EXHIBIT 7
OPTION AGREEMENT
OPTION AGREEMENT (this "Agreement") dated as of May 10, 2000 between
DB Capital Investors, L.P. ("Optionee"), a Delaware limited partnership, and
▇▇▇▇ ▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇"), an individual domiciled in the State of New York.
W I T N E S S E T H:
WHEREAS, Optionee is a purchaser under that certain Securities
Purchase Agreement (the "Purchase Agreement") dated as of April 7, 2000 by and
among Computer Outsourcing Services, Inc. (the "Company") and certain purchasers
set forth on Exhibit A attached thereto; and
WHEREAS, Lonstein owns of record and beneficially 1,673,349 shares of
the Common Stock, par value $.01 per share, of the Company ("Common Stock"); and
WHEREAS, in order to induce Optionee to consummate the transactions
contemplated by the Purchase Agreement, Lonstein has agreed to grant to Optionee
the Option (as hereinafter defined) and the other rights provided herein.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Option.
(a) Grant of Option. Lonstein hereby grants to Optionee an irrevocable
option (the "Option") to purchase up to 375,000 shares of Common Stock (the
"Option Shares") at a purchase price of $25.00 per share (as adjusted from time
to time pursuant to the next sentence, the "Purchase Price"). If at any time the
outstanding shares of the Company's capital stock are changed into a different
number of shares or a different class by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment or
if a stock dividend thereon is declared with a record date prior to the
termination of this Agreement, then the number of Option Shares subject to the
Option and the per share consideration to be paid by Purchaser upon exercise of
the Option shall be appropriately adjusted.
(b) Exercise of Option. The Option may be exercised in whole or in
part, at any time, or from time to time, during the period commencing on the
date hereof and ending on May 10, 2007 (the "Exercise Period"); provided, that
to the extent that the exercise of the Option requires notification to be made
under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), the Exercise Period shall be extended until that day which is the
first to occur of (i) the thirtieth (30th) day following the expiration or
termination of all applicable waiting periods under the HSR Act; (ii) the
issuance, on any date after May 10, 2007, of a final, non-appealable
determination by a court of competent jurisdiction prohibiting the exercise of
the Option; or (iii) the determination by Optionee, on any date after May 10,
2007, that it will withdraw its Exercise Notice (as defined below) or withdraw
or abandon any action contesting an unfavorable determination by the applicable
authority under the HSR Act.
(c) Exercise. Optionee shall exercise the Option by delivering a
notice (the "Exercise Notice") to Lonstein specifying (i) the number of Option
Shares with respect to which it intends to exercise the Option, and (ii) a date
not less than three business days nor more than ten business days after the date
on which the Exercise Notice is dated, on which the purchase and sale
contemplated thereby is to be consummated (the "Option Closing Date"); provided,
that, to the extent necessary, any Option Closing Date shall be automatically
delayed until that date which is three business days after the termination or
expiration of all applicable waiting periods under the HSR Act. No Exercise
Notice shall be delivered after May 10, 2007. On the Option Closing Date,
Lonstein will deliver to Optionee, at the offices of White & Case LLP, 1155
Avenue of the Americas, New York, New York, a certificate or certificates
representing the Option Shares being purchased. Optionee will purchase such
Option Shares from Lonstein by delivering to Lonstein an amount equal to the
then effective Purchase Price per share of Common Stock multiplied by the number
of Option Shares to be purchased on the relevant Option Closing Date. The
aggregate Purchase Price with respect to the purchased Option Shares shall be
paid by certified or bank cheque delivered in the amount of the aggregate
Purchase Price tendered to Lonstein at the Option closing; provided that upon
notice to Optionee given not less than two business days prior to the Closing
Date, Lonstein may require that the aggregate Purchase Price with respect to the
purchased Option Shares be paid by wire transfer of immediately available funds
to an account or accounts designated by Lonstein at least two business day prior
to the Option Closing Date.
(d) HSR Filing. Optionee and Lonstein agree to file with the Federal
Trade Commission and the Antitrust Division of the United States Department of
Justice all required pre-merger notification and report forms and other
documents and exhibits required to be filed under the HSR Act to permit the
exercise of the Option and to cooperate with each other to obtain the early
termination of all applicable waiting periods.
2. Representations and Warranties of Lonstein. Lonstein hereby
represents and warrants to Optionee as follows:
(a) Ownership of Shares. Lonstein is the record and beneficial
owner of the Option Shares. Lonstein has sole power of disposition, sole
power of conversion and sole power to agree to all of the matters set forth
in this Agreement, in each case with respect to all Option Shares, with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) Power; Binding Agreement. Lonstein has the legal capacity,
power and authority to enter into and perform all of his obligations under
this Agreement. The execution, delivery and performance of this Agreement
by Lonstein will not violate any other agreement to which Lonstein is a
party including, without limitation, any voting agreement, stockholders
agreement or voting trust. This Agreement constitutes a valid and binding
agreement of Lonstein, enforceable against Lonstein in accordance with its
terms. There is no beneficiary or holder of a voting trust certificate or
other interest of any trust of which Lonstein is trustee whose consent is
required for the execution and delivery of this Agreement or the
consummation by Lonstein of the transactions contemplated hereby.
