Exhibit 10.7
EXECUTION COPY
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PREFERRED STOCK PURCHASE AGREEMENT
PREFERRED STOCK PURCHASE AGREEMENT dated May 8, 2000 (the "Agreement")
by and among InFlow, Inc., a Delaware corporation (the "Company"), and X.X.
Xxxxxx Investment Corporation, Sixty Wall Street SBIC Fund, L.P., First Union
Capital Partners, Inc., Meritage Private Equity Fund, L.P., Meritage Private
Equity Parallel Fund, L.P., Meritage Entrepreneurs Fund, L.P., and Xxxxxxxx,
Xxxxxx and Xxxxx II, L.P. (each, an "Investor" and, collectively, the
"Investors").
1. Purchase and Sale of Stock.
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1.1 Sale and Issuance of Series C Preferred Stock.
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(a) Prior to the date hereof, the Company has adopted and
filed with the Secretary of State of Delaware the Third Amended and Restated
Certificate of Incorporation in the form attached hereto as Exhibit A (the
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"Restated Certificate").
(b) Subject to the terms and conditions of this Agreement,
each Investor agrees, severally but not jointly, to purchase from the Company at
the Closing, and the Company agrees to sell and issue to each Investor at the
Closing, that number of shares of the Company's Series C Preferred Stock set
forth opposite such Investor's name on Schedule A hereto for the purchase price
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of $22.00 per share.
1.2 Closing. The purchase and sale of the Series C Preferred
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Stock shall take place at the Company's offices located at 000 Xxxxxxx Xxxxxx,
Xxxxx 000, Xxxxxx, Xxxxxxxx 00000 at 10:00 a.m. on May 8, 2000, or at such other
time and place as the Company and the Investors mutually agree upon orally or in
writing (which time and place are designated as the "Closing"). At the Closing,
the Company shall deliver to each Investor a certificate representing the Series
C Preferred Stock that such Investor is purchasing against payment of the
purchase price therefor by wire transfer of immediately available funds.
1.3 Subsequent Sale of Series C Preferred Stock. The Company may
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sell up to an additional 2,022,727 shares of Series C Preferred Stock at a price
of not less than $22.00 per share (and otherwise on substantially identical
terms) prior to June 22, 2000 to one or more additional purchasers selected by
the Company. Any such additional purchaser shall execute a purchase agreement in
substantially the form of this Agreement and shall become a party to the Third
Amended and Restated Investors' Rights Agreement in the form attached hereto as
Exhibit B (the "Investors' Rights Agreement") and the Third Amended and Restated
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Stockholders' Agreement in the form attached hereto as Exhibit C (the
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"Stockholders' Agreement"). Notwithstanding the foregoing, and subject to the
following sentences, in the event that the Company issues additional shares of
Series C Preferred Stock at a price per share less than $22.00 per share (the
"Lower Price") prior to June 22, 2000, the Company shall concurrently issue to
each Investor (the "Additional Series C Shares"), for no additional
consideration, that number of additional shares of Series C Preferred Stock that
such Investor
would have received had it purchased shares pursuant to this Agreement at the
Lower Price. Any Additional Series C Shares issued pursuant to this Section 1.3
shall be treated as if they were issued at the Closing, and the Company and the
Investors shall use their best efforts to amend the Company's Restated
Certificate to (a) reduce the "Original Series C Issue Price" and the "Series C
Conversion Price" (as such terms are defined therein) to equal such Lower Price
and (b) if necessary, authorize the issuance of additional Series C Preferred
Stock in order to issue the Investors the Additional Series C Shares. The
Investors acknowledge that any issuance of Additional Series C Shares pursuant
to this Section 1.3 is intended to make the Investors whole for the issuance of
shares of Series C Preferred Stock by the Company prior to June 22, 2000, and
shall be in lieu of any anti-dilution protection otherwise applicable under the
Company's Restated Certificate.
1.4 Post-Closing Obligations. In the event that, at any time,
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the Company's representation and warranty in Section 2.2 is determined not to
have been true when made, the Company shall promptly issue to the Investors, on
a pro rata basis as an adjustment to the purchase price paid for the shares of
Series C Preferred Stock purchased hereunder and without the payment of
additional consideration by the Investors, an additional number of shares of
Series C Preferred Stock such that each Investor would own the same economic
interest and voting power as it would have owned had such representation and
warranty been true and correct in all respects when made. If at the time of an
adjustment pursuant to the preceding sentence any shares of Series C Preferred
Stock purchased hereunder have been converted into Common Stock, the Company
shall issue additional shares of Common Stock with respect to such converted
shares of Series C Preferred Stock based on the conversion ratio that would have
been in effect if such shares had remained outstanding. Any additional shares
issued pursuant to this Section 1.4 shall be treated as if they were issued at
the Closing and shall reflect any anti-dilution adjustments arising from the
date of Closing through the date of such issuance. Concurrently with each such
issuance, the Company shall pay or accrue all dividends or other distributions
which would have been paid or accrued with respect to such additional shares
from the date of Closing through the date of such issuance.
