Exhibit 10.1
STOCK PURCHASE AGREEMENT
Stock Purchase Agreement (this "Agreement"), dated as of May 31, 2002,
among Advanced Remote Communication Solutions, Inc., a California corporation
(the "Company") and Housatonic Micro Fund SBIC, L.P., a Delaware Limited
Partnership ("Housatonic") and Lexington Funding LLC, a California limited
liability company ("Lexington" and collectively with Housatonic, the
"Purchasers").
R E C I T A L S:
A. Whereas, the Company desires to issue and sell to the Purchasers and
the Purchasers desire to purchase from the Company in the amounts set forth on
Schedule I, based on the terms and conditions set forth herein an aggregate of
(i) six thousand six hundred sixty-seven (6,667) shares of a newly designated
class of the Company's preferred stock, no par value, entitled Series C-1
Preferred Stock (the "Series C-1 Preferred Stock") having a total aggregate
purchase price of $2,000,000; and (ii) an aggregate of four thousand (4,000)
shares of a newly designated class of the Company's preferred stock, no par
value, entitled Series C-2 Preferred Stock (the "Series C-2 Preferred Stock")
having a total aggregate purchase price of $2,000,000 (the Series C-1 and Series
C-2 Preferred Stock are sometimes referred to collectively herein as the "C-1
and C-2 Shares").
B. Whereas, no later than fifteen (15) calendar days following the date
hereof, the Company will commence by filing a Schedule TO with the Securities
and Exchange Commission (the "SEC") an offer to all holders of Series B
Preferred Stock to exchange such shares for up to an aggregate of one thousand,
two hundred (1,200) shares of a newly designated class of the Company's
preferred stock, no par value, entitled Series C-3 Preferred Stock of the
Company (the Series C-3 Preferred Stock is sometimes referred to herein as the
"C-3 Shares" and, collectively with the C-1 and C-2 Shares, the "Series C
Preferred Stock"), based on the terms and conditions set forth herein (the
"Exchange Offer"), and the Company will use its best efforts to complete such
Exchange Offer as soon as practicable following such filing.
C. Whereas, Lexington may, in its sole discretion and at any time
following the forty-fifth calendar day following the date hereof and prior to
the completion of the Exchange Offer, exchange its shares of Series B Preferred
Stock for C-3 Shares, based upon the terms and conditions set forth herein (the
"Lexington Option").
D. Whereas, the Company has filed a certificate of determination with
the Secretary of State of the State of California setting forth the rights,
preferences and privileges of the Series C Preferred Stock in the form attached
hereto as Exhibit A (the "Certificate of Determination").
A G R E E M E N T:
In consideration of the foregoing promises and the mutual covenants
contained herein, the sufficiency of which is hereby acknowledged, the parties
hereby agree as follows:
Section 1. PURCHASE AND SALE AND EXCHANGE OF PREFERRED STOCK
1.1 Authorization of Series C Preferred Stock. On or prior to the Closing (as
defined in Section 1.3 below), the Company shall have authorized (a) the sale
and issuance to the Purchasers of the C-1 and C-2 Shares, (b) the C-3 Shares for
issuance in connection with the Exchange Offer or upon exercise of the Lexington
Option, and (c) the issuance of such shares of Common Stock to be issued upon
conversion of the Series C Preferred Stock Shares (the "Conversion Shares"). The
Series C Preferred Stock and the Conversion Shares shall have the rights,
preferences, privileges and restrictions set forth in the Certificate of
Determination.
1.2 Sale and Purchase. Subject to the terms and conditions hereof, at the
Closing (as hereinafter defined) the Company hereby agrees to issue and sell to
each Purchaser, severally and not jointly, and each Purchaser agrees to purchase
from the Company, severally and not jointly, the number of shares of Series C-1
Preferred Stock and Series C-2 Preferred Stock set forth opposite such
Purchaser's name on Schedule I, at the purchase prices set forth therein.
1.3 Closing. The closing of the sale and purchase of the C-1 and C-2 Shares
under this Agreement (the "Closing") shall take place at 9:00 a.m. on the date
hereof, at the offices of Xxxxxx Godward llp, 0000 Xxxxxxxx Xxxx, Xxx Xxxxx, XX
00000 or at such other time or place as the Company and Purchasers may mutually
agree (such date is hereinafter referred to as the "Closing Date").
1.4 Delivery. At the Closing, subject to the terms and conditions hereof, the
Company will deliver to each Purchaser certificates representing the number and
class of C-1 and C-2 Shares to be purchased at the Closing by such Purchaser,
against payment of the purchase price therefor by the Purchasers by check made
payable to the order of the Company, wire transfer, cancellation of indebtedness
or any combination of the foregoing.
Section 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants as of the date hereof, and as of the date of Closing, to the
Purchasers that except as set forth on a Schedule of Exceptions furnished to
each Purchaser, which exceptions shall be deemed to be representations and
warranties as if made hereunder:
2.1 The Company has been duly incorporated and is an existing corporation in
good standing under the laws of the State of California, with requisite
corporate power and authority to own its properties and conduct its business as
presently conducted. The Company is duly qualified to do business as a foreign
corporation in good standing in all other U.S. jurisdictions in which its
ownership or lease of property or the conduct of its business requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the condition (financial or other), business,
properties, assets, results or prospects of operations of the Company and its
subsidiaries (hereinafter, a "Material Adverse Effect"). The Company has
furnished representatives of the Purchaser with correct and complete copies of
the articles of incorporation and any certificates of determination thereto and
bylaws of the Company, both as amended and currently in effect.
2.2 Each subsidiary of the Company has been duly incorporated and is an existing
corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own its properties and
conduct its business as presently conducted. Each subsidiary of the Company is
duly qualified to do business as a foreign corporation in good standing in all
other U.S. jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, except where the failure to
be so qualified would not have a Material Adverse Effect; all of the issued and
outstanding capital stock of each subsidiary of the Company has been duly
authorized and validly issued and is fully paid and nonassessable and is owned
of record by the Company.
2.3 Immediately prior to the Closing, the authorized capital stock of the
Company consists of: (i) one hundred million (100,000,000) shares of Common
Stock and (ii) one million (1,000,000) shares of Preferred Stock; three hundred
(300) of which have been designated Series A Preferred Stock and five hundred
(500) of which have been designated Series B Preferred Stock. As of March 31,
2002, twenty one million two hundred sixty one thousand six hundred twenty seven
(21,261,627) shares of Common Stock have been issued and are outstanding, no
shares of Series A Preferred Stock are issued and outstanding and three hundred
fifty-one and one quarter (351.25) shares of Series B Preferred Stock are issued
and outstanding. As of May 29, 2002, other than with respect to an aggregate of
six million (6,000,000) shares of Common Stock reserved for issuance under the
Company's equity incentive plans, of which four million one hundred forty five
thousand three hundred thirty-three (4,145,333) are subject to outstanding
options, that certain convertible promissory note dated May 16, 2002, in the
original principal amount of $500,000 issued to Lexington (the "Lexington Note")
and warrants to purchase six hundred forty two thousand seven hundred fifty
seven (642,757) shares of Common Stock of the Company, there are no outstanding
options, warrants, rights (including conversion or preemptive rights and rights
of first refusal), proxy or stockholder agreements, or agreements of any kind
for the purchase or acquisition from the Company of any of its equity
securities. The Company has not issued or made any commitments to issue any
shares, options or other securities exercisable or convertible into shares of
the Company's capital stock since March 31, 2002.
