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EXHIBIT 4.03
SECURITIES PURCHASE AGREEMENT
ELOQUENT, INC.
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As of October 20, 1999
GMN Investors II, L.P.
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Additional Investors Listed on
Exhibit A Attached Hereto
Ladies and Gentlemen:
The undersigned, Eloquent, Inc., a Delaware corporation (the "Company"),
hereby agrees with you as follows:
1. DEFINITIONS.
For all purposes of this Agreement the following terms shall have the
meanings set forth herein or elsewhere in the provisions hereof:
Accounts Receivable Line of Credit. Accounts Receivable Line of Credit
shall mean the accounts receivable-based portion of the revolving line of credit
from Transamerica in favor of the Company as further set forth in the Senior
Credit Agreement.
Adjusted Net Worth. Adjusted Net Worth shall mean, in connection with
any liquidation or sale of assets by the Company, the consolidated net worth of
the equity of the Company, immediately prior to such liquidation or immediately
after such sale, determined in accordance with generally accepted accounting
principles, taking into account (i) the total consideration received by the
Company for such transaction, (ii) the transaction costs incurred in connection
with such transaction, and (iii) any liabilities (excluding any accrual for
vacation time) of the Company whether or not to be discharged in connection with
such transaction.
Affiliate. Affiliate shall mean any Person directly or indirectly
controlling, directly or indirectly controlled by or under direct or indirect
common control with the Company (or other specified Person) and shall include
(a) any Person who is a
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director or beneficial holder of at least 10% of any class of the then
outstanding capital stock (or other shares of beneficial interest) of the
Company (or other specified Person) and Family Members of any such Person, (b)
any Person of which the Company (or other specified Person) or an Affiliate (as
defined in clause (a) above) of the Company (or other specified Person) shall,
directly or indirectly, either beneficially own at least 10% of any class of the
then outstanding capital stock (or other shares of beneficial interest) or
constitute at least a 10% equity participant, and (c) in the case of a specified
Person who is an individual, Family Members of such Person; provided, however,
that no Investor nor Gemini Investors LLC shall be considered an Affiliate of
the Company for the purposes of this Agreement.
Capital Expenditures. Capital Expenditures shall mean amounts paid or
Indebtedness incurred by the Company or any of its Subsidiaries in connection
with the purchase or lease of fixed assets (both tangible and intangible) that
would be required to be capitalized and shown on the balance sheet of such
Person in accordance with generally accepted accounting principles.
Capital Transaction. Capital Transaction shall mean any of the
following: (i) one or more mergers or consolidations involving the Company (in a
single transaction or series of related or unrelated transactions) in which the
Company is not the surviving entity and the holders of equity interests in the
Company prior to such transaction(s) own less than a majority of the surviving
entity's voting securities immediately after such transaction(s); (ii) a
liquidation, dissolution or winding up of the Company or a sale of all or
substantially all of the assets of the Company or other similar corporate
actions pursuant to which the Company or the holders of equity interests in the
Company receive cash, securities or other property; (iii) securities
constituting at least a majority of the voting power of the Company are sold to
a Person that is not an Affiliate; or (iv) the closing of the Company's
underwritten public offering pursuant to an effective registration statement
under the Securities Act.
Charter. Charter shall include the articles or certificate of
incorporation, statute, constitution, joint venture or partnership agreement or
articles or other organizational document of any Person other than an
individual, each as from time to time amended or modified.
Closing. See Section 2.3.
Closing Date. See Section 2.3.
Code. Code shall mean the Internal Revenue Code of 1986, any successor
statute of similar import, and the rules and regulations thereunder,
collectively and as from time to time amended and in effect.
Commission. Commission shall mean the Securities and Exchange
Commission.
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Common Stock. Common Stock shall mean, collectively, the Common Stock of
the Company described in Section 4.5(a) and in addition, any capital stock or
other securities into which or for which Common Stock shall have been converted
or exchanged pursuant to any recapitalization, reorganization or merger of the
Company.
Company. See preamble.
Consolidated or consolidated. Consolidated or consolidated shall mean,
with reference to any term defined herein, that term as applied to the accounts
of the Company and all of its Subsidiaries, consolidated in accordance with
generally accepted accounting principles.
Converted Common Shares. Converted Common Shares shall mean,
collectively, (a) shares of Common Stock issuable upon exercise of the
conversion rights of the Series E Preferred Stock in accordance with its terms,
(b) any shares of Common Stock into which such shares of Common Stock have been
converted, (c) any capital stock or other securities into which or for which
such shares of Common Stock shall have been converted or exchanged pursuant to
any recapitalization, reorganization or merger of the Company, and (d) any
shares of capital stock issued with respect to the foregoing pursuant to a stock
dividend or stock split; provided that no Converted Common Shares which have
been sold pursuant to a Public Sale shall be considered to be outstanding
Converted Common Shares or Securities hereunder.
Co-Sale Agreement. Co-Sale Agreement means the Fourth Amended and
Restated Co-Sale Agreement dated as of the date hereof among the Company, the
Investors and certain of the other stockholders of the Company, as such
Agreement may be amended, restated, modified or supplemented in accordance with
the terms of this Agreement.
Default. Default shall mean an event or condition which with the passage
of time or giving of notice, or both, would become an Event of Default.
Distribution. Distribution shall mean (a) the declaration or payment of
any dividend on or in respect of any shares of any class of capital stock of the
Company or other specified Person, (b) the purchase, redemption or other
retirement of any shares of any class of capital stock of the Company or other
specified Person, directly or indirectly or otherwise, or (c) any other
distribution on or in respect of any shares of any class of capital stock of the
Company or other specified Person (in each case except a repurchase of shares of
Common Stock from an employee or consultant of the Company in connection with
the termination of such employee's or consultant's relationship as such with the
Company).
EBITDA. EBITDA shall mean for any period, an amount equal to the sum of
(a) the consolidated net income of the Company and its Subsidiaries during such
period determined in accordance with generally accepted accounting principles,
but excluding
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therefrom all extraordinary items of income or loss, plus (b) all amounts
deducted in the computation thereof on account of (i) interest, (ii) taxes,
(iii) depreciation, and (iv) amortization.
Employment Agreements. Employment Agreements shall mean the employment
agreements between the Company and certain key employees listed on Schedule 1
hereto.
Environmental Laws. Environmental Laws shall mean any federal, state, or
local judgment, decree, order, law, license, rule or regulation relating to
health, safety or the environment.
ERISA. ERISA shall mean the federal Employee Retirement Income Security
Act of 1974, any successor statute of similar import, and the rules and
regulations thereunder, collectively and as from time to time amended and in
effect.
ERISA Affiliate. ERISA Affiliate shall mean, with respect to any Person,
any trade or business (whether or not incorporated) that is a member of a group
described in Section 414(b) or Section 414(c) of the Code of which such Person
is a member.
Events of Default. See Section 9.1.
Family Members. Family Members shall mean, as applied to any individual,
any parent, spouse, child, spouse of a child, brother or sister of the
individual, and each trust created for the benefit of one or more of such
Persons and each custodian of a property of one or more such Persons.
Financing Agreements. Financing Agreements shall include this Agreement,
the Securities, the Investors' Rights Agreement, the Co-Sale Agreement, the
Voting Agreement, and any and every other present or future instrument or
written agreement from time to time entered into between the Company and any of
the Investors or any other Holder of the Securities and which relates to this
Agreement or is stated to be a Financing Agreement, as from time to time amended
or modified, and all written statements, reports or certificates delivered by or
on behalf of the Company to you or any other Holder of the Securities in
connection herewith or therewith.
generally accepted accounting principles. Generally accepted accounting
principles shall mean accounting principles which are (a) consistent with the
principles promulgated or adopted by the Financial Accounting Standards Board
and its predecessors, in effect for the fiscal year of the Company and its
Subsidiaries ended December 31, 1998 (except for mandatory changes from time to
time thereafter), (b) except as provided in clause (a) of this definition, (b)
applied on a basis consistent with prior periods, and (c) such that a certified
public accountant would, insofar as the use of accounting principles is
pertinent, be in a position to deliver an unqualified opinion as to financial
statements in which such principles have been properly applied.
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GMN. GMN shall mean GMN Investors II, L.P., a Delaware limited
partnership.
Hazardous Substances. Hazardous Substances shall mean any hazardous
waste as defined by 42 U.S.C. Section 6903(5), any hazardous substances as
defined by 42 U.S.C. Section 9601(14), any pollutant or contaminant as defined
by 42 U.S.C. Section 9601(33), and any toxic substance, oil, petroleum, friable
asbestos, hazardous materials, or other substances regulated by any
Environmental Laws.
Holder. Holder shall mean, as to any Security, the holder thereof,
unless such holder shall have presented such Security to the Company for
transfer and the transferee shall have been entered in the Company's stock
register referred to in Section 12.2(a) (in the case of Series E Preferred
Shares, Converted Common Shares or Warrant Shares), in the register referred to
in Section 12.1(a) (in the case of a Note) or in the register referred to in
Section 12.3(a) (in the case of a Warrant) as a subsequent holder, in which case
"Holder" shall mean such subsequent holder.
Indebtedness. Indebtedness shall include all obligations, contingent and
otherwise, which in accordance with generally accepted accounting principles
should be classified upon the obligor's balance sheet as liabilities, or to
which reference should be made by footnotes thereto, including without
limitation, in any event and whether or not so classified: (i) all debt and
similar monetary obligations, whether direct or indirect; (ii) all liabilities
secured by any mortgage, pledge, security interest, lien, charge, or other
encumbrance existing on property owned or acquired subject thereto, whether or
not the liability secured thereby shall have been assumed; (iii) all guaranties,
endorsements and other contingent obligations whether direct or indirect in
respect of Indebtedness of others, including any obligation to supply funds to
or in any manner to invest in, directly or indirectly, the debtor, to purchase
Indebtedness, or to assure the owner of Indebtedness against loss, through an
agreement to purchase goods, supplies, or services for the purpose of enabling
the debtor to make payment of the Indebtedness held by such owner or otherwise;
and (iv) obligations to reimburse issuers of any letters of credit.
Indebtedness for Borrowed Money. Indebtedness for Borrowed Money shall
mean (a) all Indebtedness of the Company and its Subsidiaries for borrowed
money, whether current or funded, or secured or unsecured, (b) all Indebtedness
of the Company and its Subsidiaries for the deferred purchase price of property
or services represented by a note or other security, (c) all Indebtedness of the
Company and its Subsidiaries created or arising under any conditional sale or
other title retention agreement with respect to property acquired by the Company
or any of its Subsidiaries (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (d) all Indebtedness of the Company and its
Subsidiaries secured by a purchase money mortgage or other lien to secure all or
part of the purchase price of property subject to
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such mortgage or lien, (e) all obligations under leases which shall have been or
should be, in accordance with generally accepted accounting principles, recorded
as capital leases in respect of which the Company or any of its Subsidiaries are
liable as lessee, (f) any liability of the Company or any of its Subsidiaries in
respect of banker's acceptances or letters of credit, (g) all interest, fees and
other expenses owed with respect to indebtedness described in the foregoing
clauses (a), (b), (c), (d), (e) or (f) above, and (h) all Indebtedness referred
to in clause (a), (b), (c), (d), (e), (f) or (g) above which is directly or
indirectly guaranteed by the Company or any of its Subsidiaries, or which the
Company or any of its Subsidiaries has agreed (contingently or otherwise) to
purchase or otherwise acquire, or in respect of which the Company or any of its
Subsidiaries has otherwise assured a creditor against loss.
Investments. Investments shall mean (a) any purchase of shares of
capital stock, units, interests, evidence of Indebtedness or other security
issued by any other Person, (b) any loan, advance, or extension of credit to, or
contribution to the capital of, any other Person, (c) any purchase of the
securities of any other Person, or commitment to make such purchase, and (d) any
other investment in any other Person; provided, however, that the term
"Investment" shall not include (i) trade and customer accounts receivable for
services rendered in the ordinary course of business and payable in accordance
with customary trade terms, and all letters of credit or other instruments
securing or evidencing the same, (ii) advances to employees for travel and
relocation expenses, drawing accounts and similar expenditures but only to the
extent that all such advances outstanding at any particular time do not exceed
$100,000, (iii) stock or other securities acquired in connection with the
satisfaction or enforcement of Indebtedness or claims due or owing to the
Company or any of its Subsidiaries or as security for any such Indebtedness or
claim, and (iv) any acquisition of assets or stock of a Person which is
permitted pursuant to Section 7.12.
Investors. Investors shall mean GMN and the additional investors listed
on Exhibit A hereto.
Investors' Rights Agreement. Investors' Rights Agreement shall mean the
Fourth Amended and Restated Investors' Rights Agreement dated as of the date
hereof among the Company, the Investors and certain of the other stockholders of
the Company, as such Agreement may be amended, restated, modified or
supplemented in accordance with the terms of this Agreement.
Lien. Lien shall mean (a) any encumbrance, mortgage, pledge, lien,
charge or other security interest of any kind upon any property or assets of any
character, or upon the income or profits therefrom; or (b) any acquisition of or
agreement to have an option to acquire any property or assets upon conditional
sale or other title retention agreement, device or arrangement (including a
capitalized lease); or (c) any sale, assignment, pledge or other transfer for
security of any accounts, general intangibles, or chattel paper, with or without
recourse.
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Major Holder. Major Holder shall mean the holder or holders at the
relevant time (excluding the Company) of (a) in the case of the Notes, at least
10% of the then outstanding principal amount of the Notes, (b) in the case of
the Series E Preferred Stock, at least 10% of the then outstanding shares of
Series E Preferred Stock, (c) in the case of the Converted Common Shares,
Warrants and Warrant Shares, at least 10% of the total number of (i) the then
outstanding Converted Common Shares, (ii) Warrant Shares then issuable upon
exercise of the outstanding Warrants plus (iii) then outstanding Warrant Shares,
and (d) if no class of Securities is referred to, the Major Holders of the Notes
so long as any Notes are outstanding, the Major Holders of the Series E
Preferred Shares and the Major Holders of the Converted Common Shares, Warrants
and/or Warrant Shares.
Majority Holders. Majority Holders shall mean the holder or holders at
the relevant time (excluding the Company) of (a) in the case of the Notes,
66-2/3% or more in outstanding principal amount of the Notes, (b) in the case of
the Series E Preferred Shares, 66-2/3% or more of the then outstanding Series E
Preferred Shares, (c) in the case of the Converted Common Shares, Warrants and
Warrant Shares, 66-2/3% or more of (i) the then outstanding Converted Common
Shares, (ii) Warrant Shares then issuable upon exercise of the outstanding
Warrants plus (iii) then outstanding Warrant Shares, considered collectively,
and (d) if no class of Securities is referred to, the Majority Holders of the
Notes so long as any Notes are outstanding, and the Majority Holders of the then
outstanding Series E Preferred Shares (on an as converted basis), Converted
Common Shares, Warrants (on an as converted basis) and Warrant Shares,
considered collectively; provided that for purposes of Section 9.2(b), Majority
Holder shall only refer to the holder or holders at the relevant time (excluding
the Company) of 66-2/3% or more of the then outstanding Converted Common Shares;
and provided further that for purposes of Section 9.2(c), Majority Holder shall
only refer to the holder or holders at the relevant time (excluding the Company)
of 66-2/3% or more of the number of Warrant Shares then issuable upon exercise
of the outstanding Warrants plus then outstanding Warrant Shares, considered
collectively.
Management Stock Option Plan. Management Stock Option Plan shall mean
the Company's equity incentive plans pursuant to which the Company has the right
to grant options, stock bonuses and the like to employees and consultants of the
Company for up to a maximum of 6,004,500 shares of Common Stock.
Maximum Rate. See Section 3.5(c).
Notes. Notes shall mean the Senior Subordinated Notes of the Company
aggregating $20,000,000 in principal amount issued pursuant to Section 2.1
hereof and any other Notes transferred to any other holders pursuant to Section
13 hereof; provided that no Notes that have been sold pursuant to a Public Sale
shall be considered to be outstanding Notes or Securities hereunder.
Permitted Indebtedness. See Section 7.8.
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Permitted Liens. See Section 7.9.
Permitted Renewal. See Section 3.6(b).
Person. Person shall mean an individual, partnership, corporation,
limited liability company, association, trust, joint venture, unincorporated
organization, and any government, governmental department or agency or political
subdivision thereof.
Preferred Stock. Preferred Stock means the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock of the Company as further described in Section 4.5.
Projections. See Section 4.7(a)(iii).
Public Sale. Public Sale shall mean any sale of Common Stock or other
equity interest of the Company to the public pursuant to a public offering
registered under the Securities Act (other than pursuant to a Rule 145
transaction or on Form S-8) or to the public through a broker or market-maker
pursuant to the provisions of Rule 144 (or any successor rule) adopted under the
Securities Act or any other public offering not required to be registered under
the Securities Act.
Purchase Price. See Section 2.2.
Purchased Securities. See Section 2.2.
Real Property. See Section 4.13.
Related Agreements. Related Agreements shall mean, collectively, the
Financing Agreements, the Senior Debt Documents, the Charter of the Company AND
the Employment Agreements.
Release. Release shall have the meaning specified in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
Sections 9601 et seq. and the regulations promulgated thereunder, as in effect
from time to time.
Restricted Payment. Restricted Payment shall mean any payment (whether
in cash, securities or other property) to or for the benefit of any Affiliate of
the Company or any of its Subsidiaries in respect of any Indebtedness owed by or
other obligation of the Company or such Subsidiary to such Affiliate.
Securities. Securities shall mean the Notes, the Series E Preferred
Shares, the Converted Common Shares, the Warrants and the Warrant Shares.
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Securities Act. Securities Act shall mean the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
Senior Credit Agreement. Senior Credit Agreement shall mean the Loan and
Security Agreement, dated July 14, 1999, among the Company and the Senior
Lender.
Senior Debt Documents. Senior Debt Documents shall mean (a) the Senior
Credit Agreement and the other Loan Documents, as defined therein, (b) the
Senior Loan and Security Agreement No. 6270, dated as of August 5, 1999, between
the Company and Phoenix Leasing Incorporated and all promissory notes,
agreements and other documents related thereto, (c) the Master Equipment Lease
Agreement, dated as of November 13, 1995, between the Company and Lighthouse
Capital Partners, L.P., and all Lease Line Schedules and Equipment Schedules, as
such terms are defined therein, agreements and other documents related thereto,
and (d) the Master Equipment Lease Agreement, dated as of March 21, 1997,
between the Company and Lighthouse Capital Partners II, L.P., and all Lease Line
Schedules and Equipment Schedules, as such terms are defined therein, agreements
and other documents related thereto,
Senior Indebtedness. See Section 3.6(b)
Senior Lender. Senior Lender shall mean Transamerica and its successors
and assigns.
Series E Preferred Shares. Series E Preferred Shares shall mean the
shares of Preferred Stock of the Company issued to the Investors pursuant to
Section 2.1 hereof and any capital stock or other securities into which or for
which such Preferred Stock shall have been converted or exchanged pursuant to
any recapitalization, reorganization or merger of the Company.
Series E Preferred Stock. Series E Preferred Stock shall mean the Series
E Preferred Stock, $.001 par value per share, of the Company.
Small Business Act. Small Business Act shall mean the Small Business
Investment Act of 1958, as amended, or any successor federal statute, and the
rules and regulations of the Small Business Administration thereunder (including
without limitation Title 13, Code of Federal Regulations, Sections 107 and 121),
all as the same shall be in effect from time to time.
Standstill Period. See Section 3.6(b).
Subordinated Indebtedness. See Section 3.6(b).
Subsidiary. Subsidiary shall mean any Person of which the Company or
other specified Person now or hereafter shall at the time own directly or
indirectly through a
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Subsidiary at least a majority of the outstanding capital stock (or other
shares of beneficial interest) entitled to vote generally.
Transamerica. Transamerica shall mean Transamerica Business Credit
Corporation.
Transfer Notice. See Section 13.2.
Voting Agreement. Voting Agreement shall mean the Voting Agreement dated
as of the date hereof among the Company, the Investors and certain of the other
stockholders of the Company, as such Agreement may be amended, restated,
modified or supplemented in accordance with the terms of this Agreement.
Warrants. Warrants shall mean the Warrants of the Company issued to the
Investors pursuant to Sections 2.1 hereof and any other Warrants transferred to
any other holders pursuant to Section 11 hereof; provided that no Warrants which
have been sold pursuant to a Public Sale shall be considered to be outstanding
Warrants or Securities hereunder.
