EXHIBIT 10.1
LOGICAL DESIGN SOLUTIONS, INC.
9% SENIOR SUBORDINATED DEBENTURE
AND WARRANT PURCHASE AGREEMENT
Dated as of March 19, 1997
LOGICAL DESIGN SOLUTIONS, INC.
9% SENIOR SUBORDINATED DEBENTURE
AND WARRANT PURCHASE AGREEMENT
Dated as of March 19, 1997
TABLE OF CONTENTS
ARTICLE I
PURCHASE AND SALE OF SENIOR DEBENTURES AND WARRANTS
1.1 Purchase and Sale of Subordinated Debentures...................... 1
1.2 Issuance of Warrants.............................................. 1
1.3 Investment Units.................................................. 1
1.4 Warrant Shares.................................................... 2
1.5 Closing........................................................... 2
1.6 Use of Proceeds................................................... 2
1.7 Distributions to Certain Shareholders............................. 2
1.8 Termination of S Corporation Status............................... 3
1.9 Merger of LDS and LDSI............................................ 3
1.10 Issuance of Junior Subordinated Debentures........................ 3
1.11 Option Pools...................................................... 4
1.12 Description of Senior Debentures.................................. 4
1.13 Description of Junior Debentures.................................. 5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRINCIPAL SHAREHOLDERS
2.1 Organization and Corporate Power................................... 5
2.2 Authorization...................................................... 6
2.3 Government Approvals............................................... 6
2.4 Authorized and Outstanding Stock................................... 7
2.5 Subsidiaries....................................................... 7
2.6 Financial Information.............................................. 7
2.7 Events Subsequent to the Date of the Financial Statements.......... 8
2.8 Litigation......................................................... 8
2.9 Compliance with Laws and Other Instruments......................... 8
2.10 Taxes.............................................................. 8
2.11 Real Property; Environmental Matters............................... 9
2.12 Personal Property................................................. 10
2.13 Patents, Trademarks, etc.......................................... 10
2.14 Agreements of Directors, Officers and Employees................... 10
2.15 Governmental and Industrial Approvals............................. 11
2.16 Contracts and Commitments......................................... 11
2.17 Registration Rights............................................... 11
2.18 Insurance Coverage................................................ 11
2.19 Employee Matters.................................................. 11
2.20 No Brokers or Finders............................................. 12
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2.21 Transactions with Affiliates...................................... 12
2.22 Assumptions; Guarantees, etc. of Indebtedness of Other Persons.... 12
ARTICLE III
AFFIRMATIVE COVENANTS OF THE COMPANY
3.1 Accounts and Reports.............................................. 12
3.2 Payment of Taxes.................................................. 14
3.3 Maintenance of Key Man Insurance.................................. 14
3.4 Compliance with Laws, etc......................................... 14
3.5 Inspection........................................................ 14
3.6 Corporate Existence; Ownership of Subsidiaries.................... 15
3.7 Compliance with ERISA............................................. 15
3.8 Board Approval.................................................... 15
3.9 Financings........................................................ 15
3.10 Meetings of the Board of Directors................................ 15
3.11 Rule 144A Information............................................. 15
ARTICLE IV
NEGATIVE COVENANTS OF THE COMPANY
4.1 Investments in Other Persons...................................... 16
4.2 Distributions..................................................... 16
4.3 Dealings with Affiliates.......................................... 17
4.4 Merger............................................................ 17
4.5 Limitation on Options............................................. 18
4.6 Limitation on Subsidiary Dividends and Other Distributions........ 18
4.7 No Conflicting Agreements......................................... 18
4.8 Change in Business................................................ 18
4.9 Indebtedness...................................................... 18
4.10 Minimum Net Income................................................ 18
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
5.1 Representations and Warranties.................................... 19
5.2 Permitted Transfers; Legends...................................... 21
ARTICLE VI
SUBORDINATION OF DEBENTURES
6.1 Agreement to Subordinate.......................................... 22
6.2 Acceleration of Senior Debt....................................... 22
6.3 Insolvency, Etc................................................... 23
6.4 Payments Held in Trust............................................ 23
6.5 The Company's Obligations Unconditional........................... 23
6.6 Subrogation Upon Payment of Senior Debt........................... 23
6.7 Notice............................................................ 24
6.8 Knowledge......................................................... 24
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ARTICLE VII
CONDITIONS OF PURCHASERS' OBLIGATION
7.1 Effect of Conditions.............................................. 24
7.2 Representations and Warranties.................................... 24
7.3 Performance....................................................... 24
7.4 No Material Adverse Change........................................ 24
7.5 Opinion of Counsel................................................ 25
7.6 Board Election.................................................... 25
7.7 Redemption Agreement.............................................. 25
7.8 Shareholders Agreement............................................ 25
7.9 Registration Rights Agreement..................................... 25
ARTICLE VIII
CONDITIONS OF THE COMPANY'S OBLIGATIONS
8.1 Effect of Conditions.............................................. 25
8.2 Representations and Warranties.................................... 25
8.3 Performance....................................................... 25
8.4 Payment........................................................... 25
ARTICLE IX
DEFAULTS AND REMEDIES
9.1 Events of Default; Acceleration................................... 26
9.2 Rescission of Acceleration........................................ 28
ARTICLE X
CERTAIN DEFINITIONS
ARTICLE XI
MISCELLANEOUS
11.1 Senior Debenture Payments......................................... 30
11.2 Form, Registration, Transfer and Exchange of Senior Debentures.... 31
11.3 Survival of Representations....................................... 31
11.4 Parties in Interest............................................... 31
11.5 Debentures Owned by Affiliates.................................... 32
11.6 Amendments and Waivers............................................ 32
11.7 Notices........................................................... 32
11.8 Expenses.......................................................... 33
11.9 Counterparts...................................................... 33
11.10 Effect of Headings................................................ 33
11.11 Transferability as Unit........................................... 33
11.12 Governing Law..................................................... 34
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EXHIBITS
A Form of 9 % Senior Subordinated Debenture
B Warrant Agreement
C Merger Agreement
D Form of 9% Junior Subordinated Debenture
E Opinion of ▇▇▇▇▇ & ▇▇▇▇ LLP
F Redemption Agreement
G Shareholders Agreement
H Registration Rights Agreement
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March 19, 1997
To: The Persons listed on
Schedule 1.1 attached hereto:
------------
Re: Senior Subordinated Debentures and Warrants
Ladies and Gentlemen:
Logical Design Solutions, Inc., a New Jersey corporation ("LDS"), and ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇ (each a "Principal Shareholder" and collectively
the "Principal Shareholders"), hereby agree with each of you as follows:
ARTICLE I
PURCHASE AND SALE OF SENIOR DEBENTURES AND WARRANTS
1.1 Purchase and Sale of Subordinated Debentures. At the Closing (as herein
defined), LDS will sell to you (the "Purchasers") for the aggregate purchase
price of Five Million Two Hundred Forty - Three Thousand Nine Hundred and Two
($5,243,902) Dollars 9% Senior Subordinated Debentures of the Company (as
defined herein) (the "Senior Debentures") in the aggregate principal amount of
$5,540,735.71. Each of the Purchasers agrees to purchase, separately and
severally, the aggregate amount of Senior Debentures and Warrants (as defined
below) set forth opposite its name on Schedule 1.1 hereto. The Company shall not
be obligated to sell any of the Senior Debentures or the Warrants unless all
conditions set forth in Article VIII hereof shall have been satisfied or waived.
The Senior Debentures shall be in the form of Exhibit A attached hereto.
1.2 Issuance of Warrants. At the Closing, LDS will issue to the Purchasers
warrants (the "Warrants") to acquire an aggregate of 215,000 shares of common
stock, no par value per share (the "Common Stock"), of LDS. The Warrants will be
issued pursuant to a Warrant Agreement in the form of Exhibit B attached hereto
(the "Warrant Agreement").
1.3 Investment Units. The Senior Debentures and the Warrants constitute
investment units ("Investment Units") for the purposes of Section 1273(c)(2)(A)
of the Internal Revenue Code of 1986 as amended (the "Code"). In accordance with
such section and Section 1273(b)(2) of the Code, the issue price of investment
units of a Purchaser is the amount such Purchaser pays for its Senior Debenture.
LDS and the Purchasers agree that within thirty (30) days after the Closing they
will in good faith agree in writing as to the allocation of the issue price
between the Senior Debentures and the Warrants in proportion to their respective
fair market values. None of the parties will take any position in its tax
returns that is inconsistent with such agreed upon allocation. LDS will provide
the Purchasers with any information necessary for them to report their income
from this transaction properly.
1.4 Warrant Shares. LDS shall at all times reserve from its authorized but
unissued capital a sufficient number of shares of Common Stock (the "Warrant
Shares") for issuance upon exercise of the Warrants granted pursuant to the
Warrant Agreement.
1.5 Closing. Subject to the satisfaction or waiver of the conditions set
forth in Articles VII and VIII hereof, the sale and purchase of the Senior
Debentures and Warrants shall be made at a closing (the "Closing") to be held at
the offices of ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, A Professional Corporation, ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇, at 10:00 A.M. on March 19, 1997 or such
later date as may be agreed upon by the Company and the Purchasers. The date on
which the Closing occurs is referred to herein as the "Closing Date". Payment at
the Closing for the Senior Debentures and Warrants shall be by wire transfer
payable in immediately available federal funds. Each Purchaser shall pay that
amount for the Senior Debentures and Warrants being acquired by it at the
Closing as is set forth on Schedule 1.1 hereof. At the Closing, the Company will
deliver to each Purchaser one or more notes representing the Senior Debentures
purchased by such Purchaser and one or more warrant certificates evidencing the
Warrants being acquired by such Purchaser in such denominations and issued in
such names as may be requested by such Purchaser.
1.6 Use of Proceeds. The proceeds from the sale of the Senior Debentures
and Warrants will be used to provide working capital and to fund business
expansion and expenses associated with the transaction contemplated in this
Agreement.
1.7 Distributions to Certain Shareholders. The parties agree that the
following distributions shall be made to shareholders of LDS and Logical Design
Solutions International, Inc. ("LDSI") at or prior to the Closing:
(a) Prior to the Closing, each of LDS and LDSI shall have distributed to
their respective shareholders an aggregate amount of $1,014,6004 representing
their aggregate retained earnings as of December 31, 1995.
(b) It is expected that within 120 days following the Closing, ▇▇▇▇
Atlantic will commit to make to LDSI a payment or payments in the aggregate
amount of $1.7 million relating to the licensing of LDSI's Teletrac product
(such payment referred to herein as the "Prospective Exclusivity Payment"). The
parties agree that if within such 120 day period ▇▇▇▇ Atlantic does commit to
make such payment, LDSI will distribute to its sole shareholder the account
receivable consisting of such commitment to make such payment. Neither LDS nor
LDSI shall have any obligation to make any such distributions to the extent that
▇▇▇▇ Atlantic does not commit to make such Prospective Exclusivity Payment.
(c) At or prior to the Closing, LDS and LDSI shall have distributed to
their respective shareholders amounts equal to the federal and state income
taxes payable by such shareholders (at an assumed rate of 37%), as shareholders
of S corporations, an aggregate amount of $634,798.27 with respect to the income
earned by LDS and LDSI during the period January 1, 1996 through December 31,
1996, and $215,596.41 with respect to income earned by LDS and LDSI during the
period January 1, 1997 through February 28, 1997; provided, however, that no
such distributions shall be made with respect to any income tax incurred by such
shareholders with respect to the other distributions set forth in this Section
1.7, nor with respect to the receipt
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by such shareholders of the Junior Subordinated Debentures described below.
Following the Closing, if it is determined that the Company has either
overdistributed or underdistributed amounts otherwise payable to the Principal
Shareholders, appropriate adjustments will be made.
1.8 Termination of S Corporation Status. LDS shall take such steps as the
Purchasers may request to terminate its status as an S corporation, effective as
of the Closing Date.
1.9 Merger of LDS and LDSI. (a) Immediately following the distribution
described in Section 1.7(b), and in all events within 120 days following the
Closing, LDS and LDSI shall be merged (such transaction referred to herein as
the "Merger"), with LDS surviving such Merger. As used hereafter in this
Agreement, the term "Company" shall mean LDS prior to the Merger, and shall mean
LDS as the surviving corporation following the Merger; provided that for
purposes of Article 11, except as otherwise noted, the term "Company" shall mean
LDS and LDSI on a combined basis as if the Merger had occurred prior to the date
hereof. Such merger shall be effected on the terms set forth in the merger
agreement in the form of Exhibit C attached hereto (the "Merger Agreement")
which shall be approved by the shareholders of each of LDS and LDSI and executed
on behalf of each such corporation prior to the Closing Date. The Principal
Shareholders agree that they shall take such action as may be required to effect
such merger in accordance with the terms of the Merger Agreement.
