Warrant Issuance Agreement (the "Agreement") effective as of August
31, 1998 by and between VCS Technologies, Inc., a Delaware corporation (the
"Company"), and Cove Hill Consulting, Inc., a New York corporation ("Cove
Hill"). The Company and Cove Hill may be referred to herein collectively as
the "Parties" or individually as a "Party."
In consideration of the promises and the mutual covenants contained
herein, the Parties hereby agree as follows:
1 Acknowledgments. The Parties acknowledge that on January 15, 1998, in
consideration for consulting services rendered to the Company by Cove Hill,
the Company issued to Cove Hill warrants to purchase 130,000 shares of the
Company's common stock (the "Common Stock") exercisable at an exercise price
of $2.00 per share (the "Existing Warrants"). The Parties further acknowledge
that all references herein to the Common Stock are effective as of the date of
this Agreement. Upon the effective date (if any) of an anticipated reverse
stock split of the outstanding Common Stock to be effected following the date
of this Agreement, all references to the Common Stock contained herein shall
be deemed adjusted in accordance with such reverse stock split.
2 Issuance of New Warrants; Cancellation of Existing Warrants. In
consideration for additional consulting services rendered to the Company by
Cove Hill, and in consideration for the surrender by Cove Hill of the Existing
Warrants for cancellation, the Company hereby agrees to issue to Cove Hill
warrants to purchase an aggregate of 126,000 shares of Common Stock, such
warrants exercisable at an exercise price of $0.10 per share for a period of
five years following the date hereof (the "New Warrants"). The Company will
deliver to Cove Hill a certificate evidencing the New Warrants as soon as
practicable following the date of this Agreement. The Existing Warrants are
hereby canceled, null and void, and of no further effect.
3 Representations and Warranties of the Company. The Company represents and
warrants to Cove Hill as follows:
3.1 The Company is duly organized, validly existing and in good standing
under the laws of the state of Delaware with full power and authority to
operate its business as currently conducted.
3.2 The authorized capital stock of the Company consists of 9,990,000
shares of Common Stock and 10,000 shares of Preferred Stock. Each outstanding
share of Common Stock is duly authorized, validly issued, fully paid and
non-assessable, and has not been issued and is not owned or held in violation
of any preemptive rights of stockholders. No shares of Preferred Stock are
currently outstanding.
3.3 The Company has all requisite power and authority to execute, deliver
and perform its obligations under this Agreement. This Agreement has been duly
authorized by the Company and, when executed and delivered by the Company will
constitute the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.
3.4 No consent, authorization, approval, order, license, certificate or
permit of or from, or declaration or filing with, any federal, state, local or
other governmental authority, or any court or any other tribunal, is required
by the Company for the execution, delivery or performance by the Company under
this Agreement (except for such filings as may be required under federal and
state securities laws).
4 Representations and Warranties of Cove Hill. Cove Hill hereby represents and
warrants to the Company as follows:
4.1 Cove Hill has all requisite power and authority to execute, deliver
and perform its obligations under this Agreement. This Agreement has been duly
authorized by Cove Hill and, when executed and delivered by Cove Hill will
constitute the legal, valid and binding obligation of Cove Hill, enforceable
against Cove Hill in accordance with its terms. No consent, authorization,
approval, order, license, certificate or permit of or from, or declaration or
filing with, any federal, state, local or other governmental authority, or any
court or any other tribunal, is required by Cove Hill for the execution,
delivery or performance by Cove Hill under this Agreement.
4.2 Cove Hill has received, read carefully and is familiar with this
Agreement. Respecting the Company, Cove Hill is familiar with the Company's
business and financial condition and any other matters relating to the
transactions contemplated hereby; Cove Hill has received all materials which
have been requested by it, has had a reasonable opportunity to ask questions
of the Company and its representatives, and the Company has answered all
inquiries that Cove Hill has put to it. Cove Hill has taken all the steps
necessary to evaluate the merits and risks of the refinancing transactions
contemplated hereby.
4.3 Cove Hill has been advised by the Company to consider retaining legal
counsel in connection with the preparation and the execution of this
Agreement.
4.4 Cove Hill represents that it is an "accredited investor" as such term
is defined in Rule 501 of the Rules and Regulations promulgated under the
Securities Act of 1933, as amended (the "Securities Act").
4.5 Cove Hill has such knowledge and experience in finance, securities,
investments and other business matters so as to be able to evaluate the merits
and risks of its investment in the Company.
4.6 Cove Hill has adequate means of providing for its current and
foreseeable future needs and has no need for liquidity of its investment in
the Company. Cove Hill recognizes and is fully cognizant of the fact that its
investment in the Company involves a high degree of risk, and Cove Hill
represents that it can afford to bear such risk, including, without
limitation, the risk of losing the entire investment.