Warrant Shares. Warrant Shares shall mean, collectively, (a) Common
Stock issuable upon exercise of the Warrants in accordance with their terms, (b)
any shares of Common Stock into which such shares of Common Stock have been
converted, (c) any capital stock or other securities into which or for which
such Common Stock shall have been converted or exchanged pursuant to any
recapitalization, reorganization or merger of the Company, and (d) any shares of
capital stock issued with respect to the foregoing pursuant to a stock dividend
or a stock split; provided that no Warrant Shares which have been sold pursuant
to a Public Sale shall be considered to be outstanding Warrant Shares or
Securities hereunder.
2. SALE AND PURCHASE OF PURCHASED SECURITIES.
2.1. Sale and Purchase of Purchased Securities.
(a) The Company agrees to issue and sell to you and, subject to all of
the terms and conditions hereof and in reliance on the representations and
warranties set forth or referred to herein, you agree to purchase the Senior
Subordinated Notes of the Company set forth opposite your name on Exhibit A, in
the aggregate principal amount of $20,000,000, such Notes to be in the form of
Exhibit B hereto.
(b) The Company agrees to issue and sell to you and, subject to all of
the terms and conditions hereof and in reliance on the representations and
warranties set forth or referred to herein, you agree to purchase Common Stock
Purchase Warrants for the purchase of the number of shares of Common Stock of
the Company set forth on Exhibit A hereto, such Warrants to be in the form of
Exhibit C.
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2.2. Purchase Price. The aggregate purchase price for the Securities
purchased pursuant to Section 2.1 (the "Purchased Securities") is $20,002,000
(the "Purchase Price"). The parties hereto agree that (a) the aggregate purchase
price for such Notes is $20,000,000, and (b) the aggregate purchase price for
such Warrants is $2,000, and will be reported as such by all parties for
federal, state and local tax purposes.
2.3. Closing. The closing of the purchase and sale of the Purchased
Securities (the "Closing") will take place at the offices of ▇▇▇▇▇▇ Godward LLP,
One Maritime Plaza, 20th Floor, San Francisco California at 10:00 a.m. on
October 20, 1999, or at such other time, date and place as the parties hereto
may agree upon (the "Closing Date"). At the Closing, the Company will deliver to
you the Purchased Securities against payment by you of the Purchase Price in
immediately available funds. Each of the Purchased Securities will be issued to
you and registered in your name in the records of the Company.
2.4. Use of Proceeds. The proceeds from the sale of the Purchased
Securities hereunder will be used solely to repay the Accounts Receivable Line
of Credit and for other general working capital purposes. The Company agrees
that it will not use any part of the proceeds from the sale of the Purchased
Securities to purchase or carry any "margin security" or "margin stock", as such
terms are defined in any regulation, rule or interpretation of the Board of
Governors of the Federal Reserve System.
3. PRINCIPAL AND INTEREST PAYMENTS ON NOTES; SUBORDINATION.
3.1. Mandatory Principal Repayment. The Company agrees to repay the
aggregate principal amount of the Notes in one installment in the amount of all
unpaid principal of the Notes on the earlier to occur of (i) October 20, 2004 or
(ii) a Capital Transaction.
3.2. Optional Prepayments. The Company may at any time and from time to
time prepay all or any portion (in integral multiples of $10,000) of the
principal amount of the Notes, provided that all accrued and unpaid interest on
the principal amount being prepaid is paid at the same time as such prepayment.
Any such prepayment shall be made to the Holders of the Notes pro rata, in
accordance with the outstanding principal amounts of such Holder's Notes.
3.3. Presentation or Surrender of Notes. The Company may, as a condition
to accepting any prepayment of a Note, require the Holder thereof to present
such Note at the place specified in the Note for payment of the principal
thereof, for notation thereon of the amount and date of such prepayment, or, if
such Note is prepaid in full, to surrender the same to the Company.
3.4. No Reborrowing. No amount repaid or prepaid pursuant to Section 3.1
or 3.2 may be reborrowed under the Notes.
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3.5. Interest Payments. (a) Subject to Sections 3.5(b) and 3.5(c)
hereof, the unpaid principal amount of the Notes outstanding from time to time
shall bear interest from the Closing Date until and including the maturity of
the Notes, at a rate per annum equal to 12%. Interest on the Notes shall be
calculated on the basis of the actual number of days elapsed and a 360 day year,
and shall be paid quarterly in arrears on the last day of each calendar quarter,
commencing on the first such date following the Closing Date.
(b) Upon the occurrence and during the continuance of any Event of
Default described in Section 9.1(a) the Notes shall bear interest at a rate
equal to 16% per annum, payable quarterly in arrears on the last business day of
each calendar quarter, commencing on the first such date following the
occurrence of such Event of Default and calculated in accordance with Section
3.5(a) above.
(c) It is not intended by the Holders of the Notes, and nothing
contained in this Agreement or any Note shall be deemed, to establish or require
the payment of a rate of interest in excess of the maximum rate permitted by
applicable federal, state or other law (the "Maximum Rate") and, to prevent such
an occurrence, any agreement which may now or hereafter be in effect between the
Company and the Holders of the Notes regarding the payment of fees or interest
to such Holders is hereby limited by the provisions of this Section 3.5(c). If,
in any month, the effective interest rate applicable to the principal
outstanding under the Notes, absent the Maximum Rate limitation contained
herein, would have exceeded the Maximum Rate, then the effective interest rate
applicable to the Notes for that month shall be the Maximum Rate, and, if in any
subsequent month, the effective interest rate would otherwise be less than the
Maximum Rate, then the effective interest rate applicable to the Notes for such
month shall be increased to the Maximum Rate until such time as the amount of
interest paid hereunder equals the amount of interest which would have been paid
in respect of the Notes if the same had not been limited by the Maximum Rate. In
the event that, upon payment in full of the principal outstanding under the
Notes, the total amount of interest paid or accrued in respect of the Notes
under the terms of this Agreement is less than the total amount of interest
which would have been paid or accrued in respect of the Notes had the interest
not been limited hereby to the Maximum Rate, then the Company shall, to the
extent permitted by such applicable federal, state or other law, pay to each of
the holders of the Notes an amount equal to the excess, if any, of (i) the
lesser of (A) the amount of interest which would have been charged in respect of
the Notes if the Maximum Rate had, at all times, been in effect with respect to
the Notes and (B) the amount of interest which would have accrued in respect of
the Notes had the effective interest rate applicable with respect to the Notes
at all times not been limited hereunder by the Maximum Rate over (ii) the amount
of interest actually paid or accrued in respect of the Notes held by such holder
under this Agreement. In the event that the Holders of the Notes receive,
collect or apply as interest any sum in excess of the Maximum Rate, such excess
amount shall be applied to the reduction of principal
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outstanding under the Notes until the payment in full thereof, and if no such
principal is then outstanding, such excess, or part thereof remaining, shall be
paid to the Company.
3.6. Subordination.
(a) Subordination to Senior Indebtedness. Notwithstanding any other
provision of this Agreement, the payment of principal and interest on each of
the Notes is and shall be junior and subordinated in right of payment, to the
extent and in the manner set forth in this Section 3.6, to the prior
payment in full of all amounts due and owing upon all Senior Indebtedness at any
time outstanding.
(b) Definitions. As used herein, (i) the term Senior Indebtedness shall
mean all of the Indebtedness from time to time owing by the Company under the
Senior Debt Documents as in effect on the date hereof and under any Permitted
Renewal thereof; provided, however, that Senior Indebtedness shall include
principal and interest thereon under such agreements at any time of
determination only to the extent that the aggregate principal amount thereunder
does not exceed $11,150,000 minus the amount of all principal installments and
prepayments made by the Company to the extent that such installments and
prepayments may not be reborrowed by the Company under the terms of such
agreements; (ii) the term Permitted Renewal shall mean any amendment of any
credit facility under the Senior Debt Documents which does not (A) extend the
scheduled maturities of the loans made thereunder, (B) increase the aggregate
principal amount permitted to be outstanding at any time thereunder, or (C)
modify or amend any provisions in any way which would impose materially greater
restrictions on the rights of the holders of Subordinated Indebtedness to the
payment thereof than those imposed by the Senior Debt Documents on the date
hereof or otherwise materially adversely affect the rights of the holders of
Subordinated Indebtedness hereunder; (iii) the term Subordinated Indebtedness
shall mean the Indebtedness of the Company under the Notes; (iv) the term
Standstill Period shall mean with respect to any Subordinated Indebtedness, the
period commencing on the date on which the holder thereof shall have received
written notice from the holders of Senior Indebtedness of the occurrence of an
Event of Default (as defined in the Senior Credit Agreement) under the Senior
Credit Agreement and ending on the earlier of (A) 90 days after the commencement
of such period or (B) the date on which all Events of Default under the Senior
Credit Agreement have been cured or waived; and (v) the term Subordinated
Instrument shall mean any instrument or agreement evidencing Subordinated
Indebtedness.
(c) Prior Payment of Senior Indebtedness in Bankruptcy, etc. In the
event of any insolvency, bankruptcy, receivership, liquidation, reorganization
or other similar proceedings relating to the Company or its debts or assets,
and, in the event of any proceedings for voluntary liquidation, dissolution or
other winding up of the Company or distribution or marshalling of its assets or
any composition with creditors of the Company, whether or not involving
insolvency or bankruptcy, if all Senior Indebtedness has not been paid in full
at such time, (i) the holders of Subordinated Indebtedness shall demand, but
only the holders of Senior Indebtedness may collect, payment of all
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Subordinated Indebtedness due from the Company, and (ii) the holders of the
Senior Indebtedness are hereby irrevocably authorized at any such meeting or in
any such proceeding to collect any assets of the Company distributed, divided or
applied by way of dividend or payment or any such securities issued on account
of Subordinated Indebtedness and apply the same, or the proceeds of any
realization upon the same that the holders of the Senior Indebtedness in their
discretion elect to effect, to Senior Indebtedness until all Senior Indebtedness
shall have been paid in full, rendering any surplus then remaining to the
holders of the Notes. The holders of the Subordinated Indebtedness shall retain
the right to vote and otherwise act in any such proceeding (including, without
limitation, the right to vote to accept or reject any plan of partial or
complete liquidation, reorganization, arrangement, composition or extension).
(d) No Payment on Notes Under Certain Conditions.
(i) During any Standstill Period with respect to any Subordinated
Indebtedness, (A) no payment shall be made by the Company or accepted by any
holder of such Subordinated Indebtedness thereunder; and (B) unless the holders
of Senior Indebtedness shall have accelerated such Senior Indebtedness or shall
have commenced an action or proceeding against the Company to enforce any of
their rights in respect of the Senior Indebtedness, no action or proceeding
shall be commenced by any holder of such Subordinated Indebtedness to collect
payment thereof. The acceleration of any Subordinated Indebtedness by the holder
thereof during any Standstill Period applicable thereto shall be deemed to be
automatically rescinded upon the expiration of such Standstill Period if upon
such expiration no Default or Event of Default (other than failure by the
Company to pay the principal amount so accelerated) exists under this Agreement.
(ii) Notwithstanding anything herein to the contrary, no
Standstill Period shall commence within 90 days after the end of another
Standstill Period nor may the provisions of this Section 3.6(d) or the
Standstill Periods established hereby restrict or prohibit for more than 180
days in any 360-day period the Company from making or the holder thereof from
accepting any payment of Subordinated Indebtedness or such holder from bringing
any action or proceeding to collect any such payment.
(e) Payments Held in Trust. If, in violation of the terms of this
Section 3.6, any holder of Subordinated Indebtedness receives payment thereof or
any distribution with respect thereto before all Senior Indebtedness is paid in
full, such payment or distribution shall be held in trust for and paid ratably
to the holders of Senior Indebtedness or their representatives until all Senior
Indebtedness shall have been paid in full. No such payments or distributions
paid to the holders of Senior Indebtedness or their representatives by any
holder of Subordinated Indebtedness shall be deemed to discharge any of such
Subordinated Indebtedness.
(f) Subrogation. Upon the payment in full and termination of all
commitments in respect of any credit facility that constitutes Senior
Indebtedness, the holders of the
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unpaid Subordinated Indebtedness shall be subrogated to the rights of the
holders of Senior Indebtedness under such credit facility to receive payments or
distributions of assets of the Company applicable to such Senior Indebtedness.
For purposes of such subrogation, no payments or distributions made to the
holders of Senior Indebtedness of any cash, property or securities to which the
holders of Subordinated Indebtedness would be entitled except for the
subordination provisions of this Section 3.6 and no payment to the holders of
Senior Indebtedness by the holders of Subordinated Indebtedness, as between the
Company, its creditors (other than the holders of Senior Indebtedness) and the
holders of Subordinated Indebtedness shall be deemed to discharge any of the
Senior Indebtedness.
(g) Scope of Subordination. The subordination provisions of this Section
3.6 are intended solely to define the relative rights of the holders of
Subordinated Indebtedness and the holders of Senior Indebtedness. Nothing in
this Section 3.6 or any Subordinated Instrument shall impair, as between the
Company, its creditors (other than the holders of Senior Indebtedness) and the
holders of Subordinated Indebtedness, the unconditional and absolute obligation
of the Company to timely pay the principal, interest, and other amounts and
obligations owing under the terms of such Subordinated Instrument or affect the
relative rights of the holders of such Subordinated Instrument and creditors of
the Company (other than the holders of Senior Indebtedness), nor shall anything
prevent any holder of Subordinated Indebtedness from accepting any payment with
respect to such Subordinated Indebtedness or exercising all remedies otherwise
permitted by applicable law upon default with respect to such Subordinated
Indebtedness or this Agreement, subject to any rights under this Section 3.6 of
the holders of Senior Indebtedness in respect of such payment.
(h) Notices. The holders of Senior Indebtedness will promptly notify the
holders of Subordinated Indebtedness in writing of the occurrence of any Event
of Default (as defined in the Senior Credit Agreement), and the holders of
Subordinated Indebtedness will promptly notify the holders of Senior
Indebtedness in writing of the occurrence of any Event of Default hereunder. The
failure to give such notice shall not, however, deprive either the holders of
Senior Indebtedness or the holders of Subordinated Indebtedness of any rights or
remedies to which they are entitled hereunder.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
In order to induce you to enter into this Agreement and to purchase the
Purchased Securities, the Company hereby represents and warrants to you that, as
of the Closing and immediately after giving effect to the Closing (for the
avoidance of doubt, such representations as to Subsidiaries to include all
Subsidiaries of the Company whether such Subsidiaries are or become Subsidiaries
of the Company before or after the Closing):
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4.1. Organization and Good Standing. The Company and each of its
Subsidiaries is duly organized and existing in good standing in its jurisdiction
of organization and is duly qualified as a foreign corporation and authorized to
do business in all other jurisdictions in which the nature of its business or
property makes such qualification necessary, except where the failure to so
qualify would not be expected to materially adversely affect the Company's or
such Subsidiary's business or financial condition. The Company and each of its
Subsidiaries has the power to own its properties and to carry on its business as
now conducted and as proposed to be conducted.
4.2. Authorization. The execution, delivery and performance by the
Company of this Agreement and each Related Agreement to which the Company is a
party, and the issuance and sale by the Company of the Securities hereunder, (a)
are within the Company's power and authority, (b) have been duly authorized by
all necessary corporate proceedings, and (c) do not conflict with or result in
any material breach of any provision of or the creation of any Lien upon any of
the property of the Company or its Subsidiaries or require any consent or
approval pursuant to the Charter or bylaws of the Company, except for such
necessary corporate approvals as shall have been received prior to the Closing
Date, or any material law, regulation, order, judgment, writ, injunction,
license, permit, agreement or instrument.
4.3. Enforceability. The execution and delivery by the Company of this
Agreement and each of the Related Agreements to which the Company is a party,
and the issuance and sale by the Company of the Securities hereunder, will
result in legally binding obligations of the Company enforceable against the
Company in accordance with the respective terms and provisions hereof and
thereof, except to the extent that (a) such enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights, (b) the availability
of the remedy of specific performance or injunctive or other equitable relief is
subject to the discretion of the court before which any proceeding therefor may
be brought, and (c) the enforceability of the indemnity and contribution
provisions contained in the Investors' Rights Agreement may be limited under
federal securities laws.
4.4. Governmental Approvals. The execution, delivery and performance by
the Company of this Agreement and each Related Agreement to which the Company is
a party, and the issuance and sale of the Securities hereunder, do not require
the approval or consent of, or any filing with, any governmental authority or
agency.
4.5. Capitalization.
(a) Capital Stock. The authorized capital stock of the Company consists
of (i) 9,938,844 shares of Preferred Stock as of the date hereof, including (A)
1,250,000 shares of Series A Preferred Stock, $.001 par value per share (the
"Series A Preferred Stock"), (B) 1,921,964 shares of Series B Preferred Stock,
$.001 par value per share
▇▇
-▇▇-
(▇▇▇ "▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇"), (▇) 1,912,233 shares of Series C Preferred
Stock, $.001 par value per share (the "Series C Preferred Stock"), (D) 2,354,647
shares of Series D Preferred Stock, $.001 par value per share (the "Series D
Preferred Stock"), and (E) 2,500,000 shares of Series E Preferred Stock, $.001
par value per share (the "Series E Preferred Stock"), and (ii) 30,000,000 shares
of Common Stock, $.001 par value per share (the "Common Stock"). On the Closing
Date, after giving effect to the transactions contemplated hereby and by the
Related Agreements, the Company will have no outstanding capital stock other
than (i) (A) 1,250,000 shares of Series A Preferred Stock, (B) 1,907,513 shares
of Series B Preferred Stock, (C) 1,912,233 shares of Series C Preferred Stock
and (D) 2,089,263 shares of Series D Preferred Stock, and (ii) 3,511,888 shares
of Common Stock, all of which shares will be owned as set forth in Schedule
4.5(a) hereto and will be duly authorized, validly issued, fully paid and
non-assessable. On the Closing Date, after giving effect to the transactions
contemplated hereby and by the Related Agreements, each of the Subsidiaries of
the Company will have the authorized, issued and outstanding capital stock set
forth in Schedule 4.5(a) hereto, all of which outstanding shares of capital
stock will be duly authorized, validly issued, fully paid and non-assessable.
(b) Options, Etc. Except for the Notes and the Warrants and as set forth
on Schedule 4.5(b), each of the Company and its Subsidiaries has no outstanding
rights (either pre-emptive or other) or options to subscribe for or purchase,
and no warrants or other agreements providing for or requiring the issuance by
any of the Company or its Subsidiaries of, any of its capital stock or other
equity interest, or any securities convertible into or exchangeable for its
capital stock or other equity interest.
(c) Reservation, Etc. Sufficient shares of authorized but unissued
Common Stock have been reserved by appropriate corporate action in connection
with the prospective conversion of the Series E Preferred Stock and the
prospective exercise of the Warrants. The issuance of the Converted Common
Shares, the Warrants and the Warrant Shares (i) will not require any further
corporate action by the stockholders or directors of the Company, (ii) will not
be subject to pre-emptive rights in any present or future stockholders of the
Company, and (iii) will not conflict with any provision of any agreement to
which the Company is a party or by which it is bound. All Series E Preferred
Stock, when issued upon exchange of the Notes, in accordance with their terms,
will be duly authorized, validly issued, fully paid and non-assessable. All
Converted Common Shares and Warrant Shares, when issued upon exercise of,
respectively, the conversion rights of the Series E Preferred Stock or the
Warrants, in accordance with their respective terms, will be duly authorized,
validly issued, fully paid and non-assessable.
4.6. Subsidiaries. The Company has no Subsidiaries and does not own or
hold of record and/or beneficially any shares of any class of the capital of any
corporation. The Company does not own any legal and/or beneficial interests in
any partnerships, business trusts or joint ventures, or in any other
unincorporated trade or business enterprises.
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4.7. Reports and Financial Statements. (a) You have heretofore been
furnished with complete and correct copies of the following:
(i) the consolidated balance sheets and related consolidated
statements of income and cash flows of the Company and its Subsidiaries
attached hereto as Schedule 4.7(a)(i) (collectively, the "Financial
Statements");
(ii) the pro forma consolidated balance sheet of the Company and
its Subsidiaries as at September 30, 1999 and the pro forma combined
historical income statements dated September 30, 1999, each of such
balance sheets and income statements taking into account all
transactions contemplated hereby and by the Related Agreements, such
balance sheet and income statements being attached hereto as Schedule
4.7(a)(ii); and
(iii) the projections of the future performance of the Company
and its Subsidiaries for each quarter following the Closing Date through
December 31, 2000 and for each 12-month period thereafter through 2002,
on a consolidated basis, including income, net profits, and cash flows
(the "Projections").
