SENIOR SUBORDINATED CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
SENIOR SUBORDINATED CONVERTIBLE PROMISSORY NOTE AND WARRANT PURCHASE
AGREEMENT dated as of August 12, 1999 by and among Information Management
Associates, Inc., a Connecticut corporation (the "Company"), on the one hand,
Wand Equity Portfolio II L.P. and Wand Affiliates Fund L.P. (collectively, with
their respective successors and assigns, the "Investors"), on the other hand.
WHEREAS, the Investors wish to purchase from the Company and the
Company wishes to sell to the Investors the Company's 9% Senior Subordinated
Convertible Promissory Note in the principal face amount of $5,000,000 (the
"Note") according to the terms and subject to the conditions set forth in this
Agreement and in the Note; and
WHEREAS, the Investors wish to purchase from the Company and the
Company wishes to sell to the Purchasers warrants (the "Warrants") initially
exercisable for up to an aggregate of 425,000 shares of the common stock,
without par value, of the Company (the "Common Stock"), according to the terms
and subject to the conditions set forth in this Agreement and in the Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
ARTICLE I
THE NOTE AND THE WARRANTS
SECTION 1.01 Issuance, Sale and Delivery of the Note and Warrants. In
accordance with the terms hereof, the Company agrees to issue and sell to the
Investors and the Investors hereby agree to purchase from the Company, the Note
and the Warrants for an aggregate purchase price of $5,000,000. The Note shall
have such terms and conditions and shall be substantially in the form set forth
in Exhibit A attached hereto; and the Warrants shall have such terms and
conditions and shall be substantially in the form as set forth in Exhibit B
attached hereto.
SECTION 1.02 Closing. The closing shall take place at the offices of
Skadden, Arps, Slate, Xxxxxxx & Xxxx, LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx
00000-0000, at 10:00 a.m., New York time, on August 12, 1999, or at such other
location, date and time as may be agreed upon between the Investors and the
Company (such closing being called the "Closing" and such date and time being
called the "Closing Date"). At the Closing, the Company shall issue and deliver
to the Investors the Note in substantially the form attached hereto as Exhibit A
and Warrants in substantially the form attached hereto as Exhibit B, in
definitive form, in the name of the Investors. As payment in full for the Note
and Warrants being purchased by the Investors under this Agreement, and against
delivery of the Note and Warrants therefor as aforesaid, on the Closing Date the
Investors shall transfer an aggregate of $5,000,000 to the account of the
Company by wire transfer.
SECTION 1.03 Warrant Shares. Shares of Common Stock to be issued to
the Investor upon the exercise of the Warrants shall be referred to herein as
the "Warrant Shares."
SECTION 1.04 Character of the Warrants. The Company and the Investors,
having adverse interests and as a result of arm's length bargaining, agree that
(i) neither of the Investors nor any of their affiliates has rendered or has
agreed to render any services to the Company in connection with this Agreement
or the issuance of the Note and Warrants; and (ii) the Warrants, when issued,
shall not be issued as compensation. The Company and the Investors agree that
the aggregate fair market value of the Warrants is equal to $425,000. The
parties agree not to take any action that is inconsistent with such agreed value
and, without limitation, agree to file all tax returns and reports consistent
with such value.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors that, except as
set forth in the Disclosure Schedule attached as Schedule I (which Disclosure
Schedule makes explicit reference to the particular representation or warranty
as to which exception is taken, which in each case shall constitute the sole
representation and warranty as to which such exception shall apply; except that
any disclosure as to which it shall be obvious from the face thereof shall also
apply to any other representation and warranty):
SECTION 2.01 Organization, Qualifications and Corporate Power.
(a) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Connecticut and is
duly licensed or qualified to transact business as a foreign corporation and is
in good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification in order to avoid a Material Adverse
Effect (as herein defined). As used herein, "Material Adverse Effect" means a
material adverse effect on the financial condition, assets, liabilities, results
of operations or prospects of the Company. The Company has the corporate power
and authority to own and hold its properties and to carry on its business as now
conducted and as proposed to be conducted, to execute, deliver and perform this
Agreement, the Note, the Warrants and that certain Registration Rights Agreement
with the Investors in the form attached as Exhibit C (the "Registration Rights
Agreement," and collectively with this Agreement, the Note and the Warrants, the
"Transaction Documents").
(b) The Company's subsidiaries are listed on Schedule I (the
"Subsidiaries"). Except for the Subsidiaries, the Company does not (i) own of
record or beneficially, directly or indirectly, (A) any shares of capital stock
or securities convertible into capital stock of any other corporation or (B) any
participating interest in any partnership, joint venture or other non-corporate
business enterprise or (ii) control, directly or indirectly, any other entity.
SECTION 2.02 Authorization of Agreements, Etc.