2.4 The Series C Preferred Stock, and the Conversion Shares, and all outstanding
shares of capital stock of the Company have been duly authorized; all
outstanding shares of capital stock of the Company are, and, when the C-1 and
C-2 Shares have been delivered and paid for in accordance with this Agreement on
the Closing Date, when the C-3 Shares has been delivered in connection with
either the Exchange Offer or exercise of the Lexington Option, and when the
Conversion Shares have been delivered in accordance with the terms of the Series
C Certificate of Determination, such Series C Preferred Stock and Conversion
Shares will have been, validly issued, fully paid and nonassessable. None of the
Series C Preferred Stock or Conversion Shares are subject to any preemptive
right or any right of refusal.
2.5
(a) No consent, approval, authorization, or order of, or filing with, any
governmental agency or body or any court is required for the consummation of the
transactions contemplated by this Agreement in connection with the issuance and
sale of the C-1 and C-2 Shares, the exercise of the Lexington Option, the
issuance of the C-3 shares upon exercise of the Lexington Option or the issuance
of Conversion Shares by the Company, except for the filing of a Form D with the
SEC under the Securities Act of 1933, as amended (the "Securities Act"), and
such as may be required under state securities laws.
(b) No consent, approval, authorization, or order of, or filing with, any
governmental agency or body or any court is required for the consummation of
Exchange Offer by the Company and the issuance of the C-3 Shares upon
consummation of the Exchange Offer, except for the filing of a Schedule TO with
the SEC under the Securities Act.
2.6 This Agreement has been duly authorized, executed and delivered by the
Company. All corporate action on the part of the Company and its shareholders,
directors and officers necessary for the authorization, execution and delivery
of this Agreement, the performance of all the Company's obligations hereunder
and for the authorization, issuance or reservation for issuance, sale and
delivery of the Series C Preferred Stock and the Conversion Shares has been
taken. This Agreement constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, subject
to (i) laws of general application relating to bankruptcy, insolvency and the
relief of debtors, (ii) rules of law governing specific performance, injunctive
relief and other equitable remedies, and (iii) the limitations imposed by
applicable federal or state securities laws on the indemnification provisions
contained in this Agreement.
2.7 The execution, delivery and performance of this Agreement, and the issuance
and sale of the Series C Preferred Stock and the Conversion Shares will not
result in a breach or violation of (i) any of the terms and provisions of the
Restated Articles or bylaws of the Company or any of its subsidiaries, nor (ii)
any of the terms and provisions of, or constitute a default under any statute,
rule, regulation or order of any governmental agency or body or any court,
domestic or foreign, having jurisdiction over the Company or any subsidiary of
the Company or any of their properties, or any agreement or instrument to which
the Company or any such subsidiary is a party or by which the Company or any
such subsidiary is bound or to which any of the properties of the Company or any
such subsidiary is subject. The Company has full power and authority to
authorize, issue and sell the Series C Preferred Stock and Conversion Shares as
contemplated by this Agreement.
2.8 There have been no investment bankers, brokers or finders used by the
Company or its affiliates in connection with the transactions contemplated by
this Agreement and no persons or entities are entitled to a fee or compensation
in respect thereof.
2.9 The Company and its subsidiaries have good and marketable title to all real
properties and all other properties and assets owned by them that are material
to the operation of the Company's business, in each case free from liens,
encumbrances and defects that would affect the value thereof or interfere with
the use made or to be made thereof by them. With respect to the property and
assets it leases, the Company is in compliance with such leases and, to the best
of its knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances, except such encumbrances and liens which arise in the ordinary
course of business and do not materially impair the Company's use of such
property or assets.
2.10 The Company and its subsidiaries possess valid certificates, authorities or
permits issued by appropriate governmental agencies or bodies necessary to
conduct the business now operated by them and have not received any notice of
proceedings relating to the revocation or modification of any such certificate,
authority or permit except where the failure to obtain any such certificate,
authority or permit would not have a material adverse effect on the Company or
any of its subsidiaries.
2.11 There are no pending actions, suits or proceedings against or affecting the
Company, any of its subsidiaries or any of their respective properties or, to
the best of the Company's knowledge, any director, officer or employee (related
to any such person's services as a director, officer or employee of the Company)
or would affect the ability of the Company to perform its obligations under this
Agreement, or which otherwise relate to the sale of the Series C Preferred Stock
and, to the Company's knowledge, no such actions, suits or proceedings are
threatened or contemplated. The Company has not initiated and has no plan to
initiate any action, suit or proceeding that, if decided adversely to the
Company, would, individually or in the aggregate, result in a Material Adverse
Effect.
2.12 The Company has made available to representatives of the Purchasers all
registration statements, proxy statements and other statements, reports,
schedules, forms and other documents filed by the Company with SEC since January
1, 2001, including copies of all the exhibits referenced therein, as well as the
Company's draft Annual Report on Form 10-KSB for the year ended December 31,
2001 (the "SEC Documents"). All statements, reports, schedules, forms and other
documents required to have been filed by the Company with the SEC since January
1, 2001 have been so filed. As of their respective dates (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such amendment or superseding filing): (i) each of the SEC Documents complied in
all material respects with the applicable requirements of the Securities Act or
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the
case may be; and (ii) none of the SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
2.13 The financial statements included in the SEC Documents present fairly the
financial position of the Company and its consolidated subsidiaries as of the
dates shown and their results of operations and cash flows for the periods
shown, and such financial statements have been prepared in conformity with the
generally accepted accounting principles in the United States applied on a
consistent basis (except as may be indicated in the notes to such financial
statements or, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC, and except that the unaudited financial statements may not have
contained footnotes and were subject to normal and recurring year-end
adjustments which were not, or are not reasonably expected to be, individually
or in the aggregate, material in amount) and complied as to form in all material
respects with the published rules and regulations of the SEC applicable thereto.
2.14 The Company and its subsidiaries own or possess, or can acquire on
reasonable terms, sufficient legal rights to all material patents, patent
rights, licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable propriety or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by them in connection with the business now operated by them, and
neither the Company nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to any
of the foregoing.
2.15 Neither the Company nor any affiliate (as defined in Rule 501(b) of
Regulation D under the Securities Act) (an "Affiliate") of the Company has,
directly, or through any agent, (a) sold, offered for sale, solicited any offers
to buy or otherwise negotiated in respect of, any security (as defined in the
Securities Act) which is or will be integrated with the sales of the Series C
Preferred Stock in a manner that would require the registration under the
Securities Act of the Series C Preferred Stock; or (b) offered, solicited offers
to buy or sold the Series C Preferred Stock in any form of general solicitation
or general advertising (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within the meaning
of Section 4(2) of the Securities Act; and the Company will not engage in any of
the actions described in subsections (a) and (b) of this paragraph.
2.16 Subject to the accuracy of each of the Purchaser's representations herein,
it is not necessary in connection with the offer, sale and delivery of the
Series C Preferred Stock to such Purchaser in the manner contemplated by this
Agreement to register the Series C Preferred Stock under the Securities Act.
2.17 The issuance of the Series C Preferred Stock and the Conversion Shares,
neither individually nor in the aggregate, constitute an anti-dilution event for
any existing securityholders of the Company, pursuant to which such
securityholders would be entitled to additional securities or a reduction in the
applicable conversion price or exercise price of any securities due to any
issuance proposed to be conducted hereunder. There are no agreements between the
Company and any securityholders granting any pre-emptive, voting, registration
or any similar or other rights other than as may be set forth in the Company's
Articles of Incorporation, Series A Certificate of Determination or Series B
Certificate of Determination.