(b) Unless expressly called for or permitted by this Agreement or otherwise
consented to by the Purchasers in writing, from the Closing Date through the
date of the Merger, LDSI shall:
(i) perform in all material respects all obligations of LDSI under
agreements, contracts and instruments relating to or affecting its
properties, assets and business;
(ii) comply in all material respects with all statutes, laws,
ordinances, rules and regulations applicable to the Company;
(iii) not merge or consolidate with, or agree to merge or consolidate
with, or purchase substantially all the assets of, or otherwise acquire a
business or any corporation;
(iv) not make any dividends, distribution or other payments with
respect to its capital stock;
(v) not incur any indebtedness for borrowed money;
(vi) not incur any capital expenditure, or commit to an), such capital
expenditure, in excess of $5,000; and
(vii) not create or enlarge or enhance any employee benefit plan or
enter into any employment contract or increase compensation paid to any
officer paid to LDSI.
1.10 Issuance of Junior Subordinated Debentures. Effective as of March 18,
1997, LDS and LDSI distributed to the Principal Shareholders as set forth on
Schedule 1.10 of 9% Junior Subordinated Debentures in the forms of Exhibit D and
D-1, respectively, attached hereto
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(collectively, the "Junior Debentures" and, together with the Senior Debentures,
the "Debentures") in the aggregate principal amount of $1,114,289.50. The Junior
Debentures will be subordinate to the Senior Debentures as hereinafter set
forth.
1.11 Option Pools. Within thirty (30) days after the Closing, Date, there
shall be established three option plans (collectively, the "Option Plans"), each
of which shall be reasonably acceptable in form and substance to the Purchasers
and shall provide for the issuance of options, as follows:
(a) An option pool ("Option Pool A") will be established for current and
future senior management members and directors of the Company, and there shall
be reserved for issuance thereunder 100,000 shares of common stock.
(b) An option pool ("Option Pool B") shall be established for the Principal
Shareholders, with the exercise price of options granted pursuant thereto based
upon an equity evaluation of the Company of $40 million and there shall be
50,000 shares of Common Stock reserved for issuance under such plan.
(c) A third option pool ("Option Pool C") will be established for ▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇, with the exercise price of options granted pursuant
thereto based upon an equity valuation of the Company of $60 million. There
shall be 50,000 shares of Common Stock reserved for issuance under such plan.
1.12 Description of Senior Debentures. The Senior Debentures shall have the
following terms, and shall be entitled to the following rights and benefits:
(a) The principal amount of the Senior Debentures shall be paid March 19,
2002. The Senior Debentures may, at each Purchaser's option, be pre consummation
of a Liquidity Event (as herein defined). The Company may prepay the Senior
Debentures at any time and from time to time in whole or in installments of $
100,000, without premium or penalty. Each such prepayment shall be preceded by
two Business Days' notice. Any partial prepayment of the Senior Debentures shall
be allocated among all holders of Senior Debentures pro rata in proportion to
the principal amount of the Senior Debentures held by each.
(b) The Senior Debentures shall bear interest from the date of issuance
until the date of payment of principal in full at the rate of 9% per year.
Interest shall be computed on the basis of a 360-day year and the actual number
of days elapsed, on the unpaid principal amount of the Senior Debentures.
Interest shall accrue and compound annually and shall be paid upon payment of
principal.
(c) Any interest not paid when due and payable shall thereafter be paid on
demand by the Purchasers, together with a late charge of two percent (2%) of the
amount of interest payment due.
(d) All payments of principal and interest on the Senior Debentures shall
be made by the Company in lawful money of the United States of America in
immediately available federal funds (or at the request of the holder of a Senior
Debenture, by certified or bank check or wire transfer) on the date such payment
is due.
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(e) The indebtedness evidenced by the Senior Debentures shall be junior and
subordinate in right of payment to all Senior Debt, as that term is defined in
Article VI hereof but shall be senior in right of payment to all indebtedness
evidenced by the Junior Debentures.
1.13 Description of Junior Debentures.
(a) The principal amount of the Junior Debentures shall be payable in full
on March 19, 2003. The Junior Debentures may, at the holders' option, be prepaid
in full upon consummation of a Liquidity Event. The Company may prepay the
Junior Debentures from time to time in whole or installments of $100,000,
without premium or penalty. Each such prepayment shall be preceded by two
Business Days' notice. Any partial prepayment of the Junior Debentures shall be
allocated among all holders of Junior Debentures pro rata in proportion to the
principal amount of the Junior Debentures held by each.
(b) The Junior Debentures shall bear interest on the date of issuance until
the date of payment of principal in full at the rate of 9% per year. Interest
shall be computed on the basis of a 360-day year and the actual number of days
elapsed, on the unpaid principal amount of the Junior Debentures. Interest shall
accrue and compound annually and shall be paid upon payment of principal.
(c) Any interest not paid when due and payable shall thereafter be paid on
demand by the holders of the Junior Debentures, together with a late charge of
2% of the amount of interest payment due.
(d) All payments of principal and interest on the Junior Debentures shall
be made by the Company in lawful money of the United States of America in
immediately available federal funds (or at the request of a holder of a Junior
Debenture, by certified or bank check or wire transfer) on the date such payment
is due.
(e) The indebtedness evidenced by the Junior Debentures shall be junior and
subordinate in right of payments to all Senior Debt, as that term is defined in
Article VI hereof, including, with respect to the Senior Debentures,
indebtedness evidenced thereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE PRINCIPAL SHAREHOLDERS
In order to induce the Purchasers to purchase the Senior Debentures and
Warrants, the Company and the Principal Shareholders, acting jointly and
severally, make the following representations and warranties which shall be
true, correct and complete in all respects on the date hereof and shall be true,
correct and complete in all material respects as of the Closing except for those
representations and warranties that address matters only as of a particular date
or only with respect to a specific period of time:
2.1 Organization and Corporate Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own its properties and to carry on its business
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as presently conducted. The Company is qualified as a foreign corporation in
good standing in each jurisdiction in which it owns or leases real property or
maintains employees.
2.2 Authorization. (a) The Company has all necessary corporate power and
has taken all necessary corporate action required for the due authorization,
execution, delivery and performance by the Company of this Agreement, the
Warrant Agreement, the Debentures, the Shareholders Agreement, the Redemption
Agreement and the Registration Rights Agreement (such agreements other than this
Agreement hereinafter referred to collectively as the "Related Agreements") and
any other agreements or instruments executed by the Company in connection
herewith or therewith and the consummation of the transactions contemplated
herein or therein, and for the due authorization, issuance and delivery of the
Debentures, the Warrants, and upon exercise of the Warrants pursuant to the
terms of the Warrant Agreement and upon payment of the exercise price therefor,
the Warrant Shares. The issuance of the Debentures, the Warrants and the Warrant
Shares does not require any further corporate action and is not and, except as
set forth in the Related Agreements, will not be subject to any preemptive
right, right of first refusal or the like. This Agreement and the Related
Agreements and the other agreements and instruments executed by the Company in
connection herewith or therewith will each be a valid and binding obligation of
the Company enforceable in accordance with its respective terms, except as
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally and except as enforcement thereof is
subject to general principles of equity (regardless of whether enforcement is
considered' in a proceeding in equity or at law).
(b) Each Principal Shareholder has full legal capacity and unrestricted
power to execute and deliver this Agreement and the Related Agreements to which
he or she is a party, and any other agreements or instruments executed by him or
her in connection herewith or therewith and to consummate the transactions
contemplated herein or therein. This Agreement, the Related Agreements and the
other agreements and instruments executed by the Principal Shareholders in
connection herewith or therewith each will be a valid and binding obligation of
the Principal Shareholders enforceable in accordance with its respective terms,
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws relating
to or affecting enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
(c) Each Principal Shareholder owns, of record and beneficially, the number
of shares of Common Stock set forth opposite his or her name on Schedule 2.4
hereto, free and clear of any pledges, security interests, liens, charges or
other encumbrances.
2.3 Government Approvals. No consent, approval, license or authorization
of, or designation, declaration or filing with, any court or governmental
authority is or will be required on the part of the Company or the Principal
Shareholders in connection with the execution, delivery and performance by the
Company or the Principal Shareholders of this Agreement, any of the Related
Agreements and any other agreements or instruments executed by the Company or
the Principal Shareholders in connection herewith or therewith, or in connection
with the issuance of the Debentures, the Warrants and the Warrant Shares, except
for (i) those which have already been made or granted, (ii) those which may be
required under state securities or "blue
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sky" laws, and (iii) the filing of registration statements with the Securities
and Exchange Commission (the "Commission") and any applicable state securities
commission as specifically provided for in the Registration Rights Agreement.
2.4 Authorized and Outstanding Stock. The authorized capital stock of LDS
consists of 1,500,000 shares of Common Stock, of which 785,000 shares are
validly issued and outstanding and held of record and owned beneficially by the
Persons set forth on Schedule 2.4 attached hereto, free and clear of all liens,
security interests, restrictions on transfer, and other encumbrances, and the
authorized capital stock of LDSI consists of 2,500 shares of Common Stock, of
which 100 shares are validly issued and outstanding and held of record and owned
beneficially by the Persons set forth on Schedule 2.4 attached hereto, free and
clear of all liens, security interests, restrictions on transfer, and other
encumbrances. All issued and outstanding shares of capital stock of LDS and LDSI
are, and upon exercise of the Warrants pursuant to the terms of the Warrant
Agreement and upon payment of the exercise price therefor, all Warrant Shares
will be, duly and validly authorized, validly issued and fully paid and
non-assessable and free from any restrictions on transfer, except for
restrictions imposed by federal or state securities or "blue-sky" laws and
except for those imposed pursuant to this Agreement and any Related Agreement.
Except as set forth on Schedule 2.4, there are no outstanding warrants, options,
commitments, preemptive rights, rights to acquire or purchase, conversion rights
or demands of any character relating to the capital stock or other securities of
LDS or LDSI. All issued and outstanding shares of capital stock of LDS and LDSI
were issued (i) in transactions exempt from the registration provisions of the
Act, and (ii) in compliance with or in transactions exempt from the registration
provisions of applicable state securities or "blue-sky" laws.
2.5 Subsidiaries. The Company does not have any Subsidiaries or other
equity investment in any other Person.
2.6 Financial Information. The Company has previously delivered to the
Purchasers the financial statements of the Company for the year ended December
31, 1996, accompanied by the audit report of Ernst & Young LP (the "Audited
Financial Statements"), and the financial statements of the Company for the year
ended December 31, 1995 and for the two months ended February 28, 1997 (the
"Unaudited Financial Statements" and, together with the Audited Financial
Statements, the "Financial Statements"). The Financial Statements are in
accordance with the books and records of the Company and present fairly in
accordance with generally accepted accounting principles applied on a basis
consistent with prior periods the financial condition and results of operations
of the Company as of the dates and for the periods shown; provided, however,
that the Unaudited Financial Statements do not have all footnotes recorded in
accordance with generally accepted accounting principles, and are subject to
year-end adjustments. Except in connection with the transactions contemplated
herein, the Company has no liability or obligation, contingent or otherwise,
which is not adequately reserved against or reflected in the Audited Financial
Statements, except for liabilities and obligations incurred in the ordinary
course of business since December 31, 1996. Since December 31, 1996, except in
connection with the transactions contemplated herein, (i) there has been no
change in the business, assets, liabilities, condition (financial or otherwise)
or operations of the Company except for changes in the ordinary course of
business which would not have a Material Adverse Effect, and (ii) none of the
business, prospects, condition (financial or otherwise), operations,
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property or affairs of the Company has been materially adversely affected by any
occurrence or development, individually or in the aggregate, whether or not
insured against.
2.7 Events Subsequent to the Date of the Financial Statements. Except in
connection with the transactions contemplated herein, and except as set forth on
Schedule 2.7, since December 31, 1996, the Company has not, except in the
ordinary course of business, (i) issued any stock, stock options, warrants or
other securities convertible into or exchangeable for capital stock, or any bond
or other corporate security, (ii) borrowed any money (except under revolving
lines of credit which existed as of December 31, 1996) or mortgaged, pledged or
subjected to any lien any of its assets, tangible or intangible, (iii) sold,
assigned or transferred any of its tangible assets, or canceled any debt or
claim, or (iv) suffered any material loss of property or waived any right of
substantial value. Except as set forth on Schedule 2.7, since December 31, 1996,
the Company has not declared or made any payment or distribution to stockholders
or purchased or redeemed any shares of its capital stock or other securities.