2. Representations and Warranties of the Company. The Company hereby
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represents and warrants to each Investor that, except as set forth on the
Schedule of Exceptions (the "Schedule of Exceptions") attached hereto as
Schedule B, which exceptions shall be deemed to be representations and
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warranties as if made hereunder:
2.1 Organization, Good Standing, Power and Qualification. The
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Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. The Company has all requisite corporate
power and authority to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently, or is
currently proposed to be, engaged and has the power and authority to execute,
deliver and perform its obligations under this Agreement, the Investors' Rights
Agreement and the Stockholders' Agreement. The Company is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure to so qualify would have a material adverse effect on the business,
assets or financial condition of the Company (an "MAE").
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2.2 Capitalization and Voting Rights. (a) The authorized, issued
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and outstanding capital stock of the Company will consist immediately prior to
the Closing of:
(i) Preferred Stock. 13,720,000 shares of Preferred
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Stock, par value $0.001 (the "Preferred Stock"), of which (i) 3,310,000
shares have been designated Series A Preferred Stock (the "Series A
Preferred Stock"), of which 3,309,953 shares are outstanding, (ii)
7,000,000 shares have been designated Series B Preferred Stock (the "Series
B Preferred Stock"), of which 6,896,552 shares are outstanding and (iii)
3,410,000 shares have been designated Series C Preferred Stock (the "Series
C Preferred Stock"), of which none are outstanding. The rights, privileges
and preferences of the Series A, Series B, and Series C Preferred Stock are
as stated in the Restated Certificate.
(ii) Common Stock. 36,280,000 shares of common stock,
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par value $0.001 ("Common Stock"), of which 3,657,630 shares are issued and
outstanding.
(b) The outstanding shares of Series A and Series B
Preferred Stock and Common Stock are owned by the stockholders and in the
numbers specified in Exhibit D hereto.
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(c) The outstanding shares of Series A and Series B
Preferred Stock and Common Stock are all duly and validly authorized and issued,
fully paid and nonassessable, and were issued in compliance with all applicable
state and federal laws concerning the issuance of securities.
(d) Except for (A) the conversion privileges of the Series
A, Series B and Series C Preferred Stock, (B) the rights provided in Section 3
of the Stockholders' Agreement, and (C) 1,004,420 options outstanding as of
April 30, 2000, and such other options which have been granted in the ordinary
course by the Company since such date to purchase shares of the Company's Common
Stock pursuant to the Company's 1997 Stock Option Plan, as amended (the "Option
Plan"), which Option Plan authorizes the grant of options to purchase up to
2,685,000 shares of the Company's Common Stock, there are no outstanding
options, warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock. The Company also expects to grant warrants to purchase up to
250,000 shares of Common Stock to a lender or financial institution in
connection with a new credit facility. The Company is not a party or subject to
any agreement or understanding which affects or relates to the voting or giving
of written consents with respect to any security or other ownership interest in
the Company or by a director of the Company.
(e) The issuance by the Company of 3,409,091 shares of
Series C Preferred Stock as of the date hereof would constitute approximately
17.38% of the Company's outstanding capital stock, calculated on a fully diluted
basis.
2.3 Subsidiaries. The Company does not presently own or control,
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directly or indirectly, any interest in any other corporation, association, or
other business entity,
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except for the subsidiaries listed on Exhibit F attached hereto. The Company is
not a participant in any joint venture, partnership, or similar arrangement.
2.4 Authorization. All corporate action on the part of the
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Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the Investors' Rights
Agreement, and the Stockholders' Agreement, the performance of all obligations
of the Company hereunder and thereunder, and the authorization (or, in the case
of the Common Stock, reservation for issuance), sale and issuance of the Series
C Preferred Stock being sold hereunder and the Common Stock issuable upon
conversion of the Series C Preferred Stock has been taken or will be taken prior
to the Closing. This Agreement, the Investors' Rights Agreement, and the
Stockholders' Agreement constitute valid and legally binding obligations of the
Company, enforceable in accordance with their respective terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies, and (iii) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities laws.
2.5 Valid Issuance of Preferred and Common Stock. The Series C
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Preferred Stock that is being purchased by the Investors hereunder, when issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid and
nonassessable, free and clear of all liens and other encumbrances and will be
free of restrictions on transfer, other than restrictions on transfer under this
Agreement, the Investors' Rights Agreement, the Stockholders' Agreement and
under applicable state and federal securities laws. The Common Stock issuable
upon conversion of the Series C Preferred Stock purchased under this Agreement
has been duly and validly reserved for issuance and, upon issuance in accordance
with the terms of the Restated Certificate, will be duly and validly issued,
fully paid and nonassessable, free and clear of all liens and other encumbrances
and will be free of restrictions on transfer, other than restrictions on
transfer under this Agreement, the Investors' Rights Agreement, the
Stockholders' Agreement and under applicable state and federal securities laws.