2.18 The information contained in this Agreement and the SEC Documents with
respect to the business, operations, assets, results of operations and financial
condition of the Company, and the transactions contemplated by this Agreement,
are true and complete in all material respects and do not omit to state any
material fact or facts necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
2.19 Section 2.19 of the Company Schedule of Exceptions identifies all insurance
policies maintained by, at the expense of or for the benefit of the Company and
identifies any material pending claims made thereunder, and the Company has
delivered to Purchaser accurate and complete copies of the insurance policies
identified on Section 2.19 of the Company Schedule of Exceptions. Each of the
insurance policies identified in Section 2.19 of the Schedule of Exceptions is
in full force and effect and the Company has not received any written notice or
other written communication regarding any actual or possible (a) cancellation or
invalidation of any insurance policy, (b) refusal of any coverage or rejection
of any pending claim under any insurance policy, or (c) material adjustment in
the amount of the premiums payable with respect to any insurance policy, nor
shall the transactions contemplated hereby cause any of the foregoing.
Section 3. REPRESENTATION AND WARRANTIES OF THE PURCHASERS.
3.1 Each Purchaser hereby, represents and warrants to the Company, as of
the date hereof, as follows:
(a) Each Purchaser is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization and has all requisite
corporate or limited partnership power and authority to consummate the
transactions contemplated hereby.
(b) Each Purchaser has full corporate, limited liability company or limited
partnership power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. This Agreement constitutes the legal, valid
and binding obligation of each Purchaser, enforceable against such Purchaser in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors, (ii) rules of law governing
specific performance, injunctive relief and other equitable remedies, and (iii)
the limitations imposed by applicable federal or state securities laws on the
indemnification provisions contained in this Agreement.
(c) Investment Representations.
(i) Each Purchaser is sophisticated in transactions of this type and capable of
evaluating the merits and risks of the transactions described herein and has the
capacity to protect its own interests. Each Purchaser has not been formed solely
for the purpose of entering into the transactions described herein and is
acquiring the Series C Preferred Stock for investment for its own account, not
as a nominee or agent, and not with the view to, or for resale, distribution
thereof.
(ii) Each Purchaser has not and does not intend to enter into any contract,
undertaking, agreement or arrangement with any person or entity to sell,
transfer or pledge the Series C Preferred Stock, other than to an affiliate,
partner (or member thereof) or former partner (or member thereof) of such
Purchaser in compliance with the Securities Act.
(iii) Each Purchaser acknowledges its understanding that the Company intends to
sell the Series C Preferred Stock pursuant to a private placement exempt from
registration under the Securities Act. In furtherance thereof, each Purchaser
represents and warrants that it is an "accredited investor" as that term is
defined in Rule 501 of Regulation D under the Securities Act, has the financial
ability to bear the economic risk of its investment, has adequate means for
providing for its current needs and personal contingencies and has no need for
liquidity with respect to its investment in the Company.
(iv) Each Purchaser agrees that it shall not sell or otherwise transfer any of
the Series C Preferred Stock without registration under the Securities Act,
pursuant to Rule 144 (or any successor rule) under the Securities Act or
pursuant to an opinion of counsel reasonably satisfactory to the Company that no
violation of the Securities Act will be involved in such transfer. Each
Purchaser fully understands that none of the Series C Preferred Stock have been
registered under the Securities Act or under the securities laws of any
applicable state or other jurisdiction and, therefore, cannot be resold,
pledged, assigned or otherwise disposed of unless subsequently registered under
the Securities Act and under the applicable securities laws of such states or
jurisdictions or an exemption from such registration is available. Each
Purchaser understands that the Company is under no obligation to register the
Series C Preferred Stock on its behalf with the exception of certain
registration rights set forth herein. Each Purchaser understands the lack of
liquidity and restrictions on transfer of the Series C Preferred Stock and that
this investment is suitable only for a person or entity of adequate financial
means that has no need for liquidity of this investment and that can afford a
total loss of its investment.
(v) Each Purchaser has had the opportunity to ask questions and obtain
additional information which such Purchaser used to make to the best of its
knowledge an informed investment decision.
(d) There have been no investment bankers, brokers or finders used by such
Purchaser or its affiliates in connection with the transactions contemplated by
this Agreement and no persons or entities are entitled to a fee or compensation
in respect thereof.
Section 4. CONDITIONS OF THE OBLIGATIONS OF THE PURCHASER.
4.1 Closing. The obligations of the Purchasers to purchase and pay for the
Series C-1 and Series C-2 Preferred Stock on the Closing Date are subject to the
satisfaction, or waiver by the Purchasers, of each of the conditions below:
(a) The representations and warranties of the Company in Section 2 shall be true
and correct on the Closing Date and the Company shall have performed all of its
obligations hereunder required to be performed prior to the Closing Date.
(b) The Series C Certificate of Determination shall have been accepted for
filing by the California Secretary of State.
(c) The Purchaser shall have received an opinion in the form attached hereto as
Exhibit B, dated the Closing Date, from Xxxxxxx Xxxx Seidenwurm & Xxxxx LLP,
counsel for the Company.
(d) The Purchasers shall have received a certificate, dated as of the Closing
Date, from an officer of the Company in which such officer shall state that: the
representations and warranties of the Company in Section 2 of this Agreement are
true and correct as of such date; the Company has complied in all material
respects with all agreements and satisfied all conditions on its part to be
performed or satisfied hereunder at or prior to the Closing Date; and there has
been no material and adverse change in the business of the Company since the
date of December 31, 2001.
(e) The business, assets, financial condition, operations and prospects of the
Company shall be substantially as represented to the Purchasers on December 31,
2001, and no change shall have occurred that, in the judgment of either
Purchaser, is or could have a Material Adverse Effect.
(f) Satisfactory completion of due diligence by the Purchasers.
(g) Xxxxxxx X. Xxxxxxxxx, Xxxxx Xxxxxxxx, Xxxxx X. Xxxxx, Qualcomm and Lexington
shall each have entered into a separate Voting Agreement with the Company and
Housatonic in the form attached hereto as Exhibit C (the "Voting Agreement").
(h) The board of directors shall be set at five and shall consist of
Xxxxxxx X. Xxxxx, Xxxxxx X. Xxxxxxx, Xxxxxxx X. Xxxxxxxxx, Xxxxxxxx X.
Xxxxxxxx and Xxxxxx X. Xxxxxxxxx. Xxxxx Xxxxx and Xxxxx Xxxxxxxx shall
have relinquished all visitation rights and each of Xxxxx Xxxxx, Xxxxxx
Xxxxx, Xxxxxxx Xxxxx and Xxxxxx Xxxxxxxx shall have resigned from his seat as
a director prior to Closing.
(i) The Company shall have entered into modifications, on substantially the
terms set forth on Exhibit D and as acceptable to the Purchaser, of (i) the Loan
Agreement dated December 29, 1998 between the Company and Enerdyne Technologies,
Inc. and First National Bank (the "Loan Agreement"), (ii) the Debt Agreement
dated as of July 7, 1998 between the Company and Xxxxx X. Xxxxx and Xxxxx
Xxxxxxxx and (iii) the separate promissory notes dated July 7, 1998 issued by
the Company in favor of Xxxxx X. Xxxxx, Xxxxx Xxxxxxxx and Xxxxxxxx, Xxxxxxx &
Xxxxxxx llc.