(a) The execution and delivery by the Company of the Transaction
Documents, the performance by the Company of its obligations thereunder and the
issuance and delivery of the Warrant Shares have been duly authorized by all
requisite corporate action and will not violate any provision (i) of the
Certificate of Incorporation of the Company, as amended or the By-laws of the
Company, as amended, (ii) of law, any order of any court or other agency of
government, or (iii) of any indenture, agreement or other instrument to which
the Company or any of its properties or assets is bound, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under any such indenture, agreement or other instrument (except for
conflicts, breaches or defaults under clauses (ii) and (iii) which would not,
individually or in the aggregate, have a Material Adverse Effect), or result in
the creation or imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the properties or assets of the
Company.
(b) The shares of Common Stock issuable upon exercise of the
Warrants have been duly reserved for issuance upon such exercise and, when so
issued, will be duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock with no personal liability attaching to the ownership
thereof and will be free and clear of all liens, charges, restrictions, claims
and encumbrances imposed by or through the Company except as set forth in the
Registration Rights Agreement. Neither the issuance, sale or delivery of the
Warrant Shares is subject to any preemptive right of stockholders of the Company
or to any right of first refusal or other right in favor of any person.
SECTION 2.03 Validity. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms. The other Transaction
Documents, when executed and delivered in accordance with this Agreement, will
constitute the legal, valid and binding obligations of the Company, enforceable
in accordance with their respective terms.
SECTION 2.04 Authorized Capital Stock. The authorized capital stock of
the Company consists of 20,000,000 shares of Common Stock and 500,000 shares of
Preferred Stock. Immediately prior to the Closing, 9,698,106 shares of Common
Stock will be validly issued and outstanding, fully paid and nonassessable and
no shares of Preferred Stock are issued and outstanding. The Company has granted
non-qualified stock options which will vest over the next four years pursuant to
a stock option grant plan. 2,101,954 shares have been granted in accordance with
such plan, 1,016,156 shares have vested under such plan and 750,787 shares are
authorized by not yet awarded. All shares of Common Stock issued pursuant to
such plan are validly issued and outstanding, fully paid and nonassessable. The
designations, powers, preferences, rights, qualifications, limitations and
restrictions in respect of the authorized capital stock of the Company are as
set forth in the Certificate of Incorporation, a copy of which is attached as
Exhibit D and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid, binding and enforceable
and in accordance with all applicable laws. Except as provided for in the
Certificate of Incorporation or as set forth in the attached Schedule II, the
Company has no obligation (contingent or other) to purchase, redeem or otherwise
acquire any of its equity securities or any interest therein or to pay any
dividend or make any other distribution in respect thereof. To the best of the
Company's knowledge there are no voting trusts or agreements, stockholders'
agreements, pledge agreements, buy-sell agreements, rights of first refusal,
preemptive rights or proxies relating to any securities of the Company (whether
or not the Company is a party thereto). All of the outstanding securities of the
Company were issued in compliance with all applicable Federal and state
securities laws.
SECTION 2.05 Events Subsequent to the Date of the Balance Sheet.
Except as disclosed in filings made by the Company with the Securities and
Exchange Commission ("Public Filings"), since March 31, 1999, the Company has
not (i) made any material change in the manner of business or operations of the
Company, (ii) entered into any transaction except in the ordinary course of
business consistent with past practice or as otherwise contemplated hereby,
(iii) taken any action that could have a Material Adverse Effect or (iv) entered
into any commitment (contingent or otherwise) to do any of the foregoing.
SECTION 2.06 Litigation; Compliance with Law.
(a) There is no (i) action, suit, claim, proceeding or
investigation pending or, to the best of the Company's knowledge, threatened
against or affecting the Company, at law or in equity, or before or by any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, (ii) arbitration
proceeding relating to the Company pending under collective bargaining
agreements or otherwise or (iii) governmental inquiry pending or, to the best of
the Company's knowledge, threatened against or affecting the Company (including
without limitation any inquiry as to the qualification of the Company to hold or
receive any license or permit) that could (in the case of any matter described
in clauses (i), (ii), or (iii)) have a Material Adverse Effect. The Company is
not in default with respect to any order, writ, injunction or decree known to or
served upon the Company of any court or of any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. There is no action or suit by the Company
pending, threatened or contemplated against others that could have Material
Adverse Effect.
(b) The Company has complied with all laws, rules, regulations
and orders applicable to its business, operations, properties, assets, products
and services; the Company has all necessary permits, licenses and other
authorizations required to conduct its business as conducted and as proposed to
be conducted, and the Company has been operating its business pursuant to and in
compliance with the terms of all such permits, licenses and other
authorizations, in each case where the failure to be in compliance or to possess
such a permit, license or other authorization would, individually or in the
aggregate, have a Material Adverse Effect.
(c) There is no existing law, rule, regulation or order, and the
Company is not aware of any proposed law, rule, regulation or order, whether
Federal, state, county or local, which would prohibit or restrict the Company
from, or otherwise materially adversely affect the Company in, conducting its
business in any jurisdiction in which it is now conducting business or in which
it proposes to conduct business.
