EXHIBIT 10.14
VIRTUAL TELECOM, INC.
SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
January 25, 1999
TABLE OF CONTENTS
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Page
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1. Purchase and Sale of Stock.................................................1
1.1 Sale and Issuance of Series C Preferred Stock..........................1
1.2 Closing................................................................1
2. Representations and Warranties of the Company..............................2
2.1 Organization, Good Standing; Qualification.............................2
2.2 Authorization..........................................................2
2.3 Valid Issuance of Preferred and Common Stock...........................3
2.4 Governmental Consents..................................................3
2.5 Capitalization and Voting Rights.......................................3
2.6 Subsidiaries...........................................................4
2.7 Contracts and Other Commitments........................................4
2.8 Related-Party Transactions.............................................4
2.9 Registration Rights....................................................5
2.10 Permits...............................................................5
2.11 Compliance With Other Instruments.....................................5
2.12 Litigation............................................................5
2.13 Customer Complaints...................................................6
2.14 Disclosure............................................................6
2.15 SEC Filings...........................................................6
2.16 Offering..............................................................6
2.17 Title to Property and Assets; Leases..................................6
2.18 Financial Statements..................................................7
2.19 Changes...............................................................7
2.20 Patents and Trademarks................................................7
2.21 Manufacturing and Marketing Rights....................................8
2.22 Employees; Employee Compensation......................................8
2.23 Proprietary Information Agreements....................................8
2.24 Tax Returns, Payments and Elections...................................8
2.25 Insurance.............................................................9
2.26 Environmental and Safety Laws.........................................9
2.27 Minute Books..........................................................9
2.28 Use of Proceeds.......................................................9
2.29 ▇▇▇▇▇▇▇▇ Analytics....................................................9
3. Representations and Warranties of Investors...............................10
3.1 Authorization.........................................................10
3.2 Restricted Securities.................................................10
3.3 Investor Sophistication and Ability to Bear Risk of Loss..............11
3.4 Independent Investigation and Advisors................................11
3.5 Foreign Jurisdictions.................................................11
4. Conditions of Investors' Obligations at Closing...........................11
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4.1 Representations and Warranties........................................12
4.2 Performance...........................................................12
4.3 Qualifications........................................................12
4.4 Proceedings and Documents.............................................12
4.5 Certificate of Designations...........................................12
4.6 Opinion of Company Counsel............................................12
4.7 Investors' Rights Agreement...........................................12
4.8 Co-Sale Agreement.....................................................12
4.9 Minimum Offering......................................................12
4.10 Due Diligence........................................................12
4.11 Approval of NeSBIC Supervisory Board.................................13
4.12 ▇▇▇▇▇▇▇▇ Analytics, Ltd..............................................13
5. Conditions of the Company's Obligations at Closing........................13
5.1 Representations and Warranties........................................13
5.2 Qualifications........................................................13
6. Indemnification...........................................................13
6.1 Indemnity by the Company..............................................13
6.2 Indemnity by the Investors............................................13
6.3 Indemnification Procedure.............................................13
7. Miscellaneous.............................................................14
7.1 Entire Agreement......................................................14
7.2 Survival of Warranties................................................14
7.3 Successors and Assigns................................................14
7.4 Governing Law.........................................................15
7.5 Counterparts..........................................................15
7.6 Titles and Subtitles..................................................15
7.7 Notices...............................................................15
7.8 Finders' Fees.........................................................15
7.9 Attorneys' Fees.......................................................15
7.10 Amendments and Waivers...............................................15
7.11 Severability.........................................................15
7.12 Expenses.............................................................16
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VIRTUAL TELECOM, INC. SERIES C PREFERRED STOCK PURCHASE AGREEMENT
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THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is made
as of the 25th of January 1999 by and between VIRTUAL TELECOM, INC., a Delaware
corporation (the "Company"), and each of the persons listed on Schedule A
hereto, each of which is herein referred to as an "Investor."
R E C I T A L S
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A. The Company desires to issue and sell to the Investors, and the
Investors wish to purchase from the Company, in the manner set forth below, an
aggregate of up to 3,783,784 shares of the Company's Series C Preferred Stock
for the aggregate payment of Seven Million U.S. Dollars (US$7,000,000).
B. Upon the Closing (as defined below), each of the Investors intends
to purchase, and the Company intends to issue and sell, that number of shares of
the Company's Series C Preferred Stock set forth opposite such Investor's name
on Schedule A hereto on the terms and subject to the conditions set forth in
this Agreement.
A G R E E M E N T
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It is agreed as follows:
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) The Company shall adopt and file with the Secretary of State of
Delaware on or before the Closing a Second Amended Certificate of Designations
in the form attached hereto as Exhibit A (the "Amended Certificate").