(j) An additional 1,500,000 shares of the Company's Common Stock available for
issuance to employees and officers of the Company (excluding the shares
underlying the options granted to Xxxxxxx X. Xxxxx as contemplated under his
employment Agreement), shall be reserved under the Company's 1996 Stock Option
Plan by the Company, subject to the approval of the Company's shareholders at
the Company's next annual meeting of shareholders.
(k) The Company shall have entered into an employment Agreement with Xxxxxxx X.
Xxxxx, making him Chief Executive Officer and Chairman of the Board of the
Company and granting him 3,000,000 options, substantially in the form attached
hereto as Exhibit E.
(l) Xxxxxxx X. Xxxxxxxxx shall have resigned as Chief Executive Officer of the
Company and from his position as Chairman of the Board and Xxxxxxx X. Xxxxx
shall have been appointed as Chairman of the Board.
(m) Reserved.
(n) The Company and Qualcomm, Incorporated shall have entered into an agreement
to the satisfaction of the Housatonic as to, among other things, the minimum
number of "units" required to be purchased by the Company to retain the
Company's exclusive agreement with Qualcomm. As part of this agreement,
Qualcomm, Incorporated shall have also relinquished and terminated its right of
first refusal and any other right to purchase the assets of the Boatracs
Division of the Company.
(o) The Lexington Note shall have been cancelled and applied toward Lexington's
purchase of Series C-1 and Series C-2 Preferred Stock hereunder.
Section 5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
5.1 The obligations of the Company to sell the Series C Preferred Stock on the
Closing Date to the Purchaser will be subject to the satisfaction, or waiver by
the Company, of the conditions below:
(a) The representations and warranties of such Purchaser in Section 3 shall be
true and correct on the Closing Date and the Purchaser must have performed all
of its obligations hereunder required to be performed prior to such Closing
Date.
(b) The Series C Certificate of Determination shall have been accepted for
filing by the California Secretary of State.
Section 6. REGISTRATION OF THE REGISTRABLE SECURITIES; COMPLIANCE WITH
THE SECURITIES ACT.
6.1 Registration Procedures. The Company is obligated to do the following:
(a) Within sixty (60) days of a request by holders of a majority of the Series C
Preferred Stock then outstanding (including, without limitation, Lexington
following exercise of the Lexington Option or any persons holding C-3 Shares as
a result of the Exchange Offer who becomes a signatory to this Agreement
pursuant to Section 8.6 hereof (such persons collectively, the "C-3 Conversion
Participants" and collectively with Lexington and the Purchasers, the
"Holders")), subject to delivery by such holders of information regarding such
holders' addresses and holdings of capital stock of the Company, the Company
shall prepare and file with the SEC one or more registration statements in order
to register with the SEC the resale by such holder, from time to time, of the
Conversion Shares (which, along with any Common Stock issued as (or issuable
upon the conversion of exercise of any warrant, right or other security that is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, the Series C Preferred Stock or the Conversion Shares, are
sometimes referred to herein as the "Registrable Securities") through NASDAQ or
the facilities of any national securities exchange on which the Company's Common
Stock is then traded, or in privately negotiated transactions. The Company shall
use its best efforts to cause such registration statement to be declared
effective as soon thereafter as reasonably possible. The Company shall promptly
notify the Purchaser of the effectiveness of such registration statement. The
Company shall not be obligated to effect such a registration hereunder more than
twice in the aggregate nor more than once in any 12-month period.
(b) The Company shall prepare and file with the SEC (i) such amendments and
supplements to any registration statement and the prospectus used in connection
therewith, and (ii) such other filings required by the SEC, in each case as may
be necessary to keep the registration statement continuously effective and not
misleading until the earlier of (A) the date that the Purchaser has completed
the distribution related to the Registrable Securities, or (B) such time that
all Registrable Securities then held by the holders can be sold within a given
three (3) month period without compliance with the registration requirements of
the Securities Act pursuant to Rule 144 under the Securities Act; provided,
however, that at any time, upon written notice to the holders and for a period
not to exceed fifteen (15) days thereafter (the "Suspension Period"), the
Company may delay the filing or effectiveness of any registration statement or
suspend the use or effectiveness of any registration statement (and the holders
hereby agree not to offer or sell any Registrable Securities pursuant to such
registration statement during the Suspension Period) if the Company reasonably
believes that the Company may, in the absence of such delay or suspension
hereunder, be required under state or federal securities laws to disclose any
corporate development the disclosure of which could reasonably be expected to
have an adverse effect upon the Company, its shareholders, a potentially
significant transaction or event involving the Company, or any negotiations,
discussions, or proposals directly relating thereto. The Company shall be
limited to only one Suspension Period in any 90 day period. The Company agrees
to use its commercially reasonable best efforts to insure that the Suspension
Period is kept to a minimum number of days. If so directed by the Company, the
holders shall use their best efforts to deliver to the Company (at the Company's
expense) all copies, other than permanent file copies then in the Purchasers'
possession, of the prospectus relating to such Registrable Securities current at
the time of receipt of such notice.
(c) Furnish to the holders such number of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them, unless the
Company is already subject to service in such jurisdiction and except as
required by the Securities Act.
(d) Use its best efforts to register and qualify the securities covered by such
registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the holders; provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the managing underwriter(s) of such offering. Each holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement.
(f) Notify each holder whose Registrable Securities are covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing. The Company shall promptly amend or supplement such prospectus in
order to cause such prospectus not to include any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the circumstances
then existing.
(g) Furnish, on the date that such Registrable Securities are delivered to the
underwriters for sale, if such securities are being sold through underwriters,
(i) an opinion, dated as of such date, of the counsel representing the Company
for the purposes of such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and (ii) a letter, dated as of such date, from the
independent certified public accountants of the Company, in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering addressed to the underwriters.
(h) Cause all such Registrable Securities registered pursuant hereunder to be
listed on NASDAQ and each other securities exchange on which similar securities
issued by the Company are then listed.
6.2 Transfer of Securities After Registration. The Purchasers agree that they
will not effect any disposition of the Registrable Securities that would
constitute a sale within the meaning of the Securities Act, unless:
(a) pursuant to a registration statement then in effect covering such
disposition, if such disposition is made in accordance with such; or
(b) such Purchaser shall have notified the Company of the proposed disposition
and shall have furnished the Company with a reasonably detailed statement of the
circumstances surrounding the proposed disposition, and if reasonably requested
by the Company, such Purchaser shall have furnished the Company with an opinion
of counsel, reasonably satisfactory to the Company, or other evidence,
reasonably satisfactory to the Company, that such disposition will not require
registration of such Registrable Securities under the Securities Act. It is
agreed that the Company will not require opinions of counsel for transactions
made pursuant to and in compliance with Rule 144, and will not require (i) that
such holder furnish the Company with a reasonably detailed statement of the
circumstances of the proposed disposition or (ii) an opinion of counsel except
in unusual circumstances.
(c) Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
by a Purchaser (A) that is a partnership to its partners or former partners in
accordance with partnership interests, (B) that is a limited liability company
to its members or former members in accordance with their interest in the
limited liability company, (C) that is a corporation to its majority owned
subsidiaries or affiliates or (D) that is an individual to the Purchaser's
family member or trust for the benefit of such Purchaser or his or her family
members or an entity whose equity owners consist solely of the Purchaser and his
or her family members; provided that in each case the transferee will be subject
to the terms of this Agreement to the same extent as if he were an original
Purchaser hereunder.
