FORM OF RECAPITALIZATION AGREEMENT
THIS RECAPITALIZATION AGREEMENT (this "AGREEMENT") is made as
of _____ __, 1999 among AppNet Systems, Inc., a Delaware corporation (the
"COMPANY"), GTCR Fund VI, L.P., a Delaware limited partnership ("GTCR FUND VI"),
GTCR VI Executive Fund, L.P., a Delaware limited partnership ("EXECUTIVE FUND"),
GTCR Associates VI, a Delaware general partnership ("ASSOCIATES FUND" and,
together with GTCR Fund VI and the Executive Fund, the "GTCR INVESTORS"), FSC
Corp. ("FSC"), Smart Technology, L.L.C. ("SMART TECHNOLOGY" and, together with
the GTCR Investors and FSC, the "STOCKHOLDERS"). Except as otherwise indicated
herein, capitalized terms used herein are defined in Section 5 hereof.
Each Stockholder owns the number of shares of the Company's
Class A Preferred Stock, par value $.01 per share (the "CLASS A PREFERRED") set
forth opposite such Stockholder's name on the SCHEDULE OF STOCKHOLDERS attached
hereto.
Section 1B of Part B.II. of Article Four of the Company's
Fourth Restated Certificate of Incorporation (the "CERTIFICATE") provides that
the Company shall, at the request of the holders of a majority of the Class A
Preferred, apply the net cash proceeds from any public offering of equity
securities to redeem the outstanding shares of Class A Preferred at a price
equal to the liquidation value thereof plus accrued and unpaid dividends
thereon. Section 6(l) of the Merger Agreement, dated as of July 31, 1998 (the
"MERGER AGREEMENT") by and among the Company, SSC Acquisition Sub #1, Inc.,
Software Services Corporation ("SSC") and the shareholders of SSC, provides that
in the event of an initial public offering of equity securities by the Company
the Company shall take all actions necessary so that the Company's Class B
Preferred Stock, par value $.01 per share (the "CLASS B PREFERRED") is either
(i) converted into shares of the Company's common stock or (ii) entitled to
receive the same per share consideration as that paid with respect to the Class
A Preferred.
The Company has filed a Registration Statement on Form S-1
(File No. 333-75205) (the "REGISTRATION STATEMENT") with the Securities and
Exchange Commission relating to an initial public offering (the "INITIAL PUBLIC
OFFERING") of the Company's common stock, par value $.0005 per share (the
"COMMON STOCK"), under the Securities Act. The Stockholders desire that the
Company redeem the shares of Class A Preferred with the net proceeds of the
Initial Public Offering after payment of underwriting discounts and reasonable
out-of-pocket fees and expenses incurred in connection therewith (the "NET
PROCEEDS"). However, the Company desires to use a portion of the Net Proceeds to
repay certain outstanding indebtedness, as described in the Registration
Statement (the "INDEBTEDNESS") and to maintain certain proceeds for working
capital as required by the Company's lenders. If the Company applies the
proceeds as set forth above, the remaining Net Proceeds may not be sufficient to
redeem all outstanding shares of Class A Preferred and Class B Preferred.
- 1 -
The Stockholders and the Company desire to enter into an
agreement pursuant to which (i) the Net Proceeds remaining after the repayment
of the Indebtedness and after the application of proceeds as required by the
Company's lenders shall be used by the Company to redeem shares of Class A
Preferred and Class B Preferred and (ii) to the extent that the remaining Net
Proceeds of the Initial Public Offering are not sufficient to redeem all shares
of Class A Preferred and Class B Preferred, the remaining shares of Class A
Preferred and Class B Preferred shall be exchanged for shares of Common Stock.
The parties hereto agree as follows:
Section 1. REDEMPTION AND EXCHANGE.
1A. PAYMENT OF INDEBTEDNESS; REDEMPTION. At the Closing, the
Company shall apply the Net Proceeds to repay the Indebtedness and to maintain
certain proceeds for working capital, as required pursuant to a letter dated May
___, 1999 from BankBoston, N.A. and Antares Capital Corporation (a copy of which
is attached as EXHIBIT A hereto) (the "BANK BOSTON LETTER"). Subject to the
terms of the BankBoston Letter, the Company shall use the remaining Net Proceeds
to redeem shares of Class A Preferred and Class B Preferred, on a pro rata basis
according to the aggregate liquidation value and accrued and unpaid dividends of
the Class A Preferred and Class B Preferred, respectively. The redemption price
for each share of Class A Preferred Stock shall equal the liquidation value
thereof plus accrued and unpaid dividends thereon. The redemption of the Class A
Preferred Stock pursuant to this Section 1A is referred to herein as the
"REDEMPTION." At the Closing (as defined below), each Stockholder shall tender
to the Company the shares of Class A Preferred Stock held by such Stockholder
which are being redeemed pursuant to the Redemption. As described below in
Section 1B, any shares of Class A Preferred Stock not so tendered shall have the
right to receive Exchange Shares.