SECTION 2.07 Proprietary Information of Third Parties.
(a) No third party has claimed or, to the best of the Company's
knowledge, has reason to claim that any person employed by or affiliated with
the Company has (i) violated or may be violating any of the terms or conditions
of his employment, non-competition or non-disclosure agreement with such third
party, (ii) disclosed or may be disclosing or utilized or may be utilizing any
trade secret or proprietary information or documentation of such third party or
(iii) interfered or may be interfering in the employment relationship between
such third party and any of its present or former employees. No third party has
requested information from the Company which suggests that such a claim might be
contemplated.
(b) To the best of the Company's knowledge, none of the
execution or delivery of this Agreement, or the carrying on of the business of
the Company by any officer, director or key employee of the Company, or the
conduct or proposed conduct of the business of the Company, will conflict with
or result in a breach of the terms, conditions or provisions of or constitute a
default under any contract, covenant or instrument under which any such person
is obligated.
SECTION 2.08 Patents, Trademarks, Etc.
(a) Set forth in Schedule I is a list and brief description of
all domestic and foreign patents, patent rights, patent applications,
trademarks, trademark applications, internet domain names, service marks,
service xxxx applications, trade names owned by the Company. The Company owns or
possesses adequate licenses or other rights to use all patents, patent
applications, trademarks, trademark applications, service marks, service xxxx
applications, trade names, internet domain names, copyrights, manufacturing
processes, formulae, trade secrets, customer lists, know how and rights of
publicity and privacy with respect to likenesses and data pertaining to real
persons (collectively, "Intellectual Property") used in or necessary to the
conduct of its business as conducted and as proposed to be conducted. No claim
is pending or, to the best of the Company's knowledge, threatened to the effect
that the operations of the Company infringe upon or conflict with the asserted
rights of any other person under any Intellectual Property or that any third
party is infringing upon or conflicting with the asserted rights of the Company
under any Intellectual Property.
(b) All patents, registrations and applications for Intellectual
Property that are set forth in Schedule I (i) are valid and enforceable, and
have been duly maintained, (ii) are standing in the record ownership of the
Company (or all documents needed to bring title to such Intellectual Property
into the name of the Company have been filed and all recording fees paid) and
(iii) have not lapsed, expired or been abandoned, and are not the subject of any
opposition, interference, cancellation proceeding or other legal or governmental
proceeding before any governmental entity in any jurisdiction that could have a
Material Adverse Effect on the Company. No claim is pending or to the best of
the Company's knowledge threatened to the effect that any such Intellectual
Property owned or licensed by the Company, or which the Company otherwise has
the right to use, is invalid or unenforceable by the Company, and there is no
basis for any such claim (whether or not pending or threatened). The Company is
not, nor will it be as a result of the execution and delivery of this Agreement
or the performance of its obligations under this Agreement, in breach of any
license, sublicense or other agreement relating to Intellectual Property.
SECTION 2.09 Title to Properties. The Company has good, clear and
valid title to its properties and assets reflected on the Balance Sheet or
acquired by it since the date of the Balance Sheet (other than properties and
assets disposed of in the ordinary course of business since the date of the
Balance Sheet), and all such properties and assets are free and clear of
mortgages, pledges, security interests, liens, charges, claims, restrictions and
other encumbrances (including without limitation, easements and licenses),
except for any security interest which will be granted in favor of any lender
that provides senior debt financing not to exceed $8,000,000, for which the
Company is currently negotiating and liens for or current taxes not yet due and
payable and minor imperfections of title, if any, not material in nature or
amount and not materially detracting from the value or impairing the use of the
property subject thereto or impairing the operations or proposed operations of
the Company, including, without limitation, the ability of the Company to secure
financing using such properties and assets as collateral. To the best of the
Company's knowledge after due inquiry, there are no condemnation, environmental,
zoning or other land use regulation proceedings, either instituted or planned to
be instituted, which would adversely affect the use or operation of the
Company's properties and assets for their respective intended uses and purposes,
or the value of such properties, and the Company has not received notice of any
special assessment proceedings which would affect such properties and assets.
SECTION 2.10 Insurance. The Company holds valid policies covering all
of the insurance required to be maintained by it under Section 5.03.
SECTION 2.11 Taxes. The Company has filed all tax returns, Federal,
state, county and local, required to be filed by it and the Company has paid all
taxes shown to be due by such returns as well as all other taxes, assessments
and governmental charges which have become due or payable, including without
limitation all taxes which the Company is obligated to withhold from amounts
owing to employees, creditors and third parties. The Company has established
adequate reserves for all taxes accrued but not yet payable. Except as set forth
in Schedule I, all tax elections of any type which the Company has made as of
the date hereof are set forth in the financial statements referred to in Section
2.05. The Federal income tax returns of the Company have never been audited by
the Internal Revenue Service. No deficiency assessment with respect to or
proposed adjustment of the Company's Federal, state, county or local taxes is
pending or, to the best of the Company's knowledge, threatened. There is no tax
lien (other than for current taxes not yet due and payable), whether imposed by
any Federal, state, county or local taxing authority, outstanding against the
assets, properties or business of the Company.