6.3 Legends. Each certificate representing Registrable Securities shall (unless
otherwise permitted by the provisions of the Agreement) be stamped or otherwise
imprinted with a legend substantially similar to the following (in addition to
any legend required under applicable state securities laws or as provided
elsewhere in this Agreement):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR
BASED ON OTHER WRITTEN EVIDENCE IN THE FORM AND SUBSTANCE SATISFACTORY
TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE
OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
6.4 Expenses of Registration. Except as specifically provided herein, all
expenses incurred by the Company in complying with Section 6 hereof, including,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and expenses of one counsel to the
holders, blue sky fees and expenses, reasonable fees and disbursements of one
counsel for the holders, fees and the expense of any special audits incident to
or required by any such registration (but excluding the compensation of regular
employees of the Company which shall be paid in any event by the Company)
(collectively, the "Registration Expenses") shall be borne by the Company. All
underwriting discounts and selling commissions applicable to a sale incurred in
connection with any registrations hereunder shall be borne by the holders of the
securities so registered pro rata on the basis of the number of shares so sold.
6.5 Furnishing Information. The holders shall furnish to the Company such
information regarding themselves, the Registrable Securities held by them and
the intended method of disposition of such securities as shall be required to
effect the registration of their Registrable Securities. Furthermore, each
Purchaser, severally and not jointly, agrees to promptly notify the Company of
any changes in the information set forth in a registration statement regarding
such holders or its plan of distribution set forth in such registration
statement.
6.6 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 6.
(a) To the extent permitted by law, the Company will indemnify and hold harmless
the Purchasers, their respective partners, officers, directors and members, any
underwriter (as defined in the Securities Act) for the Purchasers and each
person, if any, who controls the Purchasers or underwriter within the meaning of
the Securities Act or the Exchange Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will pay as incurred to
the Purchaser, partner, officer, director, underwriter or controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section 6.6
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld, nor shall the Company
be liable in any such case for any such loss, claim, damage, liability or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by the Purchaser, partner, officer,
director, underwriter or controlling person of the Purchaser.
(b) To the extent permitted by law, a Purchaser will, if Registrable Securities
held by such Purchaser are included in the securities as to which such
registration qualifications or compliance is being effected, indemnify and hold
harmless the Company, each of its directors, its officers and each person, if
any, who controls the Company within the meaning of the Securities Act, any
underwriter and any other holder selling securities under such registration
statement or any of such holder's partners, directors, officers or members or
any person who controls such Purchaser, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Purchaser, or partner,
director, officer, member or controlling person of such other Purchaser may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by the Purchaser under an
instrument duly executed by such Purchaser and stated to be specifically for use
in connection with such registration; and such Purchaser will pay as incurred
any legal or other expenses reasonably incurred by the Company or any such
director, officer, member, controlling person, underwriter or other person
registering shares under such registration, or partner, officer, director,
member or controlling person of such other person registering shares under such
registration in connection with investigating or defending any such loss, claim,
damage, liability or action if it is judicially determined that there was such a
Violation; provided, however, that the indemnity agreement contained in this
Section 6.6 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Purchaser, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this Section 6.6
exceed the gross proceeds from the offering received by such Purchaser.
(c) Promptly after receipt by an indemnified party under this Section 6.6 of
notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 6.6, deliver to the indemnifying party
a written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 6.6, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 6.6.
(d) If the indemnification provided for in this Section 6.6 is held by a court
of competent jurisdiction to be unavailable to an indemnified party with respect
to any losses, claims, damages or liabilities referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party thereunder,
shall to the extent permitted by applicable law contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the Violation(s) that resulted in such loss, claim, damage or
liability, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by a court of law by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a material
fact relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission;
provided, that in no event shall any contribution by a Purchaser hereunder
exceed the gross proceeds from the offering received by such Purchaser.
(e) The obligations of the Company and the Purchasers under this Section 6.6
shall survive completion of any offering of Registrable Securities in a
registration statement and the termination of this Agreement. No indemnifying
party, in the defense of any such claim or litigation, shall, except with the
consent of each indemnified party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation.
6.7 Agreement to Furnish Information. In connection with a registration in which
a Purchaser is participating, such Purchaser agrees to execute and deliver such
other agreements as may be reasonably requested by the Company or the
underwriter. In addition, if requested by the Company or the representative of
the underwriters of Common Stock (or other securities) of the Company, such
Purchaser shall provide, within ten (10) days of such request, such information
related to such Purchaser as may be required by the Company or such
representative in connection with the completion of any public offering of the
Company's securities pursuant to a registration statement filed under the
Securities Act.
6.8 Rule 144 Reporting. With a view to making available to the Purchasers the
benefits of certain rules and regulations of the SEC which may permit the sale
of the Registrable Securities to the public without registration, the Company
agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are understood
and defined in SEC Rule 144 or any similar or analogous rule promulgated under
the Securities Act;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act; and
(c) So long as any Purchaser owns any Registrable Securities, furnish to the
Purchaser forthwith upon request: a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 of the Securities
Act, and of the Exchange Act (at any time after it has become subject to such
reporting requirements); a copy of the most recent annual or quarterly report of
the Company; and such other reports and documents as a Purchaser may reasonably
request in availing itself of any rule or regulation of the SEC allowing it to
sell any such securities without registration.
6.9 S-3 Eligibility. The Company will use commercially reasonable efforts to
meet the requirements for the use of Form S-3 for registration of the resale by
the Purchaser of the Registrable Securities. The Company will use its best
efforts to file all reports required to be filed by the Company with the SEC in
a timely manner and take all other necessary action so as to maintain such
eligibility for the use of Form S-3. In the event that the Company shall cease
to meet eligibility requirements for the use of Form S-3, the Company will
immediately convert any effective S-3 Registration Statement with respect to the
Registrable Securities into such form as shall then be available in order to
permit the shares to continue to be sold.
6.10 The obligations of the Company to register shares of a Holder hereunder
shall terminate when all such shares may be sold pursuant to rule 144 during any
ninety (90) day period.
Section 7. RIGHT OF FIRST REFUSAL.
7.1 Subsequent Offerings. The Holders shall have a right of first refusal to
purchase its pro rata share of all Equity Securities, as defined below, that the
Company may, from time to time, propose to sell and issue after the date of this
Agreement, other than the Equity Securities excluded by Section 7.5 hereof. Each
Holder's pro rata share is equal to the ratio of (a) the number of shares of the
Company's Common Stock (based on the shares of Common Stock issuable or issued
upon conversion of the Series C Preferred Stock) which such Holder, is deemed to
be a holder immediately prior to the issuance of such Equity Securities to (b)
the total number of shares of the Company's outstanding Common Stock (including
Common Stock issuable upon conversion of all Preferred Stock outstanding on such
date, but not including any other convertible securities) immediately prior to
the issuance of the Equity Securities. The term "Equity Securities" shall mean
(i) any Common Stock, Preferred Stock or other security of the Company, (ii) any
security convertible into or exercisable or exchangeable for, with or without
consideration, any Common Stock, Preferred Stock or other security (including
any option to purchase such a convertible security), (iii) any security carrying
any warrant or right to subscribe to or purchase any Common Stock, Preferred
Stock or other security or (iv) any such warrant or right.
7.2 Exercise of Rights. If the Company proposes to issue any Equity Securities,
it shall give each Holder written notice of its intention, describing the Equity
Securities, the price and the terms and conditions upon which the Company
proposes to issue the same. The Holders shall have fifteen (15) days from the
giving of such notice to agree to purchase its pro rata share of the Equity
Securities for the price and upon the terms and conditions specified in the
notice by giving written notice to the Company and stating therein the quantity
of Equity Securities to be purchased. As a condition to the exercise of such
rights, any Holder exercising its rights hereunder shall execute the appropriate
purchase and related agreements in connection with such purchase.