2.6 Consents. No consent, approval, order or authorization of,
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or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority or any individual, firm,
corporation, partnership, trust, limited liability company, incorporated or
unincorporated association, joint venture, joint stock company or other entity
of any kind (each, a "Person") on the part of the Company is required in
connection with the consummation of the transactions contemplated by this
Agreement, except for filings required pursuant to applicable federal and state
securities laws and blue sky laws, which filings will be effected within the
required statutory period.
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2.7 Offering. The Company has filed an S-1 Registration
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Statement with the Securities and Exchange Commission on February 18, 2000 and
an S-1/A Registration Statement on March 28, 2000 (File No. 333-30684) for the
issuance of up to 8,050,000 shares of its Common Stock. Assuming the truth and
accuracy of each Investor's representations set forth in Section 3 of this
Agreement, including without limitation the qualification of each Investor as a
"qualified institutional buyer" within the meaning of Rule 144A of the
Securities Act of 1933, as amended (the "Act") or an institutional "accredited
investor" as defined under Regulation D of the Act as set forth in Section 3.10,
the offer, sale and issuance of the Series C Preferred Stock as contemplated by
this Agreement are exempt from the registration requirements of the Act.
2.8 Litigation. There is no action, suit, proceeding or
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investigation pending, or to the Company's knowledge currently threatened,
against the Company that questions the validity of this Agreement, the
Investors' Rights Agreement or the Stockholders' Agreement or the right of the
Company to enter into any of the foregoing or to consummate the transactions
contemplated hereby or thereby, or that would have, either individually or in
the aggregate, an MAE. The Company is not a party or subject to the provisions
of any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality. There is no action, suit, proceeding or investigation
by the Company currently pending or that the Company intends to initiate.
2.9 Proprietary Information Agreements. Each employee and
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officer of the Company has executed a Proprietary Information and Inventions
Agreement in substantially the form provided to the Investors.
2.10 Patents and Trademarks. Schedule 2.10 sets forth a complete
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and accurate list and description of all material franchises, licenses, patents,
patent rights, patent applications, trademarks, trademark rights, service marks,
service xxxx rights, trade names, trade name rights, copyrights and rights with
respect to any of the foregoing (collectively, "Intellectual Property")
presently owned or held by the Company. The Company owns the right to use all of
the Intellectual Property. To the actual knowledge of the Company (without
independent investigation), the Intellectual Property is all that is necessary
for the Company to conduct its business as presently conducted. To its knowledge
(but without having conducted any special investigation or patent search), no
Intellectual Property conflicts with or infringes on the valid rights of others
and the Company has not received any notice of infringement upon or conflict
with the asserted rights of others. No event has occurred which permits, or
after notice or lapse of time would permit, the revocation or termination of any
of the Intellectual Property. The Company has a valuable body of trade secrets,
including know-how, concepts, computer programs and other technical data (the
"Proprietary Information"). To its knowledge, the Company has the right to use
the Proprietary Information free and clear of any rights, liens, encumbrances or
claims of others, except that the possibility exists that other persons may have
independently developed trade secrets or technical information similar or
identical to those of the Company. The Company is not aware of any such
independent development nor of any misappropriation of its Proprietary
Information. The Company is not aware that any of its employees is obligated
under any contract (including licenses, covenants or commitments of any nature)
or other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of the Company or that would conflict with the
Company's business. The Company
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does not believe it is or will be necessary to utilize any inventions of any of
its employees (or people it currently intends to hire) made prior to their
employment by the Company, except for inventions that have been assigned or
licensed to the Company as of the date hereof.
2.11 Compliance with Other Instruments. The Company is not in
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violation of any provision of its Restated Certificate or Bylaws or any
securities issued by the Company, any indenture, credit agreement, contract,
agreement, instrument or other undertaking ("Contractual Obligations") or any
judgment, order, writ, decree or contract, statute, rule or regulation to which
the Company or its assets or property is subject ("Requirements of Law"), a
violation of which would have an MAE. The execution, delivery and performance of
this Agreement, the Investors' Rights Agreement and the Stockholders' Agreement
and the consummation of the transactions contemplated hereby and thereby will
not result in any such violation, or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
Contractual Obligation or Requirement of Law or an event that results in the
creation of any lien, charge or encumbrance upon any assets of the Company or
the suspension, revocation, impairment, forfeiture or nonrenewal of any material
permit, license, authorization or approval applicable to the Company, its
business or operations or any of its assets or properties.
2.12 Agreements; Action.
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(a) Except for agreements explicitly contemplated hereby,
there are no agreements, understandings or proposed transactions between the
Company and any of its officers, directors, affiliates or any affiliate thereof.