(b) Each of the Financial Statements was prepared in accordance with
generally accepted accounting principles applied on a basis consistent with
prior periods except as otherwise stated therein; each of the balance sheets of
the Company included in such financial statements fairly and accurately presents
the financial condition of the Company and its Subsidiaries as at the close of
business on the date thereof; and each of the statements of income and cash
flows of the Company and its Subsidiaries included in such financial statements
fairly and accurately presents the results of operations of the Company and its
Subsidiaries for the fiscal period then ended. Any adjustments to the Financial
Statements described on Schedule 4.7(b) hereto have a reasonable business basis
for being made.
(c) The pro forma consolidated balance sheet of the Company and its
Subsidiaries and the pro forma consolidated income statements referred to in
Section 4.7(a)(ii) have been prepared by management of the Company on a
reasonable basis, taking into consideration the effect of the transactions
contemplated hereby and by the Related Agreements, and the Company is not aware
of any fact which casts any significant doubt on the accuracy or completeness
thereof. As of the date of this Agreement, the Company and its Subsidiaries have
no material liabilities and, to the best of the Company's knowledge, no material
contingent liabilities not disclosed in such financial statements, except
current liabilities incurred in the ordinary course of business since the date
of such balance sheet that have not had, either individually or in the
aggregate, a material adverse effect on the Company's business, financial
condition or results of operations.
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(d) The Projections were prepared by management of the Company in a good
faith effort to estimate the Company's financial condition and results of
operations for the periods presented therein. The assumptions applied in
preparing the Projections, which assumptions are set forth in the notes thereto,
appeared reasonable to management as of the date thereof and as of the date of
this Agreement; however, there is no assurance that these assumptions will prove
to be valid.
4.8. Material Adverse Change. There has been no material adverse change
in the business, assets, or financial condition of the Company or any of its
Subsidiaries since December 31, 1998.
4.9. Indebtedness and Liens. Neither the Company nor any of its
Subsidiaries has any Indebtedness or Liens upon any of its properties other than
Permitted Indebtedness and Permitted Liens.
4.10. Related Agreements. You have heretofore or simultaneously herewith
been furnished with complete and correct copies of all of the Related
Agreements. This Agreement and the Related Agreements are the only material
agreements relating to the transactions contemplated hereby to which the Company
or any of its Subsidiaries is a party. Neither the Company nor any of its
Subsidiaries is in default on any of its obligations under this Agreement or any
Related Agreement to which the Company or any of its Subsidiaries is a party
and, to the best knowledge of the Company, no other party to any Related
Agreement is in default thereunder.
4.11. ERISA. Each of the Company and its Subsidiaries, and each of such
Person's employee benefit plans, if any, is in compliance in all material
respects with the requirements of applicable law, including but not limited to
ERISA and any applicable provisions of the Code. None of the Company or its
Subsidiaries nor any of their Affiliates maintains or contributes to, or has
previously maintained or contributed to, any defined benefit plan pursuant to a
collective bargaining agreement.
4.12. Solvency. Prior to, upon and immediately after consummation of the
transactions contemplated hereby and by the Related Agreements, the Company is
solvent, has tangible and intangible assets having a fair value in excess of the
amount required to pay its probable liabilities on its existing debts as they
become absolute and matured, and has access to adequate capital for the conduct
of its business and the ability to pay its debts from time to time incurred in
connection therewith as such debts mature.
4.13. Title to Assets; Leases. Except as disclosed on Schedule 4.13
attached hereto, the Company and its Subsidiaries own all of the assets
reflected in the pro forma consolidated balance sheet of the Company and its
Subsidiaries as at the Closing Date, subject to no Liens other than Permitted
Liens. Neither the Company nor any of its Subsidiaries owns any real property.
The Company and each of its Subsidiaries enjoys peaceful and undisturbed
possession, and is in material compliance with the terms, (a)
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of all leases of real property on which facilities operated by it are situated
(the "Real Property"), each of which is listed on Schedule 4.13 hereto, and (b)
of all leases of personal property, and all leases described in clauses (a) and
(b) above are valid and in full force and effect.
4.14. Litigation. There is no litigation, at law or in equity, or any
proceeding before any court, board or other governmental or administrative
agency or any arbitrator pending or, to the knowledge of the Company, threatened
which, individually or in the aggregate, is reasonably likely to result in any
final judgment or liability which, after giving effect to any applicable
insurance, could result in any material adverse change in the business, assets
or financial condition of the Company or any of its Subsidiaries or which seeks
to enjoin the consummation of, or which questions the validity of, any of the
transactions contemplated by this Agreement or any Related Agreement.
No judgment, decree or order of any court, board or other governmental or
administrative agency or arbitrator has been issued against or binds the Company
or any of its Subsidiaries or any of their assets which has or may have any
material adverse effect on the business, assets or financial condition of the
Company or any of its Subsidiaries.
4.15. Defaults. No Default or Event of Default exists on the date
hereof. Neither the Company nor any of its Subsidiaries is in default under any
provisions of its respective Charter or by-laws or under any material provisions
of any franchise, contract, agreement, lease or other instrument to which it is
a party or by which it or its property is bound or in material violation of any
law, judgment, decree or governmental order, rule or regulation.
4.16. Governmental Regulations. The Company is not a "holding company",
or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935; nor is the Company a "registered investment company", or an "affiliated
person" or a "principal underwriter" of a "registered investment company", as
such terms are defined in the Investment Company Act of 1940, as amended.
4.17. Representations and Warranties under Related Agreements. All
representations and warranties made by the Company or any of its Subsidiaries in
any of the Related Agreements or in the certificates delivered in connection
therewith are true and correct as of the date hereof with the same force and
effect as though made on and as of the date hereof, and such representations and
warranties are hereby confirmed to you and made representations and warranties
of the Company hereunder as fully as if set forth herein. To the best knowledge
of the Company, all representations and warranties made in the Related
Agreements by or on behalf of any party thereto other than the Company or its
Subsidiaries are true and correct in all material respects.
4.18. Licenses, Etc. The Company and its Subsidiaries have all
franchises, patents, patent applications, patent licenses, patent rights,
trademarks, trademark rights,
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trade names, trade name rights, copyrights, licenses, permits, authorizations
and other rights as are necessary for the conduct of their business as currently
conducted or currently proposed to be conducted, except to the extent that the
failure to have any of them would not be reasonably likely to have a material
adverse effect on the business, assets or financial condition of the Company or
any of such Subsidiaries. All of the foregoing are in full force and effect, and
the Company and each of its Subsidiaries is in compliance with the foregoing
without any known conflict with the valid rights of others which could be
reasonably likely to affect or impair in a material manner the business, assets
or financial condition of the Company or any of such Subsidiaries.
4.19. Tax Returns. The Company and its Subsidiaries have filed all tax
returns and reports which are required to be filed with any foreign, federal,
state or local governmental authority or agency, except where failure to file
such returns and reports with any such state or local governmental
authority or agency would not be expected to materially adversely affect the
Company's or any of its Subsidiaries' business or financial condition, and the
Company and each such Subsidiary has paid, or made adequate provision for the
payment of, all assessments received and all taxes which have become due under
applicable foreign, federal, state or local governmental law or regulations with
respect to the periods in respect of which such returns and reports were filed.
The Company knows of no additional assessments since the date of such returns
and reports for which adequate reserves appearing on the pro forma consolidated
balance sheet referred to in Section 4.7(a)(ii) have not been established. The
Company and each of its Subsidiaries have made adequate provision for all
current taxes.
4.20. Environmental Compliance. The Company has taken reasonable steps
to investigate the past and present condition and usage of the Real Property and
the operations conducted thereon, and, based upon such diligent inquiry, has
determined that:
(a) The Company and each of its Subsidiaries has been issued and
is in compliance with all permits, certificates, approvals, licenses and
other authorizations relating to environmental matters and required
under applicable Environmental Laws for the conduct of its business.
None of the Company, its Subsidiaries, nor any operator of the Real
Property is in alleged violation of any Environmental Laws which alleged
violation would have a material adverse effect on the business, assets,
or financial condition of the Company or any of its Subsidiaries.
(b) No Release of Hazardous Substance or other condition exists
at, on, or under any of the Real Property or any property formerly owned
or leased by the Company or any of its Subsidiaries for which the
Company or any of its Subsidiaries may be liable under any Environmental
Laws.
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(c) Neither the Company nor any of its Subsidiaries has received
notice from any third party that it may be liable for any costs or
damages whatsoever arising out of the Release of Hazardous Substances.
(d) To the knowledge of the Company, no underground storage tank
or receptacle, asbestos containing material, or equipment containing
polychlorinated biphenyls (PCBs) exists at any of the Real Property,
except to the extent such existence is not in violation of any
Environmental Laws.
(e) Any Hazardous Substances generated by the Company, its
Subsidiaries, or any operator of the Real Property have been transported
offsite only by licensed carriers in accordance with applicable
Environmental Law.
4.21. Labor Relations. The Company and its Subsidiaries are in material
compliance with all applicable federal and state laws respecting employment and
employment practices, terms and conditions of employment, wages and hours, and
nondiscrimination in employment, and are not engaged in any unfair labor
practice. There is no charge pending or, to the Company's knowledge, threatened,
against or with respect to the Company or any of its Subsidiaries before any
court or agency alleging unlawful discrimination in employment practices, and
there is no charge of or proceeding with regard to any unfair labor practice
against any of them pending before the National Labor Relations Board. There is
no labor strike, dispute, slow-down, or work stoppage pending, or to the
Company's knowledge, threatened against or involving the Company or any of its
Subsidiaries. No employees of the Company or any of its Subsidiaries are party
to a collective bargaining agreement, and no such collective bargaining
agreement is currently being negotiated. No one has petitioned and no one is now
petitioning for union representation of any employees of the Company. Neither
the Company nor any of its Subsidiaries has experienced any work stoppage or
other material labor difficulty.
4.22. Potential Conflicts of Interest. Neither the Company nor any of
its Subsidiaries, nor, to the knowledge of the Company, any of their respective
officers or directors (i) owns, directly or indirectly, any interest in
(excepting passive holdings for investment purposes of not more than one percent
(1%) of the securities of any publicly held and traded company), or is an
officer, director, employee, or consultant of, any Person that is a competitor,
lessor, lessee, customer or supplier of the Company or any of its Subsidiaries;
(ii) owns, directly or indirectly, any interest in any tangible or intangible
property used in or necessary to the business of the Company or any of its
Subsidiaries; (iii) to the knowledge of the Company, has any cause of action or
other claim whatsoever against the Company or any of its Subsidiaries, or owes
any amount to the Company or any of its Subsidiaries, except for claims in the
ordinary course of business, such as for accrued vacation pay, accrued benefits
under employee benefit plans, and similar matters and agreements.
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4.23. Material Contracts. Except for the contracts, agreements and
arrangements listed in Schedule 4.23 and contracts, agreements or other
arrangements that have been fully performed and with respect to which neither
the Company nor any of its Subsidiaries has any further obligations or
liabilities, neither the Company nor any of its Subsidiaries is a party to or
otherwise bound by (i) any agreement, instrument, or commitment that may affect
its ability to consummate the transactions contemplated hereby or by the Related
Agreements, or (ii) any other material agreement, instrument, or commitment;
including without limitation, any:
(a) agreement for the purchase, sale, lease or license by or from it of
(i) real estate requiring total payments in excess of $100,000 in any instance
or (ii) other services, products, or assets, requiring total payments in excess
of $100,000 in any instance, other than agreements for the purchase of inventory
in the ordinary course of its business;
(b) agreements requiring it to purchase all or substantially all of its
requirements for a particular product or service from a particular supplier or
suppliers, or requiring it to supply all of a particular customer's or
customers' requirements for a certain service or product;
(c) agreement or other commitment pursuant to which it has agreed to
indemnify or hold harmless any other person, to share tax liability of any other
person, or to refrain from competing with any other person;
(d) (i) employment agreement, (ii) consulting agreement, or (iii)
agreement providing for severance payments or other additional rights or
benefits (whether or not optional) in the event of a sale or other change in
control of it;
(e) agreement with any current or former Affiliate, stockholder,
officer, director, employee, or consultant of the Company or any of the
Company's Subsidiaries, or with any person in which any such Affiliate has an
interest;
(f) joint venture, partnership or teaming agreement;
(g) agreement with any domestic or foreign government or agency or
executive office thereof or any subcontract between it and any third party
relating to a contract between such third party and any domestic or foreign
government or agency or executive office thereof; or
(h) agreement the performance of which is reasonably likely to result in
a loss to it.
The Company has delivered to the Investors correct and complete copies of each
agreement, instrument, and commitment listed in Schedule 4.23, each as amended
to date. Each such agreement, instrument, and commitment is a valid, binding and
enforceable obligation of the Company or its relevant Subsidiary (except to the
extent
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that enforcement may be limited by any applicable bankruptcy, insolvency,
reorganization, or other laws affecting creditors' rights generally or by
general principles of equity) and is in full force and effect. Except as set
forth in Schedule 4.23, neither the Company nor any of its Subsidiaries is, nor
to the Company's knowledge, is any other party thereto (nor is the Company or
any of its Subsidiaries, to the Company's knowledge, considered by any other
party thereto to be) in material breach of or noncompliance with any term of any
such agreement, instrument, or commitment (nor is there, to the Company's
knowledge, any basis for any of the foregoing), except for breaches or
noncompliances that singly or in the aggregate would not have a material adverse
effect on the business, financial condition or operations of the Company of any
of its Subsidiaries. No claim, change order, request for equitable adjustment,
or request for contract price or schedule adjustment, between the Company or any
of its Subsidiaries and any supplier or customer, relating to any agreement,
instrument, or commitment listed in Schedule 4.23 is pending or, to the
Company's knowledge, threatened, other than those claims, change orders or
requests which could not result in a material adverse effect on the business,
financial condition or operations of the Company or any of its Subsidiaries. No
agreement, instrument, or commitment listed in Schedule 4.23 includes or
incorporates any provision, the effect of which may be to enlarge or accelerate
any of the obligations of the Company or any of its Subsidiaries or to give
additional rights to any other party thereto, or will terminate, lapse, or in
any other way be affected, by reason of the transactions contemplated by this
Agreement.
4.24. Intellectual Property.
(a) Except as set forth on Schedule 4.24, the Company or one of its
Subsidiaries is the sole and exclusive owner of or has the right to use, free
and clear of any material obligations to pay royalties or any other similar
obligations, and free and clear of all mortgages, liens or other encumbrances of
any kind, all (if any) patents, trade secrets, trademarks, trade names, brand
names and copyrights the use of which are material to the business or operations
of the Company and its Subsidiaries as now conducted. Except as otherwise
described in Schedule 4.24 there are no material licenses, sublicenses,
covenants or agreements which have been entered into by the Company or any of
its Subsidiaries with respect to any patents, trade secrets, trademarks, trade
names, brand names or copyrights other than (i) licenses of the Company's
products entered into with its customers in the ordinary course of business and
(ii) licenses or agreements arising from the purchase of "off the shelf" or
standard products. None of the Company nor any of its Subsidiaries is in default
in any material respect under or in relation to any such license, sublicense,
covenant or agreement.
(b) To the knowledge of the Company, there is no claim by or demand of
any person pertaining to, and there is no pending or, to the best knowledge of
the Company, threatened action, suit, proceeding or investigation relating to
any rights of the Company or any of its Subsidiaries in respect of any patents,
trade secrets, trademarks, trade names, brand names or copyrights used in the
business or operations
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of the Company or any of its Subsidiaries, the outcome of which could reasonably
be expected to have a material adverse effect on the business, financial
condition or operations of the Company of any of its Subsidiaries.
(c) No patent, trade secret, trademark, trade name, brand name or
copyright owned or used by the Company or any of its Subsidiaries (i) is, to the
Company's knowledge, being infringed by any person, or (ii) to the Company's
knowledge, infringes any patent, trade secret, trademark, copyright or other
intellectual property right of any person.
(d) None of the Company nor any of its Subsidiaries is a party to or
bound by any agreement or contract (whether written or, to its knowledge, oral)
containing any covenant prohibiting the Company or any of its Subsidiaries from
competing in any business of any kind in any territory or from competing with
any person, or prohibiting the Company or any of its Subsidiaries from doing any
kind of business with any person.
4.25. Brokers. Except as set forth on Schedule 4.25, no finder, broker,
agent or other intermediary has acted for or on behalf of the Company or any or
its Subsidiaries in connection with the negotiation or consummation of the
transactions contemplated hereby, and no fee will be payable by the Company or
any of its Subsidiaries to any such person in connection with such transactions
other than the fees payable to GMN at the Closing.
4.26. Real Property Holding Corporation. The Company hereby represents
and certifies that it is not a "United States real property holding corporation"
within the meaning of Section 897 of the Code, as amended, and Treasury
Regulation Section 1.897-2.
4.27. Year 2000. To the Company's knowledge, all hardware and software
products used by the Company and each of its Subsidiaries in the administration
and the business operations of such Person will be able to accurately process
date data (including, but not limited to calculating, comparing and sequencing)
from, into and between the twentieth century (through year 1999), the year 2000
and the twenty-first century, including leap year calculations, when used in
accordance with the product documentation accompanying such hardware and
software products.
4.28. Qualified Small Business Stock. The Company shall submit to its
stockholders (including GMN and any other Holder of Securities which is a "small
business investment company") and to the Internal Revenue Service any reports
that may be required under Section 1202(d)(1)(C) of the Code and the Regulations
promulgated thereunder. In addition, within ten days after receipt of an
Investor's written request therefor, the Company shall deliver to such Investor
a written statement indicating whether such Investor's interest in the Company
constitutes "qualified small business stock" as defined in Section 1202(c) of
the Code.
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4.29. Disclosure. No representation, warranty or statement made in this
Agreement, any Related Agreement, or any written agreement, certificate,
statement or document furnished by or on behalf of the Company in connection
herewith or therewith contains any untrue statement of material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances in which they were made, not
misleading.
5. REPRESENTATIONS AND WARRANTIES OF INVESTORS.
Each of you severally, and not jointly, represents and warrants to the
Company, as to yourself only, that, as of the Closing:
5.1. Organization and Good Standing. Such Investor is duly organized and
existing in good standing in its jurisdiction of organization and is authorized
to do business in all other jurisdictions in which the nature of its business or
property makes such qualification necessary, except where the failure to so
qualify would not be expected to materially adversely affect such Investor's
business or financial condition. Such Investor has the requisite power to own
its properties and to carry on its business as now conducted and as proposed to
be conducted.
5.2. Authority; Enforceability. Such Investor has all requisite power
and full legal right and authority to enter into this Agreement and each of the
Related Agreements to which it is a party, to perform all of its agreements and
obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. This Agreement and each of the other Related
Agreements to which such Investor is a party has (or will have at Closing) been
duly executed and delivered by such Investor and constitutes (or will constitute
at Closing) its legal, valid, and binding obligation, enforceable against it in
accordance with its terms, except to the extent that enforcement may be limited
by any applicable bankruptcy, insolvency, reorganization, or other laws
affecting creditors' rights generally or by general principles of equity.
5.3. Governmental Consents. Except as set forth in Schedule 5.3, no
consent, approval or authorization of, or registration, qualification or filing
with, any governmental agency or authority is required for the execution and
delivery by such Investor of this Agreement, or for the consummation by such
Investor of the transactions contemplated hereby.
5.4. Investment Representation. Such Investor is (i) an "accredited
investor" as defined in the Securities Act, and (ii) acquiring the Purchased
Securities for investment and not with a view to selling or otherwise
distributing the Purchased Securities; provided, however, that the disposition
of such Person's property shall at all times be and remain in its control,
subject to the provisions of Section 13 hereof.
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5.5. Brokers. Such Investor has not retained or been represented by any
broker, agent, finder or other intermediary in connection with the negotiation
or consummation of the transactions contemplated by this Agreement.
6. CONDITIONS TO PURCHASE AT CLOSING.
Your obligation to purchase the Purchased Securities pursuant to this
Agreement at the Closing is subject to compliance by the Company with its
agreements herein contained, and to the satisfaction, on or prior to the Closing
Date, of the following conditions:
6.1. Related Agreements. Each of the Related Agreements shall have been
executed and delivered in a form satisfactory to you, and each of the Related
Agreements shall be in full force and effect and no term or condition thereof
shall have been amended, modified or waived except with your prior written
consent. All covenants, agreements and conditions contained in the Related
Agreements which are to be performed or complied with on or prior to the Closing
Date shall have been performed or complied with (or waived with the Investors'
prior written consent).