(b) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally and not jointly, to purchase at the Closing and the
Company agrees to sell and issue to each Investor, severally and not jointly, at
the Closing that number of shares of the Company's Series C Preferred Stock set
forth opposite each Investor's name on Schedule A hereto at a price of US$1.85
per share. The Series C Preferred Stock will have the rights, preferences,
privileges and restrictions set forth in the Amended Certificate.
1.2 Closing. The initial closing of the transactions contemplated by this
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Agreement ("Closing") shall take place at 4:00 p.m., Switzerland Time, at the
offices of the Company, ▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇ on January 22, 1999, or at such other time or place as the Company
and the Investors acquiring in the aggregate more than half the shares of Series
C Preferred Stock sold pursuant hereto shall mutually agree, either orally or in
writing. Except as otherwise provided herein, the Closing may be conducted by
means of exchange
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of documents via facsimile with original documents to be exchanged by overnight
mail. At the Closing, or as soon thereafter as practicable, the Company shall
deliver to each Investor the certificates representing the shares of Series C
Preferred Stock purchased by the Investor under this Agreement in definitive
form and registered in the name of each Investor, as set forth in Exhibit A,
against delivery to the Company by the Investor of a check or wire transfer to
the Company's general account for the Shares purchased by the Investor;
provided, however, that Alta-Berkeley V., C.V. and its affiliates ("Alta-
Berkeley") may purchase shares of Series C Preferred Stock through the
cancellation of loans previously made by Alta-Berkeley to the Company at a rate
of $1.85 of indebtedness per share of Series C Preferred Stock. Additional
Closings, upon substantially identical terms and conditions to those contained
herein, may be held until 3,783,784 Shares have been sold for the aggregate
payment of $7,000,000 or March 31, 1999, whichever comes earlier. Unless
otherwise stated, the initial Closing and any additional Closings shall be
referred to herein as the "Closing."
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 a Schedule
of Exceptions furnished to Investors and counsel to Investors and attached
hereto as Exhibit "B," specifically identifying the relevant subparagraph(s)
hereof, which exceptions shall be deemed to be representations and warranties as
if made hereunder:
2.1 Organization, Good Standing; Qualification. The Company is a
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corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has all requisite corporate power and authority to own
and operate its properties and assets and to carry on its business as now
conducted, to execute and deliver this Agreement, the Amended and Restated
Investors' Rights Agreement dated as of the date hereof, by and among the
Company and those parties listed on Exhibit A thereto (the "Investors' Rights
Agreement"), the form of which is attached hereto as Exhibit C, and any other
agreement to which the Company is a party the execution and delivery of which is
contemplated hereby (the "Ancillary Agreements"), to issue and sell the Series C
Preferred Stock and the Common Stock issuable upon conversion thereof, and to
carry out the provisions of this Agreement, the Investors' Rights Agreement, the
Amended Certificate and any Ancillary Agreement. The Company is duly qualified
and is authorized to transact business and is in good standing as a foreign
corporation in each jurisdiction in which the failure so to qualify would have a
material adverse effect on its business, properties, or financial condition.
2.2 Authorization. All corporate action on the part of the Company, its
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officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the Investors' Rights Agreement and any
Ancillary Agreement, the performance of all obligations of the Company hereunder
and thereunder at the Closing and the authorization, issuance (or reservation
for issuance), sale and delivery of the Series C Preferred Stock being sold
hereunder and the Common Stock issuable upon conversion thereof has been taken
or will be taken prior to the Closing, and this Agreement, the Investors' Rights
Agreement and any Ancillary Agreement constitute valid and legally binding
obligations of the Company, enforceable in accordance with their respective
terms except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights
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generally, (b) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies, and (c) to the
extent the indemnification provisions contained in this Agreement, the
Investors' Rights Agreement and any Ancillary Agreement may be limited by
applicable federal or state securities laws.
2.3 Valid Issuance of Preferred and Common Stock. The Series C Preferred
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Stock that is being purchased by each Investor hereunder, when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
expressed herein (consisting either of cash or cancellation of indebtedness),
will be duly and validly issued, fully paid and nonassessable, and will be free
of restrictions on transfer other than restrictions on transfer under this
Agreement and the Investors' Rights 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
Amended Certificate, will be duly and validly issued, fully paid and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Investors' Rights
Agreement and under applicable state and federal securities laws.
2.4 Governmental Consents. No consent, approval, qualification, order or
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authorization of, or filing with, any local, state or federal governmental
authority is required on the part of the Company in connection with the
Company's valid execution, delivery or performance of this agreement, the offer,
sale or issuance of the Series C Preferred Stock by the Company or the issuance
of Common Stock upon conversion of the Series C Preferred Stock, except (a) the
filing of the Amended Certificate with the Secretary of State of the State of
Delaware, and (b) such filings as have been made prior to the Closing, except
for any notices of sale required to be filed with the Securities and Exchange
Commission ("SEC") under the Securities Act of 1933, as amended (the "Securities
Act"), or such post-closing filings as may be required under applicable state
securities laws, which will be timely filed within the applicable periods
therefor.
