Exhibit 10.15
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NOTE AND WARRANT
PURCHASE AGREEMENT
by and between
OPEN PORT TECHNOLOGY, INC.
and
CID MEZZANINE CAPITAL, L.P.
Dated as of June 22, 1998
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TABLE OF CONTENTS
ARTICLE I DEFINITIONS.............................................. 2
Section 1.1. Definitions......................................... 2
Section 1.2. Accounting Terms.................................... 5
ARTICLE II PURCHASE, SALE AND TERMS OF NOTE; PAYMENTS............... 5
Section 2.1. Description of Notes................................ 5
Section 2.2. Commitment.......................................... 6
Section 2.3. Issue Price; Original Issue Discount................ 6
Section 2.4. Use of Proceeds..................................... 6
Section 2.5. Prepayment.......................................... 6
Section 2.6. Payments and Endorsements........................... 7
Section 2.7. Maximum Legal Rate of Interest...................... 7
Section 2.8. Payment on Non-Business Days........................ 7
Section 2.9. Transfer and Exchange of Note....................... 7
Section 2.10. Replacement of Note................................. 7
Section 2.11. Subordination....................................... 8
Section 2.12. Commitment Fee...................................... 8
Section 2.13. Default Rate of Interest............................ 8
ARTICLE III PURCHASE, SALE AND TERMS OF WARRANTS..................... 8
Section 3.1. The Warrants........................................ 8
Section 3.2. Purchase and Sale of Warrants....................... 9
ARTICLE IV CONDITIONS TO PURCHASER'S OBLIGATION..................... 9
Section 4.1. Representations and Warranties...................... 9
Section 4.2. Documentation at Closing............................ 9
Section 4.3. No Default..........................................10
Section 4.4. Equity Investment...................................10
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..........10
Section 5.1. Representations and Warranties of the Purchaser.....10
Section 5.2. Transferees Bound...................................11
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ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............12
Section 6.1. Organization, Good Standing, and Qualification.......12
Section 6.2. Capital Structure of the Company
and Investments in the Company......................12
Section 6.3. Title to the Notes and the Warrants..................13
Section 6.4. Compliance with Securities Laws......................13
Section 6.5. Authority............................................14
Section 6.6. Validity; No Violation...............................14
Section 6.7. No Equity Investments................................15
Section 6.8. Financial Statements.................................15
Section 6.9. No Material Adverse Change...........................15
Section 6.10. Absence of Undisclosed Liabilities and Encumbrances..15
Section 6.11. Tax Matters..........................................15
Section 6.12. Title to Property and Related Matters................16
Section 6.13. Real Property Owned..................................16
Section 6.14. Real Property Leased.................................16
Section 6.15. Intellectual Property................................17
Section 6.16. Contracts, Agreements, and Commitments...............18
Section 6.17. Litigation...........................................19
Section 6.18. Compliance; Governmental Authorization...............19
Section 6.19. Labor Relations......................................20
Section 6.20. Compensation.........................................21
Section 6.21. Benefit Plans........................................21
Section 6.22. Related Transactions.................................21
Section 6.23. Broker's or Finder's Fees............................21
Section 6.24. Minute Books and Stock Record Books..................22
Section 6.25. Registration Rights..................................22
Section 6.26. Qualified Small Business Stock.......................22
Section 6.27. Disclosure...........................................22
Section 6.28. Customers, Vendors, and Suppliers....................22
ARTICLE VII COVENANTS OF THE COMPANY..................................23
Section 7.1. Affirmative Covenants of the Company
Other Than Reporting Requirements...................23
Section 7.2. Negative Covenants of the Company....................28
ARTICLE VIII EVENTS OF DEFAULT.........................................32
Section 8.1. Events of Default....................................32
Section 8.2. Remedies.............................................33
Section 8.3. Annulment of Defaults................................34
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ARTICLE IX MISCELLANEOUS............................................34
Section 9.1. Amendment and Certain Waivers........................34
Section 9.2. Benefit of Parties; Assignability....................34
Section 9.3. Confidentiality......................................34
Section 9.4. Cooperation..........................................34
Section 9.5. Counterparts.........................................35
Section 9.6. Cumulative Remedies and Survival.....................35
Section 9.7. Entire Agreement.....................................35
Section 9.8. Governing Law and Choice of Forum....................35
Section 9.9. Indemnification......................................35
Section 9.10. Interpretation.......................................36
Section 9.11. Knowledge of the Company.............................36
Section 9.12. Notices..............................................36
Section 9.13. Payments in Respect of Notes.........................37
Section 9.14. Payments in Respect of Warrant.......................37
Section 9.15. Severability.........................................37
Section 9.16. Table of Contents and Captions.......................38
Section 9.17. Validity of Provisions...............................38
Section 9.18. Waiver of Breach.....................................38
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NOTE AND WARRANT PURCHASE AGREEMENT
This Note and Warrant Purchase Agreement ("Agreement") is entered into as
of June 22, 1998, by and between CID Mezzanine Capital, L.P., a Delaware limited
partnership ("CID"), and Open Port Technology, Inc., an Illinois corporation
(the "Company").