4.7 Cove Hill has been advised by the Company that (i) neither the New
Warrants nor the Common Stock underlying the New Warrants (collectively, the
"Securities") have been registered under the Securities Act, and that the
Securities will be issued on the basis of the statutory exemption provided by
Section 4(2) of the Securities Act or Regulation D promulgated thereunder, or
both, relating to transactions by an issuer not involving any public offering,
and under similar exemptions under applicable state securities laws; (ii) none
of the Securities have been registered or qualified with any federal or state
agency or self-regulatory organization, and (iii) the Company's reliance on
exemptions from federal and state registration or qualification requirements
is based in part upon the representations made by Cove Hill contained in this
Agreement.
4.8 Cove Hill has been advised by the Company of, and/or it is otherwise
familiar with, the nature of the limitations on the transfer of the Securities
imposed by the Securities Act and the Rules and Regulations promulgated
thereunder. In particular, Cove Hill agrees that no sale, assignment or
transfer of any of the Securities shall be valid or effective (and agrees to
not so sell, assign or transfer any of the Securities), and the Company shall
not be required to give any effect to such a sale, assignment or transfer,
unless the sale, assignment or transfer is (i) registered under the Securities
Act, it being understood that none of the Securities are currently registered
for sale; or (ii) made in accordance with all the requirements and limitations
of Rule 144 under the Securities Act. Cove Hill acknowledges that the
Securities shall be subject to a stop transfer order and that the certificate
or certificates evidencing the Securities shall bear the following legend (and
such other legends as may be required by state blue sky laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (1) A
REGISTRATION STATEMENT UNDER THE ACT WHICH HAS BECOME EFFECTIVE AND
IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (2) PURSUANT TO A
SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY UPON A
HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL
TO THE COMPANY, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH
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ALL APPLICABLE PROVISIONS OF THE ACT AS WELL AS ANY APPLICABLE "BLUE
SKY" OR SIMILAR STATE SECURITIES LAW.
4.9 Cove Hill is acquiring the Securities for its own account for
investment and not with a view to the sale or distribution thereof or the
granting of any participation therein. Cove Hill has no present intention of
distributing or selling to others any of such interest or granting any
participation therein.
4.10 It never has been represented, guaranteed or warranted by any of the
Company, the Company's officers, directors, stockholders, employees or agents,
or any other person, whether expressly or by implication, that (i) the Company
or Cove Hill will realize any given percentage of profits and/or amount or
type of consideration, profit or loss as a result of the Company's activities
or Cove Hill's investment; or (ii) the past performance or experience of the
management of the Company, or of any other person, will in any way indicate
the predictable results of the Company's activities or the ownership of the
Securities.
4.11 Cove Hill is not acquiring the Securities as a result of or
subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, or presented at any seminar or meeting, or any
solicitation of a share exchange by a person other than a representative of
the Company with whom Cove Hill had a pre-existing relationship.
4.12 Cove Hill is not relying on the Company with respect to the tax and
other economic considerations of an investment.
5 Indemnification.
5.1 Survival of Representations and Warranties. The representations and
warranties contained herein shall survive the execution and delivery of this
Agreement and shall continue forever thereafter.
5.2 Indemnification for the Benefit of the Company. Cove Hill
acknowledges that it understands the meaning and legal consequences of the
representations and warranties contained in Section 4 hereof, and agrees to
indemnify and hold harmless the Company and each of the Company's officers,
directors, employees and agents of from and against any and all loss, damage
or liability due to or arising out of a breach of any such representation or
warranty.
5.3 Indemnification for the Benefit of Cove Hill. The Company
acknowledges that it understands the meaning and legal consequences of the
representations and warranties contained in Section 3 hereof, and agrees to
indemnify and hold harmless Cove Hill and each of Cove Hill's officers,
directors, employees and agents from and against any and all loss, damage or
liability due to or arising out of a breach of any such representation or
warranty.
6 Company's Right of First Purchase.
6.1 Company's Right of First Purchase. For such time until the closing of
the IPO (the "IPO Closing"), any shares of Common Stock held by Cove Hill
(including, but not limited to, any of the Securities) will be subject to the
Company's right of first purchase. By virtue of that right, such shares of
Common Stock may not be transferred to any person or entity unless such
transfer occurs within the 30 days immediately following either (i) the
expiration of 30 days following written notice by Cove Hill to the Company
identifying the prospective transferee and offering the Company the first
opportunity to purchase such stock at its Fair Market Value (as defined below)
in cash; or (ii) the Company's election to not purchase such shares of Common
Stock after receipt of such notice. This right of first purchase shall
terminate with respect to any shares of Common Stock with respect to which the
Company was offered but did not exercise its right of first purchase. The
Company may assign all or any portion of its right of first purchase to any
one or more of its stockholders, or to a pension or retirement plan or trust
for employees of the Company, who may then exercise the right so assigned. The
Company's right of first purchase shall terminate upon the IPO Closing.