2.5 Capitalization and Voting Rights. The authorized capital of the
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Company consists, or will consist prior to the Closing, of:
(a) Preferred Stock. 10,000,000 shares of Preferred Stock, par value
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US$.001 (the "Preferred Stock"), of which (i) 68,500 shares have been designated
Series A Preferred Stock, all of which are issued and outstanding, (ii)
1,923,716 shares have been designated Series B Preferred Stock, all of which are
issued and outstanding, and (iii) 3,783,784 shares have been designated Series C
Preferred Stock, up to all of which will be sold pursuant to this Agreement. The
rights, privileges and preferences of the Series A, Series B and Series C
Preferred Stock will be as stated in the Amended Certificate.
(b) Common Stock. 20,000,000 shares of common stock ("Common
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Stock"), par value US$.001, of which 5,781,309 shares are issued and
outstanding.
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,
which in the case of the Common Stock is accurate as of January 18, 1999. The
outstanding shares of Series A Preferred Stock, Series B Preferred Stock and
Common Stock have been duly authorized and validly issued,
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are fully paid and nonassessable, and were issued in accordance with the
registration or qualification provisions of the Securities Act and any relevant
state securities laws or pursuant to valid exemptions therefrom. Except for (i)
the conversion privileges of the Series A, Series B and Series C Preferred Stock
(ii) the rights provided in paragraph 2.3 of the Investors' Rights Agreement,
(iii) currently outstanding warrants to purchase 487,781 shares of Common Stock,
and (iv) currently outstanding options to purchase 385,000 shares of Common
Stock granted to officers, directors and employees pursuant to the Company's
1997 Stock Option Plan (the "Option Plan"), there are not outstanding any
options, warrants, rights (including conversion or preemptive rights and rights
of first refusal), proxy or stockholder agreements or agreements of any kind for
the purchase or acquisition from the Company or which obligates the Company in
any way with respect to any shares of its capital stock. In addition to the
aforementioned options, the Company has reserved an additional 765,000 shares of
its Common Stock for purchase upon exercise of options to be granted in the
future under the Option Plan. The Company is not a party or subject to any
agreement or understanding, and, to the best of the Company's knowledge, there
is no agreement or understanding between any persons that affects or relates to
the voting or giving of written consents with respect to any security or the
voting by a director of the Company.
2.6 Subsidiaries. Except for Virtual Telecom SA, a Swiss corporation,
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Firstquote Limited, an English corporation, and Virtual Telecom Limited, an
English corporation, all of which are wholly-owned by the Company (together, the
"Subsidiaries"), the Company does not own or control, directly or indirectly,
any interest in any other corporation, association or other business entity.
The Company is not a participant in any joint venture, partnership or similar
arrangement.
Each of the Subsidiaries is duly organized and existing under the laws of
its jurisdiction of organization and is in good standing under such laws. None
of the Subsidiaries owns or leases property or engages in any activity in any
jurisdiction that might require its qualification to do business as a foreign
corporation and in which the failure so to qualify would have a material adverse
effect upon the Company's business, properties, prospects, or financial
condition.
2.7 Contracts and Other Commitments. The Company does not have and is not
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bound by any contract, agreement, lease, commitment or proposed transaction,
judgment, order, writ or decree, written or oral, absolute or contingent, other
than (a) contracts for the purchase of supplies and services that were entered
into in the ordinary course of business and that do not involve more than
US$100,000 and do not extend for more than one (1) year beyond the date hereof,
(b) sales contracts entered into in the ordinary course of business, and (c)
contracts terminable at will by the Company on no more than thirty (30) days
notice without cost or liability to the Company and that do not involve any
employment or consulting arrangement and are not material to the conduct of the
Company's business. For the purpose of this paragraph, employment and
consulting contracts and contracts with labor unions, and license agreements and
any other agreements relating to the acquisition or disposition of the Company's
technology, shall not be considered to be contracts entered into in the ordinary
course of business.
2.8 Related-Party Transactions. No employee, officer, stockholder or
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director 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
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the best of the Company's knowledge, none of such persons has any direct or
indirect ownership 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. To the best of
the Company's knowledge, no officer, director, stockholder or any member of
their immediate families is, directly or indirectly, interested in any material
contract with the Company (other than such contracts as relate to any such
person's ownership of capital stock or other securities of the Company).
2.9 Registration Rights. Except as provided in the Investors' Rights
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Agreement, the Company is not obligated and has not granted any rights to
register under the Securities Act any of its presently outstanding securities or
any of its securities that may subsequently be issued.
2.10 Permits. The Company has all franchises, permits, licenses and any
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similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects or financial condition of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses or other similar authority.