Preliminary Statements
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The Company is principally engaged in the development, production,
distribution, sale, and support of computer software and related hardware
products. The Company is interested in obtaining additional private funding and
CID is willing to provide that funding on the terms and conditions set forth in
this Agreement.
Terms and Conditions
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In consideration of the mutual covenants, agreements presentations, and
warranties contained in this Agreement and intending to be legally bound, CID
and the Company agree as follows:
ARTICLE I
DEFINITIONS
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Section 1.1. Definitions. As used herein, the following terms have the
meanings indicated, which apply equally to both the singular and plural forms of
the terms defined:
"Affiliate" means, as to any specified Person, any other Person
controlling, controlled by or under common control with the specified Person.
"Amended and Restated Registration Rights Agreement" means the Amended and
Restated Registration Rights Agreement dated as of June 15, 1998 by and among
the Company, and Microsoft Corporation; Oak Investment Partners; New Enterprise
Associates VII, Limited Partnership; NEA Presidents' Fund, L.P.; NEA Ventures
1997, L.P.; Frontenac VI Limited Partnership; CID Equity Capital III, L.P.; CID
Equity Capital V, L.P.; Battery Ventures III, L.P.; MKW Partners, L.P.;
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇; ▇▇▇▇ Associates Pension Plan; ▇▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇;
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇; ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇; ▇▇▇▇▇▇ Family Limited Partnership;
Northwestern University; ▇▇▇▇▇ ▇▇▇▇▇; ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇; ▇▇▇▇▇▇ ▇▇▇▇▇▇▇; and
▇▇▇▇▇ Ramp (collectively, the "Preferred Shareholders").
"Amended and Restated Voting and Co-Sale Agreement" means the Amended and
Restated Voting and Co-Sale Agreement dated as of June 15, 1998 by and among the
Company, the Preferred Shareholders, and ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
"Applicable Laws" has the meaning assigned to that term in Section 6.5.
"Bank" means the Silicon Valley National Bank d/b/a Silicon Valley East and
its successors and assigns.
"Bank Subordination Agreement" means the Subordination Agreement by and
between the Bank and CID, dated as of June 19, 1998.
"Business Day" means any day other than a Saturday, Sunday, and public
holiday or the equivalent for banks under the laws of the States of Illinois or
Indiana.
"Change in Control" means any consummation of an agreement to or
transaction whereby (a) the Company merges, consolidates, or exchanges at least
a majority of its shares with, or sells all or substantially all of its assets
to another person or entity, or (b) any transaction or any event as a result of
which any one or more Persons (other than the Purchaser or a stockholder of the
Company on the Closing Date) acquires or for the first time controls or is able
to vote (directly or through nominees or beneficial ownership) after the Closing
Date (other than as the direct result of a transfer by descent or distribution
of a decedent's estate) 50% or more of any class of stock of the Company
outstanding at the time having power ordinarily to vote for directors of the
Company.
"Closing" has the meaning assigned to that term in Article IV.