2.8 Litigation. Except as otherwise set forth on Schedule 2.8 hereto, there
is no litigation or governmental proceeding or investigation pending or, to the
knowledge of the Company or the Principal Shareholders threatened, against the
Company or affecting any of its properties or assets, or against any officer,
key employee or shareholder of the Company in his or her capacity as such, and,
to the knowledge of the Company and the Principal Stockholders, no event has
occurred nor does there exist any condition on the basis of which any
litigation, proceeding or investigation is reasonably likely to be instituted
with any substantial likelihood of recovery where such recovery would have a
Material Adverse Effect. Neither the Company nor any officer, key employee or
shareholder of the Company in his or her capacity as such is, to the knowledge
of the Company and the Principal Shareholders, in material default with respect
to any order, writ, injunction, decree, ruling or decision of any court,
commission, board or other government agency.
2.9 Compliance with Laws and Other Instruments. The Company is in
compliance with all of the provisions of this Agreement and of its charter and
by-laws, and, in all material respects with the provisions of each mortgage,
indenture, lease, license, other agreement or instrument, judgment, decree,
judicial order, statute, and regulation by which it is bound or to which it or
its properties are subject. Neither the execution, delivery or performance of
this Agreement and the Related Agreements nor the consummation of the
transactions contemplated hereby and thereby, nor the offer, issuance, sale or
delivery of the Debentures, the Warrants and Warrant Shares, with or without the
giving of notice or passage of time, or both, will violate, or result in any
breach of, or constitute a default under, or result in the imposition of any
encumbrance upon any asset of the Company pursuant to any provision of its
charter or by-laws, subject to the Charter Amendments, or any statute, rule or
regulation, contract, lease, judgment, decree or other document or instrument by
which the Company is bound or to which it or any of its properties are subject,
or will cause the Company to lose the benefit of any right or privilege it
presently enjoys or cause any Person who is expected to normally do business
with the Company to discontinue to do so on the same basis, except for
violations, breaches, defaults, encumbrances or losses which would not have a
Material Adverse Effect.
2.10 Taxes. Each of LDS and LDSI is a S corporation within the meaning of
the Internal Revenue Code of 1986, as amended (the "Code") for federal income
tax purposes and
8
has been a S corporation continually since the date of its formation. The
Company has filed all tax returns, reports and forms (including statements of
estimated taxes owed) required to be filed within the applicable periods for
such filings and has paid all taxes required to be paid, and has established
adequate reserves (net of estimated tax payments already made) for the payment
of all taxes payable in respect to the period subsequent to the last periods
covered by such returns. All such tax returns, reports and forms are true,
correct and complete. Each of LDS and LDSI has properly classified for tax
purposes all employees, consultants and independent contractors, and has made
all filings and has withheld and paid all taxes, required to have been filed,
withheld or paid in connection with services provided by such persons. Adequate
amounts have been withheld by LDS and LDSI from its respective employees for all
periods in compliance with the tax, social security and unemployment withholding
provisions of all federal, state, local and foreign laws. No deficiencies for
any tax are currently assessed against LDS or LDSI, and no tax returns of LDS or
LDSI have ever been audited, and, to the knowledge of LDS or LDSI and the
Principal Shareholders, there is no such audit pending and the Company has not
received any notice for any taxing authority that it is contemplating such an
audit. There is no tax lien, whether imposed by any federal, state or local
taxing authority, outstanding against the assets, properties or business of LDS
or LDSI, other than any lien for taxes not yet due and payable. For the purposes
of this Agreement, the term "tax" shall include all federal, state, local and
foreign taxes, including income, franchise, property, sales, use, gross
receipts, excise, withholding, payroll and employment taxes or other similar
assessments of any kind whatsoever, including all interest, penalties and
additions imposed with respect to such amounts.
2.11 Real Property; Environmental Matters.
(a) Schedule 2.11 sets forth the addresses and uses of all real property
that the Company owns or leases or subleases, and any lien (exclusive of any
statutory landlord's lien) or encumbrance for which the Company is liable and
which the Company has secured with any such owned real property or leasehold
interest, specifying in the case of each such lease or sublease, the name of the
lessor or sublessor, as the case may be, the lease term and the obligations of
the lessee thereunder (or in lieu thereof, attaching a copy of such lease or
sublease). There are no defaults by the Company, or to the actual knowledge of
the Company and the Principal Shareholders (without investigation by the Company
or the Principal Shareholders), by any other party thereto, which might curtail
in any material respect the present use by the Company of the property listed on
Schedule 2.11. The performance by the Company of this Agreement and the Related
Agreements will not result in the termination of, or in any increase of any
amounts payable under, any lease listed on Schedule 2.11.
(b) All real property, owned or leased by the Company comply with all
applicable laws, rules, regulations, order, ordinances, judgments and decrees of
any governmental authorities with respect to all environmental statutes, rules
and regulations. The Company has not received notice of, nor does the Company or
any Principal Shareholder have knowledge of, any past or present events,
conditions, circumstances, activities, practices, incidents, actions or plans of
the Company which may cause noncompliance with, or which may give rise to any
liability for any claim, action, suit, proceeding, hearing, or investigation,
based on or related to the disposal, storage, handling, manufacture, processing,
distribution, use, treatment or transport, or the emission, discharge, release
or threatened release into the environment, of any Substance (as defined
herein). As used in this Section 2.11, the term "Substance" or "Substances"
shall mean
9
any pollutant, hazardous substance, hazardous material, hazardous waste or toxic
waste, as defined in any presently enacted federal, state or local statute or
any regulation that has been promulgated pursuant thereto. No part of any of the
real property owned or leased by the Company has been listed or proposed for
listing on the National Priorities List established by the United States
Environmental Protection Agency, or any other such list by any federal, state or
local authorities.
(c) The Company has all registrations, permits, licenses, and approvals
issued by or on behalf of any federal, state or local governmental body or
agency if any ("Environmental Permits") that are required in connection with the
operation by the Company of its business, the discharge or emission of
Substances by the Company from real property owned or leased by the Company or
the generation, treatment, storage, transportation, or disposal of any such
Substances by the Company.
2.12 Personal Property. Except as set forth on Schedule 2.12 and except for
property sold or otherwise disposed of in the ordinary course of business since
December 31, 1996, the Company owns free and clear of any liens or encumbrances,
all of the personal property reflected as owned by the Company in the most
recent balance sheet contained in the Financial Statements, and all other
material items of personal property acquired by the Company through the date
hereof. All material items of such personal property are in normal operating
condition, wear and tear excepted.
2.13 Patents, Trademarks, etc. Set forth on Schedule 2.13 is a list and
brief description of all material patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service ▇▇▇▇ applications
trade names and copyrights and all applications for such that are in the process
of being prepared, owned by or registered in the name of the Company, or of
which the Company is a licensor or licensee or in which the Company has any
right, and in each case a brief description of the nature of such right. The
Company owns or possesses adequate licenses or other rights to use all patents,
patent applications, trademarks, trademark applications, service marks, service
▇▇▇▇ applications, trade names, copyrights, manufacturing processes, formulae,
trade secrets and know how (collectively, "Intellectual Property") necessary or
desirable to the conduct of its business as conducted and as proposed to be
conducted, and to conduct and market any educational course or program now
marketed or conducted by the Company and no claim is pending or, to the
knowledge of the Company and the Principal Shareholders, threatened to the
effect that the operations of the Company infringe upon or conflict with the
asserted rights of any other person under any Intellectual Property, or that the
Company does not have the right to market any educational course or program, and
there is no known basis for any such claim (whether or not pending or
threatened). No claim is pending or, to the knowledge of the Company and the
Principal Shareholders, threatened to the effect that any such Intellectual
Property owned or licensed by the Company, or which the Company otherwise has
the right to use, is invalid or unenforceable by the Company, and there is no
known basis for any such claim (whether or not pending or threatened).
2.14 Agreements of Directors, Officers and Employees. To the knowledge of
the Company, no director, officer or employee of or consultant to the Company is
in violation of any terms of any employment contract, non-competition agreement,
non-disclosure agreement, patent disclosure or assignment agreement or other
contract or agreement containing restrictive
10
covenants relating to the right of any such director, officer, employee or
consultant to be employed or engaged by the Company because of the nature of the
business conducted or proposed to be conducted by the Company, or relating to
the use of trade secrets or proprietary information of others.
2.15 Governmental and Industrial Approvals. The Company has all the
material permits, licenses, orders, franchises and other rights and privileges
of all federal, state, local or foreign governmental or regulatory bodies
necessary for the conduct of its business as presently conducted. All such
permits, licenses, orders, franchises and other rights and privileges are in
full force and effect and, to the knowledge of the Company and the Principal
Shareholders, no suspension or cancellation of any of them is threatened, and
none of such permits, licenses, orders, franchises or other rights and
privileges will be affected by the consummation of the transactions contemplated
in this Agreement and the Related Agreements.
2.16 Contracts and Commitments. Except in connection with the transactions
set forth herein, and except as set forth on Schedule 2.16 attached hereto, the
Company has no contract, obligation or commitment which is material or which
involves a potential material commitment or any stock redemption or stock
purchase agreement, stock option plan, shareholders' agreement, financing
agreement, license or real property lease. For purposes of this Section 2.16, a
contract, obligation or commitment shall be deemed material if it requires
expenditures to be made by the Company within one year from the date hereof in
excess of $100,000 or requires payment to the Company within one year from the
date hereof in excess of $100,000 and is not cancelable by the Company without
penalty within 30 days.
2.17 Registration Rights. The Company has not granted any rights relating
to registration of its capital stock under the Act or state securities laws
other than those contained in the Registration Rights Agreement.
2.18 Insurance Coverage. Schedule 2.18 hereto contains an accurate list of
the insurance policies currently maintained by the Company. Except as described
on Schedule 2.18, there are currently no claims pending against the Company
under any insurance policies currently in effect and covering the property,
business or employees of the Company, and all premiums due and payable with
respect to the policies maintained by the Company have been paid to date. All
such policies are in full force and effect and provide insurance, including
without limitation, liability insurance, in such amounts and against such risks
as is customary for companies engaged in similar businesses to the Company to
protect employees, properties, assets, businesses and operations of the Company.
2.19 Employee Matters. Except as set forth on Schedule 2.19, and except as
set forth herein, the Company does not have in effect any employment agreements,
consulting agreements, deferred compensation, severance, pension or retirement
agreements or arrangements, bonus, incentive or profit-sharing plans or
arrangements, or labor or collective bargaining agreements, written or oral. The
Company and the Principal Shareholders have no knowledge that any of the
officers or other key employees of the Company presently intends to terminate
his employment. The Company is in compliance in all material respects with all
applicable laws and regulations relating to labor, employment, fair employment
practices, terms and conditions of employment, and wages and hours. The Company
is in material compliance
11
with the terms of all plans, programs and agreements listed on Schedule 2.19,
and each such plan, program or agreement is in material compliance with all of
the requirements and provisions of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"). No such plan or program has engaged in any
"prohibited transaction" as defined in Section 4975 of the Code, or has incurred
any "accumulated funding deficiency" as defined in Section 302 of ERISA, nor has
any reportable event as defined in Section 4043(b) of ERISA occurred with
respect to any such plan or program. With respect to each plan listed on
Schedule 2.19, any required filings, including all filings required to be made
with the United States Department of Labor and Internal Revenue Service, have
been timely filed, except where the failure to make such filings will not have a
Material Adverse Effect. The consummation of the transactions contemplated
hereby will not entitle any employee of the Company to receive any bonus,
severance or other payment.
2.20 No Brokers or Finders. Except for a fee in the amount of $200,000
payable to Samedan, Inc., of which fee $80,000 shall be paid by the Company in
cash at the Closing, and $120,000 of which shall be paid through the issuance of
Senior Debentures and Warrants as provided in Article 1, the parties hereto
agree that no person has or will have, as a result of the transactions
contemplated by this Agreement, any right, interest or claim against or upon the
Company or any Purchaser for any commission, fee or other compensation as a
finder or broker because of any act or omission by the Company or any Purchaser.
2.21 Transactions with Affiliates. Except as set forth on Schedule 2.21,
and except as set forth herein, there are no loans, leases or other continuing
transactions between the Company on the one hand, and any officer or director of
the Company or any person owning five percent (5%) or more of the Common Stock
of the Company or any respective family member or affiliate of such officer,
director or shareholder on the other hand.
2.22 Assumptions; Guarantees, etc. of Indebtedness of Other Persons. Except
as set forth on Schedule 2.22, the Company has not assumed, guaranteed, endorsed
or otherwise become directly or contingently liable on or for any indebtedness
for borrowed money of any other Person, except guarantees by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business.
ARTICLE III
AFFIRMATIVE COVENANTS OF THE COMPANY
Without limiting any other covenants and provisions hereof, the Company
covenants and agrees that except as is otherwise provided in Sections 3.12, 3.13
and Section 11.4, it will observe the following covenants on and after the
Closing Date and until the first to occur of (i) consummation of a Qualified
Public Offering, and (ii) repayment in full of all obligations under the
Debentures and redemption of all Warrant Shares.