2.11 Compliance With Other Instruments. The Company is not in violation or
---------------------------------
default in any material respect of any provision of its Certificate of
Incorporation or Bylaws or in any material respect of any provision of any
mortgage, agreement, instrument or contract to which it is a party or by which
it is bound or, to the best of its knowledge, of any federal or state judgment,
order, writ, decree, statute, rule or regulation applicable to the Company. The
execution, delivery and performance by the Company of this Agreement, the
Investors' Rights Agreement and any Ancillary Agreement, and the consummation of
the transactions contemplated hereby and thereby will not result in any such
violation or be in material conflict with or constitute, with or without the
passage of time or giving of notice, either a material default under any such
provision or an event that results in the creation of any material 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 Litigation. There is no action, suit, proceeding or investigation
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pending or currently threatened against the Company that questions the validity
of this Agreement, the Investors' Rights Agreement or any Ancillary Agreement or
the right of the Company to enter into such agreements, or to consummate the
transactions contemplated hereby or thereby, or that might result, either
individually or in the aggregate, in any material adverse change in the assets,
business, properties, prospects or financial condition of the Company, or in any
material change in the current equity ownership of the Company. The foregoing
includes, without limitation, any action, suit, proceeding or investigation
pending or currently threatened involving the prior employment of any of the
Company's employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, their obligations under any
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agreements with prior employers, or negotiations by the Company with potential
backers of, or investors in, the Company or its proposed business. The Company
is not a party to, or to the best of its knowledge, named in any order, writ,
injunction, judgment or decree of any court, government agency or
instrumentality. There is no action, suit or proceeding by the Company currently
pending or that the Company currently intends to initiate.
2.13 Customer Complaints. The Company has received no customer complaints
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concerning alleged defects in its products (or the design thereof) that, if
true, would materially adversely affect the operations or financial condition of
the Company.
2.14 Disclosure. The Company has provided Investors with all the
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information that Investors have requested for deciding whether to purchase the
Series C Preferred Stock. Neither this Agreement nor any other written
statements or certificates prepared by the Company and delivered in connection
herewith or, to the best of the Company's knowledge, any written statements
prepared by third parties and delivered by the Company in connection herewith,
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements herein or therein not misleading.
2.15 SEC Filings. The Company has registered its Common Stock pursuant to
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Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the Common Stock is listed and trades on the OTC Bulletin Board. The
Company has filed all forms, reports and documents required to be filed pursuant
to the federal securities laws and the rules and regulations promulgated
thereunder for a period of at least twelve (12) months immediately preceding the
offer or sale of the Series C Preferred Stock (or for such shorter period that
the Company has been required to file such material). The Company's filings
with the SEC complied as of their respective filing dates, or in the case of
registration statements, their respective effective dates, in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act and the rules and regulations promulgated thereunder. None of such filings,
including, without limitation, any exhibits, financial statements or schedules
included therein, at the time filed, or in the case of registration statements,
at their respective filing dates, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
2.16 Offering. Subject in part to the truth and accuracy of Investors'
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representations set forth in this Agreement, the offer, sale and issuance of the
Series C Preferred Stock as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act, and neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemption.
2.17 Title to Property and Assets; Leases. Except (a) for liens for
------------------------------------
current taxes not yet delinquent, (b) for liens imposed by law and incurred in
the ordinary course of business for obligations not past due to carriers,
warehousemen, laborers, materialmen and the like, (c) for liens in respect of
pledges or deposits under workers' compensation laws or similar legislation, or
(d) for minor defects in title, none of which, individually or in the aggregate,
materially interferes with the use of such property, the Company has good and
marketable title to its property and assets free and
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clear of all mortgages, liens, claims and encumbrances. With respect to the
property and assets it leases, the Company is in compliance with such leases
and, to the best of its knowledge, holds a valid leasehold interest free of any
liens, claims or encumbrances, subject to clauses (a)-(d) above.
2.18 Financial Statements. The Company has delivered to Investors its
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audited financial statements (balance sheet and profit and loss statement,
statement of stockholders' equity and statement of cash flows, including notes
thereto) at December 31, 1997 and for the fiscal year then ended and its
unaudited financial statements (balance sheet and profit and loss statement) as
at, and for the nine (9) month period ended September 30, 1998 (the "Financial
Statements"). The Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated and with each other, except that the unaudited
Financial Statements do not contain all footnotes required by generally accepted
accounting principles. The Financial Statements fairly present the financial
condition and operating results of the Company as of the dates, and for the
periods, indicated therein, subject in the case of the unaudited Financial
Statements to normal year-end audit adjustments. Except as set forth in the
Financial Statements, the Company has no material liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to September 30, 1998, 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. Except
as disclosed in the Financial Statements, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation. The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.
2.19 Changes. To the best knowledge of the Company, and except as
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disclosed in the Company's filings with the SEC, since September 30, 1998, there
has not been any event or condition of any type that has materially and
adversely affected the business, properties, prospects or financial condition of
the Company.