6.2. Charter Documents; Good Standing Certificates. You shall have
received (i) a copy, certified by the applicable Secretary of State to be true
and complete as of a date not more than fifteen (15) days prior to the Closing
Date, of the Charters of the Company and each of its Subsidiaries, (ii) a copy,
certified by a duly authorized officer of the Company to be true and complete as
of the Closing Date, of the by-laws of each of the Company and its Subsidiaries,
and (iii) certificates, dated not more than 15 days prior to the Closing Date,
of the applicable Secretary of State as to the Company's and each of its
Subsidiaries' corporate good standing or qualification to do business, as the
case may be, in such state.
6.3. Proof of Corporate Action, Consents and Waivers. You shall have
received from the Company copies, certified by a duly authorized officer thereof
to be true and complete as of the Closing Date, of the records of (i) all action
taken to authorize the execution, delivery and performance of this Agreement and
each of the Related Agreements to which the Company is or is to become a party,
and (ii) all consents and waivers from stockholders of the Company and any other
third parties required for the Company's execution, delivery or performance of
any Financing Agreement.
6.4. Incumbency Certificate. You shall have received from the Company an
incumbency certificate, dated the Closing Date, signed by a duly authorized
officer of the Company and giving the name and bearing a specimen signature of
each individual who shall be authorized to sign, in the name and on behalf of
the Company, this Agreement and each of the Related Agreements to which the
Company is or is to become a party, and to give notices and to take other action
on behalf of the Company under each of such documents.
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6.5. Legal Opinion. You shall have received from ▇▇▇▇▇▇ Godward LLP,
counsel to the Company a favorable opinion, in form acceptable to you and your
counsel and covering such matters with respect to the transactions contemplated
by this Agreement and the Related Agreements as you or your counsel may
reasonably request.
6.6. Representations and Warranties; Officers' Certificates. The
representations and warranties contained or incorporated by reference herein
shall be true and correct on and as of the Closing Date; no event or condition
shall have occurred or would result from the issuance of any of the Securities
which would be a Default or an Event of Default on and as of the Closing Date,
and the Company shall have performed and complied with all conditions and
agreements required to be performed or complied with by it prior to the Closing
Date; and you shall have received on the Closing Date a certificate to these
effects signed by an authorized officer of the Company.
6.7. Legality; Governmental Authorization. The purchase of the Purchased
Securities shall not be prohibited by any law or governmental order or
regulation, and shall not subject you to any penalty, special tax, or other
onerous condition. All necessary consents, approvals, licenses, permits, orders
and authorizations of, or registrations, declarations and filings with, any
governmental or administrative agency or of or with any other Person, with
respect to any of the transactions contemplated by this Agreement or any of the
Related Agreements shall have been duly obtained or made and shall be in full
force and effect.
6.8. Repayment of Accounts Receivable Line of Credit. On the Closing
Date, simultaneously with the purchase and sale of the Purchased Securities
hereunder, the Company shall have made provision for the substantially
concurrent repayment of the Accounts Receivable Line of Credit. On the Closing
Date, after giving effect to the transactions described in the foregoing
sentence, the Company will have no Indebtedness for Borrowed Money other than as
expressly reflected on the pro forma balance sheet of the Company referred to in
Section 4.7(a)(ii) hereof.
6.9. Payment of Certain Fees and Disbursements. ▇▇▇▇▇▇▇ ▇▇▇▇ LLP, your
special counsel, shall have received payment for all legal fees reasonably
charged and all charges for costs, expenses and disbursements incurred by such
counsel through the Closing Date in connection with the transactions
contemplated by this Agreement and the Related Agreements. In addition, GMN
shall have received payment for all costs, expenses and disbursements incurred
by it through the Closing Date in connection with the transactions contemplated
by this Agreement and the Related Agreements.
6.10. SBIC Documentation. The Company shall have executed and delivered
to you all documents required by you in connection with the investment
contemplated hereby under the rules and regulations applicable to you by virtue
of your status as a "small business investment company", including without
limitation, SBA Form 480
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(Size Status Declaration), SBA Form 652 (Assurance of Compliance) and SBA Form
1031 (Portfolio Finance Report).
6.11. Board of Directors. The Voting Agreement shall have been executed
and delivered to you.
6.12 Amended and Restated Certificate of Incorporation. The Amended and
Restated Certificate of Incorporation of the Company, as set forth on Exhibit D
attached hereto, shall have been filed with the Delaware Secretary of State.
6.13. No Material Change. There shall not have been, or threatened to be
after giving effect to the transactions contemplated hereby, any material damage
to or loss or destruction of any properties or assets owned or leased by the
Company or any of its Subsidiaries (whether or not covered by insurance) or any
material adverse change in the business, financial condition or prospects of the
Company or any of its Subsidiaries or imposition of any laws, rules or
regulations which would materially adversely affect the business, operations,
prospects, properties, assets or condition (financial or otherwise) of the
Company or any of its Subsidiaries.
6.14. Closing Fee. Each Investor shall have received payment from the
Company of a closing fee in the amount of 0.5% of the Purchase Price of Notes
purchased by such Investor.
6.15. General. All instruments and legal, governmental, administrative
and corporate proceedings in connection with the transactions contemplated by
this Agreement and the Related Agreements shall be satisfactory in form and
substance to you, and you shall have received copies of all documents,
including, without limitation, records of corporate or other proceedings,
opinions of counsel, consents, licenses, approvals, permits and orders which you
may have requested in connection therewith.
6.16 Usury Permit. The Company shall have obtained and provided the
Investors with a copy of a usury permit issued by the State of California,
Department of Corporations.
7. COVENANTS APPLICABLE TO THE COMPANY WHILE NOTES ARE OUTSTANDING.
The Company covenants that, until all of the Indebtedness of the Company
with respect to the Notes has been paid in full, the Company will comply and
will cause each of the Company's Subsidiaries to comply with the following
provisions, unless otherwise consented to in writing by the Majority Holders of
the Notes:
7.1. Records and Accounts. The Company and each of its Subsidiaries will
keep true and accurate records and books of account in which full, true and
correct entries will be made in accordance with generally accepted accounting
principles and
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maintain adequate accounts and reserves for all taxes (including income taxes),
all depreciation, depletion, obsolescence and amortization of its properties and
all other contingencies.
7.2. Corporate Existence; Maintenance of Properties. The Company and
each of its Subsidiaries will preserve and keep in full force and effect its
legal existence, rights and franchises. Neither the Company nor any of its
Subsidiaries will engage in any business other than the business currently being
conducted by such Person and businesses that are similar or ancillary thereto.
The Company and each of its Subsidiaries will maintain all of its properties
used or useful in the conduct of its business in good condition, repair and
working order (ordinary wear and tear excepted) and cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section 7.2 shall prevent
the Company or any of its Subsidiaries from discontinuing the operation and
maintenance of any of such properties if such discontinuance is, in the judgment
of the Company, desirable in the conduct of such Person's business and does not
in the aggregate materially adversely affect the business, assets or financial
condition of the Company and its Subsidiaries.
7.3. Insurance. The Company and each of its Subsidiaries will maintain
with financially sound and reputable insurance companies, funds or underwriters
insurance of the kinds, covering the risks and in the relative proportionate
amounts usually carried by reasonable and prudent companies conducting
businesses similar to that of such Person.
7.4. Taxes. The Company and each of its Subsidiaries will pay and
discharge, or cause to be paid and discharged, before the same shall become
overdue, all material taxes, assessments and other governmental charges imposed
upon the Company and each of its Subsidiaries and their real properties, sales
and activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies, which if unpaid might by
law become a Lien or charge upon any of their properties; provided, however,
that any such tax, assessment, charge, levy or claim need not be paid if the
validity or amount thereof shall currently be contested in good faith by
appropriate proceedings and if the Company or any of its Subsidiaries shall have
set aside on its books adequate reserves with respect thereto; and provided,
further, that the Company and its Subsidiaries will pay or cause to be paid all
such taxes, assessments, charges, levies or claims forthwith upon the
commencement of foreclosure on any Lien which may have attached as security
therefor.
7.5. Inspection of Properties and Books. The Company and each of its
Subsidiaries shall permit you or any of your designated representatives to visit
and inspect, upon reasonable notice to the Company and during normal business
hours, any of the properties of the Company and its Subsidiaries, to examine the
books of account
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of the Company and its Subsidiaries (and to make copies thereof and extracts
therefrom), and to discuss the affairs, finances and accounts of the Company and
its Subsidiaries with, and to be advised as to the same by, officers of such
Persons, all at such reasonable times and intervals as you may reasonably
request.
7.6. Compliance with Laws, Contracts, Licenses, and Permits. The Company
and each of its Subsidiaries will comply with (a) all applicable laws and
regulations wherever its business is conducted except where failure to so comply
would not reasonably be expected to materially adversely affect the Company's or
such Subsidiary's business or financial condition, (b) the provisions of its
Charter and by-laws, (c) all materials provisions of material agreements and
instruments by which it or any of its properties may be bound (including,
without limitation, the Related Agreements), and (d) all applicable decrees,
orders, and judgments. If any authorization, consent, approval, operating right,
permit or license from any officer, agency or instrumentality of any government
shall become necessary or required in order that the Company or any of its
Subsidiaries may fulfill any of its obligations hereunder, the Company and its
Subsidiaries will promptly take or cause to be taken all reasonable steps within
its power to obtain such authorization, consent, approval, operating right,
permit or license and furnish you with evidence thereof.
7.7. Further Assurances. The Company and each of its Subsidiaries will
cooperate with you and execute such further instruments and documents as you
shall reasonably request to carry out to your satisfaction the transactions
contemplated by this Agreement and the Related Agreements.
7.8. Restrictions on Indebtedness. Neither the Company nor any of its
Subsidiaries will create, incur, assume, guarantee or be or remain liable,
contingently or otherwise, with respect to any Indebtedness other than the
following ("Permitted Indebtedness"):
(a) Indebtedness under the Notes;
(b) Indebtedness under the Senior Debt Documents;
(c) current liabilities incurred in the ordinary course of
business not incurred through (i) the borrowing of money, or (ii) the
obtaining of credit except for credit on an open account basis
customarily extended in connection with normal purchases of goods and
services;
(d) Indebtedness in respect of taxes, assessments, governmental
charges or levies and claims for labor, materials and supplies to the
extent that payment therefor shall not at the time be required to be
made in accordance with the provisions of Section 7.4 hereof;
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(e) Indebtedness in respect of judgments or awards which have
been in force for less than the applicable period for taking an appeal
so long as execution is not levied thereunder or in respect of which the
Company or any of its Subsidiaries shall at the time in good faith be
prosecuting an appeal or proceedings for review and in respect of which
a stay of execution shall have been obtained pending such appeal or
review;
(f) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the
ordinary course of business;
(g) Indebtedness in respect of operating leases and capital
leases incurred in the ordinary course of business;
(h) Indebtedness under or in respect of the agreements or
instruments existing on the date of this Agreement listed and described
on Schedule 7.8 hereto, but only to the extent of the amounts listed
thereon; and
(i) Indebtedness incurred in connection with any purchase money
financing of any Capital Expenditures permitted hereunder, provided that
the aggregate principal amount of such Indebtedness incurred by the
Company and each of its Subsidiaries during any fiscal year shall not
exceed $250,000 in the aggregate.
7.9. Restrictions on Liens. Neither the Company nor any of its
Subsidiaries will create or incur or suffer to be created or incurred or to
exist any Lien or other security interest of any kind upon any of its property
or assets of any character whether now owned or hereafter acquired, or upon the
income or profits therefrom; or transfer any of such property or assets or the
income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors; or acquire, or agree or have an option to
acquire, any property or assets upon conditional sale or other title retention
or purchase money security agreement, device or arrangement; or suffer to exist
for a period of more than 30 days after the same shall have been incurred any
Indebtedness or claim or demand against it which if unpaid might by law or upon
bankruptcy or insolvency, or otherwise, be given any priority whatsoever over
its general creditors (other than those claims which the Company or such
Subsidiary is contesting in good faith by appropriate proceedings and as to
which the Company or such Subsidiary shall have set aside on its books, adequate
reserves with respect thereto); or sell, assign, pledge or otherwise transfer
any accounts, contract rights, general intangibles or chattel paper, with or
without recourse; provided, however, that the Company and its Subsidiaries may
create or incur or suffer to be created or incurred or to exist any of the
following ("Permitted Liens"):
(a) Liens to secure taxes, assessments and other government
charges or claims for labor, material or supplies in respect of
obligations not overdue
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(other than any such overdue taxes, levies, claims, assessments or
charges, to the extent the payment therefor shall not at the time be
required to be made in accordance with the provisions of Section 7.4
hereof);
(b) Deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations;
(c) Liens in respect of judgments or awards, the Indebtedness
with respect to which is permitted by Section 7.8(e);
(d) Liens of carriers, warehousemen, mechanics and materialmen,
and other like liens, in existence less than 60 days from the date of
creation thereof or in respect of obligations not overdue or, if
overdue, all such liens that the Company or such Subsidiary is
contesting in good faith by appropriate proceedings which prevent
enforcement of the lien;
(e) Encumbrances consisting of easements, rights of way, zoning
restrictions, restrictions on the use of real property and
irregularities in the title thereto, landlord's or lessor's Liens under
leases to which the Company or any of its Subsidiaries is a party, and
other minor Liens or encumbrances none of which interferes materially
with the use of the property affected in the ordinary conduct of the
business of the Company and its Subsidiaries and which defects do not
individually or in the aggregate have a material adverse effect on the
business, assets or financial condition of the Company or any of its
Subsidiaries;
(f) Any Liens on the assets and property of the Company or any of
its Subsidiaries from time to time securing Indebtedness permitted by
Section 7.8(b) and Liens presently outstanding as shown on Schedule 7.9
hereto; and
(g) Purchase money security interests in or purchase money
mortgages on real or personal property acquired after the date hereof to
secure purchase money Indebtedness permitted by Section 7.8(i), incurred
in connection with the acquisition of such property, which security
interests or mortgages cover only the real or personal property so
acquired.
(h) Liens in favor of depository institutions or securities
intermediaries securing deposit accounts or securities accounts, as
applicable.
7.10. Distributions. Neither the Company nor any of its Subsidiaries
shall make any Distribution except that (i) the Company may pay dividends to the
holders of Preferred Stock in accordance with the terms of the Company's Charter
and (ii) any Subsidiary may make Distributions to the Company.
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7.11. Capital Expenditures. The Company and its Subsidiaries together
will not make any Capital Expenditures in excess of $50,000 for any single
expenditure or project nor will any of such Persons make any Capital
Expenditures which aggregate more than $250,000 with respect to such Person in
any fiscal year.
7.12. Merger, Consolidation, Purchase or Sale of Assets. Neither the
Company nor any of its Subsidiaries will (a) become a party to any merger or
consolidation; provided that any Subsidiary of the Company may merge or
consolidate with the Company or any other Subsidiary of the Company; or (b)
sell, lease, sublease or otherwise transfer or dispose of any portion of its
assets with an aggregate value in excess of $50,000 in any fiscal year (other
than sales of assets in the ordinary course of business consistent with past
practice). Neither the Company nor any of its Subsidiaries will (i) acquire all
or substantially all of the capital stock or assets of any Person or (ii)
acquire any assets outside the ordinary course of business.
7.13. Investments. The Company will not, nor will it permit any of its
Subsidiaries to, have outstanding or acquire or commit itself to acquire or hold
any Investment except for the Investments set forth on Schedule 7.13 and except
Investments in: (a) marketable direct obligations issued or guaranteed by the
United States of America or any state or subdivision thereof which mature within
one year from the date of acquisition thereof or which are subject to a
repurchase agreement, exercisable within 90 days from the date of acquisition
thereof, with any commercial bank or trust company incorporated under the laws
of the United States of America or any State thereof or the District of
Columbia, (b) commercial paper maturing within one year from the date of
acquisition thereof and having, at the date of acquisition thereof, the highest
rating obtainable from ▇▇▇▇▇'▇ Investors Service, Inc. or Standard & Poor's
Corporation, (c) bankers' acceptances eligible for rediscount under Federal
Reserve Board requirements accepted by any commercial bank or trust company
referred to in clause (a) hereof, (d) certificates of deposit maturing within
one year from the date of acquisition thereof issued by any commercial bank or
trust company referred to in clause (a) hereof and having capital and surplus of
at least $100,000,000 and having at least an "A" rating or better, and (e)
certificates of deposit issued by banks organized under the laws of any other
jurisdiction, each having combined capital and surplus of not less than
$100,000,000, and having at least an "A" rating or better.
7.14. Transactions with Affiliates. Neither the Company nor any of its
Subsidiaries will (a) engage in any transaction with any Affiliate except as
expressly provided in clause (b) below, or (b) make any Restricted Payment other
than on terms and conditions at least as favorable to the Company or such
Subsidiary as those that would be obtained through an arm's-length negotiation
with an unaffiliated party.
7.15. Employee Benefit Plans. The Company and each of its Subsidiaries
will take all actions necessary to maintain, fund, and administer its employee
benefit plans in accordance with federal, state and local law. Without limiting
the foregoing, each of the Company and its Subsidiaries (a) will not permit the
aggregate present value of the
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unfunded vested accrued benefits under all employee benefit plans of the Company
or such Subsidiary or any ERISA Affiliate to exceed $10,000, and will not take
any action which would result in the foregoing; (b) will furnish to you a copy
of any actuarial statement related to any pension plan maintained, funded or
contributed to by the Company or such Subsidiary which is required to be
submitted under Section 103(d) of ERISA, no later than the date on which such
statement is submitted to the Department of Labor or the Internal Revenue
Service; (c) will furnish to you forthwith a copy of (i) any notice of a pension
plan termination sent to the Pension Benefit Guaranty Corporation under Section
4041(a) of ERISA with respect to any pension plan maintained, funded or
contributed to by the Company or such Subsidiary, or (ii) any notice, report or
demand sent or received by a pension plan under Sections 4041, 4042, 4043, 4063,
4065, 4066 and 4068 of ERISA; and (d) will furnish to you a copy of any request
for waiver from the funding standards or extension of the amortization periods
required by Sections 303 and 304 of ERISA or Section 412 of the Code with
respect to any pension plan maintained, funded or contributed to by the Company
or such Subsidiary no later than the date on which the request is submitted to
the Department of Labor or the Internal Revenue Service, as the case may be.
7.16. Financial Covenants.
(a) At all times the Company will have on hand cash and cash equivalents
equal to at least, in the aggregate, one and one-half times debt service
coverage for all Indebtedness for the immediately succeeding twelve-month
period.
(b) The Company will generate EBITDA of at least $(4.0) million for the
quarter ending December 31, 1999.
(c) At all times the Company will maintain EBITDA of at least the
amounts set forth below for the periods set forth below:
Period Maximum Cumulative EBITDA Loss
------ ------------------------------
1/01/00 --- 3/31/00 $ (5.0) million
1/01/00 --- 6/30/00 $ (8.0) million
1/01/00 --- 9/30/00 $(10.0) million
1/01/00 --- 12/31/00 $(11.0) million
8. COVENANTS APPLICABLE WHILE THE SECURITIES ARE OUTSTANDING.
The Company hereby agrees that except as limited by Sections 8.1, 8.2,
8.3, 8.5, 8.6 and 8.8, so long as any Securities are outstanding that it will
comply with and it will cause its Subsidiaries to comply with the following
provisions:
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8.1. Officers' Certificates. So long as any Investor is holding any
Notes or Series E Preferred Shares, together with delivery of consolidated
financial statements of the Company pursuant to the Investors' Rights Agreement,
the Company will deliver to each Major Holder a certificate of the President,
chief financial officer or Treasurer of the Company, (a) stating that such
statements have been prepared in accordance with generally accepted accounting
principles consistently applied and present fairly the consolidated financial
position of the Company and its Subsidiaries as of the dates specified and the
results of its consolidated operations and cash flows with respect to the
periods specified (subject in the case of interim financial statements only to
normal year-end audit adjustments and a lack of footnotes), and (b) stating that
such officers have caused the provisions of this Agreement and the Securities to
be reviewed and have no knowledge of any Default or Event of Default, or if
either such officer has such knowledge, specifying such Default or Event of
Default and the nature thereof, and what action the Company has taken, is taking
or proposes to take with respect thereto.