1B. EXCHANGE OF THE REMAINING SHARES OF CLASS A PREFERRED
STOCK. At the Closing, the Company shall issue to each Stockholder a number of
shares of Common Stock equal to (i) the aggregate liquidation value plus accrued
and unpaid dividends of the shares of Class A Preferred Stock, if any, held by
such Stockholder after giving effect to the Redemption divided by (ii) the
initial offering price of a share of Common Stock in the Initial Public
Offering, in exchange for the surrender to the Company and cancellation of the
shares of Class A Preferred Stock, if any, remaining after giving effect to the
Redemption and held by such Stockholder. The shares of Common Stock to be issued
to the Stockholders hereunder are referred to herein as the "EXCHANGE SHARES."
- 2 -
1C. THE CLOSING. The closing of the transactions contemplated
hereby (the "CLOSING") shall take place concurrently with the consummation of
the Initial Public Offering and at the same location. At the Closing, the
Company (i) shall pay to each Stockholder the aggregate redemption price for the
shares of Class A Preferred Stock being redeemed and (ii) shall deliver, or
cause the Company's transfer agent to deliver, to each Stockholder stock
certificates evidencing the Exchange Shares to be issued by the Company to each
such Stockholder, registered in each such Stockholder's name or its nominee's
name, upon presentment and delivery by each such Stockholder to the Company of
the certificates representing the Class A Preferred Stock held by such
Stockholder duly endorsed for transfer to the Company. Each certificate for
Exchange Shares shall be imprinted with a legend in substantially the following
form:
The shares represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act") or
applicable state securities law and may not be sold or
transferred unless (i) a registration statement covering such
shares is effective under the Act or (ii) the transaction is
exempt from registration under the Act and, if the Company
reasonably requests, an opinion reasonably satisfactory to the
Company to such effect has been rendered by counsel.
Section 2. CONDITIONS OF EACH STOCKHOLDER'S OBLIGATION AT THE
CLOSING. The obligation of each Stockholder to deliver its shares of Class A
Preferred Stock for redemption and exchange hereunder at the Closing is subject
to the satisfaction as of the Closing of the following conditions:
2A. REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in Section 3 hereof shall be true and correct in all
material respects at and as of the Closing as though then made, except to the
extent of changes caused by the transactions expressly contemplated herein.
2B. INITIAL PUBLIC OFFERING. The Company shall consummate the
Initial Public offering concurrently with the transactions contemplated hereby.
2C. AMENDMENT OF CERTIFICATE OF INCORPORATION; AMENDMENT TO
PURCHASE AGREEMENT. The Company shall have amended and restated its certificate
of incorporation in the form of EXHIBIT B attached hereto (the "RESTATED
CERTIFICATE"), the Restated Certificate shall be in full force and effect as of
the Closing under the laws of Delaware and shall not have been further amended
or modified. The Company shall have entered into an amendment to the Purchase
- 3 -
Agreement, dated June 29, 1998 (the "PURCHASE AGREEMENT"), among the Company,
GTCR Xxxxxx Xxxxxx, L.L.C. and Smart Technology, substantially in the form of
EXHIBIT C attached hereto, and the Purchase Agreement as so amended shall be in
full force and effect and shall not have been further amended or modified.
2D. SECURITIES LAW COMPLIANCE. The Company shall have made all
filings under all applicable federal and state securities laws necessary to
consummate the issuance of the Common Stock pursuant to this Agreement in
compliance with such laws.
2E. ISSUANCE OF CAPITAL STOCK. From the date hereof until the
Closing Date, the Company shall not have issued any additional shares of its
capital stock.
2F. CLOSING DOCUMENTS. The Company shall have delivered to
each Stockholder the following documents, which shall be in form and substance
reasonably satisfactory to the holders of a majority of the shares of Class A
Preferred Stock:
(a) A certificate of an authorized officer of the Company
stating that the conditions specified in Sections 2A
through 2E, inclusive, have been satisfied.
(b) Certified copies of (i) the resolutions adopted by
the Company's board of directors authorizing the
execution, delivery and performance of this Agreement
and all other agreements contemplated hereby, the
filing of the Restated Certificate, the issuance of
the Exchange Shares and the consummation of all other
transactions contemplated by this Agreement, and (ii)
the resolutions duly adopted by the Company's
stockholders adopting the Restated Certificate.
(c) Certified copies of the Restated Certificate and the
Company's bylaws, each as in effect at the Closing.
2G. WAIVER. Any condition specified in this Section 2 may be
waived if consented to by the holders of a majority of the shares of Class A
Preferred Stock held by all Stockholders.