3.1 Accounts and Reports. The Company will, and will cause each of its
Subsidiaries to, maintain a system of accounts in accordance with generally
accepted accounting principles consistently applied and the Company will, and
will cause each of its Subsidiaries to, keep full
12
and complete financial records. The Company will furnish to each Purchaser the
information set forth in this Section 3.1.
(a) Within ninety (90) days after the end of each fiscal year, a copy of
the consolidated and consolidating balance sheet of the Company and its
Subsidiaries as at the end of such year, together with consolidated and
consolidating statements of income, shareholders' equity and cash flow of the
Company and its Subsidiaries for such year, setting forth in each case in
comparative form the corresponding figures for the preceding fiscal year, all in
reasonable detail and accompanied by the unqualified report of Ernst & Young LP
or such other of the six largest public accountant firms (measured by total
revenues) as may be selected from time to time by the Board of Directors;
provided that such consolidating statements need not be audited.
(b) Within thirty (30) days after each month, a preliminary consolidated
and consolidating balance sheet of the Company and its Subsidiaries as of the
end of such month and preliminary consolidated and consolidating statements of
income, shareholders' equity and cash flow for such month and for the period
commencing at the end of the previous fiscal year and ending with the end of
such month, setting forth in each case in comparative form the corresponding
figures for the corresponding period of the preceding fiscal year, all in
reasonable detail.
(c) At the time of delivery of each monthly and annual statement, a
certificate, executed by either the president or chief financial officer of the
Company stating that such officer has reviewed the provisions of Articles III,
IV and IX of this Agreement and has no knowledge of any default by the Company
or any Subsidiary in the performance or observance of any of the provisions
thereof or, if such officer has such knowledge, specifying such default.
(d) Not later than thirty (30) days prior to the end of each fiscal year, a
copy of the operating plan and budget for the next fiscal year required under
Section 3.8.
(e) Promptly upon receipt thereof, any written report, any so called
"management letter", and any other reports submitted to the Company or any
Subsidiary by its independent public accountants relating to the business,
prospects or financial condition of the Company and its Subsidiaries.
(f) Promptly after the commencement thereof, notice of (i) all actions,
suits and proceedings before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, affecting the
Company (or any Subsidiary) which, if successful, would have a Material Adverse
Effect; and (ii) all material defaults by the Company or any Subsidiary (whether
or not declared) under any agreement for money borrowed (unless waived or cured
within applicable grace periods);
(g) Promptly upon sending, making available, or filing the same, all
reports and financial statements as the Company (or any Subsidiary) shall send
or make available generally to the shareholders of the Company as such or to the
Commission; and
(h) Such other information with regard to the business, properties or the
condition or operations, financial or otherwise, of the Company or its
Subsidiaries as the Purchasers may from time to time reasonably request.
13
3.2 Payment of Taxes. The Company will pay and discharge (and cause any
Subsidiary to pay and discharge) all taxes, assessments and governmental charges
or levies imposed upon it or upon its income or profits, or upon any properties
belonging to it, prior to the date on which penalties attach thereto, and all
lawful claims which, if unpaid, might become a lien or charge upon any
properties of the Company (or any Subsidiary), provided that neither the Company
nor any Subsidiary shall be required to pay any such tax, assessment, charge,
levy or claim which (i) has not been asserted or is not owed, or (ii) is being
contested in good faith and by proper proceedings if the Company or such
Subsidiary shall have set aside on its books adequate reserves in the opinion of
management and the Company's independent accountants with respect thereto.
3.3 Maintenance of Key Man Insurance. The Company will, at its expense, use
its best effort to maintain a life insurance policy with a death benefit of at
least $ 1,000,000 with a responsible and reputable insurance company payable to
the Company on the life of each of ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇. The
Company will maintain such policies and will not cause or permit any assignment
of the proceeds of such policies and will not borrow against such policies. The
Company will add one designee of the Purchasers as a notice party to such
policy, and will request that the issuer of each policy provide such designee
with ten (10) days' notice before either such policy is terminated (for failure
to pay premium or otherwise) or assigned, or before any change is made in the
designation of the beneficiary thereof. Each of the Principal Shareholders
hereby represents and warrants that he or she has not in the past been denied
insurance on usual and customary rates available for an insured without a
pre-existing condition, and that he or she has no knowledge of any fact or
circumstance which would prevent the Company from obtaining life insurance on
his or her life at such usual and customary rates.
3.4 Compliance with Laws, etc. The Company will comply (and cause each of
its Subsidiaries to comply) with all applicable laws, rules, regulations and
orders of any governmental authority, the noncompliance with which would have a
material adverse effect on the business, condition or results of operations of
the Company and its Subsidiaries, taken as a whole.
3.5 Inspection. At any reasonable time during normal business hours and
from time to time, but not more frequently than once per calendar quarter,
respectively, for all Purchasers and not more than once every twelve months for
all unaffiliated transferees of the Purchasers, as a group, the Company (and
each of its Subsidiaries) will permit (i) any one or more of the Purchasers who
then own, of record or beneficially, any Debentures, Warrants or Warrant Shares
who owns, of record or beneficially, at least ten percent (10%) of the then
outstanding principal amount of the Debentures, Warrants or Warrant Shares, and
(ii) any of the agents or representatives of the foregoing Persons, to examine
and make copies of and extracts from the records and books of account of and
visit the properties of the Company (and any of its Subsidiaries) and to discuss
the Company's affairs, finances and accounts with any of its officers or
directors; provided that any Person or Persons exercising rights under this
Section 3.5 shall (i) use all reasonable efforts to ensure that any such
examination or visit results in a minimum of disruption to the operations of the
Company and (ii) shall agree in writing to keep any proprietary information of
the Company disclosed to him in the course of such inspection confidential in a
manner consistent with prudent business practices and treatment of such Person's
or Persons' own confidential information and not use such proprietary
information for
14
any purpose in competition with the Company's business. The rights granted under
this Section 3.5 shall be in addition to any rights which any Purchaser may have
under applicable law.
3.6 Corporate Existence; Ownership of Subsidiaries. The Company will, and
will cause its Subsidiaries to, at all times preserve and keep in full force and
effect their corporate existence, and rights and franchises material to the
business of the Company and its Subsidiaries, taken as a whole, and will
qualify, and will cause each of its Subsidiaries to qualify, to do business as a
foreign corporation in any jurisdiction where the failure to do so would have a
Material Adverse Effect. The Company shall at all times own of record and
beneficially, free and clear of all liens, charges, restrictions, claims and
encumbrances of any nature, a majority of the issued and outstanding capital
stock of each of its Subsidiaries.
3.7 Compliance with ERISA. The Company will comply (and cause each of its
Subsidiaries to comply) in all material respects with all minimum funding
requirements applicable to any pension or other employee benefit plans which are
subject to ERISA or to the Code, and comply in all other material respects with
the provisions of ERISA and the Code, and the rules and regulations thereunder,
which are applicable to any such plan. Neither the Company nor any of its
Subsidiaries will permit any event or condition to exist which could permit any
such plan to be terminated under circumstances which cause the lien provided for
in Section 4068 of ERISA to attach to the assets of the Company or any of its
Subsidiaries.
3.8 Board Approval. Not later than thirty (30) days prior to the end of
each fiscal year, the Company will prepare and submit to its Board of Directors
for its approval prior to such year end an operating plan and budget, cash flow
projections and profit and loss projections, all itemized in reasonable detail
for the immediately following year.
3.9 Financings. The Company will promptly provide to the Board of Directors
the details and terms of, and any brochures or investment memoranda prepared by
the Company related to, any possible financing of any nature for the Company (or
any of its Subsidiaries), whether initiated by the Company or any other Person.
3.10 Meetings of the Board of Directors. The Directors shall schedule
regular meetings not less frequently than once every fiscal quarter. The Company
shall reimburse all members of the Board of Directors of the Company for all
direct out-of-pocket expenses incurred by them in attending such meetings.
3.11 Rule 144A Information. The Company shall, upon the written request of
any Purchaser, provide to such Purchaser and to any prospective institutional
transferee of the Debentures designated by such Purchaser, such financial and
other information as is reasonably available to the Company or can be obtained
by the Company without material expense and as such Purchaser may reasonably
determine is required to permit such transfer to comply with the requirements of
Rule 144A promulgated under the Act.
15
ARTICLE IV
NEGATIVE COVENANTS OF THE COMPANY
Without limiting any other covenants and provisions hereof, the Company
covenants and agrees that except as is otherwise provided in Section 11.4, it
will comply (and will cause each Subsidiary to comply) for the benefit of the
Purchasers with each of the provisions of this Article IV on and after the
Closing Date and until the first to occur of (i) consummation of a Qualified
Public Offering and (ii) repayment of all obligations under the Debentures and
redemption of all Warrants or Warrant Shares.
4.1 Investments in Other Persons. The Company will not make or permit any
Subsidiary to make any loan or advance to any Person, or purchase, otherwise
acquire, or permit any Subsidiary to purchase or otherwise acquire, the capital
stock or assets of any Person without the prior approval of the Purchasers,
except:
(i) investments by the Company or a Subsidiary in evidences of
indebtedness issued or fully guaranteed by the United States of America and
having a maturity of not more than one year from the date of acquisition;
(ii) investments by the Company or a Subsidiary in certificates of
deposit, notes, acceptances and repurchase agreements having a maturity of
not more than one year from the date of acquisition issued by a bank
organized in the United States having a combined capital and surplus of at
least $50,000,000;
(iii) loans, advances or investments from the Company to any
Subsidiary, a Subsidiary to the Company or from a Subsidiary to another
Subsidiary;
(iv) investments by the Company or a Subsidiary in A-rated or better
commercial paper having a maturity of not more than one year from the date
of acquisition; and
(v) investments by the Company or a Subsidiary in "money market" fund
shares, or in "money market" accounts fully insured by the Federal Deposit
Insurance Corporation and sponsored by banks and other financial
institutions, provided that such "money market" fund or "money market"
accounts invest principally in investments of the types described in
clauses (i), (ii) or (iv) of this subsection 4. 1.
4.2 Distributions. Except as otherwise expressly set forth in this
Agreement and the Related Agreements, the Company will not declare or pay any
dividends, purchase, redeem, retire, or otherwise acquire for value any of its
capital stock (or rights, options or warrants to purchase such shares) now or
hereafter outstanding, return any capital to its shareholders as such, or make
any distribution of assets to its shareholders as such, or permit any Subsidiary
to do any of the foregoing, except that the Subsidiaries may declare and make
payment of cash and stock dividends, return capital and make distributions of
assets to the Company and except that nothing herein contained shall prevent the
Company from:
16
(i) effecting a stock split or declaring or paying any dividend
consisting of shares of any class of capital stock to the holders of shares
of such class of capital stock; or
(ii) complying with the terms of the Redemption Agreement.
4.3 Dealings with Affiliates. Except as set forth herein and in the Related
Agreements, and except for those transactions listed in Schedule 4.3 attached
hereto, the Company will not enter into any transaction with any officer or
director of the Company or any Subsidiary or holder of any class of capital
stock of the Company, or any member of their respective immediate families or
any corporation or other entity directly or indirectly controlling, controlled
by or under common control with one or more of such officers, directors or
shareholders or members of their immediate families, unless the interest of such
person is disclosed in advance to the Board of Directors, such transaction is on
arm's-length terms which are no less favorable to the Company or any Subsidiary
than those which could have been obtained from an unaffiliated third party, and
such transaction is approved by a disinterested majority of the Board of
Directors of the Company or such Subsidiary.
4.4 Merger. Except as set forth herein, the Company shall not, and shall
not permit any Subsidiary to merge or consolidate with any other corporation, or
sell, assign, lease or otherwise dispose of or voluntarily part with the control
of (whether in one transaction or in a series of transactions) all, or
substantially all, of its assets (whether now owned or hereinafter acquired) or
sell, assign or otherwise dispose of (whether in one transaction or in a series
of transactions) any of its accounts receivable (whether now in existence or
hereinafter created) at a discount or with recourse, to any Person, or permit
any Subsidiary to do any of the foregoing, (i) except for sales or other
dispositions of assets in the ordinary course of business, and (ii) except that
(a) any wholly owned Subsidiary may merge into or consolidate with or transfer
assets to any other wholly owned Subsidiary, and (b) any wholly owned Subsidiary
may merge into or transfer assets to the Company. Notwithstanding the provisions
of this Section 4.4, if in connection with the sale, merger or consolidation of
the Company, (i) all of the Debentures are paid in full, and the Purchasers
receive with respect to their Warrants or Warrant Shares cash or "Liquid
Securities" (as herein defined), and (ii) if such transaction is consummated
prior to the fourth anniversary of the Closing Date, the amount to be received
by the Purchasers for their Warrants or Warrant Shares is at least equal to the
amount paid by the Purchasers for the Senior Debentures, less all interest paid
or accrued by the Company on the Senior Debentures, then the Company may
consummate such transaction without the approval of the Purchasers. The term
"Liquid Securities" means securities which are tradeable without regard to
volume limitations (except for (i) such restrictions on transfer that may be
imposed in order for a transaction to be accounted for as a pooling of
interests, and (ii) for restrictions under an issuer's internal guidelines
pertaining to transfers by affiliates), and which have been issued by an entity
with market capitalization of at least $750 million, and for which the average
daily trading volume of such securities during the 30 day period immediately
preceding such transaction exceeds 100,000 shares; provided that if securities
are received pursuant to an agreement which provides for the filing of a
registration statement to cover or permit resales of such securities, such
securities shall be deemed "Liquid Securities".