2.20 Patents and Trademarks. The Company owns or possesses sufficient
----------------------
legal rights to all patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and proprietary rights and processes
necessary for its business as now conducted and as proposed to be conducted and,
to its knowledge, these rights do not conflict with or infringe the rights of
others. The Schedule of Exceptions contains a complete list of patents and
pending patent applications of the Company. Except for agreements with its own
employees or consultants, substantially in the form referenced in Section 2.22
below, there are no outstanding options, licenses or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and proprietary rights and processes of any other person or entity.
The Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights, trade secrets or
other proprietary rights or processes of any other person or entity. 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
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agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such employee's best
efforts to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement, nor the carrying on of the Company's business by the
employees of the Company, nor the conduct of the Company's business as proposed,
will, to the best of the Company's knowledge, 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 of such employees is now
obligated. The Company does not believe it is or will be necessary to use any
inventions of any of its employees (or persons it currently intends to hire)
made prior to their employment by the Company, other than those which have been
assigned to the Company.
2.21 Manufacturing and Marketing Rights. The Company has not granted
----------------------------------
rights to manufacture, produce, assemble, license, market, or sell its products
to any other person, other than the Subsidiaries, and is not bound by any
agreement that affects the Company's exclusive right to develop, manufacture,
assemble, distribute, market, or sell its products.
2.22 Employees; Employee Compensation. To the best of the Company's
--------------------------------
knowledge, there is no strike, or labor dispute or union organization activities
pending or threatened between it and its employees. None of the Company's
employees belongs to any union or collective bargaining unit. To the best of its
knowledge, the Company has complied in all material respects with all applicable
state and federal equal opportunity and other laws related to employment. To the
best of the Company's knowledge, no employee of the Company is or will be in
violation of any judgment, decree or order, or any term of any employment
contract, patent disclosure agreement, or other contract or agreement relating
to the relationship of any such employee with the Company or any other party
because of the nature of the business conducted or to be conducted by the
Company or to the use by the employee of his best efforts with respect to such
business. 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. The Company is not aware that any officer or key employee, or 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. Subject to general principles related to wrongful termination
of employees, the employment of each officer and employee of the Company is
terminable at the will of the Company.
2.23 Code of Conduct. Prior to or as promptly as practicable following the
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Closing, the Company shall use its best efforts to cause each employee and
officer of the Company to execute a Code of Conduct substantially in the form or
forms which have been delivered to counsel for the Investors.
2.24 Tax Returns, Payments and Elections. The Company has filed all tax
-----------------------------------
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith. The provision for
taxes of the Company as shown in the Financial Statements is adequate for taxes
due or accrued as of the date thereof. The Company has not elected pursuant to
the Internal Revenue Code of 1986, as amended ("Code"), to be treated as an S
corporation or a collapsible
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corporation pursuant to Section 1362(a) or Section 341(f) of the Code, nor has
it made any other elections pursuant to the Code (other than elections that
relate solely to methods of accounting, depreciation or amortization) that would
have a material effect on the business, properties, prospects or financial
condition of the Company. The Company has never had any tax deficiency proposed
or assessed against it and has not executed any waiver of any statute of
limitations on the assessment or collection of any tax or governmental charge.
None of the Company's federal income tax returns and none of its state income or
franchise tax or sales or use tax returns has ever been audited by governmental
authorities. Since the date of the Financial Statements, the Company has made
adequate provisions on its books of account for all taxes, assessments and
governmental charges with respect to its business, properties and operations for
such period. The Company has withheld or collected from each payment made to
each of its employees, the amount of all taxes, including, but not limited to,
federal income taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes required to be withheld or collected therefrom, and
has paid the same to the proper tax receiving officers or authorized
depositories.
2.25 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.. The Company has in full force and effect
products liability and errors and omissions insurance in amounts customary for
companies similarly situated.
2.26 Environmental and Safety Laws. To the best of its knowledge, the
-----------------------------
Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
2.27 Minute Books. The copy of the minute books of the Company provided
------------
to the Investors' counsel contains minutes of all meetings of directors and
stockholders and all actions by written consent without a meeting by the
directors and stockholders since the date of incorporation and reflects all
actions by the directors (and any committee of directors) and stockholders with
respect to all transactions referred to in such minutes accurately in all
material respects.
2.28 Use of Proceeds. The Company shall use the proceeds from the sale of
---------------
the Shares solely for marketing expenses and general working capital purposes.
2.29 ▇▇▇▇▇▇▇▇ Analytics. With respect to that certain Software
------------------
Distributor Agreement between the Company and ▇▇▇▇▇▇▇▇ Analytics Ltd. ("▇▇▇▇▇▇▇▇
Agreement") dated January 16, 1997, the Company shall use its best efforts to
amend the ▇▇▇▇▇▇▇▇ Agreement within three months from the Closing to (i) provide
for the Company's access to the source codes of ▇▇▇▇▇▇▇▇ Analytics Ltd.'s
software in the event ▇▇▇▇▇▇▇▇ Analytics Ltd. either declares bankruptcy or does
not perform pursuant to the ▇▇▇▇▇▇▇▇ Agreement and (ii) delete the provision of
the ▇▇▇▇▇▇▇▇ Agreement providing for the termination of the ▇▇▇▇▇▇▇▇ Agreement
upon the termination of that certain license agreement between ▇▇▇▇▇▇▇▇
Analytics Ltd. and the CBOT.