Section 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As a
material inducement to the Stockholders to enter into this Agreement and to
perform their obligations hereunder, the Company hereby represents and warrants
that:
-4-
3A. ORGANIZATION AND CORPORATE POWER. The Company is a
corporation duly organized, validly and in good standing under the laws of
Delaware and is qualified to do business in every jurisdiction in which the
failure to so qualify has had or would reasonably be expected to have a material
adverse effect on the financial condition, operating results, assets or
operations or business prospects of the Company and its Subsidiaries taken as a
whole.
3B. AUTHORIZATION, NO BREACH. The execution, delivery and
performance of this Agreement and all other agreements contemplated hereby to
which the Company is a party have been duly authorized and the Restated
Certificate has been duly authorized and executed by the Company. This Agreement
and all other agreements contemplated hereby to which the Company is a party
each constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms. Subject to the filing of the Restated Certificate
with the Secretary of State of the State of Delaware, the execution and delivery
by the Company of this Agreement and all other agreements contemplated hereby to
which the Company is a party, the issuance of the Exchange Shares hereunder, and
the fulfillment of and compliance with the respective terms hereof and thereof
by the Company, do not and shall not (i) conflict with or result in a breach of
the terms, conditions or provisions of, (ii) constitute a default under, (iii)
result in the creation of any lien, security interest, charge or encumbrance
upon the Company's or any Subsidiary's capital stock or assets pursuant to, (iv)
give any third party the right to modify, terminate or accelerate any obligation
under, (v) result in a violation of, or (vi) require any authorization, consent,
approval, exemption or other action by or notice or declaration to, or filing
with, any court or administrative or governmental body or agency pursuant to,
the Certificate or the certificate of incorporation of any Subsidiary, or any
law, statute. rule or regulation to which the Company or any Subsidiary is
subject, or any agreement, instrument, order, judgment or decree to which the
Company or any Subsidiary is a party or by which their respective property is
bound, other than as expressly contemplated in such agreements described above
and other than those made and obtained.
3C. CAPITAL STOCK AND RELATED MATTERS. As of the date hereof,
the authorized capital stock of the Company consists of 75,000,000 shares of
Common Stock, ____ of which are issued and outstanding, and 5,000,000 shares of
preferred stock, par value $.01 per share, of which 96,621 are designated as
Class A Preferred (_____ of which are issued and outstanding) and 20,000 are
designated as Class B Preferred (11,576 of which are issued and outstanding). As
of the Closing, all of the outstanding shares of the Company's capital stock
(including the Exchange Shares) shall be validly issued, fully paid and
non-assessable. There are no statutory, or contractual stockholders preemptive
rights or rights of refusal with respect to the issuance of Exchange Shares
hereunder which have not been waived or terminated. The offer, sale and issuance
of the Exchange Shares hereunder do not require registration under the
Securities Act or any applicable state securities laws.
-5-
Section 4. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.
Each Stockholder hereby represents and warrants to the Company, as to itself
only and not jointly and severally, that:
4A. AUTHORIZATION; ENFORCEABILITY. The execution, delivery and
performance of this Agreement and all other agreements contemplated hereby to
which the Stockholder is a party each constitutes a valid and binding obligation
of such Stockholder, enforceable in accordance with its terms.
4B. NO VIOLATION. The execution and delivery by the
Stockholder of this Agreement and all other agreements contemplated hereby to
which the Stockholder is a party, and the fulfillment of and compliance with the
respective terms hereof and thereof by the Stockholder, will not (a) conflict
with, result in a breach of any of the terms, conditions or provisions of, (b)
constitute a default under, (c) result in the violation of, (d) result in the
creation of any lien, security interest, charge or encumbrance upon such
Stockholders' Class A Preferred Stock, (e) give any third party the right to
terminate or to accelerate any obligation under, or (f) require any
authorization, consent, approval, execution or other action by or notice to or
filing with any court or administrative or governmental body under, the
provisions of the certificate of incorporation or bylaws of the Stockholder
(where the Stockholder is an incorporated entity) or any statute, regulation,
rule, judgment, order, decree or other restriction of any government,
governmental agency or court to which the Stockholder is subject or by which
its, his or her property is bound or any agreement to which the Stockholder is a
party.
4C. OWNERSHIP. Each Stockholder owns the shares of Class A
Preferred Stock set forth opposite such Stockholder's name on the SCHEDULE OF
STOCKHOLDERS free and clear of any restrictions on transfer, claims, taxes,
liens, charges, encumbrances, pledges, security interests, options, warrants,
rights, contracts, calls, commitments, equities and demands, except for
applicable restrictions on transfer under securities laws.
Section 5. DEFINITIONS. For the purposes of this Agreement,
the following terms have the meanings set forth below:
"PERSON" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
or any similar
-6-
federal law then in force.
"SUBSIDIARY" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director or general partner
of such limited liability company, partnership, association or other business
entity.