"Closing Date" has the meaning assigned to that term in Section 2.2.
"Code" has the meaning assigned to that term in Section 2.3.
"Commission" means the United States Securities and Exchange Commission (or
any other federal agency at that time administering the Securities Act).
"Common Stock" means and includes (a) the Company's common stock, as
authorized on the date of this Agreement, and (b) any other capital stock of any
class or classes (however designated) of the Company, authorized on or after the
date hereof, the holders of which shall have the right, without limitation as to
amount per share, either to all or to a share of the balance of current
dividends and liquidating distributions after the payment of dividends and
distributions on any shares entitled to preference in payment, and the holders
of which shall ordinarily, in the absence of contingencies, be entitled to vote
for the election of directors of the Company (even though the right to vote may
have been suspended by the happening of a contingency), and (c) any other
securities into which or for which any of the securities described in (a) or (b)
above may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets, or otherwise.
"ERISA" has the meaning assigned to that term in Section 6.21.
"Events of Default" has the meaning assigned to that term in Section 8.1.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, as in effect at the time.
"Financial Statements" has the meaning assigned to that term in Section
6.8.
"Funded Indebtedness" means all Indebtedness for borrowed money (including
purchase money obligations) maturing one year or more from the date of creation
or incurrence thereof or that may be renewed or extended at the option of the
debtor to a date one year or more from the date of creation or incurrence
thereof, all Indebtedness under revolving credit arrangements extending over a
year or more, and all capitalized lease obligations.
"GAAP" means generally accepted accounting principles recognized by the
American Institute of Certified Public Accountants. Unless otherwise
specifically stated herein, use of the term "GAAP" means that those principles
are applied and maintained on a consistent basis for the Company and its
Subsidiaries throughout the period indicated and consistent with the prior
financial practices of the Company and its Subsidiaries as reflected on the
Financial Statements so as to properly reflect the financial condition, and the
results of operations and cash flow of the Company and its Subsidiaries.
"Indebtedness" means all obligations, contingent and otherwise, that
should, in accordance with GAAP, be classified upon the obligor's balance sheet
as liabilities, but in any event including, without limitation, liabilities
secured by any mortgage on property owned or acquired subject to that mortgage,
whether or not the liability secured thereby shall have been assumed, and also
including, without limitation, (i) all guaranties, endorsements and other
contingent obligations in respect of Indebtedness of others, whether or not they
are or should be so reflected in the balance sheet, except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, and (ii) the present value of
any lease payments due under leases required to be capitalized and determined in
accordance with applicable Statements of Financial Accounting Standards.
"Investment Documents" has the meaning set forth in Section 6.5.
"Major Event of Default" means (A) a breach of any of the following
covenants contained in this Agreement: Section 7.1(f) or (l); Section 7.2(b),
(c), (d), (e), (f), (g) or (h); or (B) an Event of Default existing under
Section 8.1(a), (b) or (h).
"Note" and "Notes" have the meaning assigned to those terms in Section 2.1.
"Permitted Liens" has the meaning assigned to that term in Section 7.2(a).
"Person" means and includes an individual, a corporation, a partnership, a
joint venture, a trust, an unincorporated organization, or a government or any
agency or political subdivision thereof.
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"Preferred Stock" means the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock.
"Purchase Date" has the meaning set forth in Section 2.2.
"Purchaser" means and includes CID, and any other holder or holders from
time to time of the Note or Warrants.
"Qualified IPO" means the closing of a public offering pursuant to an
effective registration statement under the Securities Act covering the offer and
sale of Common Stock for the account of the Company if: (i) the price per share
of the Common Stock of the Company is at least $2.80 (as appropriately adjusted
for any stock dividends, combinations, splits, and the like with respect to the
Common Stock); and (ii) the net proceeds to the Company after all costs and
expenses, including but not limited to underwriting discounts and commissions,
will be at least $20,000,000.
"Securities" means collectively the Note, the Warrants, and the Warrant
Shares.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, as in effect at the time.