-9-
3. Representations and Warranties of Investors. Each Investor hereby
-------------------------------------------
represents and warrants, severally and not jointly, that:
3.1 Authorization. Investor has full power and authority to enter into this
-------------
Agreement and that this Agreement constitutes a valid and legally binding
obligation of Investor.
3.2 Restricted Securities. Investor has been advised that the Series C
---------------------
Preferred Stock have not been registered under the Securities Act or any other
applicable securities laws and that the Series C Preferred Stock are being
offered and sold pursuant to Section 4(2) of the Securities Act and that the
Company's reliance upon Section 4(2) is predicated in part on Investors'
representations as contained herein.
(a) The Investors and their beneficial owners are domiciled in Europe
and are "accredited investors" as defined under Rule 501 under the 1933 Act.
(b) Investor acknowledges that neither the Series C Preferred Stock
nor the shares of Common Stock issuable upon conversion of the Series C
Preferred Stock ("Underlying Common Shares") have been registered under the
1933 Act or the securities laws of any state and are being offered, and will be
sold, pursuant to applicable exemptions from such registration for nonpublic
offerings and will be issued as "restricted securities" as defined by Rule 144
promulgated pursuant to the 1933 Act. The Series C Preferred Stock and the
Underlying Common Shares may not be resold in the absence of an effective
registration thereof under the 1933 Act and applicable state securities laws
unless, in the opinion of the Company's counsel, an applicable exemption from
registration is available.
(c) Investor is acquiring the Series C Preferred Stock for its own
account, for investment purposes only and not with a view to, or for sale in
connection with, a distribution, as that term is used in Section 2(11) of the
1933 Act, in a manner which would require registration under the 1933 Act or any
state securities laws.
(d) Investor understands and acknowledges that the Series C Preferred
Stock and the Underlying Common Shares will bear the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR
TRANSFERRED FOR VALUE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREOF UNDER
THE SECURITIES ACT OF 1933 AND/OR THE SECURITIES ACT OF ANY STATE HAVING
JURISDICTION OR AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR ACTS.
(e) Investor acknowledges that an investment in the Series C Preferred
Stock is not liquid and is transferable only under limited conditions. Investor
acknowledges that such securities must be held indefinitely unless they are
subsequently registered under the 1933 Act or
-10-
an exemption from such registration is available. Investor is aware of the
provisions of Rule 144 promulgated under the 1933 Act, which permits limited
resale of securities purchased in a private placement subject to the
satisfaction of certain conditions and that such Rule is not now available and,
in the future, may not become available for resale of the Series C Preferred
Stock or the Underlying Common Shares.
3.3 Investor Sophistication and Ability to Bear Risk of Loss. Investor
--------------------------------------------------------
acknowledges that it is able to protect its interests in connection with the
acquisition of the Series C Preferred Stock and Underlying Common Shares and can
bear the economic risk of investment in such securities without producing a
material adverse change in Investor's financial condition. Investor otherwise
has such knowledge and experience in financial or business matters that Investor
is capable of evaluating the merits and risks of the investment in the Series C
Preferred Stock and Underlying Common Shares.
3.4 Independent Investigation and Advisors. Investor confirms that (a)
--------------------------------------
Investor has received, reviewed, and understands the financial statements
included in the SEC filings referred to in Section 2.15; (b) Investor has been
expressly offered the opportunity to be provided a copy of and to review all
reports, documents and exhibits referenced therein and such other agreements,
documents and information as Investor deems necessary or appropriate in
determining to make an investment in the Company, and (c) Investor is purchasing
the Series C Preferred Stock without any offering memoranda or prospectus of any
kind, other than the aforementioned SEC filings. Investor represents and
warrants that in making the decision to acquire the Series C Preferred Stock,
Investor has relied upon, apart from the representations and warranties of the
Company, its own independent investigation of the Company, and (d) Investor and
Investor's representatives have been given the opportunity to examine all
relevant documents and to ask questions of and to receive answers from the
Company, or person(s) acting on its behalf, concerning the terms and conditions
of acquisition by the Investor of the Series C Preferred Stock and any other
matters concerning an investment in the Company, and to obtain any additional
information Investor deems necessary or appropriate to verify the accuracy of
the information provided.