17
4.5 Limitation on Options. Except as otherwise expressly set forth in this
Agreement and the Related Agreements, the Company shall not grant any options,
warrants or other rights to acquire shares of Common Stock or other equity
securities of the Company, other than pursuant to the Option Plans.
4.6 Limitation on Subsidiary Dividends and Other Distributions. The Company
shall not permit any of its Subsidiaries, directly or indirectly, to create or
suffer to exist or become effective any encumbrances or restrictions on the
ability of any of its Subsidiaries to (i) pay dividends or make any other
distributions on its capital stock or any other interest or participation in its
profit owned by any of the Company or any of its Subsidiaries, or pay any
indebtedness owed by any of the Subsidiaries, (ii) make loans or advances to the
Company, or (iii) transfer any of its properties or assets to the Company.
4.7 No Conflicting Agreements. The Company agrees that neither it nor any
Subsidiary will, without the consent of the Purchasers, enter into or amend any
agreement, contract, commitment or understanding which would restrict or
prohibit the exercise by the Purchasers of any of their rights under this
Agreement or any of the Related Agreements.
4.8 Change in Business. The Company will continue to remain principally
engaged in the line of business in which it is engaged on the date hereof, and
will not, without the consent of the Purchasers, enter into any unrelated
business.
4.9 Indebtedness. Except as otherwise expressly set forth in this Agreement
and the Related Agreements, the Company will not, and will not permit any
Subsidiary to, incur or suffer to remain any Indebtedness for borrowed money
other than (i) Indebtedness evidenced by the Senior Debentures, (ii)
Indebtedness evidenced by the Junior Debentures, (iii) Indebtedness consisting
of Senior Debt, (iv) Indebtedness under a bank line of credit, (v) Indebtedness
incurred or assumed in connection with the acquisition of a Person to the extent
permitted under Sections 4.1 and 4.4 and (vi) as expressly set forth in this
Agreement and the Related Agreements. In addition, the Company will not incur
any Indebtedness ranking senior to or pari passu with the Senior Debentures
(other than trade payables in the normal course of business) if for any
consecutive twelve month period ending at the close of any fiscal quarter
occurring after the Closing Date, Consolidated Net Income before interest and
taxes for such twelve month period is less than 1.5 times the interest payments
on the Senior Debentures and any debt ranking senior or pari passu with the
Senior Debentures (including non-cash interest on the Senior Debentures) for
such twelve month period.
4.10 Minimum Net Income. The Company and its Subsidiaries shall have
Consolidated Net Income for the twelve consecutive months ending on the last day
of each of its fiscal quarters (treated as a single accounting period),
commencing with the quarter ending March 31, 1997, of at least $ 1.00.
Notwithstanding the provision of Section 4.10, if the Board of Directors of the
Company (including all designees of Summit Ventures IV, L.P.) unanimously
approves a business plan or budget that forecasts Consolidated Net Income of
less than $1.00, then this Section 4.10 shall be deemed to have been waived with
respect to the period of time covered by such business plan or budget, and the
Purchasers shall not have any right of acceleration under Article IX, or any
right to designate additional directors under the Shareholder
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Agreement if Consolidated Net Income is less than $1.00 during the period
covered by such business plan or budget.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
5.1 Representations and Warranties. Each Purchaser hereby represents and
warrants to the Company as follows:
(a) With respect to such of the Purchasers as are individuals, such
Purchaser has full legal capacity and unrestricted power to execute and deliver
this agreement and the Related Agreements to which he or she is a party, and any
other agreements or instruments executed by him or her in connection herewith or
therewith and to consummate the transactions contemplated herein or therein.
With respect to such of the Purchasers as are partnerships, such Purchaser is a
limited partnership duly organized, validly existing and in good standing under
the laws of the State of Delaware and has all requisite partnership power and
authority and has taken all necessary partnership action required for the due
authorization, execution, delivery and performance by the Purchaser of this
Agreement and the Related Agreements, and any other agreements or instruments
executed by the Purchaser in connection herewith or therewith and the
consummation of the transactions contemplated herein or therein;
(b) This Agreement, the Related Agreements and the other agreements and
instruments executed by such Purchaser in connection herewith or therewith will
each be a legal, valid and binding obligations of such Purchaser, enforceable
against such Purchaser in accordance with their respective terms;
(c) No consent, approval, license or authorization of, or designation,
declaration or filing with, any court or governmental authority is or will be
required on the part of the Purchasers in connection with the execution,
delivery and performance by the Purchasers of this Agreement, any Related
Agreements and any other agreements or instruments executed by the Purchasers in
connection herewith or therewith.
(d) The Purchasers are in compliance with all the provisions of this
Agreement and their organizational and partnership documents, if any, and in all
material respects with the material provisions of each other agreement or
instrument, judgment, decree, judicial order, statute and regulation by which
they are bound or to which they are subject. Neither the execution, delivery or
performance of this Agreement and the Related Agreements nor the consummation of
the transactions contemplated hereby and thereby, will materially violate, or
result in any material breach of, or constitute a default under any provision of
the Purchasers organization or partnership documents, if any, or any statute,
rule or regulation, contract, lease, judgment, decree or other document or
instrument by which the Purchasers is bound.
(e) Each Purchaser is acquiring the Senior Debentures, Warrants and Warrant
Shares solely for its own account as an investment and not with a view to any
distribution or resale thereof in violation of the Securities Act. Each
Purchaser has been advised that the Senior Debentures, Warrants and Warrant
Shares have not been registered under the Securities Act or
19
under the provisions of any state securities or "blue sky" law. Each Purchaser,
by accepting the Senior Debentures, Warrants and Warrant Shares, agrees and
acknowledges that it will not directly or indirectly, offer, transfer, sell,
assign, pledge, encumber, hypothecate or dispose of any of such Senior
Debentures, Warrants or Warrant Shares (or to solicit any offers to purchase or
otherwise acquire or take a pledge of any of the Senior Debentures, Warrants or
Warrant Shares) unless such offer, transfer, sale, assignment, pledge,
encumbrance, hypothecation or other disposition is made (i) pursuant to an
effective registration statement under the Securities Act and in compliance with
all applicable state securities or "blue sky" laws or (ii) pursuant to an
available exemption from registration under, or otherwise in compliance with,
the Securities Act and all applicable state securities or "blue sky" laws. Such
Purchaser understands and agrees that in the case of a transfer or other
disposition made pursuant to clause (ii) above, each Purchaser of Senior
Debentures, Warrants or Warrant Shares shall be required to provide to the
Company an opinion of counsel reasonably satisfactory to the Company to the
effect that registration under the Securities Act is not required and a written
certification (or in the Company's discretion, an opinion of counsel reasonably
acceptable to the Company (who may be counsel employed by the Purchaser)) that
qualification or registration under any such state securities laws and
regulations is not required (or that any applicable state qualification or
registration requirements have been satisfied in full).
(f) Each Purchaser is an "Accredited Investor" (as such term is defined in
Rule 501 of Regulation D of the Securities Act). The financial situation of the
Purchaser is such that it can afford to bear the economic risk of holding the
unregistered Senior Debentures, Warrants or Warrant for an indefinite period of
time. Each Purchaser can afford to suffer the complete loss of its investment in
the Senior Debentures, Warrants or Warrant Shares. The knowledge and experience
of the Purchaser in financial and business matters is such that it is capable of
evaluating the risk of the investment in the Securities. Each Purchaser
acknowledges that it has had access to such financial and other information, and
has been afforded the opportunity to ask such questions of representatives of
the Company and receive answers thereto, as the each Purchaser has deemed
necessary in connection with its decision to purchase the Senior Debentures,
Warrants or Warrant Shares, and that no representation or warranties, express or
implied, are being made by the Company with respect to the Company, the Senior
Debentures, Warrants or Warrant Shares, other than those expressly set forth
herein.
(g) Such Purchaser has been advised and understands that the Senior
Debentures, Warrants and Warrant Shares have not been registered under the Act,
on the grounds that no distribution or public offering of the Senior Debentures,
Warrants or Warrant Shares is to be effected, and that in this connection, the
Company is relying in part on the representations of such Purchaser set forth in
this Article V;
(h) Such Purchaser has been further advised and understands that no public
market now exists for any of the securities issued by the Company and that a
public market may never exist for the Senior Debentures, Warrants or Warrant
Shares; and
(i) Except as set forth on Schedule 5.1, no person has or will have, as a
result of the transaction contemplated by this Agreement, any right, interest or
claim against or upon the Purchasers or the Company or any of its Subsidiaries
for any commission, fee or other compensation as a finder or broker because of
any act or omission by such Purchaser.
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(j) Such Purchaser is not subscribing for the Senior Debentures, Warrants
and Warrant Shares as a result of or subsequent to any advertisement, article,
notice or other communication published in any newspaper, magazine or similar
media or broadcast over television or radio or presented at any seminar or
meeting;
(k) Each of the Purchasers represents, warrants and covenants that it shall
maintain in confidence, and shall not use or disclose without the prior written
consent of the Company, any information identified as confidential that is
furnished to it by the Company ("Confidential Information") in connection with
the herein contemplated offering (the "Offering"). This obligation of
confidentiality shall not apply, however, to any information (a) in the public
domain through no unauthorized act or failure to act by any Purchaser, (b)
lawfully disclosed to such Purchaser by a third party who possessed such
information without any obligation of confidentiality, (c) known previously by
such Purchaser or lawfully developed by such Purchaser independent of any
disclosure by the Company, or (d) disclosed to legal or financial advisors in
the ordinary course of evaluating this investment; provided, however, that such
advisors agree to be bound by the provisions of this Section 5.1(k). Each
Purchaser further covenants that such Purchaser shall return to the Company all
tangible materials containing such information upon request by the Company.
Notwithstanding the foregoing, in the event that a Purchaser is required by
subpoena, civil investigative demand or similar legal process to disclose any
Confidential Information, such Purchaser agrees that it will promptly notify the
Company of such request or requirement prior to any such disclosure so that the
Company may seek to oppose such disclosure or to obtain an appropriate
protective order or other appropriate remedy. Such Purchaser shall not be liable
for the disclosure of Confidential Information pursuant to the preceding
sentence unless such disclosure was caused by or resulted from a previous
disclosure not permitted by this Agreement. Such Purchaser agrees that it will
exercise its best efforts, without cost to such Purchaser, to assist the Company
in obtaining a protective order or other reliable assurance that confidential
treatment will be accorded the Confidential Information. The foregoing
provisions of this Section 5.1 (k) notwithstanding, any Purchaser may disclose
and use any Confidential Information in connection with the enforcement of its
rights hereunder and in any action, suit or is preceding relating thereto.
5.2 Permitted Transfers; Legends. The Company agrees that it will permit a
transfer of Senior Debentures, Warrants and Warrant Shares by a Purchaser which
is a partnership or limited liability company to an affiliated partnership or
limited liability company of such Purchaser, and that following consummation of
the first sale of equity securities by the Company pursuant to a registration
statement filed under the Act, it will permit, upon prior written request, (i) a
transfer of the Senior Debentures, Warrants and Warrant Shares by a partnership
to one or more of its partners, where no consideration is exchanged therefor by
such partners, or to a retired or withdrawn partner who retires or withdraws
after the date hereof in full or partial distribution of his interest in such
partnership, or to the estate of any such partner or the transfer by gift will
or intestate succession of any partner to his spouse or to his siblings, lineal
descendants or ancestors of such partner of his spouse, or to a trust created
for the benefit of one or more of the foregoing and (if such Person agrees to be
subject to this Agreement and Related Agreements and) (ii) a sale or other
transfer of any of the Senior Debentures, Warrants or Warrant Shares, if the
transferee agrees in writing to be subject to the terms hereof and the Related
Agreements to the same extent as if it were an original Purchaser hereunder and
upon obtaining assurance satisfactory to the Company that such transaction is
exempt from the
21
registration requirements of, or is covered by an effective registration
statement under the Act and applicable state securities or "blue-sky" laws,
including without limitation, receipt of an unqualified opinion of counsel
reasonably satisfactory to the Company. The certificates representing the Senior
Debentures, Warrants or Warrant Shares shall bear a legend evidencing such
restriction on transfer substantially in the following form:
"This security has been acquired for investment and has not been
registered under the Securities Act of 1933 (the "Act") or the
securities laws of any state. This security may not be transferred by
sale, assignment, pledge or otherwise unless (i) a registration
statement therefor under the Act is in effect or (ii) the corporation
has received an opinion of counsel, which opinion is reasonably
satisfactory to the corporation to the effect that such registration
is not required under the Act or the securities laws of any state.