"Senior Debt" means (i) all Indebtedness of the Company and any of its
Subsidiaries for money borrowed from banks or institutional lenders, including
any extensions or renewals thereof, whether outstanding on the date hereof or
hereafter created or incurred, that is not by its terms subordinate and junior
to the Note and that is disclosed on the Financial Statements or is permitted by
this Agreement at the time it is created or incurred, (ii) all Indebtedness of
the Company and any of its Subsidiaries incurred to refinance any of the
Indebtedness referred to in item (i) above, where the security securing that
Indebtedness is substantially the same security as that securing the
Indebtedness being refinanced, (iii) all capitalized lease obligations of the
Company and any of its Subsidiaries that are permitted by this Agreement at the
time they are incurred, and (iv) all guarantees by the Company and any of its
Subsidiaries that are not by their terms subordinate and junior to the Note and
that are permitted hereby at the time they are made of Indebtedness of any
Subsidiary if that Indebtedness would have been Senior Debt pursuant to the
provisions of clause (i), (ii), (iii) or (iv) of this sentence had it been
indebtedness of the Company.
"Series A Preferred Stock" has the meaning set forth in Section 6.2.
"Series B Preferred Stock" has the meaning set forth in Section 6.2.
"Series C Preferred Stock" has the meaning set forth in Section 6.2.
"Stock Option Plan" means the Company's (i) employee stock option plan for
the benefit of the Company's officers, directors and employees, and (ii) non-
employee stock option plan for the benefit of members of the Board of Directors,
consultants, suppliers and contractors.
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"Subordinated Debt" means all Indebtedness of the Company and any of its
Subsidiaries for money borrowed from any Person, including any extensions or
renewals thereof, whether outstanding on the date hereof or hereafter created or
incurred, that is by its terms subordinate and junior to Senior Debt on terms
acceptable to the holders of Senior Debt and that is permitted by this Agreement
at the time it is created or incurred, including, without limitation, the Notes
as subordinated to the Bank pursuant to the Subordination Agreement.
"Subsidiary" or "Subsidiaries" means (i) any corporation more than 50% of
whose stock of any class or classes having by the terms thereof ordinary voting
power to elect a majority of the directors of that corporation (irrespective of
whether or not at the time stock of any class or classes of that corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time owned directly or indirectly by the Company and/or
any one or more of its Subsidiaries, and (ii) any partnership, association,
joint venture or other entity in which the Company and/or one or more of its
Subsidiaries has more than a 50% equity interest at the time.
"Transaction" has the meaning set forth in Section 7.2.
"Warrant Shares" has the meaning assigned to that term in Section 3.1.
"Warrants" has the meaning assigned to that term in Section 3.1.
Section 1.2. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, and all financial
data submitted pursuant to this Agreement and all financial tests to be
calculated in accordance with this Agreement shall be prepared and calculated in
accordance with GAAP.
ARTICLE II
PURCHASE, SALE AND TERMS OF NOTE; PAYMENTS
------------------------------------------
Section 2.1. Description of Notes. The Company has authorized the issuance
and sale to the Purchaser of up to $3,000,000 aggregate principal amount of its
11% Subordinated Notes (individually, a "Note" and collectively, the "Notes").
The Notes shall be substantially in the form set forth as Exhibit 2.1 (including
any Note or Notes delivered in exchange or replacement therefor). The Notes
shall be due and payable on July 1, 2001, except to the extent they are subject
to earlier acceleration as provided therein. The Notes shall become immediately
due and payable upon any Change in Control of the Company; provided, however,
that a reincorporation by the Company under the laws of the State of Delaware,
or a merger into a newly-formed corporation incorporated under Delaware law,
shall not trigger acceleration of the Notes. The Notes shall bear interest
(based on a 360-day year counting actual days elapsed) on the unpaid principal
amount thereof until due and payable at the rate of 11% per annum. Interest
shall accrue from the date of issuance of the Notes and be payable (y) monthly
in arrears on the first day of each month, commencing on the first day of
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the first month following execution and delivery of each Note, and (z) at
maturity or prior prepayment of the Notes in full.