(c) No Conflict. No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by Lonstein and the
consummation by Lonstein of the transactions contemplated hereby and none
of the execution and delivery of this Agreement by Lonstein, the
consummation by Lonstein of the transactions contemplated hereby or
compliance by Lonstein with any of the provisions hereof shall result in a
violation or breach of, or constitute (with or without notice of lapse of
time or both) a default (or give rise to any third party right of
termination, cancellation, material modification or acceleration) under any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding,
agreement or other instrument or obligation of any kind to which Lonstein
is a party or by which such order, writ, injunction, decree, judgment,
order, statute, rule or regulation applicable to Lonstein or any of
Lonstein's properties or assets.
(d) No Finder's Fees. Except as disclosed in the Purchase
Agreement, no broker, investment banker, financial advisor or other person
is entitled to any broker's, finder's, financial advisor's or other similar
fee or commission in connection with the transactions contemplated hereby
based upon arrangements made by or on behalf of Lonstein.
(e) No Encumbrances. The Option Shares and the certificates
representing such shares are now, and at all times during the term hereof
will be, held by Lonstein, or by a nominee or custodian for the benefit of
Lonstein, free and clear of all liens, claims, charges, security interests,
options (other than the Option), rights, pledges, rights of first refusal
or other adverse claims (as defined in the Uniform Commercial Code of the
State of New York) or encumbrances whatsoever (collectively,
"Encumbrances"), other than Encumbrances contained in that certain
Stockholders' Agreement dated of even date herewith (the "Stockholders'
Agreement") by and among the Company, DB Capital Investors, L.P., Sandler
Capital Partners V, L.P., Sandler Internet Partners, L.P., Sandler
Co-Investment Partners, L.P., certain Management Stockholders of the
Company and certain Non-Management Stockholders of the Company.
(f) Reliance by Optionee. Lonstein understands and acknowledges
that Optionee is entering into the Purchase Agreement in reliance upon
Lonstein's execution and delivery of this Agreement.
3. Representations of Optionee. Optionee represents and warrants to
Lonstein that: (i) Optionee is a limited partnership duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with full partnership power and authority to execute and deliver
this Agreement and to perform its obligations hereunder; (ii) the execution and
delivery of this Agreement by such entity and the performance by it of its
obligations hereunder have been duly authorized by all necessary corporate
action on the part of such entity; and (iii) this Agreement constitutes the
legal, valid and binding obligation of such entity enforceable against such
entity in accordance with its terms, except as such enforcement may be limited
by bankruptcy, insolvency and other similar laws affecting creditors' rights
generally or by general principles, of equity.
4. Covenants of Lonstein. Lonstein covenants and agrees that Lonstein
shall (a) at all times during the Exercise Period hold, free and clear of all
Encumbrances (other than Encumbrances contained in the Stockholders' Agreement)
that number of shares necessary to satisfy its obligations under this Agreement
and (b) upon delivery of the Option Shares, the Option Shares will be subject to
no (i) voting trust or shareholders agreement, proxy or other voting agreement,
arrangement or understanding or (ii) Encumbrance.
5. Further Assurance and Adjustments. Lonstein shall, upon the
reasonable request of Optionee, execute and deliver any additional documents
necessary or desirable to effect any of the terms and provisions of this
Agreement. If at any time the Option Shares are changed into a different number
of shares or a different class by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment of
the Company's capital stock or if a stock dividend thereon is declared with a
record date prior to the termination of this Agreement, then the number of
Option Shares subject to this Agreement shall be appropriately adjusted.
6. Specific Performance. The parties hereto agree that if for any
reason Lonstein failed to perform any of Lonstein's obligations under this
Agreement, Optionee would be irreparably damaged and money damages would not
constitute an adequate remedy. Accordingly, Optionee shall be entitled to
specific performance and injunctive and other equitable relief to enforce the
performance of such obligations by Lonstein. This provision is without prejudice
to any other rights Optionee may have against Lonstein for failure to perform
any of Lonstein's obligations under this Agreement.
7. Term. This Agreement shall commence on the date hereof and the
Option shall end upon the later to occur of (x) 11:59 p.m. on May 10, 2007 or
(y) the termination of the Exercise Period.
8. Binding Agreement. All authority and rights herein conferred or
agreed to be conferred by Lonstein shall survive the death or incapacity of
Lonstein. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, personal representatives, successor
and assigns.
9. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be hand delivered, delivered by courier
with receipt acknowledged or mailed first class, certified mail, with postage
prepaid, as follows:
If to Parent or Optionee, to:
DB Capital Investors, L.P.
c/o DB Capital Partners, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Managing Director
With a copy to:
White & Case LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
If to Lonstein, to:
c/o Computer Outsourcing Solutions, Inc.
▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
10. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
the principles of conflicts of law thereof.
11. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which, taken together, shall
constitute one instrument.
12. Severability. In case any provision in this Agreement shall be
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby, unless the provisions held invalid shall
substantially impair the benefits of the remaining portions of this Agreement.
13. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
other prior agreement and understandings, both written and oral, between the
parties with respect to the subject matter hereof.
14. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the relevant
parties.
15. No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof shall not constitute a waiver by such party of
its right to exercise any such or other right, power or remedy or to demand such
compliance.
16. Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, Optionee and Lonstein have caused this Agreement
to be duly executed as of the day and year first written above.
▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/▇▇▇▇ ▇▇▇▇▇▇▇▇
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DB CAPITAL INVESTORS, L.P.
By: DB Capital Partners, L.P., its
General Partner
By: DB Capital Partners, Inc., its
General Partner
By: /s/▇▇▇▇▇ ▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Managing Director