8.2. Notice of Litigation, Defaults, Etc. So long as any Investor is
holding any Notes or Series E Preferred Shares, the Company will promptly give
notice to each Major Holder of any litigation or any administrative proceeding
to which the Company or any of its Subsidiaries may hereafter become a party
which may result in any material adverse change in the business, assets, or
financial condition of the Company or any of its Subsidiaries. Forthwith upon
any officer of the Company obtaining knowledge of any Default or Event of
Default hereunder, any default or event of default under any Related Agreement
or any agreement relating to any Indebtedness for Borrowed Money, the Company
will furnish a notice specifying the nature and period of existence thereof and
in the case of a Default or Event of Default hereunder, what action the Company
has taken, is taking or proposes to take with respect thereto. Promptly after
the receipt thereof, the Company will provide copies of any reports as to
adequacies in accounting controls submitted by independent accountants with
respect to the Company and its Subsidiaries.
8.3. Right to Attend Meetings. (a) The Company will call and hold a
meeting of its board of directors at least once each fiscal quarter. Pursuant to
the terms and provisions of the Voting Agreement and so long as any Investor is
the Holder of any Notes or Series E Preferred Shares, the Investors shall have
the right to one seat on the board of directors of the Company and one seat on
the Company's Compensation Committee, which at the Closing Date will be occupied
by ▇▇▇▇▇ ▇. ▇▇▇▇▇▇. The director designated by the Investors shall receive the
same compensation for board service as any other outside member of the board of
directors of the Company. In addition, the Company agrees to reimburse such
director for all reasonable out-of-pocket expenses incurred by such director in
connection with his or her attendance at board or committee meetings or any
other meetings called by the board of directors of the Company, including, but
not limited to, travel and lodging expenses. Any such reimbursement of expenses
shall be made promptly after submission of a ▇▇▇▇ therefor by such director. The
Company will give the director designated by the Investors at
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least five business days' prior written notice to the extent such notice is
reasonably practicable otherwise, as prescribed in the by-laws of the Company,
of the time, place and subject matter of any proposed meeting (or action by
written consent) of the board of directors of the Company or any committee
thereof, such notice in all cases to include true and complete copies of all
documents furnished to any other director in connection with such meeting or
consent.
(b) For so long as any Investor is holding any Notes or Series E
Preferred Shares and the Investors choose not to designate an individual to fill
such seat, the Investors shall be entitled to have an observer at each board
meeting and such observer shall be entitled to receive notice and information as
set forth in paragraph (a) above. Any such observer will be entitled to attend
any meeting of the Company's board of directors or, if a meeting is held by
telephone conference, to participate therein by telephone.
8.4. Other Information. The Company will deliver to each Person entitled
to receive notice pursuant to Section 8.3(a) of board meetings and consents
copies of all papers which may be distributed from time to time to the directors
or stockholders of the Company at such time as such papers are so distributed to
them. In addition, from time to time upon your request or upon the request of
any representative designated by the Majority Holders, the Company will furnish
to any authorized officer or representative of such Person such information
regarding the business, affairs, prospects and financial condition of the
Company and its Subsidiaries as such officer or representative may reasonably
request. Each such officer or representative shall have the right during normal
business hours to examine the books and records of the Company and its
Subsidiaries, to make copies, notes and abstracts therefrom, and to make an
independent examination of the books and records of the Company and its
Subsidiaries.
8.5. Amendment of Related Agreements, Etc. Neither the Company nor any
of its Subsidiaries shall agree to any amendment or modification of its Charter
or by-laws, or agree to any amendment or modification of or grant any waiver or
fail to enforce any of its rights pursuant to any of the Related Agreements,
unless approved in each case by the Majority Holders in writing;
provided that this Section 8.5 shall not apply to an amendment or modification
of the Company's Charter or by-laws if no Notes or Series E Preferred Shares are
outstanding.
8.6. Sale and Issuance of Capital Stock. So long as any Investor is
holding any Notes or Series E Preferred Shares, neither the Company nor any of
its Subsidiaries will (a) issue, sell, give away, transfer, pledge, mortgage,
assign or otherwise dispose of, (b) grant any rights (either preemptive or
other) or options to subscribe for or purchase, or (c) enter into any
agreements, or issue any warrants, providing for the issuance of any of its
capital stock or any securities convertible into or exchangeable for any of its
capital stock that ranks equal or senior to the Series E Preferred Shares,
except for the Preferred Shares. So long as any Investor is holding any Notes or
Series
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E Preferred Shares, neither the Company nor any of its Subsidiaries will
authorize or permit to be authorized any additional class or series of capital
stock or other equity interest that is not on a parity with or junior to the
Series E Preferred Shares or increase the number of shares of authorized capital
stock (other than Common Stock) from that set forth in Section 4.5(a) hereof.
8.7. Activities and Use of Proceeds.
(a) Neither the Company nor any of its Subsidiaries will engage in any
activity or use directly or indirectly the proceeds from the sale of the
Purchased Securities for any purpose for which a "small business investment
company" is prohibited from providing funds by the Small Business Act.
(b) The Company will use the proceeds from the sale of the Purchased
Securities for the purposes set forth in Section 2.4 hereof. The Company will
deliver within ninety (90) days following the Closing Date a written report,
certified as correct by the Company's President, verifying the purposes and the
amounts for which proceeds from the Purchased Securities have been disbursed.
The Company will supply to the Investors such additional information and
documents as the Investors may reasonably request with respect to the use of
proceeds and will permit the Investors to have access to any and all records and
information and personnel as the Investors deem necessary to verify such use of
proceeds.
(c) The Company will not, without obtaining the prior written approval
of GMN and any other Holder of Securities which is a "small business investment
company", change within one year following the Closing Date the Company's
business activity to a business activity which a "business investment company"
is prohibited from providing funds under the Small Business Act, nor will the
Company engage in any business activity other than that engaged in by the
Company and its Subsidiaries at the Closing Date and businesses reasonably
related thereto.
8.8. Directors and Officers Insurance. So long as any Note or any Series
E Preferred Shares are outstanding, the Company will maintain directors and
officers liability insurance in an amount and with coverage reasonably
satisfactory to the Investors at the Closing.
9. DEFAULTS.
9.1. Events of Default. Holders of the Securities will be entitled to
exercise the remedies provided by Section 9.2 hereof in accordance with the
terms thereof if any one or more of the following events ("Events of Default")
shall occur:
(a) the Company shall (i) fail to make any payment of principal
on the Notes on the date the same shall become due, whether on any
scheduled payment
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date, at maturity or by acceleration, or otherwise; or (ii) fail to make
any payment of interest on the Notes within 5 days of the date the same
shall become due; or
(b) the Company or any of its Subsidiaries shall fail to perform
or observe any covenant, agreement or provision applicable to it set
forth in Sections 7.2, 7.8 through 7.16, 8, and 14 hereof;
(c) the Company or any of its Subsidiaries shall fail to perform
or observe any covenant, agreement or provision applicable to it, under
this Agreement or any other Financing Agreement to which it is a party,
other than those provisions set forth in Sections 9.1(a) - (b) above,
and such failure shall not be rectified, waived or cured to the
satisfaction of the Majority Holders within thirty (30) days of written
notice thereof to the Company;
(d) there occurs any "Event of Default" under any Senior Debt
Document, and such Event of Default shall not be waived by the Senior
Lender or cured within thirty (30) days of the Company or the Senior
Lender becoming aware thereof;
(e) any material representation or warranty made by the Company
to you in connection with this Agreement or any Related Agreement or any
amendment to this Agreement or any Related Agreement shall prove to have
been false on the date as of which it was made;
(f) the Company or any of its Subsidiaries shall fail (i) to make
any required payment on any Indebtedness for Borrowed Money in excess of
$100,000, or (ii) to perform or observe any of the covenants or
provisions required to be performed or observed by it pursuant to any of
the Related Agreements, as amended from time to time consistent with
Section 8.5 and, in the case of each of (i) and (ii), (x) such failure
shall continue, without having been duly cured, waived or consented to,
beyond the period of grace, if any, therein specified and so as to
permit the acceleration thereof, if any acceleration is provided for
therein, or (y) any security interest in or other Lien on any property
securing any such Indebtedness shall be enforced through judicial
proceedings or foreclosure or repossession of collateral; or
(g) a final judgment which in the aggregate with other
outstanding final judgments against the Company or any of its
Subsidiaries exceeds $100,000 shall be rendered against the Company or
any of its Subsidiaries if, within 30 days after entry thereof, such
judgment shall not have been satisfied and discharged or stayed pending
appeal or bonded, or within 30 days after expiration of such stay such
judgment shall not have been discharged; or
(h) the Company or any of its Subsidiaries shall:
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(i) commence a voluntary case under Title 11 of the
United States Code as from time to time in effect, or authorize,
by appropriate proceedings of its board of directors or other
governing body, the commencement of such a voluntary case;
(ii) have filed against it a petition commencing an
involuntary case under said Title 11 and such petition shall not
have been dismissed or stayed within 60 days;
(iii) seek relief as a debtor under any applicable
law, other than said Title 11, of any jurisdiction relating to
the liquidation or reorganization of debtors or to the
modification or alteration of the rights of creditors, or consent
to or acquiesce in such relief;
(iv) have entered against it an order by a court of
competent jurisdiction (x) finding it to be bankrupt or
insolvent, (y) ordering or approving its liquidation,
reorganization or any modification or alteration of the rights of
its creditors, or (z) assuming custody of, or appointing a
receiver or other custodian for, all or a substantial part of its
property; or
(v) make an assignment for the benefit of, or enter
into a composition with, its creditors, or appoint or consent to
the appointment of a receiver or other custodian for all or a
substantial part of its property;
(i) the Company or any of its Subsidiaries shall fail to maintain
in full force and effect any federal, state or local license, permit or
operating right material to the operation of its business; or
(j) a material adverse change in the business, operations or
financial condition of the Company or any of its Subsidiaries shall have
occurred.
9.2. Remedies. Upon the occurrence and continuance of any of the
Events of Default under Section 9.1 hereof, in each and every such case,
(a) the Majority Holders of the Notes (but only so long as each
Holder of more than $4,000,000 in aggregate outstanding principal amount
of the Notes consents) may proceed to protect and enforce its or their
rights by suit in equity, action at law and/or other appropriate
proceedings either for specific performance of any covenant, provision
or condition contained or incorporated by reference in this Agreement or
in the Notes, or in aid of the exercise of any power granted in this
Agreement or in the Notes, and (unless there shall have occurred an
Event of Default under Section 9.1(h) hereof, in which case the
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unpaid balance of the Notes shall automatically become due and payable)
may by notice to the Company, declare all or any part of the unpaid
principal amount of the Notes then outstanding to be forthwith due and
payable, and thereupon such unpaid principal amount or part thereof,
together with interest accrued thereon and all other sums, if any,
payable under this Agreement or the Notes shall become so due and
payable without presentation, presentment, protest or further demand or
notice of any kind, all of which are hereby expressly waived, and such
holder or holders may proceed to enforce payment of such amount or part
thereof in such manner as it or they may elect;
(b) the Majority Holders of the Series E Preferred Shares may
proceed to protect and enforce its or their rights by suit in equity,
action at law and/or other appropriate proceedings either for specific
performance of any covenant, provision or condition contained or
incorporated by reference in this Agreement or in any Related Agreement,
or in aid of the exercise of any power granted in this Agreement or any
Related Agreement; or
(c) the Majority Holders of the Converted Common Shares, Warrants
and Warrant Shares may proceed to protect and enforce its or their
rights by suit in equity, action at law and/or other appropriate
proceedings either for specific performance of any covenant, provision
or condition contained or incorporated by reference in this Agreement or
in any Related Agreement, or in aid of the exercise of any power granted
in this Agreement or any Related Agreement.
9.3. Waivers. The Company and each of its Subsidiaries hereby waives, to
the extent not prohibited by applicable law, (a) all presentments, demands for
performance and notices of nonperformance (except to the extent specifically
required by the provisions hereof), (b) any requirement of diligence or
promptness on the part of any holder of Securities in the enforcement of its
rights under the provisions of this Agreement, the Charter of the Company, or
any Financing Agreement, and (c) any and all notices of every kind and
description which may be required to be given by any statute or rule of law.
9.4. Course of Dealing. No course of dealing between the Company or any
of its Subsidiaries on the one hand, and you or any holder of Securities, on the
other hand, shall operate as a waiver of any of your or its rights under this
Agreement, the Charter of the Company, or any Financing Agreement. No delay or
omission in exercising any right under this Agreement, the Charter of the
Company, or any Financing Agreement shall operate as a waiver of such right or
any other right. A waiver on any one occasion shall not be construed as a bar to
or waiver of any right or remedy on any other occasion.
9.5 Special Event of Default. So long as any single Holder of Notes
holds more than $4,000,000 in aggregate outstanding principal amount thereof,
upon the occurrence and during the continuance of an Event of Default described
in Section
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9.1(a) or 9.1(d) hereof, and until such time as the Notes are paid in
full, any action described in Schedule 9.5 hereto shall require the consent of
the director appointed pursuant to Section 8.3 hereof in addition to the
approval of a majority of the Board of Directors (which director may be counted
in determining a majority of such Board).
10. REGISTRATION RIGHTS.
You will have certain registration rights with respect to the Converted
Common Shares and Warrant Shares as set forth in the Investors' Rights
Agreement.
11. SUBSEQUENT HOLDERS OF SECURITIES.
Whether or not any express assignment has been made in this Agreement,
the provisions of this Agreement and the Financing Agreements that are for your
benefit as the holder of any Securities are also for the benefit of, and
enforceable by, all subsequent holders of Securities.
12. REGISTRATION AND TRANSFER OF SECURITIES.
12.1. Registration, Transfer and Exchange of Notes.
(a) The Company shall keep at its principal office a register in which
shall be entered the names and addresses of the registered Holders of the Notes
issued by it and particulars of the respective Notes held by them and of all
transfers of such Notes. The ownership of any of the Notes shall be proven by
such register and the Company may conclusively rely upon such register.
(b) The Holder of any of the Notes may at any time and from time to time
prior to maturity or redemption thereof surrender any Note held by it for
exchange or (subject to compliance with the applicable provisions of Section 13
hereof) transfer at said office of the Company. Within a reasonable time
thereafter and without expense (other than transfer taxes, if any) to such
Holder, the Company shall issue, at its expense, in exchange therefor another
Note or Notes, dated the date to which interest has been paid on the surrendered
Note, for the same aggregate principal amount as the unpaid principal amount of
the Note or Notes so surrendered, having the same maturity and rate of interest,
containing the same provisions and subject to the same terms and conditions as
the Note or Notes so surrendered. Each such new Note shall be in the
denominations and registered in the name of such person or persons as the Holder
of such surrendered Note or Notes may designate in writing, and such exchange
shall be made in a manner such that no additional or lesser amount of principal
or interest shall result. The Company will pay shipping and insurance charges,
from and to each Holder's principal office, involved in the exchange or transfer
of any Note.
(c) Each Note issued hereunder, whether originally or in substitution
for, or upon transfer or exchange of, any Note shall be registered on the date
of execution
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thereof by the Company. The registered Holder of a Note shall be deemed to be
the owner of such Note for all purposes of this Agreement. All notices given
hereunder to such Holder shall be deemed validly given if given in the manner
specified in Section 15 hereof.
12.2. Transfer and Exchange of Series E Preferred Shares, Converted
Common Shares and Warrant Shares.
(a) The Company shall keep at its principal office a register in which
shall be entered the names and addresses of the Holders of the Series E
Preferred Shares, the Converted Common Shares and the Warrant Shares and the
particulars (including without limitation the class thereof, if applicable) of
the respective Series E Preferred Shares, the Converted Common Shares and the
Warrant Shares held by them and of all transfers of shares of Series E Preferred
Shares and/or Converted Common Shares and Warrant Shares or conversions of
shares of Series E Preferred Shares, Warrant Shares or Common Shares from one
class to another, as applicable. References to the "holder" or "holder of
record" of any Series E Preferred Shares, Converted Common Shares or Warrant
Shares shall mean the holder thereof unless the holder shall have presented the
stock certificates evidencing same to the Company for transfer and the
transferee shall have been entered in said register as a subsequent holder, in
which case the terms shall mean such subsequent holder. The ownership of any of
the Series E Preferred Shares and/or Converted Common Shares and Warrant Shares
shall be proven by such register and the Company may conclusively rely upon such
register.
(b) Upon surrender at such office of any certificate representing shares
of Series E Preferred Shares and/or Converted Common Shares or Warrant Shares
for registration of exchange or (subject to compliance with the applicable
provisions of this Agreement, including without limitation the conditions set
forth in Section 13 hereof) transfer or conversion, the Company shall issue, at
its expense, one or more new certificates, in such denomination or denominations
as may be requested, for shares of such class of Series E Preferred Shares
and/or Converted Common Shares or Warrant Shares, as applicable, as may be
requested, and registered as such holder may request. Any certificate
representing shares of Series E Preferred Shares and/or Converted Common Shares
or Warrant Shares surrendered for registration of transfer shall be duly
endorsed, or accompanied by a written instrument of transfer duly executed by
the holder of such certificate or his attorney duly authorized in writing. The
Company will pay shipping and insurance charges, from and to each holder's
principal office, upon any transfer, exchange or conversion provided for in this
Section 12.2.
(c) Each certificate evidencing Series E Preferred Shares and/or
Converted Common Shares or Warrant Shares, whether originally or in substitution
for, or upon transfer, conversion or exchange of, any Series E Preferred Shares
or Converted Common Shares or upon the exercise of any Warrant, as applicable,
shall be registered on the date of execution thereof by the Company. The
registered holder of record shall be deemed to be the owner of the Series E
Preferred Shares and/or Converted Common
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Shares or Warrant Shares, as applicable, for all purposes of this Agreement. All
notices given hereunder to the holder of record shall be deemed validly given if
given in the manner specified in Section 15 hereof.
12.3. Registration, Transfer and Exchange of Warrants.
(a) The Company shall keep at its principal office a register in which
shall be entered the names and addresses of the Holders of Warrants issued by it
and particulars of the respective Warrants held by them and of all transfers of
such Warrants. The ownership of any of the Warrants shall be proven by such
register and the Company may conclusively rely upon such register.
(b) The Holder of any of the Warrants may at any time and from time to
time prior to exercise thereof surrender any Warrant held by it for exchange or
(subject to compliance with Section 13 hereof) transfer at said office of the
Company. On surrender for exchange of the Warrants, properly endorsed, to the
Company, the Company at its expense will issue and deliver to or on the order of
the Holder thereof a new Warrant or Warrants of like tenor, in the name of such
Holder or, upon payment by such Holder of any applicable transfer taxes, as such
Holder may direct, calling in the aggregate on the face or faces thereof for the
number of shares of Warrant Shares called for on the face or faces of the
Warrants so surrendered. The Company will pay shipping and insurance charges,
from and to each Holder's principal office, involved in the exchange or transfer
of any Warrant.
(c) Each Warrant issued hereunder, whether originally or in substitution
for, or upon transfer or exchange of, any Warrant shall be registered on the
date of execution thereof by the Company. The registered Holder of a Warrant
shall be deemed to be the owner of such Warrant for all purposes of this
Agreement. All notices given hereunder to such Holder shall be deemed validly
given if given in the manner specified in Section 15 hereof.
12.4. Replacement of Securities. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Security and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity bond in such reasonable amount as the Company may determine (or,
in the case of any Security held by any Investor or another institutional
Holder, an unsecured indemnity agreement from such Investor or such other Holder
reasonably satisfactory to the Company) or, in the case of any such mutilation,
upon the surrender of such Security for cancellation to the Company at its
principal office, the Company, at its own expense, will execute and deliver, in
lieu thereof, a new Security of like tenor, dated in the case of a Note so that
there will be no loss of interest. Any Security in lieu of which any such new
Security has been so executed and delivered by the Company shall not be deemed
to be outstanding for any purpose of this Agreement.
13. RESTRICTIONS ON TRANSFER.
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13.1. General Restriction. The Securities shall be transferable only
upon the satisfaction of the conditions set forth below in this Section 13.