Section 2.2. Commitment. The Company agrees to issue and sell to the
Purchaser, and, subject to and in reliance upon the representations, warranties,
terms and conditions contained in this Agreement, the Purchaser agrees to
purchase the Notes as set forth below:
(a) Initial Funding. On the date on which this Agreement is executed and
delivered (the "Closing Date"), the Company shall sell and the Purchaser shall
purchase a Note in the original principal amount of not less than $1,500,000.
(b) Subsequent Funding. For a period of 12 months after the Closing Date,
subject to the terms and conditions set forth in this Agreement and the Notes,
the Company may request that the Purchaser purchase additional Notes in an
aggregate original principal amount of up to $1,500,000. The Company shall
determine the amount and dates of these subsequent purchases of the Notes (each,
a "Purchase Date") by delivering in writing to the Company no later than ten
Business Days prior to each requested Purchase Date. Each subsequent Note, if
any, shall be in an aggregate principal amount of not less than $500,000.
Purchaser's obligation to purchase Notes on any Purchase Date shall be expressly
conditioned upon the Company's ongoing compliance with all of the terms and
conditions set forth in this Agreement and the other Investment Documents.
(c) Minimum Balance Outstanding. During the term of the Notes, the Company
shall maintain a minimum, aggregate, outstanding balance due and payable under
the Notes of $1,500,000.
Section 2.3. Issue Price; Original Issue Discount. Having considered all
facts relevant to a determination of the value of the Notes and the Warrants
being acquired by the Purchaser, including among other things the leveraged
nature of the Company's capitalization and the nature of its business and
prospects, the Company and the Purchaser have concluded and do hereby agree
that, within the meaning of Section 1273 of the Internal Revenue Code of 1986,
as amended (the "Code"), the issue price for the aggregate principal amount of
the Notes is $2,850,000, and this amount will be allocated pro rata based on the
principal amount of each Note issued pursuant to this Agreement. The Company and
the Purchaser recognize that this Agreement creates original issue discount in
the aggregate amount of $150,000 (and this amount will be allocated pro rata
based on the principal amount of each Note issued pursuant to this Agreement),
which is the amount to be taken into account by the Company and the Purchaser
for federal income tax purposes on the Notes, and they agree to adhere to this
Agreement for that purposes and not to take any action inconsistent herewith.
Section 2.4. Use of Proceeds. The Company agrees to use the full proceeds
from the sale of the Notes for working capital and general corporate purposes
and for any other purposes approved by the Board of Directors.
Section 2.5. Prepayment. The Company may prepay all or any portion of the
unpaid principal balance and accrued interest of any Note without premium or
penalty. However, all sums received
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in prepayment shall first be applied in payment of accrued but unpaid interest,
and the excess, if any, shall then be applied to the unpaid principal balance
due under the Note.
Section 2.6. Payments and Endorsements. Payments of principal and interest
on the Notes shall be made without setoff or counterclaim directly by wire
transfer of funds to the account or accounts designated in writing by the
Purchaser, without any presentment or notation of payment, except that prior to
any transfer of the Notes, the holder thereof shall endorse on that Note a
record of the date to which interest has been paid and all payments made on
account of principal of that Note. If at any time more than one Note is
outstanding, then all payments and prepayments of principal of and interest on
the Notes shall be applied (to the extent thereof) to all holders of the Notes
pro rata based on the principal amount outstanding and held by each holder.
Section 2.7. Maximum Legal Rate of Interest. Nothing in this Agreement or
in the Notes shall require the Company to pay interest at a rate in excess of
the maximum rate permitted by applicable law.
Section 2.8. Payment on Non-Business Days. Whenever any payment is due on a
day other than a Business Day, that payment may be made on the next succeeding
Business Day, and the extension of time shall be included in the computation of
interest due.