SECTION 2.12 Material Contracts. The Company, and to the best of the
Company's knowledge, each other party thereto has in all material respects
performed all the obligations required to be performed by them to date (or each
non-performing party has received a valid, enforceable and irrevocable written
waiver with respect to its non-performance), have received no notice of default
and are not in default (with due notice or lapse of time or both) under any
agreement, instrument, commitment, plan or arrangement to which the Company is a
party or by which it or its property may be bound, which the default would,
individually or in the aggregate, have a Material Adverse Effect. The Company
has no present expectation or intention of not fully performing all its
obligations under each such agreement, instrument, commitment, plan or
arrangement, and the Company has no knowledge of any breach or anticipated
breach by the other party to any material agreement, instrument, commitment,
plan or arrangement to which the Company is a party. The Company is in
compliance with all of the terms and provisions of its Certificate of
Incorporation and By-laws, as amended.
SECTION 2.13 Loans and Advances. Except as set forth on Schedule I,
the Company does not have any outstanding loans or advances to any person and is
not obligated to make any such loans or advances, except, in each case, for
advances to employees of the Company in respect of reimbursable business
expenses anticipated to be incurred by them in connection with their performance
of services for the Company.
SECTION 2.14 Assumptions, Guaranties, Etc. of Indebtedness of Other
Persons. The Company has not assumed, guaranteed, endorsed or otherwise become
directly or contingently liable on any indebtedness of any other person
(including, without limitation, liability by way of agreement, contingent or
otherwise, to purchase, to provide funds for payment, to supply funds to or
otherwise invest in the debtor, or otherwise to assure the creditor against
loss), except for guaranties by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business.
SECTION 2.15 Significant Customers and Suppliers. No customer or
supplier which was significant to the Company during the past two year period
has terminated, materially reduced or threatened to terminate or materially
reduce its purchases from or provision of products or services to the Company,
as the case may be.
SECTION 2.16 Governmental Approvals. Subject to the accuracy of the
representations and warranties of the Investors set forth in Article III, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
any of the Transaction Documents or the issuance and delivery of the Warrant
Shares, other than (i) filings pursuant to Regulation D promulgated by the
Securities and Exchange Commission and state securities laws (all of which
filings have been made by the Company, other than those which are required to be
made after the Closing and which will be duly made on a timely basis) in
connection with the sale of the Note and the Warrants, and (ii) with respect to
the Registration Rights Agreement, the registration of the shares covered
thereby with the Commission and filings pursuant to state securities laws.
SECTION 2.17 Disclosure. Neither this Agreement, nor any Schedule or
Exhibit to this Agreement, nor any of the Public Filings (as of the respective
dates thereof) (collectively, the "Disclosure Materials"), contains an untrue
statement of a material fact or omits a material fact necessary to make the
statements contained herein or therein not misleading in the light of the
circumstances in which they were made except in the case of the Public Filings
for statements that have been superseded or corrected in any subsequent Public
Filing.
SECTION 2.18 Offering of the Note and Warrants. Neither the Company
nor any person acting on its behalf has taken or will take any action
(including, without limitation, any offer, issuance or sale of any security of
the Company under circumstances which might require the integration of such
security with the Note and Warrants under the Securities Act or the rules and
regulations of the Commission thereunder), so as to subject the offering,
issuance or sale of the Note and Warrants to the registration provisions of the
Securities Act.
SECTION 2.19 Brokers. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement, and/or recent proposed investment
transactions within the prior 12 months.
SECTION 2.20 Knowledge. As used herein, the knowledge of the Company
means the actual knowledge after reasonable investigation as of the Closing Date
of any officer or employee of the Company in a position to have knowledge and
information based on the nature and function of such person's position with the
Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES AND COVENANTS OF THE INVESTORS
SECTION 3.01 Investor Representations and Warranties. Each Investor
severally represents and warrants to the Company that:
(a) it is an "accredited investor" within the meaning of Rule
501 under the Securities Act and was not organized for the specific
purpose of acquiring the Note or the Warrants;
(b) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of
development so as to be able to evaluate the risks and merits of its
investment in the Company and it is able financially to bear the risks
thereof;
(c) it has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management;
(d) the Note, Warrants and Warrant Shares being purchased by it
are being acquired for its own account for the purpose of investment
and not with a view to or for sale in connection with any distribution
thereof;
(e) it understands that (i) the Note, the Warrants and the
Warrant Shares have not been registered under the Securities Act by
reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act, (ii) the Note, the Warrants and
Warrant Shares must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is
exempt from such registration, (iii) the Warrant Shares will bear a
legend to such effect and (iv) the Company will make a notation on its
transfer books to such effect;
(f) all action on the part of each of the Investor's partners,
board of directors, shareholders and members, as applicable, necessary
for the authorization, execution, delivery and performance of the
Transaction Documents by each Investor, the purchase of and payment
for the Note and the Warrants and the performance of all of each
Investor's obligations under the Transaction Documents has been taken
or will be taken prior to Closing. The Transaction Documents, when
executed and delivered be each Investor, shall constitute valid and
binding obligations of each Investor, enforceable in accordance with
their terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable
remedies; provided, however, that the Investors make no
representations as the enforceability of the indemnification
provisions contained in the Registration Rights Agreement.