3.5 Foreign Jurisdictions. Investor has satisfied itself as to the full
---------------------
observance of the laws of its jurisdiction in connection with any invitation to
subscribe for the Series C Preferred Stock or any use of this Agreement,
including (a) the legal requirements within its jurisdiction for the purchase of
the Series C Preferred Stock, (b) any foreign exchange restrictions applicable
to such purchase, (c) any governmental or other consents that may need to be
obtained, and (d) the income tax and other tax consequences, if any, which may
be relevant to the purchase, holding, redemption, sale or transfer of the Series
C Preferred Stock. Investor's subscription and payment for, and its continued
beneficial ownership of, the Series C Preferred Stock will not violate any
applicable securities or other laws of Investor's jurisdiction.
4. Conditions of Investors' Obligations at Closing. The obligations of
-----------------------------------------------
each Investor under subparagraph l.l(b) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:
-11-
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 the Closing, and the Investors shall have been provided
with a certificate duly executed by an officer of the Company to such effect.
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, and
the Investors shall have been provided with a certificate duly executed by an
officer of the Company to such effect.
4.3 Qualifications. All authorizations, approvals or permits, if any, of
--------------
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Stock pursuant to this Agreement shall be duly obtained and effective as of the
Closing.
4.4 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
Investors' counsel, which shall have received all such counterpart original and
certified or other copies of such documents as it may reasonably request.
4.5 Certificate of Designations. The Amended Certificate shall provide
---------------------------
that the holders of a majority of the outstanding shares of Series C Preferred
Stock shall be entitled to elect two (2) directors to the Company's Board of
Directors. The provision of the Amended Certificate referenced in the preceding
sentence shall not be amended without the consent of the holders of a majority
of the outstanding shares of Series C Preferred Stock.
4.6 Opinion of Company Counsel. Investors shall have received from
--------------------------
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, LLP, counsel for the Company, an opinion, dated
the date of the Closing, in substantially the form attached hereto as Exhibit E.
4.7 Investors' Rights Agreement. The Company and each investor shall have
---------------------------
entered into the Investors' Rights Agreement in the form attached hereto as
Exhibit C.
4.8 Co-Sale Agreement. The Company, each Investor, the holders of the
-----------------
Series B Preferred Stock, ▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇ shall each have entered
into an Amended and Restated Co-Sale Agreement in the form attached hereto as
Exhibit F.
4.9 Minimum Offering. The Investors shall have purchased a minimum of
----------------
2,972,973 shares of Series C Preferred Stock for the aggregate proceeds of
US$5,500,000, of which Alta Berkeley shall have purchased a minimum of 540,541
shares for the aggregate proceeds of US$1,000,000.
4.10 Due Diligence. Investors or their representatives shall have
-------------
performed to their satisfaction a due diligence review of the legal and
financial issues regarding the Company.
-12-
4.11 Approval of NeSBIC Supervisory Board. The Agreement, the Investors'
------------------------------------
Rights Agreement, the Co-Sale Agreement and the transactions contemplated
thereby shall have been approved by the supervisory board of directors of NeSBIC
CTE Fund BV.
4.12 ▇▇▇▇▇▇▇▇ Analytics, Ltd. In addition to the amendment to the
-----------------------
▇▇▇▇▇▇▇▇ Agreement contemplated by Section 2.29 herein, the Company and ▇▇▇▇▇▇▇▇
Analytics, Ltd shall have entered into that certain Letter Agreement in the form
attached hereto as Exhibit G.
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
------------------------------
each Investor 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 Qualifications. All authorizations, approvals or permits, if any, of
--------------
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Series C Preferred Stock pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
6. Indemnification.
---------------
6.1 Indemnity by the Company. The Company agrees to and does hereby
indemnify and hold each Investor, their successors and assigns and their
shareholders, directors, officers, employees and agents, harmless from and
against any and all loss, damage, liability, injury, cost and expense (including
attorneys fees) incurred by such party in connection with or arising from: (a)
the non-performance, partial or total, by the Company of any of its agreements
and covenants contained in this Agreement; (b) the inaccuracy of any
representation of the Company contained or referred to in this Agreement or any
Schedule, Exhibit or certificate delivered by or on behalf of the Company
pursuant hereto; (c) claims for any brokers' or finders' fees made or asserted
by any party claiming to have been employed by the Company or any shareholder,
director, officer, employee or agent of the Company; and (d) any and all
actions, suits, proceedings, demands, assessments or judgments, cost and
expenses incidental to any of the foregoing matters set forth in this Section
6.1.
6.2 Indemnification Procedure.
-------------------------
(a) In order for an Investor to be entitled to any indemnification
provided for under this Agreement, such Investor must notify the Company in
writing of the claim within thirty (30) business days after receipt or knowledge
by such Investor of such claim; provided, however, that failure to give such
-------- -------
notification shall not affect the indemnification provided hereunder except to
the extent the Company can demonstrate actual monetary prejudice as a direct or
indirect result of such failure. Thereafter, the Investor shall deliver to the
Company, within thirty (30) business days' time after the Investor's receipt
thereof, copies of all notices and documents (including court papers) received
by the Investor relating to the claim.