7.3 Issuance of Equity Securities to Other Persons. If the Holders fail to
exercise in full the rights of first refusal, the Company shall have ninety (90)
days thereafter to sell the Equity Securities in respect of which the Holders'
rights were not exercised, at a price and upon general terms and conditions
materially no more favorable to the proposed purchasers thereof than specified
in the Company's notice to the Holders pursuant to Section 7.2 hereof. If the
Company has not sold such Equity Securities within ninety (90) days of the
notice provided pursuant to Section 7.2, the Company shall not thereafter issue
or sell any Equity Securities, without first offering such securities to the
Holders in the manner provided above.
7.4 Termination and Waiver of Rights of First Refusal. The rights of first
refusal established by this Section 7 shall not apply to, and shall terminate
upon the earlier of (i) a Change in Control, defined below, and (ii) six years
from the date hereof. The rights of first refusal established by this Section 7
shall be subject to customary exceptions and may be amended, or any provision
waived with the written consent of holders holding a majority of the Series C
Preferred Stock. For the purpose of this Section 7.4, Change in Control shall
mean either the sale, lease or other disposition of all or substantially all of
the assets of the Company, or an acquisition of the Company by another
corporation or entity by consolidation, merger or other reorganization in which
the holders of the Company's outstanding voting stock immediately prior to such
transaction own, immediately after such transaction, securities representing
less than 50% of the voting power of the corporation or other entity surviving
such transaction.
7.5 Excluded Securities. The rights of first refusal established by this
Section 7 shall have no application to any of the following Equity Securities:
(a) up to an aggregate amount of 1,500,000 shares of Common Stock (and/or
options, warrants or other Common Stock purchase rights issued pursuant to such
options, warrants or other rights) issued or to be issued after the date hereof
to employees, officers or directors of, or consultants or advisors to the
Company or any subsidiary, pursuant to stock purchase or stock option plans or
other arrangements that are approved by the Board of Directors.
(b) stock issued pursuant to any rights or agreements outstanding as of the date
of this Agreement; options and warrants outstanding as of the date of this
Agreement; and stock issued pursuant to any such rights or agreements granted
after the date of this Agreements; provided that the rights of first refusal
established by this Section 7 applied with respect to the initial sale or grant
by the Company of such rights or agreements;
(c) any Equity Securities issued for consideration other than cash pursuant to a
merger, consolidation, acquisition or similar business combination approved by
the Board of Directors;
(d) shares of Common Stock issued in connection with any stock split,stock
dividend or recapitalization by the Company;
(e) shares of Common Stock issued upon conversion of the Series B or Series
C Preferred Stock;
(f) any Equity Securities that are issued to the public by the Company
pursuant to a registration statement filed under the Securities Act; and
(g) shares of C-3 Shares issued in connection with the Exchange Offer and/
or the Lexington Option.
Section 8. COVENANTS OF THE COMPANY.
8.1 The Company shall timely renew its existing Director and Officers Insurance
Policy for a minimum period of one (1) year.
8.2 Use of Proceeds. The Company agrees that the proceeds from the sale of the
Series C Preferred Stock shall be used for working capital and general corporate
purposes only. The proceeds of the investment may not be used to pay down the
principal balances of the Company's outstanding notes payable (with the
exception of certain principal payments in connection with the modification to
the Loan Agreement pursuant to the terms set forth in Exhibit D) or other debt
obligations except as they relate to accounts payable.
8.3 Exchange Offer and Lexington Option.
(a) As soon as practicable following the Closing but in no case later than
fifteen (15) calendar days following the Closing, the Company shall use its best
efforts to commence the Exchange Offer by filing a Schedule TO with the SEC, and
will thereafter use its best efforts to complete such Exchange Offer as soon as
practicable substantially on the terms set forth in this Section 8.3. Pursuant
to the Exchange Offer, the Company shall offer each holder of Series B Preferred
Stock of the Company the opportunity to exchange the shares of Series B
Preferred Stock then held by such holder for the number of shares of C-3 Shares
equal to the quotient of (i) 75% of the value of any payments which such holder
would be entitled to receive with respect to its shares of Series B Preferred
Stock in accordance with the terms of the Company's Certificate of Determination
for Series B Preferred Stock filed with the Secretary of State of the State of
California on May 25, 2000 (the "Series B Certificate of Determination") upon
any liquidation, dissolution or winding up of the Company (including all
dividends accrued through the date of the Exchange Offer) divided by (ii) the
Original Issue Price of the C-3 Shares (as defined in the Certificate of
Determination) Appropriately Adjusted (as defined in the Certificate of
Determination).
(b) In connection with the Exchange Offer, Lexington shall elect to exchange all
or a portion of the Series B Preferred Stock then held by Lexington into C-3
Shares; unless an alternative arrangement is agreed upon in writing by the
Company, Housatonic and Lexington.
(c) Notwithstanding anything to the contrary herein, Lexington may, in its sole
discretion at any time after 45 days from the date hereof and within 90 days of
the date hereof, elect to convert its shares of Series B Preferred Stock into
the number of shares of C-3 Shares equal to the quotient of (i) 75% of the value
of any payments which Lexington would be entitled to receive with respect to its
shares of Series B Preferred Stock in accordance with the terms of the Series B
Certificate of Determination upon any liquidation, dissolution or winding up of
the Company (including all dividends accrued through the date of the date of the
Lexington Option) divided by (ii) the Original Issue Price of the C-3 Shares (as
defined in the Certificate of Determination) Appropriately Adjusted (as defined
in the Certificate of Determination).
(d) Lexington hereby covenants to Housatonic that from the date hereof through
consummation of the Exchange Offer Lexington will not sell, transfer, assign or
otherwise dispose of, encumber, subject to any restriction, security interest or
lien whether by operation of law or otherwise, any of the Series B Preferred
Stock currently held by Lexington other than in connection with the Exchange
Offer pursuant to Section 8.3(b) above or in connection with its exercise of the
Lexington Option pursuant to Section 8.3(c) above.
8.4 Shareholder Vote for Option Pool. In connection with the Company's next
annual meeting of Shareholders, the Company shall submit for a vote thereon the
increase by 4,500,000 shares of the Company's 1996 Stock Option Plan reserves
and any additional shares that the Company or its counsel may deem necessary or
appropriate for such approval in connection with the issuance to Xxxxxxx X.
Xxxxx contemplated by Section 4.1(k).
8.5 Amendment for C-3 Conversion Participants. Upon the consummation of
Lexington Option and the Exchange Offer, the Company and the Purchasers will
enter into an amendment to this Agreement, causing any person who has thereby
converted Series B Preferred Stock into C-3 Shares to become a signatory to and
beneficiary of this Agreement for the purposes of enjoying the rights and
privileges and being bound by Sections 6 through 9 of this Agreement. In
addition, such persons (excluding Lexington) who so convert shall have the
option, in connection with such conversion, to purchase, in the aggregate, up to
223 shares of Series C-1 Preferred Stock and 134 shares of Series C-2 Preferred
Stock. In the event of such purchase of shares of Series C-1 and Series C-2
Preferred, such purchasers shall also make the representations set forth in
Section 3 hereof and the Company shall make the representation set forth in
Section 2 hereof; provided that the Company may make such changes to the
Schedule of Exceptions hereto as it deems appropriate in connection with making
such representations.