(b) Except for this Agreement, the Investors' Rights
Agreement and the Stockholders' Agreement, Schedule 2.12 hereto sets forth a
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complete and accurate list of all material Contractual Obligations of the
Company in effect on and as of the Closing. To its knowledge, each such
Contractual Obligation is valid and enforceable by the Company against any other
party thereto in accordance with its terms except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally, and by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies. The Company
has performed and is in compliance with all of the terms of such Contractual
Obligations and all instruments and agreements relating thereto and no default
or event of default, or event or condition which with notice or lapse of time or
both would constitute such a default or event of default, on its part or on the
part of any other party thereto exists with respect to any material Contractual
Obligation of the Company, except where such nonperformance, noncompliance,
default or event of default is not reasonably likely to result in an MAE. The
Company has no actual knowledge that any such Contractual Obligation contains
any contractual requirement with which there is a reasonable likelihood the
Company will be unable to comply and such failure to comply would likely result
in an MAE or the Company's compliance is reasonably likely to result in an MAE.
(c) There are no judgments, orders, writs or decrees to
which the Company is a party or by which it is bound that involve obligations
(contingent or otherwise) of, or payments to the Company, in excess of $25,000.
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(d) The Company has not (i) declared or paid any dividends
or authorized or made any distribution upon or with respect to any class or
series of its capital stock, (ii) except for the anticipated credit facility
currently being negotiated, incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $100,000 or, in the case of
indebtedness and/or liabilities individually less than $100,000, in excess of
$250,000 in the aggregate, (iii) made any loans or advances to any Person, other
than advances in the ordinary course of business, or (iv) sold, exchanged or
otherwise disposed of any of its assets or rights, other than the sale of its
inventory in the ordinary course of business.
(e) For the purposes of subsections (c) and (d) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same Person (including Persons the
Company has reason to believe are affiliated therewith) shall be aggregated for
the purpose of meeting the individual minimum dollar amounts of such
subsections.
2.13 Related-Party Transactions. No employee, officer or director
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of the Company or member of his or her immediate family is indebted to the
Company, nor is the Company indebted (or committed to make loans or extend or
guarantee credit) to any of them. To the best of the Company's knowledge, none
of such persons has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation that competes with the
Company, except that employees, officers or directors of the Company and members
of their immediate families may own stock in publicly traded companies that may
compete with the Company. No member of the immediate family of any officer or
director of the Company is directly or indirectly interested in any material
Contractual Obligation with the Company.
2.14 Financial Statements. The Company has delivered to each
Investor its audited financial statements (balance sheet and statement of
operations, statement of stockholders' equity and statement of cash flows,
including notes thereto) at December 31, 1999 and for the fiscal year then ended
and its unaudited financial statements (balance sheet and statement of
operations, statement of stockholders' equity and statement of cash flows) at
March 31, 2000 and for the three-month period then ended (the "Financial
Statements"). The Financial Statements have been prepared in all material
respects in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated and with each other and
fairly present in all material respects the assets, liabilities, financial
condition and operating results of the Company as of the dates, and for the
periods, indicated therein, subject in the case of unaudited Financial
Statements to normal year-end audit adjustments. Except as set forth in the
Financial Statements, the Company has no liabilities or obligations, contingent
or otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to March 31, 2000 and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company and
which the Company has satisfied as they have become due. Except as disclosed in
the Financial Statements, the Company is not a guarantor or indemnitor of any
indebtedness of any other Person. The Company maintains and will continue to
maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles.
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2.15 Changes. Since March 31, 2000, there has not been:
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(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business
consistent with past practice that are not reasonably likely to have an MAE;
(b) any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results or business of the Company;
(c) any waiver by the Company of a material right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business consistent with past practice and not material to the assets,
properties, financial condition, operating results or business of the Company;
(e) any material change or amendment to a contract or
arrangement required to be set forth on Schedule 2.12 by which the Company or
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any of its assets or properties is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee; or
(g) any agreement or commitment by the Company to do any of
the things described in this Section 2.15.
2.16 Tax Returns. The Company has timely filed all federal,
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state, county, local and foreign income and other tax returns, reports and
declarations (collectively, "Returns") relating to all net income, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property or windfall profits taxes, or other taxes of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority (domestic or foreign) upon the Company
("Taxes") which are required by applicable law to be filed except where the
failure to do so would not be reasonably likely to have an MAE. No audits of
federal income tax Returns of the Company have been conducted at any time since
its formation and the Company has not been advised that any of its returns have
been or are being audited. The Company has paid, or where payment is not
required to be made, has made adequate provision on its books and financial
statements for the payment of, all Taxes in respect of all periods covered by
the Returns and any other taxable period ending on or before the date hereof
except where the failure to do so would not be reasonably likely to have an MAE.