13.2. Notice of Transfer. Prior to any transfer of any Securities, the
Holder thereof shall be required to give written notice to the Company
describing in reasonable detail the manner and terms of the proposed transfer
and the identity of the proposed transferee (the "Transfer Notice"), accompanied
by (a) (i) a certificate of such Holder or the proposed transferee certifying
that such transferee is an "accredited investor", as defined in the Securities
Act, and (ii) if requested by the Company, an opinion, addressed to the Company,
of ▇▇▇▇▇▇▇ ▇▇▇▇ LLP or other counsel reasonably acceptable to the Company, that
such transfer may be effected without registration of such Securities under the
Securities Act, and (b) the written agreement of the proposed transferee to be
bound by all of the provisions hereof and of the Financing Agreements,
applicable to holders of such Securities hereunder or thereunder.
13.3. Restrictive Legends. Except as otherwise permitted by this Section
13, each Security shall bear the legend specified for such Security in Schedule
13.3 hereto.
13.4. Termination of Restrictions. The restrictions imposed by this
Section 13 upon the transferability of Securities shall terminate as to any
particular Securities when such Securities shall have been effectively
registered under the Securities Act or sold pursuant to a Public Sale. Whenever
any of such restrictions shall terminate as to any Securities, the holder
thereof shall be entitled to receive from the Company, at such Person's expense,
new Securities without such legends.
14. EXPENSES; INDEMNITY.
(a) The Company hereby agrees to pay on demand all reasonable
out-of-pocket expenses incurred by you, in connection with the transactions
contemplated by this Agreement and the Related Agreements and in connection with
any amendments or waivers (whether or not the same become effective) hereof or
thereof and all reasonable out-of-pocket expenses incurred by you or any holder
of any Security issued hereunder in connection with the enforcement of any
rights hereunder, under any other Related Agreement or with respect to any
Security, including without limitation (i) the reasonable legal fees and all
charges for costs, expenses and disbursements of ▇▇▇▇▇▇▇ ▇▇▇▇ LLP, the
Investors' special counsel, in connection with the transactions contemplated by
this Agreement and the Related Agreements and any amendments, modifications,
approvals, consents or waivers hereunder or thereunder; and (ii) all reasonable
out-of-pocket expenses (including without limitation reasonable attorneys' fees
and costs, whether or not such attorneys are your employees, all costs
associated with any rights of board attendance, observation or inspection and
travel and lodging expenses related thereto, and reasonable consulting,
accounting, appraisal, investment banking and similar professional fees and
charges) incurred by you in connection with (A) the exercise, enforcement or
preservation of rights under this Agreement or any of
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the Related Agreements against the Company or any of its officers or employees
that are party thereto or the administration thereof whether before or after the
occurrence of a Default or Event of Default (including engineering, appraiser,
environmental consulting and investment banking charges) and (B) any litigation,
proceeding or dispute whether arising hereunder or otherwise, in any way related
to your relationship with the Company.
(b) The Company hereby further agrees to indemnify, exonerate and hold
you and your stockholders, officers, directors, employees and agents free and
harmless from and against any and all actions, causes of action, suits, losses,
liabilities, damages and expenses (including, without limitation, reasonable
attorneys' fees and disbursements), incurred in any capacity by any of the
indemnitees as a result of or relating to (A) any transaction financed or to be
financed in whole or in part directly or indirectly with proceeds from the sale
of any of the Securities, or (B) the execution, delivery, performance or
enforcement of this Agreement (including, without limitation, any failure by the
Company to comply with any of its covenants hereunder), the Related Agreements
or any instrument contemplated hereby or thereby, except, in each such case, for
any such liabilities arising from any indemnitee's breach of this Agreement,
gross negligence or willful misconduct.
(c) The Company hereby indemnifies you against and agrees that it will
hold you harmless from any claim, demand or liability for any broker's, finder's
or placement fees or lender's incentive fees alleged to have been incurred by it
in connection with the transactions contemplated by this Agreement or the
Related Agreements.
(d) Except to the extent otherwise expressly provided herein, the
Company shall pay on demand interest at a rate per annum equal to the lesser of
the maximum rate of interest permitted by law or 16% (compounded monthly) on all
overdue amounts payable under this Agreement until such amounts shall be paid in
full.
(e) The obligations of the Company under this Section 14 shall survive
payment or transfer of the Securities and the termination of this Agreement.
(f) In the event of any dispute involving the terms of this Agreement,
the prevailing party shall be entitled to collect reasonable fees and expenses
incurred by the prevailing party in connection with such dispute from the other
parties to such dispute.
15. NOTICES.
Any notice or other communication in connection with this Agreement, any
other Financing Agreement or the Securities will be in writing and shall be
deemed to be properly delivered if either personally delivered or sent by
telecopier, overnight courier or mailed certified or registered mail, return
receipt requested, postage prepaid, to the recipient at the address specified
below:
47
-47-
If to the Company, then to its address set forth on page 1
hereof, to the attention of the President or at such other address as
such person shall have specified by notice actually received by the
addressor, with a copy to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq., ▇▇▇▇▇▇ Godward LLP,
20th Floor, ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇.
If to GMN, then to its address set forth on page 1 hereof, to the
attention of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, or at such other address as GMN shall
have specified by notice actually received by the addressor, with a copy
to ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq., ▇▇▇▇▇▇▇ ▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇-▇▇▇▇.
If to any other Holder of any Security, to it at its address set
forth in the applicable register referred to in Section 12 hereof.
Any such notice shall be effective (a) if delivered personally or by telecopier,
when received, (b) if sent by overnight courier, when receipted for, and (c) if
mailed as described above, five (5) days after being so mailed.
16. SURVIVAL AND TERMINATION OF COVENANTS.
All covenants, agreements, representations and warranties made herein or
in any other document referred to herein or delivered to you pursuant hereto
shall be deemed to have been relied on by you, notwithstanding any investigation
made by you or on your behalf, and shall survive the execution and delivery to
you hereof and of the Securities.
17. AMENDMENTS AND WAIVERS.
Any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively) only with the written consent of the
Company and the Majority Holders of the Notes, the Majority Holders of the
Series E Preferred Shares and the Majority Holders of the Converted Common
Shares, Warrants and Warrant Shares, respectively, with respect to any provision
of this Agreement which by its terms operates for the benefit of such respective
Holders. Any term of the Notes may be amended and the observance of any term of
the Notes may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the Majority Holders of the Notes with respect to whom such amendment or waiver
is made. Notwithstanding the foregoing, (a) without the prior written consent of
each Holder of Notes with respect to whom such amendment or waiver is made, no
such amendment or waiver shall extend the fixed maturity or reduce the
principal amount of, or reduce the rate or extend the time of payment of
interest on, or reduce the amount or extend the time of payment of any principal
or premium payable on any prepayment of, any Note with respect to whom
48
-48-
such amendment or waiver is made, (b) without the prior written consent of the
percentage of Securities referred to in the definition of "Majority Holders" as
in effect on the Closing Date, reduce the percentage of Securities the Holders
of which are required to consent to any such amendment or waiver, or (c) without
the written consent of the percentage of the Holders of each Security required
to exercise the remedies provided in Section 9.2 hereof, increase such required
percentage. Any amendment or waiver effected in accordance with this Section 17
shall be binding upon each Holder of any Security sold pursuant to this
Agreement and the Company.
18. CONSENT TO JURISDICTION.
THE COMPANY HEREBY AGREES TO SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF
THE COURTS IN AND OF THE COMMONWEALTH OF MASSACHUSETTS OVER ANY SUIT, ACTION OR
PROCEEDING EXISTING UNDER OR RELATING TO THIS AGREEMENT, THE SECURITIES OR ANY
OF THE OTHER FINANCING AGREEMENTS, AND CONSENTS THAT SERVICE OF PROCESS WITH
RESPECT TO ALL COURTS IN AND OF THE COMMONWEALTH OF MASSACHUSETTS MAY BE MADE BY
REGISTERED MAIL TO IT AT ITS ADDRESS SET FORTH ON PAGE 1 HEREOF.
19. RIGHT TO PUBLICIZE
The Company hereby acknowledges that each Investor will have the right
to publicize its investment in the Company as contemplated hereby by means of a
tombstone advertisement or other customary advertisement in newspapers and other
periodicals.
20. WAIVER OF JURY TRIAL.
THE COMPANY HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE TO A JURY
TRIAL IN ANY SUIT, ACTION OR PROCEEDING EXISTING UNDER OR RELATING TO THIS
AGREEMENT, THE SECURITIES OR ANY OF THE OTHER FINANCING AGREEMENTS.
21. MISCELLANEOUS.
This Agreement and the other Financing Agreements set forth the entire
understanding of the parties hereto with respect to the transactions
contemplated hereby and supersede any prior written or oral understandings with
respect thereto. The invalidity or unenforceability of any term or provision
hereof shall not affect the validity or enforceability of any other term or
provision hereof. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof. THIS
AGREEMENT IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND MAY BE EXECUTED
IN ANY NUMBER OF
49
-49-
COUNTERPARTS WHICH TOGETHER SHALL CONSTITUTE ONE INSTRUMENT AND SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC SUBSTANTIVE LAWS OF
THE COMMONWEALTH OF MASSACHUSETTS WITHOUT GIVING EFFECT TO ANY CHOICE OR
CONFLICT OF LAW PROVISION OR RULE THAT WOULD CAUSE THE APPLICATION OF THE
DOMESTIC SUBSTANTIVE LAWS OF ANY OTHER STATE, AND SHALL BIND AND INURE TO THE
BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS.
50
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If the foregoing corresponds with your understanding of our agreement,
kindly sign this letter and the accompanying copies thereof in the appropriate
space below and return one counterpart of the same to the Company, at its
address first listed above.
Very truly yours,
ELOQUENT, INC.
By:
----------------------------------
Name:
Title:
Accepted and agreed to:
GMN INVESTORS II, L.P.
By: GMN INVESTORS LLC,
ITS GENERAL PARTNER
By:
---------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Managing Director
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & COMPANY
By:
---------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
By:
---------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title:
------------------------------
TRANS NATIONAL GROUP SERVICES, LLC
By:
---------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇, Vice Chairman
SECURITIES PURCHASE AGREEMENT - SIGNATURE PAGE
51
-51-
JENSTAR PARTNERS I, LLC
By:
---------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Managing Member
THE ▇▇▇▇▇▇▇▇▇ FAMILY TRUST
By:
---------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Trustee
▇▇▇▇▇▇▇▇ ELOQUENT, L.P.
By: SPRING CREEK PARTNERS
ITS GENERAL PARTNER
By:
---------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇,
General Partner
EXETER CAPITAL
PARTNERS, IV, L.P.
By: EXETER IV ADVISORS, L.P.
ITS GENERAL PARTNER
EXETER IV ADVISORS, INC.
ITS GENERAL PARTNER
By:
---------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
Vice President
52
-52-
CAMBRIDGE TECHNOLOGY
CAPITAL FUND I L.P.
By: CAMBRIDGE TECHNOLOGY
GPLP, L.P.
ITS GENERAL PARTNER
By: CAMBRIDGE TECHNOLOGY
CGP, INC.
ITS GENERAL PARTNER
By:
---------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Managing Director
---------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇
BAYVIEW INVESTORS, LTD.
By: ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & Company
Private Equity Group, L.L.C.
Its General Partner
By:
-----------------------------
Its
------------------------
53
-▇▇-
▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇, ▇.▇.
By: Crossover Investment Management, L.L.C.
Its Investment Manager
By:
--------------------------------
Its
--------------------------
OMEGA VENTURES III, L.L.C.
By: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Investment
Management Co.
Its Investment Manager
By:
--------------------------------
Its
--------------------------
RS & CO. OFFSHORE OMEGA VENTURES
III, A CAYMAN ISLANDS TRUST
By: RS Omega III Holdings, L.L.C.
Its Investment Manager
By:
--------------------------------
Its:
--------------------------
MENLO VENTURES VII, L.P.
By: MV Management VII, L.L.C.
Its General Partner
By:
--------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇
Its Managing Member
MENLO ENTREPRENEURS FUND VII, L.P.
By: MC Management VII, L.L.C.
Its General Partner
By:
--------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇
Its Managing Member
54
-54-
ONSET ENTERPRISE ASSOCIATES II, L.P.
By: OEA II Management, L.P.
Its General Partner
By:
--------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Its General Partner
ONSET ENTERPRISE ASSOCIATES III, L.P.
By: OEA III Management, LLC
Its General Partner
By:
--------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Its Managing Director
FOUNDATION CAPITAL, L.P.
By: Foundation Capital Management, LLC
Its General Partner
By:
--------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇
Its Manager
FOUNDATION CAPITAL ENTREPRENEURS FUND, LLC
By: Foundation Capital Management, LLC
Its Manager
By:
--------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇
Its Manager
55
Schedule 9.5
Consent to Certain Actions
(a) the establishment and modification of the annual budget and
forecasts with respect to operating income, cash flow, and capital expenditures
of the Company and its Subsidiaries;
(b) the establishment of any pension, insurance or benefit plan for any
employee of the Company and its Subsidiaries (including, without limitation,
officers' and directors' liability insurance);
(c) except as provided in the annual budget approved pursuant to clause
(a) above, (i) the entering into by the Company or any of its Subsidiaries of
any operating lease which requires total payments of more than $25,000 over the
term of such lease, (ii) the making of any capital expenditure in excess of
$25,000 for any single expenditure or project or for such expenditures or
projects which individually have a value of less than $25,000 but which
aggregate more than $25,000 in any fiscal year and (iii) the sale or any
commitment for the sale by the Company or any of its Subsidiaries of any assets
or property which individually have a value of more than $25,000 or of such
assets or property which individually have a value of less than $25,000 but
which aggregate more than $25,000 in any fiscal year;
(d) (i) the issuance, purchase, redemption or repurchase, or
determination whether to exercise repurchase rights, of any Common Stock or
other securities of the Company and its Subsidiaries including, without
limitation, options and warrants, (ii) the selection of an appraiser in
connection with any repurchase pursuant to any Management Stock Option Plan and
(iii) the establishment and the terms of any Management Stock Option Plan;
(e) the declaration or payment of any dividends or other distributions
in respect of the capital of the Company and its Subsidiaries;
(f) the making of an initial public offering;
(g) (i) the incurrence by the Company or any of its Subsidiaries of any
Indebtedness for Borrowed Money, including, without limitation, the
establishment of a line of credit at any bank or other financial institution or
(ii) the granting by the Company or any of its Subsidiaries of any Liens on any
of its properties or assets except (A) liens to secure taxes, assessments and
other governmental charges in respect of obligations not overdue, (B) landlord's
or lessor's liens under leases under which the Company or any of its
Subsidiaries is the lessee, (C) Liens being contested by the Company in good
faith by appropriate proceedings or (D) other Liens not consented to, approved
by or acquiesced in by the Company or any of its Subsidiaries that are
discharged within 90 days after the creation thereof;
56
-2-
(h) the giving by the Company or any of its Subsidiaries of any
guaranties or indemnities in connection with the debt or other obligations of
any Person;
(i) the institution or settlement of any lawsuit or other legal
proceeding involving a claim by the Company or any of its Subsidiaries of more
than $50,000;
(j) any action to effect the voluntary, or which would precipitate an
involuntary, dissolution or winding-up of the Company or any of its
Subsidiaries;
(k) the entering into by the Company or any of its Subsidiaries of any
partnership, joint venture or other similar joint business undertaking;
(l) the creation, modification, amendment or repeal of the Charter or
by-laws of the Company or any of its Subsidiaries;
(m) the establishment of any new business or change in the business of
the Company and its Subsidiaries;
(n) the entering into or consummating of any merger or consolidation, or
any sale, lease, sublease or other transfer or disposition of any assets of the
Company or any of its Subsidiaries or any voting stock of any Subsidiary of the
Company (other than sales of assets in the ordinary course of business
consistent with past practice or any sales of assets provided in the annual
budget approved pursuant to clause (a) above or permitted pursuant to clause (c)
above);
(o) the acquisition by the Company or any of its Subsidiaries of any
stock, Indebtedness, obligations or liabilities of, or the acquisition by the
Company or any of its Subsidiaries of all or a substantially portion of the
properties or assets of, or the making by the Company or any of its Subsidiaries
of any loans, advances, capital contributions or transfers of property to, any
Person;
(p) (i) the entering into by the Company or any of its Subsidiaries of
any transaction with any Affiliate on terms more favorable to such Affiliate
than would have been obtainable on an arms-length basis in the ordinary course
of business, or (ii) the making of any payment (whether in cash, securities or
other property) to or for the benefit of any Affiliate of the Company or any of
its Subsidiaries in respect of any indebtedness owed by, or other obligation of,
the Company or any of its Subsidiaries to such Affiliate, other than (A) the
reasonable out-of-pocket expenses of any member of the Board of Directors of the
Company or any of its Subsidiaries who is not an employee, officer or
shareholder of the Company or its Subsidiaries, and (B) the reasonable costs and
expenses associated with any rights of board or executive committee attendance
or observation or inspection and lodging expenses related thereto;
57
-3-
(q) any amendment or modification of, or the granting of any waiver, or
the failure to enforce any of the rights of the Company pursuant to, any of the
Related Agreements;
(r) the appointment and termination of the President, Chief Executive
Officer, Chief Operating Officer or Chief Financial Officer (or Persons holding
equivalent positions) of the Company and its Subsidiaries and the establishment
of any bonus plan or incentive compensation payable to any of such officers of
the Company or its Subsidiaries;
(s) the appointment and retention of auditors and legal counsel for the
Company and its Subsidiaries; and
(t) retaining and compensating by the Company or any of its Subsidiaries
of any consultant, advertising agency, public relations firm, investment banker
or other advisor or professional whose annual remuneration exceeds $25,000.
58
EXHIBIT A
INVESTORS
Principal Aggregate
Amount of Purchase
Name Notes($) Warrants Price($)
----- --------------- -------- --------------
GMN Investors II, L.P. 5,000,000 375,000 5,000,500
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Company 2,000,000 150,000 2,000,200
The Manufacturers Life Insurance Company (U.S.A.) 2,500,000 187,500 2,500,250
Trans National Group Services LLC 2,000,000 150,000 2,000,200
JenStar Partners I, LLC 1,500,000 112,500 1,500,150
The ▇▇▇▇▇▇▇▇▇ Family Trust 100,000 7,500 100,010
▇▇▇▇▇▇▇▇ Eloquent, L.P. 200,000 15,000 200,020
Exeter Capital Partners, IV, L.P. 500,000 37,500 500,050
Cambridge Technology Capital Fund I, L.P. 1,000,000 75,000 1,000,100
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 100,000 7,500 100,010
▇▇▇▇▇ ▇▇▇▇▇▇▇ 50,000 3,750 50,005
▇▇▇▇ ▇▇▇▇▇▇▇ 50,000 3,750 50,005
Omega Bayview, L.L.C 46,495 3,487 46,500
Crosslink Crossover Fund III, L.P. 86,691 6,502 86,700
Crosslink Omega Ventures III, L.L.C. 338,767 25,407 338,800
Crosslink Offshore Omega Ventures III 528,047 39,604 528,100
Menlo Ventures VII, L.P. 960,000 72,000 960,096
Menlo Entrepreneurs Fund VII, L.P. 40,000 3,000 40,004
Onset Enterprise Associates II, L.P. 1,000,000 75,000 1,000,100
Onset Enterprise III, L.P. 1,000,000 75,000 1,000,100
Foundation Capital, L.P. 900,000 67,500 900,090
Foundation Capital Entrepreneurs Fund, LLC 100,000 7,500 100,010
---------- --------- ----------
TOTAL 20,000,000 1,500,000 20,002,000
========== ========= ==========
59
EXHIBIT B
FORM OF NOTE
60
EXHIBIT B TO
SECURITIES PURCHASE AGREEMENT
NEITHER THIS NOTE NOR THE SHARES ISSUABLE UPON EXERCISE OF THE CONVERSION RIGHTS
SET FORTH IN THIS NOTE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND NEITHER THIS NOTE NOR THE SHARES ISSUABLE UPON EXERCISE OF THE
CONVERSION RIGHTS SET FORTH IN THIS NOTE CAN BE SOLD OR TRANSFERRED UNLESS THE
REGISTRATION PROVISIONS OF THE SAID ACT HAVE BEEN COMPLIED WITH OR UNLESS
COMPLIANCE WITH SUCH PROVISIONS IS NOT REQUIRED. THIS SECURITY SHALL BE SUBJECT
TO THE TERMS AND CONDITIONS CONTAINED IN THE PURCHASE AGREEMENT, AS DEFINED
BELOW, A COPY OF WHICH WILL BE PROVIDED BY THE COMPANY UPON REQUEST.