8.6 Nominating Committee. As soon as practicable following the Closing, the
Company's Board of Directors shall form a Nominating Subcommittee of the Board
which shall have the exclusive authority to determine the slate of nominees for
election to the Board, prospective new Board members, the removal of existing
Board members, and other customary duties of such a committee. The Nominating
Committee shall be comprised of only three members as follows: a representative
of Housatonic, who shall initially be Xxxxxx X. Xxxxxxx, a representative of
Lexington, who shall initially be Xxxxxx X. Xxxxxxxxx and an independent member
of the Board, who shall initially be Xxxxxxx X. Xxxxxxxxx. The Nominating
Committee shall remain in force and effect for so long as a representative of
Housatonic remains on the Board of Directors. The Purchasers and Xxxxxxx
Xxxxxxxxx hereby covenant to take such action at the next meeting of the
shareholders to elect Xxxxxxx Xxxxxxxxx to the Board of Directors.
Section 9. BOATRACS PURCHASE OPTION.
9.1 Purchase Option. Housatonic and its Affiliates shall have the exclusive
right, exercisable by delivery of written notice (the "Boatracs Notice"), to the
Company (with a copy to Lexington) during the period from August 2, 2002 through
June 1, 2003 to purchase the assets of the Company's Boatracs division as
specified on Exhibit F hereof (the "Boatracs Assets") at a purchase price equal
to the twelve month trailing (a) net income less (b) the sum of (i) any agreed
upon additional payments to Xxxxxxxx Xxxxxxxxxxxx in connection with the
agreement contemplated by Section 4.1(n) of the Series C Stock Purchase
Agreement (that has not already been taken into account in the computation of
net income) not to exceed $250,000 and (ii) interest income; plus (c) the sum of
(i) income tax provision, (ii) interest expense, (iii) amortization expense and
(iv) depreciation expense as set forth in the Company's statement of operations
and statement of cash flows attributable to the Boatracs division, in conformity
with accounting principals generally accepted in the United States of America
and consistent with prior accounting practices of the Company calculated as of
the date of the Boatracs Notice multiplied by five (5.0) (the "Boatracs Purchase
Price"). The parties hereto acknowledge and agree that the Boatracs Purchase
Price is a reasonable approximation of the value of the Boatracs Assets. In the
event that Housatonic exercises its option to purchase the Boatracs Assets
hereunder, Housatonic may tender the Series C Preferred Stock then held by
Housatonic toward the purchase price therefor; such shares shall be valued at
their original purchase price plus accrued but unpaid dividends thereon. The
Company covenants that it will use its best efforts to assist in obtaining any
approvals that may be necessary or appropriate in connection with such sale
including, without limitation, obtaining any regulatory approvals under
applicable laws and regulations, assignments or delegation of any third party
agreements in connection therewith, and/or any board and shareholder approvals
that may be necessary or advisable.
9.2 Option to Participate in Housatonic Purchase of Boatracs. In the event that
Housatonic exercises the option set forth in Section 9.1 (the "Boatracs
Option"), Lexington and/or C-3 Conversion Participants may participate in each
party's sole discretion with Housatonic in such purchase by, and only to the
extent of, tendering the Series C Preferred Stock then held by Lexington and/or
C-3 Conversion Participants (including Series C Preferred Stock received or to
be received upon exercise of the Exchange Offer or Lexington Option) toward the
purchase price therefore; such shares shall be valued at their original purchase
price plus accrued but unpaid dividends thereon.
9.3 Operation Of Boatracs Division.
(a) During the period from the date hereof and the termination of the
Boatracs Option:
(i) the Company shall conduct the operations of the Boatracs communications
business segment, as described in the Form 10-KSB filed by the Company with the
Securities and Exchange Commission on May 15, 2002 including the description on
Item 1 therein (the "Boatracs Business") in the ordinary course of business and
in the same manner as such operations were conducted prior to the date of this
Agreement;
(ii) the Company shall use its best efforts to: (i) preserve intact the current
business organization of the Boatracs Business, (ii) keep available the services
of the current officers and employees of the Boatracs Business, (iii) maintain
the relations and good will with all material suppliers, customers, landlords,
creditors, licensors, licensees, employees, independent contractors and other
persons having material business relationships with the Boatracs Business, and
(iv) promptly repair, restore or replace in the ordinary course of business any
Boatracs Assets that are destroyed or damaged;
(iii) the Company shall maintain insurance on or related to the Boatracs
Business which is at least comparable to the insurance policies in place on the
date hereof;
(iv) the officers of the Company shall confer regularly with Housatonic
concerning operational matters and the status of the business, condition,
assets, liabilities, operations, financial performance and prospects of the
Boatracs Business;
(v) the Company and its officers shall use their best efforts to
cause the Boatracs Business to operate profitably and to maximize its
revenues;
(vi) the Company shall not alter, modify or accelerate its existing collection
levels of account receivables or its existing levels of invoice billing or
billing services or billing method in each case as related to the Boatracs
Business;
(vii) the Company shall not authorize, commit or irrevocably offer to take any
actions inconsistent with this Section 9.
(b) Without limiting Section 9.3(a), the Company agrees that, during the period
between the date hereof and the exercise of the Boatracs Options (the "Exercise
Date"), it will not, and will cause its subsidiaries not to, in each case
without the prior written consent of Housatonic:
(i) in a single transaction or series of related transactions, sell (including
any sale-leaseback), lease, license, pledge, transfer or otherwise dispose of
(including through a dividend or distribution to any person), or discontinue,
all or any portion of its assets, business or properties that are used in or
necessary for the conduct of the Boatracs Business or are part of the Boatracs
Assets except for the sale of inventory in the ordinary course of the Boatracs
Business and consistent with past practices;
(ii) dismiss any management-level business employee other than for cause or
transfer any employee in each case whose services are utilized primarily for the
conduct of the Boatracs Business;
(iii) except in an amount, individually or in the aggregate, not to exceed
$50,000, commit to make any capital expenditure or acquire any property or
assets in connection with the Boatracs Business to the extent the commitment
will give rise to any liabilities;
(iv) permit or allow any of the Boatracs Assets to be subject to any encumbrance
which cannot be removed prior to the Exercise Date without giving rise to any
liabilities;
(v) write-off as uncollectible any notes or accounts, funds or trust receivables
that are part of the Boatracs Assets, except for write-downs or write-offs in
the ordinary course of business and consistent with past practice;
(vi) to the extent related to the Boatracs Business, commence, undertake or
engage in any new and material line of business or commit to open or open a new
office (or move or close any existing office);
(vii) adopt a plan or resolution to dissolve or liquidate the Company or any of
its subsidiaries other than to the extent the dissolution or liquidation does
not materially and adversely affect the Boatracs Business and would not
materially and adversely affect the ability of the Company to perform its
obligations under this Agreement;
(viii) intentionally take any action that, or intentionally omit to take any
action not otherwise prohibited by the terms of this Agreement the omission of
which, would (A) breach any provision of this Agreement, or (B) result in any of
the conditions to the consummation of the transactions not being satisfied on or
prior to the date of termination of the Boatracs Option;
(ix) recognize any labor union or enter into any collective bargaining agreement
that includes any business employee in each case whose services are utilized
primarily for the conduct of the Boatracs Business;
(x) settle or compromise any claim, dispute or pending proceeding on a basis
requiring any agreement that would (A) give rise to any liabilities to be
assumed by Housatonic if it were to acquire the Boatracs Business or (B)
materially and adversely affect the Company's ability to perform its obligations
under this Agreement;
(xi) commit, enter into, or irrevocably offer to enter into, any contract to
take any of the actions prohibited in this Section 9.3(b).