No deficiencies for any Tax, assessment or governmental charge have been
asserted or assessed against the Company which have not been paid, settled or
adequately provided for and there is no basis therefor.
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2.17 Permits. To its knowledge, the Company (i) has all material
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governmental or other regulatory approvals, licenses, permits and other
authorizations in accordance with all Requirements of Law for it to conduct its
business, each of which is in full force and effect, is final and not subject to
review on appeal and is not the subject of any pending or, to the best of its
knowledge, threatened attack by direct or collateral proceeding, and (ii) is in
compliance in all respects with each governmental approval, license, permit and
authorization relating to it or any of its properties under all applicable
Requirements of Law except where the failure to do so would not be reasonably
likely to have an MAE. Since its date of organization, the Company has not, to
its knowledge, been the subject of any investigation conducted by any grand
jury, administrative agency or other governmental authority. The Company has
not, directly or indirectly, made or authorized any payment, contribution or
gift of money, property, or services, in violation of applicable law, (i) as a
kickback or bribe to any Person or (ii) to any political organization or the
holder of, or any aspirant to, any elective or appointive office of any
governmental authority.
2.18 Environmental and Safety Laws. To its knowledge, the
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Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation.
2.19 Disclosure. Neither this Agreement (including all the
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exhibits and schedules hereto) nor any other certificates or agreements made or
delivered in connection herewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein not misleading in light of the circumstances under which they were
made.
2.20 Registration Rights. Except as provided in the Investors'
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Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
2.21 Corporate Documents. The Restated Certificate and Bylaws of
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the Company are in the forms previously provided to the Investors. The minute
books of the Company have been made available to the Investors for their review
in connection with the purchase of the Series C Preferred Stock; such minute
books are current and contain correct and complete copies of all minutes of
meetings, resolutions and other actions and proceedings of the board of
directors and shareholders and all committees of the Company. The record books
relating to the equity interests of the Company have been made available to the
Investors for their review in connection with the purchase of the Series C
Preferred Stock; such record books are current, correct and complete and reflect
the issuance, sale or exchange of all of capital stock and other ownership and
equity interests in the Company.
2.22 Title to Property and Assets. Schedule 2.22 sets forth a
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complete and accurate list of all real property and improvements (collectively
"Real Property") owned or leased by the Company. The Company has good and
marketable, indefeasible fee simple title to the Real Property described in
Schedule 2.22 as being owned by it, and valid and subsisting leasehold rights in
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the Real Property described in Schedule 2.22 as being leased by it, free and
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clear of all liens and other encumbrances. Schedule 2.22 also sets forth a
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complete and accurate
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list of all of the material items of equipment, machinery, computers, chattels,
tools, parts, machine tools, furniture, furnishings, fixtures and supplies of
every nature owned or leased by the Company in connection with its business as
of March 31, 2000. The Company has good and marketable fee simple title to such
items described in Schedule 2.22 as being owned by it, and valid and subsisting
leasehold rights in such items described in Schedule 2.22 as being leased by it,
free and clear of all liens and other encumbrances.
2.23 Labor Agreements and Actions. The Company is not bound by or
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subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the Company's
knowledge, has sought to represent any of the employees, representatives or
agents of the Company. There is no strike or other labor dispute involving the
Company pending, or to the Company's knowledge, threatened, that would have an
MAE. The Company is not aware that any officer or key employee, or that any
group of key employees, intends to terminate their employment with the Company,
nor does the Company have a present intention to terminate the employment of any
of the foregoing. The employment of each officer and employee of the Company is
terminable at the will of the Company. The Company is not a party to or bound by
any currently effective employment contract, deferred compensation agreement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation agreement. To its knowledge, the Company has complied in
all material respects with all applicable state and federal equal employment
opportunity and other laws related to employment. To its knowledge, the Company
has withheld all amounts required by law or agreement to be withheld by it from
the wages, salaries and other payments to its employees and is not liable for
any arrears of wages or any taxes or penalties for failure to comply with any of
the foregoing. There are no pending, threatened or anticipated (i) employment
discrimination charges or complaints against or involving the Company before any
federal, state, or local board, department, commission or agency, (ii) unfair
labor practice charges or complaints, disputes or grievances affecting the
Company, or (iii) strikes, slow downs, work stoppages, or lockouts or threats
thereof affecting the Company.
2.24 Insurance. The Company maintains insurance policies (i)
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insuring the properties, assets and operations of its business in such amounts
and against such liabilities to the extent required by applicable law or
regulations and (ii) insuring against interruptions in its business. Such
policies are in full force and effect and have been underwritten by unaffiliated
insurers. To its knowledge, the Company has not done anything by way of action
or inaction that invalidates any of such policies in whole or in part.
2.25 Governmental Regulations. The Company is not a "registered
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investment company" or an "affiliated person" or a "principal underwriter" of a
"registered investment company" as such terms are defined in the Investment
Company Act of 1940, as amended.