SECTION 3.02 Investor Covenants. Each Investor severally covenants to
the Company that in no event will it dispose of any of the Note or the Warrants
or the Warrant Shares (other than in conjunction with an effective registration
statement for such securities under the Act or other than to an affiliate of
either Investor) unless and until such Investor shall have notified the Company
of the proposed disposition and shall have furnished the Company with an opinion
of counsel reasonably satisfactory in form and substance to the Company to the
effect that (x) such disposition will not require registration under the Act and
(y) appropriate action necessary for compliance with the Act, and any other
applicable securities laws of any jurisdiction has been taken.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE INVESTORS
The obligations of the Investors to purchase and pay for the Note and
Warrants being purchased by it on the Closing Date are subject to the
satisfaction, on or before the Closing Date, of the following conditions; which
may be waived or modified only at the option of the Investors:
(a) Opinion of Company's Counsel. The Investors shall have
received from LeBoeuf, Lamb, Xxxxxx & XxxXxx, counsel for the Company, an
opinion dated the Closing Date, in form and scope satisfactory to the Investors
and counsel to the Investors, subject to customary qualifications, to the effect
that:
(i) The Company is a corporation validly existing and in
good standing under the laws of Connecticut. The Company has the
corporate power and authority to own and hold its properties and to
carry on its business as currently conducted and as proposed to be
conducted. The Company has the corporate power and authority to
execute, deliver and perform each of the Transaction Documents and to
issue and deliver the Warrant Shares.
(ii) All of the Transaction Documents have been duly
authorized, executed and delivered by the Company and constitute the
legal, valid and binding obligations of the Company, enforceable in
accordance with their respective terms (subject, as to enforcement of
remedies, to the discretion of courts in awarding equitable relief and
to applicable bankruptcy, reorganization, insolvency, moratorium and
similar laws affecting the rights of creditors generally), except that
such counsel need not express any opinion as to the validity or
enforceability of the indemnification and contribution provisions of
the Registration Rights Agreement.
(iii) The execution and delivery by the Company of the
Transaction Documents, the performance by the Company of its
obligations thereunder and the issuance and delivery of the Warrant
Shares, will not violate any provision of law, the Certificate of
Incorporation or By-laws, as amended, of the Company, or, to the
knowledge of such counsel, any material provision of any order of any
court or other agency of government or any material indenture,
agreement or other instrument known to such counsel to which the
Company or any of its properties or assets is bound, or conflict with,
result in a breach of or constitute (with due notice or lapse of time
or both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien,
charge, restriction, claim or encumbrance of any nature whatsoever
upon any of the properties or assets of the Company. In rendering the
foregoing opinion, such counsel may rely on a certificate as to
certain facts from an officer of the Company, may assume full
disclosure to the Investors of all material facts and, with respect to
performance by the Company of its obligations under the Registration
Rights Agreement, may assume compliance by the Company at such time
with the registration requirements of the Securities Act and with
applicable state securities laws and may disclaim any opinion as to
the validity or enforceability of the indemnification and contribution
provisions of the Registration Rights Agreement.
(iv) The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, without par value and 500,000
shares of Preferred Stock, without par value. Immediately prior to the
Closing, no shares of Preferred Stock will be issued and outstanding.
The designations, powers, preferences, rights, qualifications,
limitations and restrictions in respect of the authorized capital
stock of the Company are as set forth in the Certificate of
Incorporation, and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid, binding and
enforceable and in accordance with all applicable laws (subject, as to
enforcement, to the discretion of courts in awarding equitable relief
and to applicable bankruptcy, reorganization, insolvency, moratorium
and similar laws affecting the rights of creditors generally).
(v) The shares of Common stock issuable upon exercise of the
Warrants have been duly authorized and reserved by all required
corporate action and when issued and paid for in accordance with the
terms of the Warrants, will be validly issued, fully paid and
nonassessable with no personal liability attaching to the ownership
thereof. Neither the issuance, sale or delivery of the shares of
Common stock issuable upon exercise of the Warrants is subject to any
preemptive right of stockholders of the Company arising under law or
the Certificate of Incorporation or By-laws of the Company, each as
amended, or, to the knowledge of such counsel, to any contractual
right of first refusal or other right in favor of any person.