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6.2 Definition of Fair Market Value. The "Fair Market Value" of Common
Stock will mean the price at which one could reasonably expect such stock to
be sold in an arm's length transaction, for cash, other than on an installment
basis, to a person not employed by, controlled by, in control of or under
common control with the issuer of such stock. Such Fair Market Value will be
that which has currently or most recently been determined for this purpose by
the Board of Directors of the Company, or at the sole discretion of the Board
by an independent appraiser or appraisers selected by the Board, in either
case giving due consideration to recent transactions involving shares of such
stock, if any, the issuer's net worth, prospective earning power and
dividend-paying capacity, the goodwill of the issuer's business, the issuer's
industry position and its management, that industry's economic outlook, the
values of securities of issuers whose stock is publicly traded and which are
engaged in similar businesses, the effect of transfer restrictions to which
such stock may be subject under law and under the applicable terms of any
contract governing such stock, the absence of a public market for such stock
and such other matters as the Board or its appraiser or appraisers deem
pertinent. The determination by the Board or its appraiser or appraisers of
the Fair Market Value will be conclusive and binding notwithstanding the
possibility that other persons might make a different determination. If the
Fair Market Value to be used was thus fixed more than sixteen months prior to
the day as of which Fair Market Value is being determined, it will in any
event be no less than the book value of the stock being valued at the end of
the most recent period for which financial statements of the Company are
available.
7 Miscellaneous.
7.1 Confidentiality. Cove Hill hereby acknowledges and agrees that this
Agreement is confidential, and that its terms and contents shall not be
disclosed to any person other than through a press release of the Company.
7.2 Payment of Expenses. Each of the Parties hereto shall pay all
expenses and disbursements incurred by its officers, employees, attorneys,
accountants, financial advisers and other agents and representatives in
connection with this Agreement and the performance of its obligations
hereunder.
7.3 Notices. Any notices required or permitted to be given to, or served
upon, either Party hereto pursuant to this Agreement shall be sufficiently
given or served if sent to such Party by registered or certified mail,
addressed to it at its address, as set forth below, or to such other address
as it shall designate by written notice to the other parties addressed as
follows:
VCS Technologies, Inc.
000 Xxxxxxxxx Xxxx
Xxxxxxxx, XX 00000
Attn: Xxxxxxx Xxxxxxx III, President and CEO
Cove Hill Consulting, Inc.
000 Xxxx 00xx Xxxxxx, Xxxxx 000
Xxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxxx, Jr., President
7.4 Counterparts. This Agreement may be executed in any number of
counterparts and each counterpart shall constitute an original instrument, but
all such separate counterparts shall constitute only one and the same
instrument.
7.5 Entire Agreement. This agreement constitutes the entire agreement
between the Parties hereto and supersedes all prior agreements, understandings
and arrangements, oral or written, between the Parties hereto with respect to
the subject matter hereof.
7.6 Amendments and Waivers. This Agreement may not be modified or amended
except by an instrument or instruments in writing signed by the Party against
whom enforcement of any such
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modification or agreement is sought. Either Party hereto may, by an instrument
in writing, waive compliance by the other Party with any term or provision of
this Agreement to be performed or complied with by such other Party hereto.
The waiver by any Party of a breach of any term or provision of this Agreement
shall not be construed as a waiver of any subsequent breach.
7.7 Assignment. This Agreement is personal in nature and neither of the
Parties shall, without the written consent of the other, assign or transfer
his or its rights or obligations hereunder to another person or entity, except
as herein expressly provided or permitted and except that the Company may
transfer all or any portion of its rights or obligations hereunder to any of
its affiliates without such prior written consent. Subject to the foregoing
provisions of this Section .7, this Agreement shall be binding upon and inure
to the benefit of the Parties hereto and their respective successors and
assigns.
7.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of New York and all disputes arising hereunder shall
be adjudicated solely before the courts of New York to whose jurisdiction the
Parties hereto consent.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement and
caused the same to be delivered on their behalf as of the date first above
written.
Cove Hill Consulting, Inc. VCS Technologies, Inc.
By: /s/ Xxxxx Xxxxxxx, Jr. By: /s/ Xxxxxxx Xxxxxxx
------------------------------- ---------------------------
Xxxxx Xxxxxxx, Jr., President Xxxxxxx Xxxxxxx, President
and CEO
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