2.26 Certain Tax Matters. The Company's capital stock does not
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constitute a United States real property interest as that term is defined in
Section 897(c)(1)(A)(ii) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the Company is not and has not been a "United States real property
holding corporation" as defined in Section 897(c)(2) of the Code (a "USRPHC").
To its knowledge, no Investor shall, solely by virtue of its purchase
10
and ownership of the Series C Preferred Stock and the underlying Common Stock,
(i) be deemed to have received "unrelated business taxable income" as defined in
Section 512 of the Code ("UBTI") as a result of the Company's operations, or
(ii) be deemed to be engaged in the conduct of a "trade or business within the
United States" within the meaning of Section 864(b) of the Code, and the Company
shall exercise its reasonable best efforts consistent with prudent business
practices to ensure that the Investors do not receive UBTI and are not deemed to
be engaged in a U.S. trade or business solely as a result of their ownership of
the Company's securities. From time to time upon request of any Investor, the
Company shall make a determination as to the Company's status as a USRPHC and as
to the accuracy of the foregoing representations and warranties and shall notify
each Investor of and change in circumstances that could result in any of the
foregoing representations and warranties no longer being true and correct as
soon as practicable after the Company obtains knowledge of such change in
circumstances.
3. Representations and Warranties of the Investors. Each Investor,
-----------------------------------------------
severally but not jointly, hereby represents, warrants and covenants that:
3.1 Authorization. Such Investor has full power and authority to
-------------
enter into this Agreement, the Investors' Rights Agreement and the Stockholders'
Agreement, and each such agreement constitutes its valid and legally binding
obligation, enforceable in accordance with its terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies, and (iii) to the extent the
indemnification provisions contained in the Investors' Rights Agreement may be
limited by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made
---------------------------------
with such Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Series C Preferred Stock to be received by such
Investor and the Common Stock issuable upon conversion thereof (collectively,
the "Securities") will be acquired for investment for such Investor's own
account and not with a view to the resale or distribution of any part thereof in
violation of applicable securities laws, and that such Investor has no present
intention of selling, granting any participation in or otherwise distributing
the same in violation of applicable securities laws. By executing this
Agreement, such Investor further represents that such Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person in
violation of applicable securities laws, with respect to any of the Securities.
3.3 Disclosure of Information. Such Investor believes it has
-------------------------
received all the information it considers necessary or appropriate for deciding
whether to purchase the Series C Preferred Stock. Such Investor further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Series C Preferred Stock and the business, properties, prospects and financial
condition of the Company.
11
3.4 Investment Experience. Such Investor is an investor in
---------------------
securities of companies in the development stage and acknowledges that it can
bear the economic risk of its investment, and has such knowledge and experience
in financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Series C Preferred Stock. If other than an
individual, such Investor also represents it has not been organized for the
purpose of acquiring the Series C Preferred Stock.
3.5 Restricted Securities. Such Investor understands that the
---------------------
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such Securities may be resold without registration under
the Act only in certain limited circumstances. In the absence of an effective
registration statement covering the Series C Preferred Stock (or the Common
Stock issued on conversion thereof) or an available exemption from registration
under the Act, the Series C Preferred Stock (and any Common Stock issued on
conversion thereof) must be held indefinitely. In this connection, such Investor
represents that it is familiar with SEC Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Act, including
without limitation the Rule 144 condition that current information about the
Company be available to the public. Such information is not now available and
the Company has no present plans to make such information available.
3.6 Further Limitations on Disposition. Without in any way
----------------------------------
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Securities unless:
(a) There is then in effect a registration statement under
the Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) Such Investor shall have notified the Company of
the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
requested by the Company, such Investor shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company that such disposition
will not require registration of such shares under the Act. It is agreed that
the Company will not require opinions of counsel for transactions made pursuant
to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of subsections (a) and
(b) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by an Investor that is a partnership to a partner of
such partnership or a retired partner of such partnership who retires after the
date hereof, or to the estate of any such partner or retired partner or the
transfer by gift, will or intestate succession of any partner to his or her
spouse or to the siblings, lineal descendants or ancestors of such partner or
his or her spouse, if the transferee agrees in writing to be subject to the
terms hereof to the same extent as if he or she were an original Investor
hereunder.
12
3.7 Legends. It is understood that the certificates evidencing
-------
the Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an applicable exemption
therefrom."
(b) Any legend required by the Investors' Rights Agreement
and the Stockholders' Agreement.
The Company agrees, upon the request of any Investor or its transferee, to
remove the legend required by paragraph (a) above at such time as all Securities
held by such person may be freely transferred pursuant to SEC Rule 144(k), and
to remove the legend required by paragraph (b) above at such time as the
restrictions of the Investors' Rights Agreement and the Stockholders' Agreement
are no longer applicable to such Securities.