ARTICLE VI
SUBORDINATION OF DEBENTURES
6.1 Agreement to Subordinate. The Company agrees, and each holder of the
Debentures by its acceptance thereof agrees, that notwithstanding any other
provision of this Agreement or the Debentures, the payment of the principal of
and interest on each and all of the Debentures shall be subordinate and junior
in right of payment, to the extent and in the manner hereinafter set forth, to
the prior payment in full of all Indebtedness of the Company at any time
outstanding for money borrowed from commercial banks, including any extensions,
renewals, modifications or refinancings thereof, whether outstanding on the date
hereof or hereafter created or incurred, which is not by its terms subordinate
and junior to or on parity with the Debentures and which is permitted hereby at
the time it is created or incurred, and that such subordination is for the
benefit of and may be enforced by the holder(s) of Senior Debt against the
Company and any holder of the Debentures. Furthermore, each holder of a Junior
Debenture, by his or her acceptance thereof agrees, that notwithstanding any
other provision of this Agreement or the Junior Debentures, the payment of the
principal of and interest on each and all of the Junior Debentures shall be
subordinate and junior in right of payment, to the extent and in the manner
hereinafter set forth, to the prior payment in full of all Indebtedness of the
Company under the Senior Debentures, and that such subordination is for the
benefit of and may be enforced by the holders of Senior Debt against the Company
and any holder of the Junior Debentures. Such Indebtedness of the Company to
which the Debentures are subordinate and junior is referred to herein as "Senior
Debt", and in the case of the Junior Debentures, the term Senior Debt shall also
include any obligations of the Company under the Senior Debentures. Each holder
of Debentures by its acceptance thereof agrees to execute, acknowledge and
deliver such instruments, subordination agreements, inter-creditor agreements
and other agreements as any holder of Senior Debt may from time to time request
which are not on terms inconsistent with the terms hereunder in order to
confirm, reflect and implement such subordination.
6.2 Acceleration of Senior Debt. Upon maturity of any Senior Debt, whether
by acceleration (unless waived or rescinded in writing), lapse of time or
otherwise, no payment shall be made on account of principal of or interest on
the Debentures until all principal of and
22
accrued and unpaid interest on all such matured Senior Debt shall have been paid
in full or such payment shall have been duly provided for.
6.3 Insolvency, Etc. In the event of any insolvency or bankruptcy
proceeding, or any receivership, liquidation, reorganization or similar
proceedings in connection therewith (or upon the distribution of the assets of
the Company in connection therewith) relative to the Company or to its property,
or in the event of any proceedings for voluntary liquidation, dissolution or
other winding-up of the Company, whether or not involving insolvency or
bankruptcy, upon any assignment for the benefit of creditors, or any other
marshaling of the assets and liabilities of the Company, then and in such event
the holders of Senior Debt shall be entitled to receive payment in full of all
obligations of principal and accrued and unpaid interest with respect to Senior
Debt before the holders of Debentures shall be entitled to receive any payment
of principal or interest upon the Debentures, provided, however, that if a
payment or distribution in respect of the Debentures (i) is authorized by a
final, non-appealable order or decree giving explicit effect to the
subordination of the Debentures to Senior Debt and made by a court of competent
jurisdiction in a reorganization or bankruptcy proceeding or (ii) is in the form
of securities or obligations which by their terms are subordinate and junior (at
least to the extent provided in this Article VI) to the payment of all Senior
Debt then outstanding, then such payment or distribution may be made to the
holders of Debentures notwithstanding the occurrence of the events described in
this Section 6.3.
6.4 Payments Held in Trust. If the holder of any Debenture receives any
payment or distribution of any character, whether in cash, securities or other
property, or whether in the form of a payment from the Company or any guarantor
or any other party, with respect to such Debentures which such holder is not
entitled to receive on account of the provisions of this Article VI and has
knowledge or has received notice that it is not so entitled, such holder will
hold any amounts so received in trust for the benefit of the holders of Senior
Debt and will forthwith turn over such payment or distribution to the holders of
Senior Debt and upon receipt such payment or distribution shall be applied to
Senior Debt until the same shall have been paid in full.
6.5 The Company's Obligations Unconditional. The provisions of this Article
VI are for the purpose of defining the relative rights of holders of Senior Debt
on the one hand, and the holders of Debentures on the other hand, against the
Company and its property. Nothing herein shall impair, as between the Company,
its creditors other than the holders of Senior Debt, and the holders of
Debentures, the obligation of the Company, which is unconditional and absolute,
to pay to the holders thereof the full amount of the principal and accrued and
unpaid interest on the Debentures, in accordance with the terms thereof and the
provisions hereof, and to comply with all of its covenants and agreements
contained herein; nor shall anything herein prevent the holder of any Debentures
from exercising all remedies otherwise permitted by applicable law or hereunder
upon default hereunder or under any Debenture, subject to the rights, if any,
under this Article VI of holders of Senior Debt to receive payments and
distributions otherwise payable to the holders of Debentures.
6.6 Subrogation Upon Payment of Senior Debt. Subject to such conditions as
the holder(s) of Senior Debt may require, upon payment in full of all Senior
Debt, the holders of the Debentures shall be subrogated to the rights of the
holders of Senior Debt to receive payments or
23
distributions of assets of the Company applicable to Senior Debt, to the extent
that distributions otherwise payable to the holders of Debentures have been
applied to the payment of Senior Debt, until the principal of and accrued and
unpaid interest on the Debentures shall have been paid in full. For the purposes
of such subrogation, no payments or distributions to the holders of Senior Debt
of any cash, property or securities which the holders of Debentures would be
entitled to receive except for the provisions of this Article VI shall, as
between the Company and its creditors (other than the holders of Senior Debt)
and the holders of Debentures, be deemed to be a payment by the Company to or on
account of Senior Debt.
6.7 Notice. The Company shall promptly notify the holders of Debentures of
any facts known to the Company that would cause a payment of any obligations
with respect to the Debentures to violate this Article VI, but failure to give
such notice shall not affect the subordination of the Debentures to Senior Debt
provided herein.
6.8 Knowledge. No holder of any Debenture shall at any time be charged with
knowledge of any of the events described in Sections 6.2 or 6.3 hereof or the
existence of any other facts which would prohibit the making of any payment of
monies to such holder or the taking of any acceleration or other action by such
holder by virtue of the provisions of this Article VI unless and until such
holder shall have received written notice of such events or facts signed, as the
case may be, by an officer of the Company or by the holder of Senior Debt.
ARTICLE VII
CONDITIONS OF PURCHASERS' OBLIGATION
7.1 Effect of Conditions. The obligation of the Purchaser to purchase and
pay for the Debentures and Warrants at the Closing shall be subject at its
election to the satisfaction or waiver of each of the conditions stated in the
following Sections of this Article.
7.2 Representations and Warranties. The representations and warranties of
the Company and the Principal Shareholders contained in this Agreement shall be
true and correct in all material respects on the Closing Date with the same
effect as though made on and as of that date, and the Purchasers shall have
received a certificate dated as of such Closing Date and signed on behalf of the
Company and the Principal Shareholders to that effect.
7.3 Performance. The Company and the Principal Shareholders shall have
performed and complied in all material respects with all of the agreements,
covenants and conditions contained in this Agreement required to be performed or
complied with by it and them at or prior to such Closing Date, and the
Purchasers shall have received a certificate dated as of such Closing Date and
signed on behalf of the Company and the Principal Shareholders to that effect.
7.4 No Material Adverse Change. The business, properties, assets or
condition (financial or otherwise) of the Company shall not have been materially
adversely affected since the date of this Agreement, whether by fire, casualty,
act of God or otherwise, and there shall have been no other changes in the
business, properties, assets, condition (financial or otherwise), management or
prospects of the Company that would have a Material Adverse Effect.
24
7.5 Opinion of Counsel. The Purchasers shall have received an opinion,
dated the Closing Date, from ▇▇▇▇▇ & ▇▇▇▇ LLP, counsel to the Company, in the
form attached as Exhibit E.
7.6 Board Election. Concurrently with the Closing, the Board of Directors
of the Company shall have been expanded to seven members, two of whom shall be
designees of the Purchasers as provided in the Shareholders' Agreement.
7.7 Redemption Agreement. The Company shall have executed and delivered to
the Purchasers the Redemption Agreement in the form of Exhibit F attached
hereto.
7.8 Shareholders Agreement. The Company and the Principal Shareholders
shall have executed and delivered to the Purchasers the Shareholders Agreement
in the form of Exhibit G attached hereto, and the existing shareholder agreement
among the Company and the Principal Shareholders shall have been terminated.
7.9 Registration Rights Agreement. The Company shall have executed and
delivered to the Purchasers the Registration Rights Agreement in the form of
Exhibit H attached hereto.
ARTICLE VIII
CONDITIONS OF THE COMPANY'S OBLIGATIONS
8.1 Effect of Conditions. The obligation of the Company to sell the
Debentures and Warrants at the Closing shall be subject at its election to the
satisfaction or waiver of each of the conditions stated in the following
Sections of this Article.
8.2 Representations and Warranties. The representations and warranties of
the Purchasers contained in this Agreement shall be true and correct in all
material respects on the Closing Date with the same effect as though made on and
as of that date and the Company shall have received a certificate on the Closing
Date and signed on behalf of each Purchaser to that effect.
8.3 Performance. The Purchasers shall have performed and complied in all
material respects with all of the agreements, covenants and conditions contained
in the Agreement required to be performed or complied with by them at or prior
to such Closing, and the Company shall have received a certificate dated as of
such Closing and signed on behalf of the Purchasers to that effect.
8.4 Payment. Each of the Purchasers shall have delivered payment to the
Company in respect of their purchases of the Senior Debentures and Warrants.
25
ARTICLE IX
DEFAULTS AND REMEDIES
9.1 Events of Default; Acceleration
An "Event of Default" occurs if:
(1) The Company defaults in the payment of any principal or interest of any
Debenture when the same shall become due, either by the terms thereof or
otherwise as herein provided; or
(2) In the case of the Senior Debentures, the Company or any Subsidiary
shall fail to perform or observe any covenant contained in Article IV of this
Agreement, other than Section 4.10, and such default shall not have been
remedied within twenty calendar days after such default shall first have become
known to any officer of the Company or written notice thereof shall have been
received by the Company (regardless of the source of such notice); or
(3) In the case of the Senior Debentures, the Company shall fail to perform
or observe the covenant contained in Section 4.10, and such failure shall
continue for at least twenty-four (24) months, commencing with any month
following the month in which the Closing Date occurs.
(4) In the case of the Senior Debentures, the Company or any of its
Subsidiaries defaults in the performance or observance of any other agreement,
term or condition contained in the Senior Debentures, this Agreement or the
Related Agreements and such default shall not have been remedied within twenty
calendar days after such default shall first have become known to any officer of
the Company or written notice thereof shall have been received by the Company
(regardless of the source of such notice); or
(5) The Company or any Subsidiary shall default (subject to any applicable
grace period) in the payment of any principal of or premium, if any, or interest
on any other Indebtedness or obligation with respect to borrowed money the
outstanding principal of which is, at the time of such default, in an aggregate
amount greater than $100,000 or shall default in the performance of any material
term of any instrument evidencing such Indebtedness or of any mortgage,
indenture or agreement relating thereto, and the effect of such default is to
cause, or to permit the holder or holders of such obligation to cause, such
Indebtedness or obligation to become due and payable prior to its stated
maturity, unless such failure to pay or perform shall have been waived in
writing by the requisite holders of such Indebtedness or other obligation; or
(6) The Company or any Subsidiary pursuant to or within the meaning of any
Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an
involuntary case,
26
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(D) makes a general assignment for the benefit of its creditors, or
(E) is the debtor in an involuntary case which is not dismissed within
60 days of the commencement thereof; or
(7) A court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) provides for relief against the Company or any Subsidiary in an
involuntary case,
(B) appoints a Custodian of the Company or any Subsidiary for all or
substantially all of its property, or
(C) orders the liquidation of the Company or any Subsidiary; or
(8) A final, non-appealable judgment for the payment of money in an amount
in excess of $200,000 shall be rendered against the Company or any of its
Subsidiaries (other than any judgment as to which a reputable insurance company
shall have accepted full liability in writing) and shall remain undischarged for
a period (during which execution shall not be effectively stayed) of 30 days
after the date on which the right to appeal has expired; or
(9) Any representation or warranty made by the Company in this Agreement or
in the Related Agreements shall prove to be materially false or incorrect on the
date as of which made; then and in any such case (a) upon the occurrence of any
Event of Default described in clause (6) or (7) above, the unpaid principal
amount of and accrued and unpaid interest on the Debentures shall automatically
become due and payable, without presentment, demand, protest or notice of any
kind, all of which are hereby waived by the Company, and (b) upon the occurrence
of any other Event of Default, in addition to any other rights, powers and
remedies permitted by law or in equity, the holder or holders of greater than
50% in principal amount of the Senior Debentures then outstanding may, at its or
their option, by notice in writing to the Company, declare all of the Debentures
to be, and all of the Debentures shall thereupon be and become, immediately due
and payable together with interest accrued and unpaid thereon and all other sums
due hereunder, without presentment, demand, protest or other notice of any kind,
all of which are waived by the Company.