(vi) Except as described in Schedule I, LeBoeuf, Lamb,
Xxxxxx & XxxXxx, L.L.P. has not been engaged by the Company to give
substantive legal advice with respect to any (A) action, suit, claim,
proceeding or investigation pending or threatened against or affecting
the Company, at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, (B) arbitration
proceeding relating to the Company pending under collective bargaining
agreements or (C) governmental inquiry pending or threatened against
or affecting the Company (including, without limitation, any inquiry
as to the qualification of the Company to hold or receive any license
or permit). To the knowledge of such counsel, the Company is not in
default with respect to any order, writ, injunction or decree known to
such counsel of any court or of any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
(viii) Assuming the accuracy of the representations and
warranties of the Investors set forth in Article III, no registration
or filing with, and no consent or approval of, or other action by any
Federal, state or other governmental agency or instrumentality is or
will be necessary for the valid execution, delivery and performance by
the Company of the Transaction Documents or the issuance and delivery
of the Warrant Shares, other than filings pursuant to Regulation D
promulgated by the Securities and Exchange Commission and state
securities laws (all of which filings, other than those which are
required to be made after the Closing, have been made by the Company).
In rendering the foregoing opinion with respect to performance by the
Company of its obligations under the Registration Rights Agreement,
such counsel may assume compliance by the Company at such time with
the registration requirements of the Securities Act and with
applicable state securities laws.
(ix) To the knowledge of such counsel, none of the
outstanding shares of Common Stock is the subject of any recission
claim alleging that such shares have been issued in violation with the
registration requirements of the Act or any applicable state
securities laws. The shares of Preferred Stock, when issued and paid
for in accordance with the terms of this Agreement and the shares of
Common Stock issuable upon exercise of the Warrant, when issued and
paid for in accordance with the terms of the Warrants, will be issued
in compliance with the registration requirements of the Act and all
applicable state securities laws.
(b) Representations and Warranties to be True and Correct. The
representations and warranties contained in Article II shall be true, complete
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and the
President and Chief Financial Officer of the Company shall have certified to
such effect to the Investors in writing.
(c) Performance; Closing Certificate Deliveries. The Company
shall have performed and complied with all agreements contained herein required
to be performed or complied with by it prior to or at the Closing Date, and the
President and Chief Financial Officer of the Company shall have delivered a
certificate to the Investors confirming in writing to such effect and to the
further effect that all of the conditions set forth in this Article IV have been
satisfied.
(d) All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Investors and counsel to the
Investors, and the Investors and counsel to the Investors shall have received
all such counterpart originals or certified or other copies of such documents as
they reasonably may request.
(e) Supporting Documents. The Investors and counsel to the
Investors shall have received copies of the following documents:
(i) (A) the Certificate of Incorporation, certified as of a
recent date by the Secretary of State of the State of Connecticut and
(B) a certificate of said Secretary dated as of a recent date as to
the due incorporation and good standing of the Company.
(ii) a certificate of the Secretary or an Assistant
Secretary of the Company dated the Closing Date and certifying: (A)
that attached thereto is a true and complete copy of the By-laws of
the Company as in effect on the date of such certification; (B) that
attached thereto is a true and complete copy of all resolutions
adopted by the Board of Directors or the shareholders of the Company
authorizing the execution, delivery and performance of the Transaction
Documents and the reservation, issuance and delivery of the shares of
Common Stock to be issued upon exercise of the Warrants, and that all
such resolutions are in full force and effect and are all the
resolutions adopted in connection with the transactions contemplated
by the Transaction Documents; (C) that the Certificate of
Incorporation have not been amended since the date of the last
amendment referred to in the certificate delivered pursuant to clause
(i)(B) above; and (D) to the incumbency and specimen signature of each
officer of the Company executing any of the Transaction Documents, and
any certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the incumbency
and signature of the officer signing the certificate referred to in
this clause (ii); and
(iii) such additional supporting documents and other
information with respect to the operations and affairs of the Company
as the Investors or counsel to the Investors reasonably may reasonably
request.
(f) Registration Rights Agreement. The Company shall have
executed and delivered the Registration Rights Agreement.
(g) Fairness Opinion. The Company shall have received a
favorable fairness opinion with respect to the transaction contemplated by this
Agreement and the Transaction Documents from SoundView Technology Group, Inc.
(h) Approval by Investors' Advisory Committee. The Investors'
Advisory Committee shall have approved of the transaction contemplated by this
Agreement and the Transaction Documents.
(i) Transaction Fee. The Company shall have paid (i) a $100,000
transaction fee to the Investors and (ii) an amount calculated by multiplying
(a) the amount by which the per share price of Common Stock at the end of
trading on August 12, 1999 exceeds $3.25 or, if the per share price of Common
Stock at the end of trading on August 12, 1999 is equal to or less than $3.25,
zero by (b) 425,000.
(j) Fees of Investors' Counsel. The Company shall have paid in
accordance with Section 6.01 the fees and disbursements of Skadden, Arps, Slate,
Xxxxxxx & Xxxx, LLP, counsel to the Investors.