Section 6. MISCELLANEOUS.
6A. TERMINATION. This Agreement shall terminate upon the
earlier of (i) July 31, 1999, if the Initial Public Offering has not occurred by
such date and (ii) the delivery of notice by the Company to each Stockholder
that the Initial Public Offering will not be consummated.
6B. REMEDIES. Any Person having any rights under any provision
of this Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by law.
6C. CONSENT TO AMENDMENTS. Except as otherwise expressly
provided herein, the provisions of this Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the holders of a majority of the Class A Preferred Stock (or the
Exchange Shares issued in exchange therefor). .
6D. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
regardless of any investigation made by any Stockholder or on its behalf.
-7-
6E. SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein. all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto whether so expressed
or not. In addition, and whether or not any express assignment has been made,
the provisions of this Agreement which are for any Stockholder's benefit as a
Stockholder or holder of Class A Preferred Stock or Exchange Shares are also for
the benefit of, and enforceable by, any subsequent holder of such Class A
Preferred Stock or Exchange Shares, as the case may be.
6F. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
6G. COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts. any one of which need not contain
the signatures of more than one party, but all such counterparts taken together
shall constitute one and the same Agreement.
6H. DESCRIPTIVE HEADINGS, INTERPRETATION. The descriptive
headings of this Agreement are inserted for convenience only and do not
constitute a substantive part of this Agreement. The use of the word
"'including" in this Agreement shall be by way of example rather than by
limitation.
6I. GOVERNING LAW. All questions concerning the construction,
validity and interpretation of this Agreement and the exhibits and schedules
hereto shall be governed by the internal law, and not the law of conflicts, of
Delaware.
6J. NOTICES. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, sent to the recipient by reputable overnight
courier service (charges prepaid) or telecopied to the recipient. Such notices,
demands and other communications shall be sent to the Company and each
Stockholder at the address indicated next to such party's name on the signature
pages hereto or to such other address or to the attention of such other person
as the recipient party has specified by prior written notice to the sending
party.
6K. ENTIRE AGREEMENT. Except as otherwise expressly set forth
herein, this
-8-
Agreement embodies the complete agreement among the parties hereto with respect
to the subject matter hereof and supersedes and preempts any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way. Without
limiting the foregoing, each of the Company and each Stockholder hereby waives
any rights it may have under the Certificate with respect to the redemption or
conversion of the Class A Preferred Stock and agree that this Agreement shall
govern such matters.
* * * * *
-9-
IN WITNESS WHEREOF, the parties hereto have executed this
Recapitalization Agreement on the date first written above.
Address: APPNET SYSTEMS, INC.
0000 Xxxxxxxxx Xxxxxxxxx
Xxxxx 0000
Xxxxxxxx, XX 00000 By:
----------------------------
Attention: Xxx X. Xxxxx
Telecopier: Its:
----------------------------
Address: GTCR FUND VI, L.P.
0000 Xxxxx Xxxxx
Xxxxxxx, XX 00000-0000 By: GTCR Partners VI, L.P.
Attention: Xxxxxx X. Xxxxxxxx Its: General Partner
Telecopier: 312/382-2201
By: GTCR Xxxxxx Xxxxxx, L.L.C.
Its: General Partner
By:
----------------------------
Name: Xxxxxx X. Xxxxxxxx
Its: Principal
Address: GTCR VI EXECUTIVE FUND, L.P.
0000 Xxxxx Xxxxx
Xxxxxxx, XX 00000-0000 By: GTCR Partners VI, L.P.
Attention: Xxxxxx X. Xxxxxxxx Its: General Partner
Telecopier: 312/382-2201
By: GTCR Xxxxxx Xxxxxx, L.L.C.
Its: General Partner
By:
----------------------------
Name: Xxxxxx X. Xxxxxxxx
Its: Principal
-10-
Address: GTCR ASSOCIATES VI
0000 Xxxxx Xxxxx
Xxxxxxx, XX 00000-0000 By: GTCR Partners VI, L.P.
Attention: Xxxxxx X. Xxxxxxxx Its: Managing General Partner
Telecopier: 312/382-2201
By: GTCR Xxxxxx Xxxxxx, L.L.C.
Its: General Partner
By:
----------------------------
Name: Xxxxxx X. Xxxxxxxx
Its: Principal
Address: SMART TECHNOLOGY, L.L.C.
By:
----------------------------
Its:
----------------------------
Address: FSC CORPORATION
By:
----------------------------
Its:
----------------------------
-11-
SCHEDULE OF STOCKHOLDERS
Name Shares of Class A Preferred
GTCR Fund VI, L.P.
GTCR VI Executive Fund, L.P.
GTCR Associates VI
Smart Technology, L.L.C.
FSC Corp.
-12-
EXHIBIT A
[BankBoston Letter]
-13-