Upon the occurrence of any such Event of Default, the holders of Debentures
may proceed to protect and enforce their rights by an action at law, suit in
equity or other appropriate proceeding, whether for the specific performance of
any agreement contained herein or in the Debentures held by them, for an
injunction against a violation of any of the terms hereof or thereof, or for the
pursuit of any other remedy which it may have by virtue of this Agreement or
pursuant to applicable law. The Company shall pay to the holders of Debentures
upon demand the reasonable costs and expenses of collection and of any other
actions referred to in this Article IX, including without limitation reasonable
attorney's fees, expenses and disbursements.
27
No course of dealing and no delay on the part of the holders of Debentures
in exercising any of their rights shall operate as a waiver thereof or otherwise
prejudice the rights of any holder of the Debentures, nor shall any single or
partial exercise of any right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
No right, power or remedy conferred hereby or by the Debentures on the holders
thereof shall be exclusive of any other right, power or remedy referred to
herein or therein or now or hereafter available at law, in equity, by statute or
otherwise.
9.2 Rescission of Acceleration. At any time after any declaration of
acceleration of all the Debentures shall have been made pursuant to Section 9.1
by any holder or holders of the Senior Debentures and before a judgment or
decree for the payment of money due has been obtained by such holder or holders,
the holder or holders of at least a majority in aggregate principal amount of
the Senior Debentures at the time outstanding may, by written notice to the
Company and to the other holders of the Debentures rescind and annul such
declaration and its consequences, provided that (i) the principal of and accrued
and unpaid interest on the Debentures which shall have become due otherwise than
by such declaration of acceleration shall have been duly paid, and (ii) all
Events of Default other than the nonpayment of principal of and accrued and
unpaid interest on the Debentures which have become due solely by such
declaration of acceleration shall have been cured or waived by the holders of a
majority in aggregate principal amount of the Debentures at the time
outstanding. No rescission or annulment referred to above shall affect any
subsequent Default or any right, power or remedy arising out of such subsequent
Default.
ARTICLE X
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"Act" means the Securities Act of 1933, as amended.
"Agreement" means this 9% Senior Subordinated Debenture and Warrant
Purchase Agreement as from time to time amended and in effect between the
parties.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"Business Day" shall mean day which is not a legal holiday in the
Commonwealth of Massachusetts or the City of Boston or New York City.
"Cash and Cash Equivalents" means cash and investments in certificates of
deposit, money market funds and obligations issues or guaranteed by the United
States Government or any instrumentality thereof, in each case only if due and
payable on demand or within thirty (30) days after the date of purchase.
"Closing" shall have the meaning set forth in Section 1.5.
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"Closing Date" shall have the meaning set forth in Section 1.5.
"Commission" shall have the meaning set forth in Section 2.3.
"Company" shall have the meaning set forth in Section 1.9.
"Consolidated Net Income" means, for any period, the Company's and its
Subsidiaries' consolidated net income after any income and franchise tax, as
determined in conformity with generally accepted accounting principles
consistently applied, but excluding: (a) the income of any Person (other than
Subsidiaries of the Company) in which the Company or any of its Subsidiaries has
an ownership interest, unless received by the Company or its Subsidiary under
cash distributions; (b) any after-tax gains or losses attributable to asset
dispositions; and (c) to the extent not included in clauses (a) and (b) above,
any after-tax extraordinary non-cash gains or extraordinary non-cash losses.
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
"Default" shall mean an Event of Default or any event which with notice or
lapse of time or both would become an Event of Default.
"Event of Default" shall have the meaning set forth in Section 9.1.
"Indebtedness" means all obligations, contingent or otherwise, whether
current or long-term, which in accordance with generally accepted accounting
principles would be classified upon the obligor's balance sheet as indebtedness
(other than deferred taxes) and shall also include capitalized leases,
guarantees, endorsements (other than for collection in the ordinary course of
business) or other arrangements whereby responsibility is assumed for the
obligations of others, including any agreement to purchase or otherwise acquire
the obligations of others or any agreement, contingent or otherwise, to furnish
funds for the purchase of goods, supplies or services for the purpose of payment
of the obligations of others, excluding accounts payable incurred in the
ordinary course of business.
"Lien" shall mean any mortgage, deed of trust, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement, and the
filing of or agreement to give any financing statement under the Uniform
Commercial Code of any jurisdiction).
"Liquidity Event" shall mean any one or more of the following: (i) a
liquidation, dissolution or winding-up of the Company, whether voluntary or
involuntary; (ii) a sale, merger or similar transaction involving the Company,
as the result of which those persons who held 100% of the voting stock of the
Company immediately prior to such transaction do not hold more than 50% of the
voting stock of the Company (or the surviving or resulting entity) after giving
effect to such transaction; (iii) the sale of all or substantially all of the
assets of the Company; or (iv) consummation of the first Qualified Public
Offering.
29
"Material Adverse Effect" means a material and adverse effect on the
assets, liabilities, properties, business, results of operation, prospects or
condition (financial or otherwise) of the Company and its Subsidiaries, taken as
a whole.
"Person" means an individual, corporation, partnership, joint venture,
trust or unincorporated organization or a government or agency or political
subdivision thereof.
"Purchasers" shall have the meaning set forth in Section 1.1.
"Qualified Public Offering" means the first public offering of securities
of the Company pursuant to a registration statement filed under the Act in which
the gross proceeds received by the Company are at least $30 million and in
connection with which the Senior Debentures are paid in full.
"Related Agreements" shall have the meaning set forth in Section 2.2.
"Senior Debt" shall have the meaning set forth in Section 6.1.
"Subsidiary" or "Subsidiaries" means any corporation, association or other
business entity of which the Company and/or any of its other Subsidiaries
directly or indirectly owns at the time more than fifty percent (50%) of the
outstanding voting shares of every class of such corporation or trust other than
directors' qualifying shares.
"Tangible Net Worth" means the value of the Company's tangible assets less
its liabilities, as determined in accordance with generally accepted accounting
principles, consistently applied.
ARTICLE XI
MISCELLANEOUS
11.1 Senior Debenture Payments. The Company agrees that, so long as any
Purchaser shall hold any Senior Debentures, it will make payments of principal
and interest on any Senior Debenture held by such Purchaser not later than 2:00
p.m., Boston, Massachusetts time, on the date such payment is due, in
immediately available federal funds, by credit to the Purchaser's account, as
specified in Schedule 1.1 hereto, or such other account or accounts as the
Purchaser may designate in writing, notwithstanding any contrary provision
contained herein or any Senior Debenture with respect to the place of payment.
Each Purchaser agrees that, before disposing of any Senior Debenture, it or its
nominee will make a notation thereon of all principal payments previously paid
thereon and of the date to which interest thereon has been paid, and will notify
the Company of the name and address of the transferee of such Senior Debenture
and will follow the procedures set forth in Section 5.2 hereof and in the
Related Agreements. At the election of any subsequent holder of any Senior
Debenture which has made the same agreements relating to such Senior Debenture
as the Purchaser has made in this Section 11.1, the Company will make payments
of principal and interest to the account of such successor holder in the same
manner as set forth above.
30
11.2 Form, Registration, Transfer and Exchange of Senior Debentures. The
Senior Debentures are issuable as registered notes and in denominations of not
less than $ 10,000 or any integral multiple thereof. The Company shall keep at
its principal office the register in which the Company shall provide for the
registration of the Senior Debentures and for transfers of the Senior
Debentures. Upon surrender for registration of transfer of any Senior Debenture
at such office, the Company shall execute and deliver, at its expense, one or
more new such Senior Debenture or Senior Debentures of like tenor and of like
aggregate principal amount, which new Senior Debenture or Senior Debentures
shall each be a registered Senior Debenture. At the option of the holder of any
Senior Debenture, such Senior Debenture may be exchanged for other Senior
Debentures, of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Senior Debenture to be exchanged at the office of
the Company. Whenever any Senior Debenture is so surrendered for exchange, the
Company shall execute and deliver, at its expense, the Senior Debentures which
the holder thereof making the exchange is entitled to receive. Every Senior
Debenture presented or surrendered for registration of transfer shall be duly
endorsed, or be accompanied by a written instrument of transfer duly executed by
the holder of such Senior Debenture or such holder's attorney-in-fact duly
authorized in writing and the holder thereof shall agree in writing to follow
the procedures set forth in Section 5.2 hereof and in the Related Agreements
relating to transfers. Any Senior Debenture issued in exchange for any Senior
Debenture or upon transfer thereof shall carry the rights to unpaid interest and
interest to accrue which were carried by the Senior Debenture so exchanged or
transferred, and neither gain nor loss of interest shall result from any such
transfer or exchange. Upon receipt by the Company of an affidavit of the
treasurer, assistant treasurer, or other responsible official of any Purchaser
(or, in the case of holders of Senior Debentures other than a Purchaser,
evidence reasonably satisfactory to the Company) of the ownership of and the
loss, theft, destruction or mutilation of a Senior Debenture and (i) in case of
loss, theft or destruction of a Senior Debenture, of indemnity reasonably
satisfactory to it or (ii) in the case of the mutilation of any Senior
Debenture, upon surrender and cancellation thereof, the Company, at its expense,
shall execute and deliver in lieu thereof a new Senior Debenture of like tenor
and of a like principal amount and dated and bearing interest from the date to
which interest has been paid on such lost, stolen, destroyed or mutilated Senior
Debenture.
11.3 Survival of Representations. The representations, warranties,
covenants and agreements made herein or in any certificates or documents
executed in connection herewith shall survive the execution and delivery hereof
and the closing of the transactions contemplated hereby.
11.4 Parties in Interest. Except as otherwise set forth herein, all
covenants, agreements, representations, warranties and undertakings contained in
this Agreement shall be binding on and shall inure to the benefit of the parties
hereto and their respective successors and assigns of the parties hereto
(including transferees of any of the Debentures, Warrants and Warrant Shares).
Notwithstanding the foregoing, (i) no transferee of Debentures, Warrants or
Warrant Shares, other than an affiliate of the Purchasers, shall have the right
to enforce the covenants contained in Section 4.4, and (ii) if a Debenture and
Warrant have been transferred to a Person other than an affiliate of a Purchaser
and all Debentures have been paid in full, then such unaffiliated transferee
shall not have the benefit of, and shall have no rights under, any of the
provisions of Articles III and IV hereof other than the provisions of Sections
3.1 and 3.5, each of which shall continue in full force and effect for the
benefit of such transferee.
31
11.5 Debentures Owned by Affiliates. For the purposes of applying all
provisions of this Agreement the Debentures or shares owned of record by any
affiliate of a Purchaser shall be deemed to be owned by such Purchaser. For the
purpose of this Agreement, the term "affiliate" shall mean any Person
controlling, controlled by or under common control with, a Purchaser and any
general or limited partner of any Purchaser. Without limiting the foregoing,
each Purchaser shall be considered an affiliate of each other Purchaser.
11.6 Amendments and Waivers. This Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of not less than a majority in aggregate principal amount of the Senior
Debentures at the time outstanding; and each holder of any Debenture at the time
or thereafter outstanding shall be bound by any consent authorized by this
Section 11.6, whether or not such Debenture shall have been marked to indicate
such consent, but any Debenture issued thereafter shall contain a reference or
bear a notation referring to any such consent; provided that notwithstanding
anything in this Section 11.6 to the contrary, without the written consent of
(a) the holder or holders of all Senior Debentures at the time outstanding, no
consent, amendment or waiver to or under this Agreement shall extend or reduce
the maturity of any Senior Debenture, or reduce the rate or affect the time of
payment of interest with respect to any Senior Debenture, or affect the time,
amount or allocation of any required prepayments, or reduce the proportion of
the principal amount of the Senior Debentures required with respect to any
consent, amendment or waiver, (b) the holder or holders of all Junior Debentures
at the time outstanding, no consent, or waiver to or under this Agreement shall
extend or reduce the maturity of any Junior Debenture, or reduce the rate or
effect at the time of payment of interest with respect to any Junior Debenture,
or effect the time, amount or allocation of any required prepayments, or reduce
the portion of the principal amount of the Junior Debentures required with
respect to any consent, amendment or waiver, and (c) the holder or holders of
all Debentures at the time outstanding, no amendment to this Agreement shall
affect the provisions of Article VI. The Company shall promptly send copies of
any amendment, consent or waiver (and any requests for any such amendment,
consent or waiver) relating to this Agreement or the Debentures to each holder
of the Debentures and, to the extent practicable, shall consult with holder of
the Debentures, in connection with each such amendment, consent and waiver. No
course of dealing between the Company and the holder of any of the Debentures
nor any delay in exercise any rights hereunder or any of the Debentures shall
operate as a waiver of any rights of any holder of such Debentures. The Company
will reimburse the Purchasers for the reasonable fees and expenses of counsel
incurred in connection with any amendment or modification of this Agreement or
any of the Related Agreements or any waiver hereof or thereof.