-13-
(b) If a claim is made against an Investor, the Company will defend
such claim, at its expense, with counsel selected by the Company but reasonably
satisfactory to the Investor. The Investor shall have the right to participate
in the defense thereof and to employ counsel, which shall be at its own expense,
unless the parties are co-defendants, in which case the Company shall bear such
expense separate from the counsel employed by the Company. The Company shall be
liable for the fees and expenses of counsel employed by the Investor for any
period during which the Company has not assumed the defense thereof (other than
after the thirty (30)-day period described in Section 6.2(a) if the Investor
shall have failed to give notice of the claim). All the parties hereto shall
cooperate in the defense or prosecution thereof. Such cooperation shall include
the retention after reasonable notice of the need therefor and (upon the
Company's request) the provision to the Company of records and information which
are reasonably relevant to such claim, and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder. The Company shall keep the Investor fully
informed of the status of the claim and shall furnish the Investor such
information and documents as it may request concerning the claim. The Investor
shall have the right to monitor the Company's defense or challenge of the claim.
If the Investor determines, in its reasonable discretion, that the Company's
conduct of the defense may subject the Investor to a criminal fine or penalty,
or adverse economic harm, the Investor may obtain, at the Company's expense,
counsel or other advisors of the Investor's own choosing to defend or challenge
the claim. An Company shall have no liability under this Section 6.3 for any
settlements entered into by the Investor without the prior written consent of
the Company.
7. Miscellaneous.
-------------
7.1 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.
7.2 Survival of Warranties. The warranties, representations and covenants
----------------------
of the Company and each Investor contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and the Closing.
7.3 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 permitted
transferees of any shares of Series C Preferred Stock sold hereunder or any
Common Stock issued upon conversion thereof). 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. The Company hereby acknowledges and agrees that each Investor
may assign any right or rights that such Investor may have by reason of this
Agreement to one or more affiliates of such Investor or to one or more persons
or entities organized by the Investors for the purpose of investing in the
Series C Preferred Stock.
-14-
7.4 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of Delaware. If any action or proceeding shall be
brought by any party in order to enforce any right or remedy under this
Agreement, each party hereby consents to submit to the jurisdiction of any state
or federal court of competent jurisdiction sitting within the State of
California.
7.5 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.
7.6 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.
7.7 Notices. Unless otherwise provided, any notice required or permitted
-------
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified or one (1) day after
being entrusted to a reputable overnight delivery service properly addressed to
the party to be notified at the address indicated for such party on the
signature page hereof, or at such other address as such party may designate by
ten (10) days advance written notice to the other parties.
7.8 Finders' Fees. Except as disclosed in the Schedule of Exceptions
-------------
attached hereto as Exhibit B, 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 finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Investor or any of its officers,
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 finder's 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.
7.9 Attorneys' Fees. If any action at law or in equity is necessary to
---------------
enforce or interpret the terms of this Agreement, the Investors' Rights
Agreement or the Amended Certificate, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and disbursements in addition to any other
relief to which such party may be entitled.
7.10 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 written consent of each of the
Investors. 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 have been converted), each future holder of all such securities and
the Company.
7.11 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
-15-
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
7.12 Expenses. Irrespective of whether the Closing is effected, the
--------
Company shall reimburse Investors for all of their reasonable and customary
expenses for legal and financial counsel.
IN WITNESS WHEREOF the parties have executed this Agreement as of the date
first above written.
"COMPANY"
VIRTUAL TELECOM, INC.,
a Delaware corporation
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chief Executive Officer
-16-
SCHEDULE A
----------
LIST OF INVESTORS
-----------------
Name and Number of
Address of Investor Signature Shares Purchased
------------------- --------- ----------------
Alta-Berkeley V, C.V /s/ Alta-Berkeley V., C.V. 486,749
--------------------------
6 rue d'Italie
▇▇-▇▇▇▇
▇▇▇▇▇▇
3 Switzerland
Alta-Berkeley V, S by S, C.V /s/ Alta-Berkeley V, S by S, C.V. 15,040
-------------------------------------
▇ ▇▇▇ ▇'▇▇▇▇▇▇
▇▇-▇▇▇▇
Geneva
3 Switzerland
Alta-Berkeley Nordic Partners, KY /s/ Alta-Berkeley Nordic Partners, KY 38,752
-------------------------------------
▇ ▇▇▇ ▇'▇▇▇▇▇▇
▇▇-▇▇▇▇
▇▇▇▇▇▇
▇ ▇▇▇▇▇▇▇▇▇▇▇
NeSBIC CTE Fund BV /s/ NeSBIC CTE Fund BV 1,351,352
-------------------------------------
▇▇▇▇▇▇▇▇▇▇▇ ▇▇
▇▇▇▇ ▇▇
▇▇▇▇▇▇▇
The Netherlands
GIMV /s/ GIMV 1,081,081
-------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇
▇-▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇
-17-