ELOQUENT, INC.
SENIOR SUBORDINATED CONVERTIBLE NOTE
Up to $___________ October __, 1999
FOR VALUE RECEIVED, upon the terms and subject to the conditions set
forth in this promissory note (this "Note"), ELOQUENT, INC., a Delaware
corporation (the "Company"), absolutely and unconditionally promises to pay to
the order of _________________, as holder (in such capacity being referred to
herein, together with its successors and assigns, as the "Holder"), at the
Holder's offices at _________________________________, the principal amount of
_______________ DOLLARS ($__________), together with interest thereon as
specified in Section 2 hereof.
This Note is being issued (i) pursuant to the Securities Purchase
Agreement, dated as of October ___, 1999 (the "Purchase Agreement") among the
Company, the Holder and certain other parties thereto, and (ii) together with a
stock purchase warrant, in the form attached to the Purchase Agreement as
Exhibit C (the "Warrant"), to be issued by the Company to the Holder to purchase
the number and type of shares of capital stock or other securities of the
Company as described therein (the "Warrant Shares"). This Note is one of the
Senior Subordinated Convertible Notes, dated as of the date hereof, being issued
by the Company to Investors (as defined in the Purchase Agreement)
(collectively, the "Notes") and shall be subject to the terms and provisions
contained in the Purchase Agreement.
SECTION 1. MATURITY. The entire principal amount hereof, and all unpaid
interest thereon, shall become due and payable on the sooner to occur of (i)
October ___, 2004 (the "Maturity Date"), or (ii) the date of a Capital
Transaction (as defined in the Purchase Agreement).
SECTION 2. INTEREST. This Note shall bear interest on the principal
amount outstanding and unpaid from time to time from the date hereof until such
principal amount is paid or discharged in full when due hereunder at the rate of
12% per annum. Overdue
61
-2-
principal, and to the extent permitted by applicable law, overdue interest,
shall bear interest at the rate of 16% per annum from the due date thereof until
paid in full. Upon the occurrence and during the continuance of any other Event
of Default (as defined in the Purchase Agreement), this Note shall bear interest
at the rate of 16% per annum. Interest shall be calculated on the basis of a
360-day year and paid for the actual number of days elapsed and shall be payable
quarterly in arrears on the last day of each quarter, commencing on December 31,
1999, with a final payment of all accrued and unpaid interest upon maturity.
SECTION 3. PREPAYMENT.. Subject to the Purchase Agreement, the Company
shall have the right to prepay, in whole or in part (in integral multiples of
$10,000, or if less, the aggregate principal amount outstanding), the unpaid
principal amount of this Note on ten (10) business days' prior written notice to
the Holder. Any notice of prepayment given pursuant to this Section 3 shall not
act to restrict or limit any rights which the Holder may have at the time of
receipt of such notice to convert this Note pursuant to, and in accordance with,
Section 5 hereof. Any prepayment of the principal amount of this Note shall be
made without premium or prepayment penalty, provided that the Company shall pay
all accrued interest to the date of prepayment on the principal amount prepaid.
All payments to be made by the Company hereunder shall be made in U.S. dollars
in immediately available funds, without setoff or counterclaim and without any
withholding or deduction whatsoever.
SECTION 4. ACCELERATION EVENTS. If any of the following events or
circumstances (each an "Acceleration Event") shall occur and be continuing:
(a) the Company shall fail to pay any amount of principal when
due and payable hereunder; or any interest or other amount (if any) within 5
days of the date on which such interest or other amount is due and payable; or
(b) the Company shall fail to cure any breach of its other
covenants, agreements or obligations hereunder within thirty (30) days after
written notice by the Holder to the Company specifying such breach; or
(c) an Event of Default under the Purchase Agreement;
THEN, the Holder at its option at any time thereafter, but subject to the terms
and provision of Section 9 of the Purchase Agreement, may declare the entire and
unpaid principal of this Note and all (if any) other amounts payable on or in
respect of this Note and the obligations evidenced hereby due and payable, and
the same shall thereupon forthwith become and be due and payable to the Holder
(an "Acceleration") without presentment, demand, protest, notice of protest or
any other formalities of any kind, all of which are hereby expressly and
irrevocably waived by the Company.
SECTION 5. CONVERSION. Subject to the terms of the Purchase Agreement,
this Note shall be convertible pursuant to the terms and provisions of this
Section 5.
62
-3-
SECTION 5.1. CONVERSION RIGHTS.
(a) At any time after December 31, 2000 and while this Note is
outstanding, the Holder may convert all or any portion of the principal amount
of this Note outstanding, and all or any portion of accrued and unpaid interest
on this Note, into such number of whole shares of Conversion Stock as the
principal amount (and interest, if any) which the Holder elects to convert will
purchase at the Conversion Price, upon the terms and subject to the conditions
hereinafter specified.
(b) In addition, at any time after December 31, 2000 and while any Note
is outstanding, the Majority Holders (as defined in the Purchase Agreement) of
the Notes may elect to convert all of the outstanding principal amount of all
outstanding Notes, and all accrued and unpaid interest on all Notes, into such
number of whole shares of Conversion Stock as the principal amount (and
interest, if any) which shall be converted will purchase at the Conversion
Price, upon the terms and subject to the conditions hereinafter specified, in
which case all outstanding Notes shall be automatically converted into
Conversion Stock; provided that any Holder (as defined in the Purchase
Agreement) of more than $4,000,000 in aggregate outstanding principal amount of
Notes may, at its sole option, elect not to have its Notes converted pursuant to
this Section 5.1(b).
SECTION 5.2. CERTAIN DEFINITIONS. For all purposes of this Note, the
following terms shall have the respective meanings set forth below:
(a) "Common Stock" shall mean and include the Company's Common Stock,
$.001 par value per share, authorized as at the date of this Note (as described
in Section 4.5 of the Purchase Agreement) and shall include also any other
capital stock of the Company of any class or series which shall be authorized at
any time after the date of this Note and which shall have the right to
participate in the distribution of earnings and assets of the Company without
limitation as to amount;
(b) "Conversion Notice" shall mean written notice by the Holder or the
Majority Holders, as the case may be, in substantially the form annexed hereto
of the Holder or Majority Holders' desire to exercise its or their conversion
rights hereunder;
(c) "Conversion Price" shall mean, in relation to any share of
Conversion Stock at any time of reference, the "Conversion Price" as defined in
Article IV, Section G.4(c) of the Amended and Restated Certificate of
Incorporation of the Company filed with the Delaware Secretary of State on
October ___, 1999 (as amended from time to time, the "Charter"), as adjusted
from time to time pursuant to the provisions of the Charter commencing as of the
date hereof;
(d) "Conversion Stock" shall mean (i) the Company's Series E Preferred
Stock issuable upon the conversion of this Note or any promissory notes
delivered in substitution or
63
-4-
exchange therefor; and (ii) shall include also any other capital stock of any
other class which may become and be issuable upon such exercise; and
(e) "Series E Preferred Stock" shall mean the Company's Series E
Preferred Stock, $.001 par value per share, authorized as at the date of this
Note.
SECTION 5.3. CONVERSION MECHANISM.
(a) Conversion of this Note shall be made upon surrender of this Note to
the Company at its principal place of business (or at such other office as the
Company shall designate by notice in writing to the Holder from time to time),
accompanied by written notice of the Holder or Majority Holders' election to
convert in substantially the form of the Conversion Notice annexed hereto. If
less than the full amount of the then outstanding principal and accrued interest
hereunder is being converted pursuant to Section 5.1(a) hereof, then the Company
shall issue another Note of like tenor to this Note for the remaining balance of
the principal hereunder. If Majority Holders have made an election to convert
pursuant to Section 5.1(b) hereof, the Company shall give Holders of more than
$4,000,000 in aggregate outstanding principal amount of Notes who are not
signatories to the Majority Holders' Conversion Notice written notice of the
Majority Holders' election to convert within seven (7) days of the Company's
receipt thereof. If such a Holder of more than $4,000,000 in aggregate
outstanding principal amount of Notes desires not to have its Notes converted
pursuant to Section 5.1(b), such Holder shall give the Company written notice
thereof within 15 days after such Holder receives notice from the Company.
Otherwise, such Holder's outstanding Notes shall be converted to Conversion
Stock pursuant to Section 5.1(b).
(b) The Company agrees that, at the time of such surrender and exercise
of conversion rights in compliance with the provisions hereof, the shares of
Conversion Stock issuable pursuant to such exercise shall be and be deemed to be
issued to the Holder (or the Holder's permitted designee or designees which may
include the Holder for which the Holder is acting as agent hereunder) as the
record owner of such shares as of the close of business of the Company on the
date on which conversion rights under this Note shall have been exercised as
aforesaid.
(c) The Company covenants that all shares of Conversion Stock which may
be issued upon the exercise of conversion rights under this Note will, upon such
exercise, be fully paid and non-assessable and free from all taxes, liens and
charges in respect of the issue thereof.
(d) The certificates for the shares of Conversion Stock so issued shall
be delivered to the Holder (or the Holder's permitted designee or designees)
within a reasonable time, not exceeding ten (10) days, after the date on which
the conversion rights under this Note shall have been so exercised, and shall
bear substantially the following legend:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
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NOT BE SOLD OR TRANSFERRED UNLESS THE REGISTRATION PROVISIONS OF THE SAID ACT
HAVE BEEN COMPLIED WITH OR UNLESS COMPLIANCE WITH SUCH PROVISIONS IS NOT
REQUIRED.
(e) This Note may be converted more than once and from time to time.
Unless the Holder shall have elected to convert accrued but unpaid interest
hereon, all of such interest shall be paid to the Holder in cash immediately
upon the conversion of the principal amount of this Note then being converted.
(f) No fractional shares or scrip representing fractional shares shall
be issued upon the exercise of conversion rights under this Note, and the
Conversion Price with respect to any such fractional shares shall be payable to
the Holder in cash in immediately available funds by the Company within ten (10)
days after the date of any such conversion.
(g) Issuance of certificates for shares of Conversion Stock upon the
exercise of conversion rights under this Note shall be made without charge to
the Holder (or the Holder's permitted designee(s)) for any issue or transfer
taxes or any other incidental expenses in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the Holder (or the Holder's
permitted designee(s)); provided, however, that any income taxes or capital
gains taxes or similar taxes shall be payable by the Holder.
SECTION 5.4. CERTAIN OBLIGATIONS OF THE COMPANY. The Company will, in
accordance with the laws of the State of Delaware, take such actions as may be
necessary to ensure that the authorized amount of any class of stock from which
Conversion Stock is to be issued shall, at the time of such conversion, be
sufficient to permit the exercise of conversion rights under this Note and to
ensure that, at the time of such conversion, the authorized amount of any class
of stock into which the Conversion Stock is convertible shall be sufficient to
permit the exercise of any such conversion rights applicable to the Conversion
Stock. The Company will not, by amendment of its Certificate of Incorporation or
through reorganization, consolidation, merger, dissolution, issuance of capital
stock or sale of treasury stock (otherwise than upon exercise of conversion
rights hereunder) or sale of assets, or by any other voluntary act or deed,
avoid or seek to avoid the material performance or observance of any of the
covenants, stipulations or conditions in this Note to be observed or performed
by the Company. The Company will at all times in good faith assist, insofar as
it is able, in the carrying out of all of the provisions of this Note in a
reasonable manner and in the taking of all other action which may be necessary
in order to protect and preserve the rights of the Holder set forth herein and
in the Charter. The Company will maintain an office where presentations and
demands to or upon the Company in respect of this Note may be made. The Company
will give notice in writing to the registered Holder, at the address of the
registered Holder appearing on the books of the Company, of each change in the
location of such office.
SECTION 5.5. ANTIDILUTION. So long as this Note is outstanding, all of
the antidilution provisions of Article IV, Section G.4 of the Charter shall
apply to the Conversion Stock
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commencing as of the date hereof regardless of when this Note is converted into
Conversion Stock.
SECTION 5.6. NO RIGHTS OR RESPONSIBILITIES AS STOCKHOLDER. This Note
neither entitles the Holder to any rights, nor subjects the Holder to any
responsibilities, as a shareholder of the Company.
SECTION 6. EXCHANGE. This Note is exchangeable, upon the surrender
hereof by the registered Holder at the principal office of the Company, for new
promissory notes of like tenor and date representing in the aggregate the then
outstanding principal balance hereof (together with interest theretofore accrued
and unpaid), each of such new notes to evidence the portion of such then
outstanding principal balance (and accrued and unpaid interest on such principal
amount) as shall be designated by said registered Holder at the time of such
surrender.
SECTION 7. LOSS, THEFT, DESTRUCTION OR MUTILATION OF NOTE. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Note, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Note, if mutilated, the Company will
make and deliver a new promissory note of like tenor and date, and in the
principal balance then outstanding, in lieu of this Note.
SECTION 8. TITLE TO NOTE. This Note and all rights hereunder are
transferable (subject to the legend set forth in the heading on the first page
hereof), in whole or in part, at the office or agency of the Company by the
registered Holder in person or by a duly authorized attorney, upon surrender of
this Note together with an assignment hereof properly endorsed. Until transfer
hereof on the registration books of the Company, the Company may treat the
registered Holder as the owner hereof for all purposes.
SECTION 9. COMMUNICATIONS AND NOTICES. All notices, demands, requests,
certificates or other communications hereunder must be in writing, either
delivered in hand or sent by private expedited courier for overnight delivery
with signature required, or by facsimile transmission, by tested or otherwise
authenticated telex or cable, in each such case, such notice, demand, request,
certificate or other communications being deemed to have been given upon
delivery or receipt, as the case may be, or by certified mail, postage prepaid,
in which case, such notice, demand, request, certificate or other communications
shall be deemed to have been given three (3) days after the date on which it is
first deposited in the mails, and, if to the Company, shall be addressed to it
at its principal place of business referred to in the first paragraph hereof, or
at such other address as the Company may hereafter designate in writing by
notice to the registered Holder, and, if to such registered Holder, addressed to
such Holder at the address of such Holder as shown on the books of the Company.
SECTION 10. MISCELLANEOUS.
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(a) If the last or appointed day for the taking of any action required
or the expiration of any right granted herein shall be a Sunday or a Saturday or
shall be a legal holiday or a day on which banking institutions in the City of
Boston, Massachusetts, are authorized or required by law to remain closed, then
such action shall be taken or right may be exercised on the next succeeding day
which is not a Sunday, a Saturday or a legal holiday and not a day on which
banking institutions in the City of Boston, Massachusetts, are authorized or
required by law to remain closed.
(b) THIS NOTE SHALL BE BINDING UPON THE COMPANY'S SUCCESSORS IN TITLE
AND ASSIGNS. THIS NOTE SHALL CONSTITUTE A CONTRACT UNDER SEAL AND, FOR ALL
PURPOSES, SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS (WITHOUT REGARD TO THE LAWS OR RULES OF LAW
APPLICABLE TO CONFLICT OR CHOICE OF LAW).
(c) The Company and every endorser and guarantor of this Note or the
obligation represented hereby expressly waive presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note, assent to any
extension or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable. The failure of the
Holder to exercise any or all of its rights, remedies, powers or privileges
hereunder in any instance shall not constitute a waiver thereof in that or any
other instance.
(d) The Company hereby agrees to pay promptly the reasonable fees,
expenses and disbursements of the Holder's attorneys incurred from time to time
in connection with any amendment, modification, consent or waiver to or under
this Note.
(e) Should all or any part of the indebtedness represented by this Note
be collected by action at law, or in bankruptcy, insolvency, receivership or
other court proceedings, or should this Note be placed in the hands of attorneys
for collection after default, the Company hereby promises to pay to the Holder,
upon demand by the Holder at any time, in addition to the outstanding principal
balance of, accrued interest, and all (if any) other amounts payable on or in
respect of this Note, all court costs and reasonable attorneys' fees and other
collection charges and expenses incurred or sustained by the Holder.
(f) In the event of irreconcilable conflict between the provisions of
this Note and the Purchase Agreement, the provisions of the Purchase Agreement
shall control. If any term of this Note shall be held to be invalid, illegal or
unenforceable, the validity of all other terms hereof shall in no way be
affected thereby, and this Note shall be construed and be enforceable as if such
invalid, illegal or unenforceable term had not been included herein. This Note
is intended to provide to the Holder the benefit of the right to convert this
Note into Conversion Stock on the terms and conditions contained herein, and the
terms and provisions of this Note shall be
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construed to afford the Holder such maximum benefit at all times, including upon
the occurrence of one or more of the events contemplated in Section 5.5 hereof.
(g) This Note may be amended, modified or waived if, and only if, such
amendment, modification or waiver is in writing and signed by the Company and
the Majority Holders of the Notes (as defined in the Purchase Agreement). Any
such amendment, modification waiver approved by the Majority Holders of the
Notes shall be binding upon all of the holders of the Notes and such holders
shall be deemed to have approved the amendment, modification or waiver at issue.
SECTION 11. SUBORDINATION. The Holder acknowledges that any amounts owed
by the Company to the Holder hereunder are, and shall be, subordinate to the
Indebtedness evidenced by the Senior Debt Documents (as defined in the Purchase
Agreement).
IN WITNESS WHEREOF, the Company has caused this Senior Subordinated
Convertible Note to be signed in its corporate name and its corporate seal to be
impressed hereon by its duly authorized officers.
ELOQUENT, INC.
By:______________________________
Name:
Title:
The foregoing Senior Subordinated Convertible Note is hereby accepted
and agreed to by the undersigned on and as of the date first above written.
[_______________________________]
By:_______________________________
Name:
Title:
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FORM OF CONVERSION NOTICE
(To be signed only on exercise of conversion rights)
TO: ELOQUENT, INC.
The undersigned, [the] registered [Holder] [Majority Holders] of Senior
Subordinated Convertible Note[s] dated October __, 1999 (the "Note"), of
Eloquent, Inc. (the "Company") hereby irrevocably elect[s] to exercise
[its][their] conversion rights under the provisions of Section 5.1[(a)][(b)] of
the Note[s] by conversion of [(i)] [all of the] $ of outstanding principal of
the Note[s][, and [(ii)] [all of the] $___________ of accrued and unpaid
interest thereon, for * shares of Series E Preferred Stock of the Company, and
request[s] that the certificates for such shares be issued in the name of, and
delivered to,______________, whose address is _______________.
Dated: _________________________________
(Signature must conform in all
respects to name of registered
holder as specified on the face
of the Note)
_________________________________
(Address)
[In the case of a conversion pursuant to
Section 5.1(b), add signature blocks for
each Majority Holder]
Signed in the presence of:
______________________
* Insert here the number of shares as to which all of the outstanding
principal of, and if to be converted, accrued and unpaid interest on, the
Note[s] is/are being converted.
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FORM OF ASSIGNMENT
(To be signed only on transfer of Note)
For value received, the undersigned hereby sells, assigns, and transfers
unto all right, title and interest in and to the within Senior Subordinated
Convertible Note, dated October __, 1999, of Eloquent, Inc., and appoints
Attorney to transfer such right on the books of said Company with full power of
substitution in the premises.
Dated: _________________________________
(Signature must conform in all
respects to name of registered
holder as specified on the face
of the Note)
_________________________________
(Address)
Signed in the presence of:
______________________
70
EXHIBIT C
FORM OF WARRANT
71
EXHIBIT C TO
SECURITIES PURCHASE
AGREEMENT
Form of Warrant
Right to Purchase _______ Shares of Common Stock
of Eloquent, Inc.
This Warrant and any shares acquired upon the exercise of this Warrant
have not been registered under the Securities Act of 1933, as amended, and may
not be sold or transferred in the absence of such registration or an exemption
therefrom under such Act or any applicable state securities laws. Furthermore,
this Warrant and any shares acquired upon the exercise of this Warrant may be
sold or otherwise transferred only in compliance with the conditions specified
in Section 13 of the Securities Purchase Agreement referred to hereinafter,
complete and correct copies of which are available for inspection at the
principal office of Eloquent, Inc. and will be furnished without charge to the
holder of this Warrant upon written request. This Warrant is issued pursuant to
the Securities Purchase Agreement and if any provision of this Warrant is found
to conflict with the Securities Purchase Agreement, the provisions of the
Securities Purchase Agreement shall prevail.
The shares represented by this certificate are subject to the terms of a
certain Fourth Amended and Restated Investors' Rights Agreement, dated as of
even date herewith, among Eloquent, Inc. and certain investors. The Fourth
Amended and Restated Investors' Rights Agreement contains certain restrictive
provisions relating to the transfer of shares of the stock represented thereby.