(k) Due Diligence Review. Representatives of the Investors and
counsel to the Investors shall have satisfactorily completed a comprehensive
business and legal due diligence review of the Company.
All such documents shall be reasonably satisfactory in form and substance to the
Investors and counsel to the Investors.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Investors that until the
repayment of all amounts due and payable under the Note:
SECTION 5.01 Reserve for Warrant Shares. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, for the purpose of effecting the exercise of the Warrants and
otherwise complying with the terms of this Agreement, such number of its duly
authorized shares of Common Stock as shall be sufficient to effect the exercise
of the Warrants or otherwise to comply with the terms of this Agreement (the
"Reserved Shares"). If at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the exercise of the Warrants
or otherwise to comply with the terms of this Agreement, the Company will
forthwith take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purposes. The Company will obtain any authorization,
consent, approval or other action by or make any filing with any court or
administrative body that may be required under applicable state securities laws
in connection with the issuance of shares of Common Stock upon the exercise of
the Warrants. The Company will not issue any of its current or future authorized
but unissued Reserved Shares without the written consent of the Investors,
except upon the exercise of the Warrants in accordance with the terms thereof.
SECTION 5.02 Corporate Existence. The Company shall maintain its
corporate existence, rights and franchises in full force and effect.
SECTION 5.03 Properties, Business, Insurance. The Company shall
maintain insurance on its properties and business, with financially sound and
reputable insurers, insurance against such casualties and contingencies and of
such types and in such amounts as is customary for companies similarly situated,
which insurance shall be deemed by the Company to be sufficient. The Company
shall not cause or permit any assignment or change in beneficiary and shall not
borrow against any such policy.
SECTION 5.04 Inspection, Consultation and Advice. The Company shall
permit a representative of the Investors, at the Investors' expense, to visit
and inspect any of the properties of the Company, examine their books and take
copies and extracts therefrom, discuss the affairs, finances and accounts of the
Company with their officers, employees and public accountants (and the Company
hereby authorizes said accountants to discuss with such representative such
affairs, finances and accounts), and consult with and advise the management of
the Company as to their affairs, finances and accounts, all at reasonable times
and upon reasonable prior notice. The Investors agree that they shall keep all
information regarding the Company or the Subsidiaries obtained by the Investors
or their representatives confidential and shall not disclose such information to
any other person or use such information for any purpose other than monitoring
their investment. The Investors further agree not to use such information in any
way that would be a violation of federal securities laws.
SECTION 5.05 Restrictive Agreements Prohibited. The Company shall not
become a party to any agreement which by its terms restricts the Company's
performance of any of the Transaction Documents or the Certificate of
Incorporation.
SECTION 5.06 Compliance with Laws. The Company shall comply with all
applicable laws, rules, regulations and orders, noncompliance with which would
have a Material Adverse Effect.
SECTION 5.07 Dividends and Distributions. The Company will not declare
or pay any dividends, or purchase, redeem, retire, or otherwise acquire for
value any of its capital stock (or any rights, options or warrant to purchase
such shares) now or hereafter outstanding, return any capital to its
stockholders as such, or make any distribution of assets to its stockholders as
such, provided, however, that nothing herein contained shall prevent the Company
from:
(i) effecting a stock split (except for a reverse stock split)
or declaring or paying any dividends consisting of shares of Common Stock to the
holders of shares of Common Stock;
(ii) complying with any specific provisions of the terms of the
Note, the Warrants or this Agreement;
(iii) repurchasing any stock at cost pursuant to restricted stock
agreements with employees, consultants, directors, and others under restricted
stock agreements previously approved by the board of directors and disclosed to
the Investors; and
(iv) making annual distributions to its stockholders in an amount
sufficient to cover such stockholder's tax liabilities resulting from the
ownership of Common Stock of the Company.
SECTION 5.08 Merger or Disposition. The Company shall not without the
prior written approval of the Investors merge or consolidate with, or sell,
assign, lease or otherwise dispose of or voluntarily part with the control of
(whether in one transaction or in a series of transactions) substantially all of
its assets (whether now owned or hereafter acquired), except for sales or other
dispositions of assets in the ordinary course of business provided, however,
that the Company may merge another entity into it or otherwise acquire such
entity so long as the Company is the surviving entity, the holders of voting
stock of the Company immediately prior to such merger are the holders of not
less than 100% of the voting stock of the merged or acquired company immediately
following such merger, such merger or acquisition will be accretive to the
Company's earnings, such merger or acquisition does not result in the violation
of any of the provisions of this Agreement and no such violation exists at the
time of such merger or acquisition. The provisions of this Section 5.08 shall
not apply to any merger, consolidation, sale, assignment lease or other
transaction or series of transactions wherein the Company disposes of a majority
of its assets or voting stock in exchange for cash or other assets that would
yield a realized return to the Investor of two times Investors' Investment
Amount and would yield an internal rate of return to the Investors of 35%
compounded annually on the total of the Investors' Investment Amount. For
purposes of this Section 5.08 immediately below, "Investment Amount" shall equal
the sum of $5,000,000, plus (i) all interest and other amounts payable by the
Company to the Investors under the terms of the Note; and (ii) the fair market
value (determined by reference to the per share amount of consideration paid by
the acquiring company for the Common Stock of the Company) of all shares of
Common Stock issuable upon exercise of the Warrants.
