, LTD.
Its Special Limited Partner
By:
----------------------------------------
Xxxx X. Xxxxx
Manager
GROTECH PARTNERS IV L.P.
By: GROTECH CAPITAL GROUP IV, LLC
Its General Partner
By:
----------------------------------------
Name:
Title:
GROTECH PARTNERS V L.P.
By: GROTECH CAPITAL GROUP V, LLC
Its General Partner
By:
----------------------------------------
Name:
Title:
SOUTHERN VENTURE FUND SBIC, L.P.
By: SVF SBIC, L.P.
Its General Partner
By:
----------------------------------------
Partner
By:
----------------------------------------
Partner
00
XXXXXXXX XXXXXXX XXXX XX, X.X.
By:
----------------------------------------
General Partner
VENROCK ASSOCIATES
By:
----------------------------------------
General Partner
VENROCK ASSOCIATES II, L.P.
By:
----------------------------------------
General Partner
USI PARTNERS, LTD.
By:
----------------------------------------
US WEST COMMUNICATIONS, INC.
By:
----------------------------------------
SIEBEL SYSTEMS, INC.
By:
----------------------------------------
Name:
Title:
XXXXXX-XXXXXX MEDIA PARTNERS, L.P.
48
By:
----------------------------------------
ARBOR VENTURE PARTNERS, L.L.C.
By: Arbor Partners L.L.C., Manager
By:
----------------------------------------
Xxxxxx X. Xxxxxx
Managing Director
SOUTHEASTERN TECHNOLOGY FUND, L.P.
By:
----------------------------------------
PNC BANK, N.A., TRUSTEE
By:
----------------------------------------
Name:
Title:
PNC BANK, N.A., CUSTODIAN
By:
----------------------------------------
Name:
Title:
49
AEH PROFIT SHARING TRUST
By:
----------------------------------------
Name:
Title:
XXXXXXXXXX MANAGEMENT COMPANY
An Ohio General Partnership
By:
----------------------------------------
General Partner
--------------------------------------------
XXXXXXX X. XXXXXXXX
XXXXX X. BRANDALEONER
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
XXXXXXXXXXX DE ROETTH
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
XXXXXXXXX DE ROETTH
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
50
--------------------------------------------
XXXXX DE ROETTH
XXXXXXXX XXXXXX
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
XXXXXXXXXXX XXXX
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
XXXXXXX X. XXXX
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
XXXXXXX X. XXXX
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
XXXXXXX X. AND XXXXXXX X. XXXX
GRANDCHILDREN'S TRUST
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
XXXXXX X. XXXX
51
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
XXXXX XXXXXX
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
XXXXX X. XXXXXX
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
XXXXXXX X. XXXXXX
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
XXXXX X. XXXXXXX
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
XXXXXXX X. XXXXXX
By: ACCOUNT MANAGEMENT CORPORATION, poa
52
By:
----------------------------------------
XXXX X. XXXXXXXXXX
By: ACCOUNT MANAGEMENT CORPORATION, poa
By:
----------------------------------------
53