3.8 Tax Advisors. Such Investor has reviewed with such
------------
Investor's own tax advisors the federal, state and local tax consequences of
this investment, where applicable, and the transactions contemplated by this
Agreement. With respect to matters related to the tax consequences of the
transactions contemplated by this Agreement, each such Investor is relying
solely on such advisors and not on any statements or representations of the
Company or any of its agents and understands that each such Investor (and not
the Company) shall be responsible for such Investor's own tax liability that may
arise as a result of this investment or the transactions contemplated by this
Agreement.
3.9 Investor Counsel. Such Investor acknowledges that such
----------------
Investor has had the opportunity to review this Agreement, the exhibits and the
schedules attached hereto and the transactions contemplated by this Agreement
with such Investor's own legal counsel. Each such Investor is relying solely on
such Investor's legal counsel and not on Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP for
legal advice with respect to this investment or the transactions contemplated by
this Agreement.
3.10 Qualified Institutional Buyer.
-----------------------------
Other than with respect to Meritage Private Equity Fund, L.P.,
Meritage Private Equity Parallel Fund, L.P. and Meritage Entrepreneurs Fund,
L.P. (the "Meritage Group"), Xxxxxxxx, Xxxxxx and Xxxxx II, L.P. ("Xxxxxxxx")
and Sixty Wall Street SBIC Fund, L.P. ("SWS"), each Investor is a "qualified
institutional buyer" as defined under Rule 144A of the Act. SWS, Xxxxxxxx and
each member of the Meritage Group is an institutional "accredited investor" as
defined under Regulation D of the Act.
13
4. Conditions of Investor's Obligations at Closing. The obligations
-----------------------------------------------
of each Investor under Section 1 of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
thereto:
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
4.2 Performance. The Company shall have performed and complied
-----------
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
4.3 Compliance Certificate. The President of the Company shall
----------------------
deliver to each Investor at the Closing a certificate stating that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state or any Person that are required in connection with the consummation of
the transactions contemplated by this Agreement, including the lawful issuance
and sale of the Securities pursuant to this Agreement, shall be duly obtained
and effective as of the Closing.
4.5 Proceedings and Documents. All corporate and other
-------------------------
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Investors, and they shall have received all such counterpart
original and certified or other copies of such documents as they may reasonably
request.
4.6 Investors' Rights Agreement. The Company, each Investor and
---------------------------
the other parties thereto shall have entered into the Investors' Rights
Agreement in the form attached hereto as Exhibit B.
---------
4.7 Stockholders' Agreement. The Company, each Investor and the
-----------------------
other parties thereto shall have entered into the Stockholders' Agreement in the
form attached as Exhibit C.
---------
4.8 No Material Adverse Change. On and prior to the Closing
--------------------------
since March 31, 2000, there shall have occurred no material adverse change in
the business, assets or financial condition of the Company.
4.9 No Litigation or Other Proceedings. There shall be no
----------------------------------
pending or threatened litigation, bankruptcy, insolvency, injunction, order,
suit, investigation or claim against or affecting the Company, any of its
properties or rights, any of its executive officers or with respect to any of
the transactions contemplated by this Agreement, the Investors' Rights Agreement
or the Stockholders' Agreement which would be reasonably likely to have an MAE.
14
4.10 Legal Opinion. The Investors shall have received the opinion
-------------
of Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP, legal counsel to the Company, dated as of
the Closing in the form of Exhibit E hereto.
---------
5. Conditions of the Company's Obligations at Closing. The
--------------------------------------------------
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions by
that Investor:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Investors contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
5.2 Payment of Purchase Price. The Investor shall have delivered
-------------------------
the purchase price specified in Section 1.1.
5.3 Investors' Rights Agreement. Each Investor and other parties
---------------------------
thereto (other than the Company) shall have entered into the Investors' Rights
Agreement in the form attached as Exhibit B.
---------
5.4 Stockholders' Agreement. Each Investor and other parties
-----------------------
thereto (other than the Company) shall have entered into the Stockholders'
Agreement in the form attached as Exhibit C.
---------
6. Miscellaneous.
-------------
6.1 Survival. The warranties, representations and covenants of
--------
the Company and the Investors contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and the Closing and
shall in no way be affected by any investigation of the subject matter thereof
made by or on behalf of the Investors or the Company.
6.2 Successors and Assigns. Except as otherwise provided herein,
----------------------
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Securities). Nothing in this Agreement, express or implied,
is intended to confer upon any party, other than the parties hereto or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
6.3 Governing Law. This Agreement shall be governed by and
-------------
construed under the laws of the State of Colorado as applied to agreements among
Colorado residents entered into and to be performed entirely within Colorado,
without giving effect to such state's conflict of laws principles.