Section 10. INDEMNIFICATION OF CERTAIN CLAIMS.
10.1 Certain Claims. The Company hereby agrees to hold harmless and indemnify
the Purchasers, the Purchasers' direct and indirect subsidiaries, affiliated
entities and corporations, and each of their partners, members, officers,
directors, employees, stockholders, agents, and representatives (collectively,
referred to as the "Purchaser Indemnitees") against any and all expenses
(including attorneys' fees), damages, judgments, fines, amounts paid in
settlements, or any other amounts that a Purchaser Indemnitee incurs as a result
of any claim or claims made against it (whether by the Company itself, another
stockholder of the Company or any other third party) in connection with any
threatened, pending or completed action, suit, arbitration, investigation or
other proceeding arising out of, or relating to any Purchaser's purchase of or
exchange for the Series C Preferred Stock and the exercise and consummation of
the Boatracs Option and all negotiations concerning the structure, timing and
valuation of such purchase and/or exercise (each, a "Financing-Based Claim");
provided, however, that no Purchaser Indemnitee shall be entitled to be held
harmless or indemnified by the Company for acts, conduct or omissions as to
which it has been adjudicated or agreed (including the agreement of such
Purchaser Indemnitee) that such Purchaser Indemnitee engaged in fraud or
intentional misconduct.
10.2 Reimbursement. The Company shall advance prior to the final disposition
thereof, promptly following request therefor, all reasonable expenses incurred
by a Purchaser Indemnitee in connection with any threatened, pending or
completed action, suit, arbitration, investigation or other proceeding arising
out of, or relating to, a Financing-Based Claim, provided, however, that no
Purchaser Indemnitee shall be entitled to reimbursement in connection with acts,
conduct or omissions as to which there has been a final adjudication that such
Investor Indemnitee engaged in fraud or intentional misconduct.
10.3 Manner of Defense. The Company's indemnity obligations set forth above are
subject to the Purchasers providing prompt written notice of a claim. The
Company shall control the defense of any such action and, at its discretion, may
enter into a stipulation of discontinuance or settlement thereof; provided that
the Company may not discontinue any action or settle any claim in a manner that
does not unconditionally release the Investors without the Purchasers' prior
written approval. The Purchasers shall, at the Company's expense and reasonable
request, cooperate with the Company in any such defense and shall make available
to the Company at the Company's expense all those persons, documents (excluding
attorney/client privileged or attorney work product materials) reasonably
required by the Company in the defense of any such action. The Purchasers may,
at their expense, assist in such defense.
Section 11. EXEMPTION FROM REGISTRATION; LEGEND. The Series C Preferred Stock
and the Conversion Shares will be issued under an exemption or exemptions from
registration under the Securities Act, and are also subject to certain rights
and obligations set forth herein. Accordingly, the certificates evidencing the
Series C Preferred Stock and any Conversion Shares issuable upon the conversion
thereof shall, upon issuance, contain a legend, substantially in the form as
follows:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR APPLICABLE STATE SECURITIES LAWS AND NO INTEREST HEREIN MAY
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES SHALL
BE EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS OR (2) SUCH SECURITIES ARE TRANSFERRED PURSUANT TO RULE
144 PROMULGATED UNDER THE ACT (OR ANY SUCCESSOR RULE) OR (3)
THE ISSUER OF THESE SECURITIES SHALL HAVE RECEIVED AN OPINION
OF COUNSEL FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO
THE ISSUER THAT NO VIOLATION OF THE ACT OR SIMILAR STATE
SECURITIES LAWS WILL BE INVOLVED IN SUCH TRANSFER.
Section 12. EQUITABLE RELIEF. The Purchasers and the Company acknowledge that
the breach of any of Sections 6, 7, 8, 9 or 10 by the Company may cause each
Purchaser irreparable injury. Therefore, in addition to all other remedies
available to it, each Purchaser shall have the right to seek injunction,
specific performance or other equitable relief as and when such Purchaser deems
fit in the event of an actual, attempted or threatened breach by the Company of
any of such Sections 6, 7, 8, 9 or 10.
Section 13. NOTICES. All communications hereunder will be in writing
and, (a) if sent to Purchaser, will be mailed, delivered or telegraphed and
confirmed to Housatonic at 00 Xxxxxx Xx., Xxxxx 0000, Xxx Xxxxxxxxx, XX 00000,
Attention: Xxxxxx X. Xxxxxxx; (b) if sent to the Company, will be mailed,
delivered or telegraphed and confirmed to it at 00000 Xxxxxxxx Xxxxxx Xxxx,
#000, Xxx Xxxxx, XX 00000, Attention: Chief Executive Officer.
Section 14. EXPENSES. The Company, on the one hand, and each Purchaser, on the
other hand, are each responsible for its own expenses associated with the
purchases and sales of the Series C Preferred Stock pursuant to the terms of
this Agreement; provided, that the Company will pay, on the Closing Date, the
legal fees and expenses of Xxxxxx Godward LLP, legal counsel to Housatonic and
O'Melveny & Xxxxx LLP, legal counsel to Lexington.
Section 15. AMENDMENT AND WAIVER
15.1 Except as otherwise expressly provided, this Agreement may be amended or
modified only upon the written consent of the Company and a majority in interest
of the Series C Preferred Stock voting as a single class on an as-converted
basis.
15.2 Except as otherwise expressly provided herein, (i) rights arising under
this Agreement may only be waived in writing by the party entitled to such right
and (ii) obligations under this Agreement may only be waived by the party to
whose benefit the obligations runs.
Section 16. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto and their respective successors and no other
person will have any right or obligation hereunder.
Section 17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
Section 18. APPLICABLE LAW AND VENUE. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, without
regard to principles of conflicts of laws. Any dispute under this Agreement that
is not settled by mutual consent shall be finally adjudicated by any federal or
state court sitting in the City and County of San Diego in the State of
California, and each party consents to the exclusive jurisdiction of such courts
(or any appellate court therefrom) over any such dispute. Each party further
consents to personal jurisdiction in the courts mentioned in the prior sentence.
In Witness Whereof, this Agreement is entered into by the undersigned
parties as of the date first written above.
Advanced Remote Communication Solutions, Inc.
By:
Xxxxxxx X. Xxxxxxxxx
/s/Xxxxxxx X. Xxxxxxxxx
Chief Executive Officer
Housatonic Micro Fund SBIC, L.P.
Housatonic Micro Partners SBIC, L.L.C.,
Its General Partner
By:
Xxxxxx X. Xxxxxxx
/s/ Xxxxxx X. Xxxxxxx
Lexington Funding LLC
Lexington Commercial Holdings, Inc.,
Its Manager
By:
Xxxxxx X. Xxxxxxxxx
/s/ Xxxxxx X. Xxxxxxxxx
Chief Financial Officer
SCHEDULE I
Schedule of Purchasers
Series C-1 Series C-2
Per Share Purchase Per Share Purchase
Purchase Aggregate Purchase Aggregate
Shares Price Price Shares Price Price
Housatonic Micro Fund 5,000 $300 $1,500,000 3,000 $500 $1,500,000
SBIC LLC
Lexington Funding LLC 1,667 $300 $500,1001 1,000 $500 $500,0001