A copy of the Fourth Amended and Restated Investors' Rights Agreement is on file
at Eloquent, Inc.'s principal offices. Upon written request to the Secretary of
Eloquent, Inc., a copy of the Fourth Amended and Restated Investors' Rights
Agreement will be provided without charge to appropriately interested persons.
No. W-___
Eloquent, Inc.
Common Stock Purchase Warrant
Eloquent, Inc., a Delaware corporation (together with any corporation
which shall succeed to or assume the obligations of Eloquent, Inc. hereunder,
the "Company"), hereby certifies that, for value received,____________________,
a ___________________, or its assigns, is entitled, subject to the terms set
forth
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below, to purchase from the Company from time to time in accordance with Section
2.2 hereof, until the termination in full or in part of this Warrant pursuant to
Section 2.4 hereof, up to _________________ fully paid and non-assessable shares
of Common Stock (as defined in Section 12 hereof) at an initial purchase price
per share of $.01 (such price per share as adjusted from time to time as
provided herein is referred to herein as the "Exercise Price"). The number of
shares of Common Stock for which this Warrant is exerciseable and the Exercise
Price are subject to adjustment as provided herein.
This Warrant is issued pursuant to the Securities Purchase Agreement (as
amended and in effect from time to time, the "Securities Purchase Agreement"),
dated as of October ___, 1999, among the Company, GMN Investors II, L.P. and the
other investors listed on Exhibit A attached thereto, a copy of which is on file
at the principal office of the Company. The holder of this Warrant shall be
entitled to all of the benefits and shall be subject to all of the obligations
of the Securities Purchase Agreement.
1. DEFINITIONS. Terms defined in the Securities Purchase Agreement and not
otherwise defined herein are used herein with the meanings so defined. Certain
terms are used in this Warrant as specifically defined in Section 12 hereof.
2. EXERCISE OF WARRANT.
2.1. Exercise. This Warrant may be exercised prior to its expiration
pursuant to Section 2.4 hereof by the holder hereof from time to time in
accordance with Section 2.2, by surrender of this Warrant, with the form of
subscription at the end hereof duly executed by such holder, to the Company at
its principal office, accompanied by payment, by certified or official bank
check payable to the order of the Company or by wire transfer to its account, in
the amount obtained by multiplying the number of shares of Common Stock for
which this Warrant is then being exercised by the Exercise Price then in effect.
In the event the Warrant is not exercised in full, the Company, at its expense,
will forthwith issue and deliver to or upon the order of the holder hereof a new
Warrant or Warrants of like tenor, in the name of the holder hereof or as such
holder (upon payment by such holder of any applicable transfer taxes) may
request, calling in the aggregate on the face or faces thereof for the number of
shares of Common Stock equal (without giving effect to any adjustment therein)
to the number of such shares called for on the face of this Warrant minus the
number of such shares (without giving effect to any adjustment therein) for
which this Warrant shall have been exercised. Upon any exercise of this Warrant,
in whole or in part, the holder hereof may pay the aggregate Exercise Price with
respect to the shares of Common Stock for which this Warrant is then being
exercised (collectively, the "Exercise Shares") by surrendering its rights to a
number of Exercise Shares having a fair market value equal to or greater than
the required aggregate Exercise Price, in which case the holder hereof would
receive the number of Exercise Shares to which it would otherwise be entitled
upon such exercise, less the surrendered shares.
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2.2. Warrant Agent. In the event that a bank or trust company shall have
been appointed as trustee for the holder of the Warrant pursuant to Section 6.2
hereof, such bank or trust company shall have all the powers and duties of a
warrant agent appointed pursuant to Section 13 hereof and shall accept, in its
own name for the account of the Company or such successor entity as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 2.
2.3. Termination. This Warrant shall terminate in full upon the earliest
to occur of (i) exercise in full, (ii) the fifth anniversary of the date on
which all Senior Subordinated Convertible Notes issued pursuant to the Purchase
Agreement owned or held by the Holder of this Warrant have been paid in full
(including all accrued and unpaid interest thereon) or converted into Series E
Preferred Stock of the Company, and (iii) October ___, 2006.
3. REGISTRATION RIGHTS. The holder of this Warrant has the right to cause
the Company to register the Warrant Stock issued upon exercise hereof, under the
Securities Act and any blue sky or securities laws of any jurisdictions within
the United States at the time and in the manner specified in the Investors'
Rights Agreement.
4. DELIVERY OF STOCK CERTIFICATES ON EXERCISE.
4.1 Delivery. As soon as practicable after the exercise of this Warrant
in full or in part, and in any event within ten (10) days thereafter, the
Company, at its expense (including the payment by it of any applicable issue
taxes), will cause to be issued in the name of and delivered to the holder
hereof, or as such holder (upon payment by such holder of any applicable
transfer taxes) may direct, a certificate or certificates for the number of
fully paid and non-assessable shares of Common Stock (or Other Securities) to
which such holder shall be entitled on such exercise, together with any other
stock or other securities and property (including cash, where applicable) to
which such holder is entitled upon such exercise.
4.2. Fractional Shares. In the event that the exercise of this Warrant,
in full or in part, results in the issuance of any fractional share of Common
Stock, then in such event the holder of this Warrant shall be entitled to cash
equal to the fair market value of such fractional share as determined in good
faith by the Company's Board of Directors.
5. ADJUSTMENT FOR DIVIDENDS, DISTRIBUTIONS AND RECLASSIFICATIONS. In case
at any time or from time to time, the holders of Common Stock shall have
received, or (on or after the record date fixed for the determination of
shareholders eligible to receive) shall have become entitled to receive, without
payment therefor:
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(a) other or additional stock, other securities, or property
(other than cash) by way of dividend; or
(b) other or additional (or less) stock or other securities or
property (including cash) by way of spin-off, split-up,
reclassification, recapitalization, combination of shares or similar
corporate restructuring;
other than additional shares of Common Stock issued as a stock dividend or in a
stock-split (adjustments in respect of which are provided for in Section 7
hereof), then and in each such case the holder of this Warrant, on the exercise
hereof as provided in Section 2 hereof, shall be entitled to receive the amount
of stock and other securities and property (including cash in the case referred
to in subsection (b) of this Section 5) which such holder would have received
prior to or would have held on the date of such exercise if on the date hereof
it had been the holder of record of the number of shares of Common Stock called
for on the face of this Warrant and had thereafter, during the period from the
date hereof to and including the date of such exercise, retained such shares and
all such other or additional stock and other securities and property (including
cash in the case referred to in subsection (b) of this Section 5) receivable by
such holder as aforesaid during such period, without interest, giving effect to
all further adjustments called for during such period by Sections 6 and 7
hereof.
6. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
6.1. Certain Adjustments. In case at any time or from time to time, the
Company shall (i) effect a capital reorganization, reclassification or
recapitalization, (ii) consolidate with or merge into any other person, or (iii)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then in each such case, the holder of this Warrant, on the exercise
hereof as provided in Section 2 hereof at any time after the consummation of
such reorganization, recapitalization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant immediately prior thereto, all subject to
further adjustment thereafter as provided in Sections 5 and 7 hereof.
6.2. Appointment of Trustee for Warrant Holders Upon Dissolution. In the
event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, prior to such
dissolution, shall, at its expense, deliver or cause to be delivered the stock
and other securities and property (including cash, where applicable) receivable
by the holders of the Warrant after the
75
-5-
effective date of such dissolution pursuant to this Section 6 to a bank or trust
company having its principal office in Boston, Massachusetts, as trustee for the
holder or holders of the Warrant.
6.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 6, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 8 hereof.
7. ADJUSTMENTS FOR ISSUANCE OF COMMON STOCK AND AMOUNT OF OUTSTANDING
COMMON STOCK.
7.1. General. If at any time there shall occur any stock split, stock
dividend, reverse stock split or other subdivision of the Company's Common Stock
("Stock Event"), then the number of shares of Common Stock to be received by the
holder of this Warrant shall be appropriately adjusted such that the proportion
of the number of shares issuable hereunder to the total number of shares of the
Company (on a fully diluted basis) prior to such Stock Event is equal to the
proportion of the number of shares issuable hereunder to the total number of
shares of the Company (on a fully-diluted basis) after such Stock Event and the
Exercise Price shall be appropriately adjusted such that the aggregate Exercise
Price for the total number of shares of the Company issuable hereunder prior to
such Stock Event is equal to the aggregate Exercise Price for the total number
of shares of the Company issuable hereunder after such Stock Event; provided
that in no event will the Exercise Price be less than the par value of the
Common Stock.
7.2. Sale of Common Stock. This Section 7.2 shall apply until such time
as all Notes (as defined in the Securities Purchase Agreement) held by the
holder of this Warrant are paid in full or all of the Notes held by such Holder
are exchanged for Series E Preferred Stock of the Company. If at any time there
shall occur any issuance or sale by the Company of any shares of Common Stock
(except pursuant to the exercise of any other Warrant issued pursuant to the
Securities Purchase Agreement or the conversion of any Series E Preferred Stock
of the Company issued pursuant to the Securities Purchase Agreement) or of any
securities convertible into or exchangeable for shares of Common Stock or any
warrants, options, subscriptions or purchase rights with respect to shares of
Common Stock or securities convertible into or exchangeable for shares of Common
Stock (any of the foregoing events being referred to herein as a "Stock Sale
Event" and the securities issued in connection therewith being referred to
herein as "New Securities"), so that the New Security Price Per Share (as
defined herein) of such
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newly issued securities is lower than the then current Warrant Price Per Share
(as defined herein), then the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding immediately
prior to such issuance plus the number of additional shares of Common Stock the
aggregate New Security Price Per Share for such issuance would purchase at the
Warrant Price Per Share on such date, and of which the denominator shall be the
number of shares of Common Stock outstanding immediately prior to such issuance
plus the number of additional shares of Common Stock sold or offered for
subscription or purchase (such fraction being the "Adjuster Fraction");
provided, however, that the foregoing provisions shall not apply to (A) shares
of Common Stock issued upon conversion of the Preferred Stock of the Company,
(B) up to 6,004,500 shares (net of repurchases and option cancellations, and
subject to adjustments for stock splits, reverse stock splits, combinations and
similar events) of Common Stock (and/or options, warrants or other Common Stock
purchase rights, and the Common Stock issued pursuant to such options, warrants
or other rights) issued or to be issued to employees, officers or directors of,
or consultants or advisors to the Company or any subsidiary pursuant to stock
purchase or stock option plans or other arrangements that are approved by the
Board of Directors, (C) shares of Common Stock or Preferred Stock (and/or
options, warrants or other rights) issued pursuant to any equipment leasing
arrangement or bank financing approved by the Board of Directors, or (D) any
shares of Common Stock or Preferred Stock issued or issuable upon the conversion
of the Notes or exercise of the Warrants. For purposes hereof, "Warrant Price
Per Share" shall mean $6.00 (subject to adjustment in the event of any stock
splits, stock dividends, recapitalizations, reorganizations and the like with
respect to the Common Stock). For purposes hereof, "New Security Price Per
Share" shall mean (a) the sum of (I) the aggregate consideration paid by the
purchasers of the applicable New Securities for such New Securities plus (II) in
the case of any warrants, options, subscriptions or purchase rights with respect
to shares of Common Stock or securities convertible into or exchangeable for
shares of Common Stock, the minimum amount of consideration, if any, payable to
the Company upon exercise, conversion or exchange thereof (provided that, if the
New Securities are issued for no consideration, the consideration paid under
this clause (a) shall be deemed to be $.01 per share), divided by (b) the total
number of shares of Common Stock of the Company issued or sold to such
purchasers or to which such purchasers are entitled to convert the New
Securities. Such adjustment shall be made successively whenever such an issuance
shall occur. To the extent that any such shares, rights, options, warrants or
convertible or exchangeable securities are not so issued or expire unexercised,
the Exercise Price then in effect shall be readjusted to the Exercise Price
which would then be in effect if such unissued or unexercised rights, options,
warrants or convertible or exchangeable securities had not been issuable.
When any adjustment is required to be made to the Exercise Price
pursuant to this Section 7.2, the number of shares of Common Stock purchasable
upon exercise of this Warrant shall be changed to the number determined by
dividing (i) an amount
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equal to the number of shares issuable upon the exercise of this Warrant
immediately prior to such adjustment, multiplied by the Exercise Price in effect
immediately prior to such adjustment, by (ii) the Exercise Price in effect
immediately after such adjustment without considering the fact that the Exercise
Price as adjusted may be lower than the par value of the Common Stock.
7.3. Other Securities. In case any Other Securities shall have been
issued, or shall then be subject to issue upon the conversion or exchange of any
stock (or Other Securities) of the Company (or any other issuer of Other
Securities or any other entity referred to in Section 6 hereof) or to
subscription, purchase or other acquisition pursuant to any rights or options
granted by the Company (or such other issuer or entity), the holder hereof shall
be entitled to receive upon exercise hereof such amount of Other Securities (in
lieu of or in addition to Common Stock) as is determined in accordance with the
terms hereof, treating all references to Common Stock herein as references to
Other Securities to the extent applicable, and the computations, adjustments and
readjustments provided for in this Section 7 with respect to the number of
shares of Common Stock issuable upon exercise of this Warrant shall be made as
nearly as possible in the manner so provided and applied to determine the amount
of Other Securities from time to time receivable on the exercise of the Warrant,
so as to provide the holder of the Warrant with the benefits intended by this
Section 7 and the other provisions of this Warrant.
8. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
Charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of the Warrant as
described herein, in the Securities Purchase Agreement or in any other Related
Agreement, against dilution. Without limiting the generality of the foregoing,
the Company (i) will not increase the par value of any shares of stock
receivable on the exercise of the Warrant above the amount payable therefor on
such exercise, (ii) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
non-assessable shares of stock on the exercise of the Warrant from time to time
outstanding, (iii) will not issue any capital stock of any class which is
preferred as to dividends or as to the distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding up, unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value in
respect of participation in dividends and in any such distribution of assets,
(iv) will comply in all respects with the provisions of Section 8 of the
Securities Purchase Agreement except to the extent such compliance may be waived
by Section 17 of the Securities Purchase Agreement, and (v) will not transfer
all or substantially all of its properties and assets to any other entity
(corporate or otherwise), or consolidate with or merge into any other entity or
permit any such entity
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to consolidate with or merge into the Company (if the Company is not the
surviving entity), unless such other entity shall expressly assume in writing
and will be bound by all the terms of this Warrant and the Securities Purchase
Agreement.
9. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any event
that may require any adjustment or readjustment in the shares of Common Stock
issuable on the exercise of this Warrant, the Company at its expense will
promptly prepare a certificate setting forth such adjustment or readjustment, or
stating the reasons why no adjustment or readjustment is being made, and
showing, in detail, the facts upon which any such adjustment or readjustment is
based, including a statement of (i) the number of shares of the Company's Common
Stock then outstanding on a fully diluted basis, and (ii) the number of shares
of Common Stock to be received upon exercise of this Warrant, in effect
immediately prior to such adjustment or readjustment and as adjusted and
readjusted (if required by Section 7) on account thereof. The Company will
forthwith mail a copy of each such certificate to the Majority Holders of the
Warrants, and will, on the written request at any time of the Majority Holders
of the Warrants, furnish to such holders a like certificate setting forth the
calculations used to determine such adjustment or readjustment. At its option,
the Majority Holders of the Warrants may confirm the adjustment noted on the
certificate by causing such adjustment to be computed by an independent
certified public accountant at the expense of the Company.
10. NOTICES OF RECORD DATE. In the event of:
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities or property, or to receive
any other right; or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company
or any transfer of all or substantially all the assets of the Company to
or any consolidation or merger of the Company with or into any other
Person; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company; or
(d) any proposed issue or grant by the Company of any shares of
stock of any class or any other securities, or any right or option to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities (other than the issue of Common Stock on
the exercise of this Warrant),
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then, and in each such event, the Company will mail or cause to be mailed to the
Majority Holders of the Warrants a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right, (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is anticipated to take place, and the time, if any is to be fixed, as
of which the holders of record of Common Stock (or Other Securities) shall be
entitled to exchange their shares of Common Stock (or Other Securities) for
securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up and (iii) the amount and character of any
stock or other securities, or rights or options with respect thereto, proposed
to be issued or granted, the date of such proposed issue or grant and the
persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall be mailed at least twenty (20) days prior to
the date specified in such notice on which any such action is to be taken.
11. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT. The Company will
at all times reserve and keep available, solely for issuance and delivery on the
exercise of this Warrant, a number of shares of Common Stock equal to the total
number of shares of Common Stock from time to time issuable upon exercise of
this Warrant, and, from time to time, will take all steps necessary to amend its
Charter to provide sufficient reserves of shares of Common Stock issuable upon
exercise of this Warrant.
12. DEFINITIONS. As used herein the following terms, unless the context
otherwise requires, have the following respective meanings:
12.1. The term Common Stock includes (i) the Company's Common Stock,
$.001 par value per share, (ii) any other capital stock of any class or classes
(however designated) of the Company, the holders of which shall have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and (iii) any other
securities into which or for which any of the securities described in clauses
(i) or (ii) above have been converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
12.2. The term Other Securities refers to any stock (other than Common
Stock) and other securities of the Company or any other entity (corporate or
otherwise) (i) which the holder of this Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of this Warrant, in lieu of or
in addition to Common Stock, or (ii) which at any time shall be issuable or
shall have been issued in exchange for or in replacement of Common Stock or
Other Securities, in each case pursuant to Section 5 or 6 hereof.
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13. WARRANT AGENT. The Company may, by written notice to the holder of this
Warrant, appoint an agent having an office in Boston, Massachusetts for the
purpose of issuing Common Stock on the exercise of this Warrant pursuant to
Section 2 hereof, and exchanging or replacing this Warrant pursuant to the
Securities Purchase Agreement, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
14. REMEDIES. The Company stipulates that the remedies at law of the holder
of this Warrant in the event of any default or threatened default by the Company
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate, and that such terms may be specifically enforced
by a decree for the specific performance of any agreement contained herein or by
an injunction against a violation of any of the terms hereof or otherwise.
15. NOTICES. All notices and other communications from the Company to the
holder of this Warrant shall be mailed by first class registered or certified
mail, postage prepaid, or sent by overnight courier (or sent in the form of a
telex or telecopy) at such address as may have been furnished to the Company in
writing by such holder or, until any such holder furnishes to the Company an
address, then to, and at the address of, the last holder of this Warrant who has
so furnished an address to the Company.
16. MISCELLANEOUS. In case any provision of this Warrant shall be invalid,
illegal or unenforceable, or partially invalid, illegal or unenforceable, the
provision shall be enforced to the extent, if any, that it may legally be
enforced and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. This Warrant
and any term hereof may be changed, waived, discharged or terminated only by a
statement in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. This Warrant is intended to
take effect as a sealed instrument and shall be governed by and construed in
accordance with the domestic substantive laws (and not the conflict of law
rules) of the Commonwealth of Massachusetts. The headings in this Warrant are
for purposes of reference only, and shall not limit or otherwise affect any of
the terms hereof. This Warrant shall take effect as an instrument under seal.
[ The remainder of this page is intentionally left blank. ]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
duly authorized officer and its corporate seal to be impressed hereon and
attested by its Secretary.
Dated as of October ___, 1999
ELOQUENT, INC.
(Corporate Seal) By:___________________________
Title:________________________
Attest:
___________________________
Secretary
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FORM OF SUBSCRIPTION
(To be signed only on exercise
of Common Stock Purchase Warrant)
TO: Eloquent, Inc.
The undersigned, the Holder of the within Common Stock Purchase Warrant,
hereby irrevocably elects to exercise this Common Stock Purchase Warrant for,
and to purchase thereunder shares of the Common Stock of Eloquent, Inc., a
Delaware corporation, and herewith makes payment of $ ________ therefor, and
requests that the certificates for such shares be issued in the name of, and
delivered to __________, whose address is _________.
Dated: __________________ ___________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant)
___________________________
(Address)
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FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto ____________ the right represented by the within Warrant to purchase shares
of the Common Stock of Eloquent, Inc., a Delaware corporation, to which the
within Warrant relates, and appoints attorney to transfer such right on the
books of Eloquent, Inc., with full power of substitution in the premises.
Dated:___________________________
___________________________
By:__________________________
Name:________________________
Title:_______________________
84
EXHIBIT D
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
[SEE EXHIBIT 3.01]