11.7 Notices. All notices, requests, consents, reports and demands shall be
in writing and shall be hand delivered, sent by facsimile or other electronic
medium, or mailed, postage prepaid, to the Company or to the Purchasers at the
address set forth below or to such other address as may be furnished in writing
to the other parties hereto:
32
The Company: Logical Design Solutions, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with copy to: ▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esquire
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
The Purchasers: The address set forth opposite the Purchaser's name on
Schedule 1.1 attached hereto.
with copy to: ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇,
A Professional Corporation
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Esquire
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
11.8 Expenses. Immediately upon consummation of the Closing, the Company
shall pay all reasonable costs and expenses of the Purchasers in connection with
the investigation, preparation, execution and delivery of this Agreement (and
due diligence related thereto) and the other instruments and documents to be
delivered hereunder and the transactions contemplated hereby and thereby,
including the reasonable fees and disbursements of ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇,
A Professional Corporation, special counsel to the Purchasers, provided that
such aggregate payment shall not exceed $45,000. If the purchase of the
Debentures is not consummated in accordance with the terms of this Agreement,
the Company shall not be required under this Agreement to pay any of the
Purchasers' costs or expenses.
11.9 Counterparts. This Agreement and any exhibit hereto may be executed in
multiple counterparts, each of which shall constitute an original but all of
which shall constitute but one and the same instrument. One or more counterparts
of this Agreement or any exhibit hereto may be delivered via telecopier, with
the intention that they shall have the same effect as an original counterpart
hereof.
11.10 Effect of Headings. The article and section headings herein are for
convenience only and shall not affect the construction hereof.
11.11 Transferability as Unit. Prior to payment of a Senior Debenture
included in an Investment Unit or exercise of a Warrant included in an
Investment Unit, no holder may separately transfer a Senior Debenture or Warrant
without transferring to the same transferee the other security comprising the
Investment Unit.
33
11.12 Governing Law. This Agreement shall be deemed a contract made under
the laws of The Commonwealth of Massachusetts and together with the rights and
obligations of the parties hereunder, shall be construed under and governed by
the laws of such Commonwealth.
* * * * *
34
LOGICAL DESIGN SOLUTIONS, INC.
9% SENIOR SUBORDINATED DEBENTURE
AND WARRANT PURCHASE AGREEMENT
Counterpart Signature Page
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
Company, whereupon, this letter shall become a binding agreement among us.
Very truly yours,
LOGICAL DESIGN SOLUTIONS, INC.
/s/ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
By: -------------------------------------
Name: ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
Title: President
PRINCIPAL SHAREHOLDERS:
----------------------
/s/ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
LOGICAL DESIGN SOLUTIONS, INC.
9% SENIOR SUBORDINATED DEBENTURE
AND WARRANT PURCHASE AGREEMENT
Counterpart Signature Page
PURCHASERS:
----------
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.,
Its General Partner
By: Stamps, ▇▇▇▇▇▇▇ & Co. IV,
Its General Partner
/s/ ▇▇▇▇▇ ▇▇▇▇▇
By: -------------------------------------
General Partner
SUMMIT INVESTORS III, L.P.
/s/ ▇▇▇▇▇ ▇▇▇▇▇
By: -------------------------------------
Authorized Signatory
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇
SAMEDAN, INC.
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
By: -------------------------------------
LOGICAL DESIGN SOLUTIONS, INC.
Schedule 1.1
Senior Debentures
Principal Amount of Total Purchase
Debentures to be Number of Shares Price of
Name and Address Purchased Covered by Warrants Investment Units
---------------- ------------------- ------------------- ----------------
Summit Ventures IV, L.P. $5,032,521 194,770.50 $4,750,000
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ 022 10
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Summit Investors 111, L.P. $ 246,312.71 10,229.50 249,500
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Samedan, Inc. $ 243,902 10,000 243,902
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
------------------- ------------------- ----------------
Totals $5,540,735.71 215,000 $5,243,902
=================== =================== ================
Logical Design Solution, Inc.
Schedule 1.10
Junior Debentures
Principal Amount of Junior Principal Amount of Junior
Subordinated Debentures for Subordinated Debentures for
Investment Logical Design Solutions, Logical Design Solutions
Name and Address Inc. International, Inc.
---------------------- ------------------------------ ------------------------------
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ $695,122.45 $378,777.33
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇-▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ 40,389.74
-------------- --------------
Total: $735.512.19 $378.777
============== ==============
Logical Design Solutions, Inc.
Schedule 2.4
Authorized and Outstanding Stock
Logical Design Solutions, Inc. # Shares Authorized # Shares Outstanding
------------------------------ ------------------- --------------------
at 12/31/1996 1,500,000
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ 706,500
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ _________ 78,500
------
Total 1,500,000 785,000
Logical Design Solutions, Inc. 2,500
at 12/31/96
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ______ 100
-----
Total 2,500 100
* Employment Agreements for E. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇ provide for
the issuance of Stock Options. Such Options are at the sole discretion of
the corporation. As of December 31, 1996, no such Options have been issued.
* A new Stock Option plan is being developed.
Logical Design Solutions
Schedule 2.7
Subsequent Events
(i) None
(ii) None
(iii) None
(iv) None
Stockholders distributions representing accumulated Retained Earnings are as
follows:
LDS
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ $1,023,997
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ $ 142,989
LDSI
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ $ 823,200
Logical Design Solutions
Schedule 2.8
Divorce proceedings between Mr. and ▇▇▇. ▇▇▇▇▇▇. As of the date hereof, there
has been no claim relating to Logical Design Solutions, Inc. ("LDS") or to any
shares of LDS held by any shareholder of LDS.
Logical Design Solutions, Inc.
Schedule 2.11
Real Property Environmental Matters
Rental Address Lessor Term of the Lease Use of Property
-------------- ------ ----------------- ---------------
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ & Wentworth April 15, 1996 to July 15, ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ $20,913.42 Monthly +
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ $111.60 for share of Cafe
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ March 1, 1997 to July 15, ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ $9,100 Monthly + amortized
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ portion of build out costs
(estimated at $800 per month)
No Environmental Issues Exist
Logical Design Solutions, Inc.
Schedule 2.12
Personal Property
------------------------------------------------------------------------------
Computer Equipment Financed through Sanwa Leasing Corporation
See Exhibit I Attached Hereto
Computer Equipment Financed through GE Capital
(Previously ▇▇▇▇▇▇ Financial Corp.)
See Exhibit 2 Attached Hereto
Computer Equipment Financed through Summit Bank (Previously United Jersey Bank)
See Exhibit 3 Attached Hereto
Logical Design Solutions, Inc.
Schedule 2.13
Patents. Trademarks, Etc.
LoQical Design Solutions, Inc.
Pending Trademark Application ▇▇▇▇: LDS WEBTRAC
Class: International Class 9
Description: Computer software programs, and instruction
manuals and demo disks sold together, for
monitoring and reporting usage of various sites on
the Internet computer network, in International Class 9.
Date of first use: On or before October 30, 1995
Application Number: 75027878
Filing Date: December 5, 1995
Logical Design Solutions International, Inc.
Copyright Registration Title Of This Work: Tele-Trac
Registration Number: TX 3 704 768
Effective Date Of Registration: Jan 10, 1994
Nature Of Authorship: Computer Program
Logical Design Solutions, Inc.
Schedule 2.16
Contracts and Commitments
The following Project Commitments are expected to generate in excess of $100,000
during the coming year:
Client Project ID Proiect Name Project Tvpe
------ ---------- ------------ ------------
Advanta ADV2 Advanta Booster Project Time & Materials
Advanta ADV5 Avdanta Corporate Site Time & Materials
AT&T DPPG AT&T Personnel Guide - Print Time & Materials
AT&T CLSS AT&T BMD Local Service Site Time & Materials
AT&T DMHC AT&T Health Care Time & Materials
Lucent LHRW Lucent HR Website Time & Materials
NCR NCR2 ▇▇▇ ▇▇▇▇▇ ▇▇ - Case Mgmt Time & Materials
AT&T DMEV AT&T HR Self Service Vision Time & Materials
J&J JJSS J&J Employee Self Service Fixed Fee ($505,000)
Vanguard VRRC Vanguard Retirement Center Fixed Fee ($230,000)
AT&T CICM AT&T Commercial Markets Time & Materials
▇▇▇▇ Atlantic BAV2 ▇▇▇▇ Atlantic View @ Once 2.0 Fixed Fee ($620,000)
Time Telecom TMI I Time Telecom Malaysia Fixed Fee ($350,000)
New Zealand NIVS New Zealand Telecom Fixed Fee ($800,000)
Project Commitments are cancelable by LDS, or the Client Company with written
notice.
In addition to project commitments, LDS is obligated for $100,000 or more to the
following commitments:
▇▇▇▇ & Wentworth Lease for Offices - Suite 103 $1,145,864
Suite 105 $ 477,750 + Amortized Cost of Build Out
Employment Agreements over $ 100,000 for the following employees:
▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇
E. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇
Agreement dated March 8, 1997 with ▇▇▇▇ ▇▇▇▇▇▇.
Logical Design Solutions, Inc.
Schedule 2.18
Insurance Coverage
Business Owners Policy
Agent: ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ Insurance
Insurance Co: LMI Insurance Company
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Policy #: CB29-13004
Workers Compensation Ploicy
Agent: ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ Insurance
Insurance Co: LMI Insurance Company
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Policy IM: WC2914429
Life Insurance - ▇▇▇▇ ▇. ▇▇▇▇▇▇
Insurance Co: The Midland Life Insurance Company
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Policy #: 57313
Disability Insurance - ▇▇▇▇ ▇. ▇▇▇▇▇▇
Agent: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Insurance Co: Northwestern Mutual Life
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Policy # D-790-864
DI-161-646
Company Health Insurance
Insurance Co: Aetna Life & Casualty
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Policy#'s: 127335-010-00700
127335-010-00000
127335-010-00702
Company Dental Plan
Insurance Co: New England Insurance
Healthplan Services, Inc.
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Policy TN792884-2
Group Life Insurance / Group Long Tenn Disability
Insurance Co: Unum Life Insurance of America
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ID/ Policy#: 513104
There are no outstanding claims
Logical Design Solutions, Inc.
Schedule 2.19
Employee Matters
All employees have signed the EMPLOYEE CONFIDENTIALITY, NONDISCLOSURE AND
RESTRICTIVE COVENANT AGREEMENT. See attached schedule for listing of current LDS
employees.
▇▇▇▇▇▇ ▇▇▇▇▇▇, E. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, and ▇▇▇ ▇▇▇▇ have all signed individual
Employment Agreements.
All Independent Contractors have signed the INDEPENDANT CONTRACTORS AGREEMENT.
See attached schedule for listing of current LDS independent contractors.
All full-time employees are eligible to participate in the companies 401k
defined benefits program after six months of employment.
Logical Design Solutions, Inc.
Schedule 2.21
Transactions with Affiliates
None.
Logical Design Solutions, Inc.
Schedule 2.22
Assumptions. Guarantees. etc. of Indebtedness of Other Persons
None
Logical Design Solutions, Inc.
Schedule 5.1
Representation and Warranties
Agreement dated March 8, 1997 with ▇▇▇▇ ▇▇▇▇▇▇.
LOGICAL DESIGN SOLUTIONS
EMPLOYEE LISTING BY DEPARTMENT
EXECUTIVE:
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HUMAN RESOURCES:
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Links, ▇▇▇▇▇▇
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ACCOUNTING/FINANCE:
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PRODUCTS & SERVICES:
Alvi, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇
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Cuorno, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇
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▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Saint-Andre, ▇▇▇▇▇
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▇▇▇▇▇▇, ▇▇▇▇▇ TitQie, ▇▇▇▇▇▇▇
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▇▇▇▇▇, Yan
LOGICAL DESIGN SOLUTIONS
INDEPENDANT CONTRACTORS
Bergger, ▇▇▇▇
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