SECTION 5.09 Material Adverse Effect. The Company will not take any
action which will have a Material Adverse Effect on the rights, preferences or
privileges afforded the Investors under the Transaction Documents.
SECTION 5.10 Termination of Covenants. Unless sooner terminated, all
of the covenants set forth in this Article V shall terminate and be of no
further force or effect as to the Investors when the Company has repaid the Note
in full along with all interest and other payments required thereunder.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01 Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that the Company shall pay
the reasonable fees and disbursements of Investors' counsel, Skadden, Arps,
Slate, Xxxxxxx & Xxxx LLP, in connection with such transactions, which shall in
no event exceed $40,000.
SECTION 6.02 Bank Agreements. If the Company's senior creditor bank so
requests, the Investors shall enter into an Intercreditor Agreement and
Subordination Agreement with such bank, with respect to the Company's
indebtedness obligations in favor of the Investors under the terms of the Note,
with such terms and conditions to be reasonably satisfactory to the Investors.
SECTION 6.03 Survival of Agreements. All covenants, agreements,
representations and warranties made in any of the Transaction Documents or any
certificate or instrument delivered to the Investors at the Closing pursuant to
or in connection with any of the Transaction Documents, shall survive the
execution and delivery of all of the Transaction Documents and the issuance and
delivery of the Warrant Shares, and all statements contained in any certificate
or other instrument delivered by the Company hereunder or thereunder or in
connection herewith or therewith shall be deemed to constitute representations
and warranties made by the Company. All such representations and warranties
shall terminate and cease to be in effect on the first anniversary of the
Closing.
SECTION 6.04 Brokerage. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
SECTION 6.05 Parties in Interest. All representations, 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. Without limiting the
generality of the foregoing, all representations, covenants and agreements
benefitting the Investors shall inure to the benefit of any and all subsequent
holders from time to time of Warrant Shares.
SECTION 6.06 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, addressed as follows:
(a) if to the Company, at Information Management Associates, Xxx
Xxxxxxxxx Xxxxx, Xxxxx #000, Xxxxxxx, Xxxxxxxxxxx 00000, Attention: President,
with a copy to Xxxxxx X. Xxxxxxxxx, Esq., LeBoeuf, Lamb, Xxxxxx & XxxXxx,
L.L.P., 000 Xxxxxx Xxxxxx, Xxxxxxxx, Xxxxxxxxxxx, 00000;xxx
(b) if to the Investors, at Wand Partners LLC, 000 Xxxxx Xxxxxx, Xxxxx
0000, Xxx Xxxx, Xxx Xxxx 00000, with a copy to Xxxxxx Xxxxxxxxxx, Esq., Skadden,
Arps, Slate, Xxxxxxx & Xxxx, LLP, 0000 Xxx Xxxx Xxxxxx, X.X., Xxxxxxxxxx, X.X.
00000.
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 6.07 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 6.08 Entire Agreement. This Agreement, including the Schedules
and Exhibits hereto, constitutes the sole and entire agreement of the parties
with respect to the subject matter hereof. All Schedules and Exhibits hereto are
hereby incorporated herein by reference.
SECTION 6.09 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 6.10 Amendments. This Agreement may not be amended or
modified, and no provisions hereof may be waived, without the written consent of
the Company and each of the Investors.
SECTION 6.11 Severability. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 6.12 Titles and Subtitles. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
SECTION 6.13 Certain Defined Terms. As used in this Agreement, the
term "person" shall mean an individual, corporation, trust, partnership, joint
venture, unincorporated organization, government agency or any agency or
political subdivision thereof, or other entity.
IN WITNESS WHEREOF, the Company and the Investors have executed this
Agreement as of the day and year first above written.
INFORMATION MANAGEMENT
ASSOCIATES, INC.
By: /s/ Xxxxxx Xxxxxxxx, Xx.
--------------------------------
Name: Xxxxxx Xxxxxxxx, Xx.
--------------------------------
[Corporate Seal] Title: President and CEO
--------------------------------
Attest:
/s/ Xxxxxxx X. XxXxxxxxx
-----------------------------------
Secretary
INVESTORS:
WAND EQUITY PORTFOLIO II L.P.
By: /s/ Xxxx X. Xxxxxx
----------------------------
Name: Xxxx X. Xxxxxx
----------------------------
Title: Managing Member
----------------------------
WAND AFFILIATES FUND L.P.
By: /s/ Xxxx X. Xxxxxx
----------------------------
Name: Xxxx X. Xxxxxx
----------------------------
Title: Managing Member
----------------------------