6.4 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
15
6.5 Notices. All notices required or permitted hereunder shall
-------
be in writing and shall be deemed effectively given: (i) upon personal delivery
to the party to be notified, (ii) when sent by confirmed facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; or (iii) one day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt. All
communications shall be sent to the address as set forth on the signature page
hereof or at such other address as such party may designate by ten days advance
written notice to the other parties hereto.
6.6 Finder's Fee. Each party represents that it neither is nor
------------
will be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees or representatives is responsible. The Company agrees to indemnify and
hold harmless each Investor from any liability for any commission or
compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
6.7 Expenses. Irrespective of whether the Closing is effected,
--------
the Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. If the
Closing is effected, the Company shall, at the Closing, reimburse the Investors
for all reasonable expenses of the Investors incurred in connection with the
negotiation, execution, delivery and performance of this Agreement in an amount
not to exceed $25,000; provided further, the Investors agree to use their
reasonable efforts to minimize such expenses. If any action at law or in equity
is necessary to enforce or interpret the terms of this Agreement, the Investors'
Rights Agreement, the Stockholders' Agreement or the Restated Certificate, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
6.8 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Common Stock not previously sold to the public that is issued
or issuable upon conversion of the Series C Preferred Stock. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities are convertible), each future
holder of all such securities and the Company.
6.9 Effect of Amendment or Waiver. Each Investor acknowledges
-----------------------------
that by the operation of Section 6.8 hereof the holders of a majority of the
Common Stock not previously sold to the public that is issued or issuable upon
conversion of the Series C Preferred Stock will have the power to diminish or
eliminate all rights of such Investor under this Agreement.
16
6.10 Severability. If one or more provisions of this Agreement
------------
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
6.11 Aggregation of Stock. All shares of the Series C Preferred
--------------------
Stock or Common Stock issued upon conversion thereof held or acquired by
affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.
6.12 Entire Agreement. This Agreement and the documents referred
----------------
to herein constitute the entire agreement among the parties and no party shall
be liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
6.13 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.
[SIGNATURE PAGE FOLLOWS]
17
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
InFlow, Inc.
By: /s/ Art Zeile
-------------------------------------
Art Zeile
President and Chief Executive Officer
Address: 000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, XX 00000
First Union Capital Partners, Inc. Meritage Private Equity Fund, L.P.
Meritage Private Equity Parallel
Fund, L.P.
Meritage Entrepreneurs Fund, L.P.
By: /s/ X. Xxxxx Xxxxxxx, III,
------------------------------
X. Xxxxx Xxxxxxx, III,
Senior Vice President By: Meritage Investment Partners, LLC
Address: 000 Xxxxx Xxxxxxx Xxxxxx By:/s/ X. Xxxxxxx Xxxxxxxxxx, Jr.
Xxxxxxxxx, XX 00000-0000 ------------------------------
X. Xxxxxxx Xxxxxxxxxx, Jr.,
Managing Member
Address: 0000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, XX 00000
X.X. Xxxxxx Investment Corporation Sixty Wall Street SBIC Fund, L.P.,
By: Sixty Wall Street SBIC Corporation,
By: /s/ Xxxxxxx Xxxxxxxx its General Partner
------------------------------
Name: ____________________________
Title: ___________________________ By: /s/ Xxxxxxx Xxxxxxxx
------------------------------------
Name: __________________________________
Address: 000 Xxxxxxxxxx Xxxxxx, Title:__________________________________
00xx Xxxxx
Xxx Xxxxxxxxx, XX 00000 Address: 000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Xxxxxxxx, Xxxxxx and Xxxxx II, L.P.
By: Xxxxxxxx, Xxxxxx & Xxxxx LLC,
General Partner
By: /s/ Xxxxx Van Genderen
------------------------------------
Name: __________________________________
Title: _________________________________
Address: Republic Plaza
000 00xx Xxxxxx
Xxxxx 0000
Xxxxxx, XX 00000
18
Schedule A
----------
Investor Number of Shares Aggregate
-------- ---------------- ---------
of Series C Purchase Price
----------- --------------
Preferred Stock
---------------
-------------------------------------------------------------------------
X.X. Xxxxxx Investment 102,273 $ 2,250,006.00
Corporation
-------------------------------------------------------------------------
Sixty Wall Street SBIC Fund, 34,091 $ 750,002.00
L.P.
-------------------------------------------------------------------------
First Union Capital Partners, 454,545 $ 9,999,990.00
Inc.
-------------------------------------------------------------------------
Xxxxxxxx, Xxxxxx and Xxxxx 227,273 $ 5,000,006.00
II, L.P.
-------------------------------------------------------------------------
Meritage Private Equity Fund, 498,182 $10,960,004.00
L.P.
-------------------------------------------------------------------------
Meritage Private Equity 60,909 $ 1,339,998.00
Parallel Fund, L.P.
-------------------------------------------------------------------------
Meritage Entrepreneurs Fund, 9,091 $ 200,002.00
L.P.
-------------------------------------------------------------------------
19