Section 2.9. Transfer and Exchange of Note. The Notes may not be sold,
transferred, assigned, hypothecated or otherwise disposed prior to maturity or
prepayment thereof, without the prior consent of the Company; provided, however,
that the Purchaser may transfer or assign the Notes, or its interest therein, to
a limited partner or general partner of the Purchaser in connection with the
liquidation, dissolution, or winding up of the affairs of the Purchaser
("Permitted Transfer"). In the event of a Permitted Transfer, the holder
desiring to transfer or exchange any Note shall first notify the Company in
writing of that transfer or exchange at least two Business Days prior to the
desired date of transfer or exchange (the "Transfer Notice"). Within a
reasonable time after the Transfer Notice and without expense (other than
transfer taxes, if any) to that holder, the Company shall issue in exchange
therefor subject to Section 5.1, another Note or Notes, in the denominations as
requested by the holder, for the same aggregate principal amount, as of the date
of the issuance, as the unpaid principal amount of the Note or Notes surrendered
and 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
surrendered. Each new Note shall be made payable to that Person or Persons, or
assigns, as the holder of that surrendered Note or Notes may designate, and that
transfer or exchange shall be made in a manner so that no gain or loss of
principal or interest shall result therefrom.
Section 2.10. Replacement of Note. Upon receipt of evidence satisfactory to
the Company of the loss, theft, destruction, or mutilation of any Note and, if
requested in the case of any loss, theft, or destruction, upon delivery of an
indemnity bond or other agreement or security reasonably satisfactory to the
Company, or, in the case of any mutilation, upon surrender and cancellation of
the Note, the Company will issue a new Note, at the expense of the holder, of
like tenor and amount and dated the date to which interest has been paid, in
lieu of that lost, stolen, destroyed, or mutilated
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Note. If any Note of which the Purchaser, its nominee, or any of its partners is
the holder is lost, stolen, or destroyed, the affidavit of an authorized partner
or officer of the holder setting forth the circumstances with respect to that
loss, theft, or destruction shall be accepted as satisfactory evidence thereof,
and no indemnification bond or other security shall be required as a condition
to the execution and delivery by the Company of a new Note in replacement of
that lost, stolen, or destroyed Note other than the holder's written agreement
to indemnify the Company.
Section 2.11. Subordination. The indebtedness evidenced by the Notes and
the rights and remedies of the Purchaser under this Agreement and the Investment
Documents shall be subordinate and junior to certain indebtedness of the Company
to the Bank in the manner and to the extent provided in the Notes and the Bank
Subordination Agreement.
Section 2.12. Commitment Fee. The Company has agreed to pay to Purchaser a
commitment fee of $15,000 payable on the Closing Date, plus one percent (1%) of
the amount of each additional Note purchased pursuant to Section 2.2(b) of this
Agreement, payable at the Closing for such Note, as consideration for
Purchaser's reservation of sufficient funds to lend the principal amount of the
Notes to the Company and for entering into the Investment Documents (the
"Commitment Fee"). The Commitment Fee may be paid to the Purchaser by means of a
deduction from the proceeds from the Note or Notes purchased at the Closing.
Section 2.13. Default Rate of Interest. If an Event of Default occurs and
is continuing, from and after the date that the Event of Default occurs the
entire outstanding unpaid principal balance of the Notes and any unpaid interest
from time to time due thereon shall bear interest, payable on demand, at the
rate of 13.0% per annum, or the lower rate as then may be the maximum rate
permitted by applicable law; provided, however, that upon the cessation or cure
of the Event of Default, if no other Event of Default is then continuing, the
Note shall again bear interest at the rate of 11% per annum as set forth in
Section 2.1.
ARTICLE III
PURCHASE, SALE AND TERMS OF WARRANTS
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Section 3.1. The Warrants. The Company has authorized the issuance and sale
to the Purchaser of the Company's Series C Preferred Stock Purchase Warrants
(the "Warrants") for the purchase (subject to adjustment as provided therein) of
up to an aggregate of 222,186 shares of Series C Preferred Stock of the Company
(the "Warrant Shares"). As of the date of this Agreement, the Warrants represent
0.6% of the fully-diluted outstanding shares of the Common Stock. The Warrants
shall be substantially in the form set forth as Exhibit 3.1. The Warrants may be
referred to herein individually as a "Warrant" and shall also include any
warrants of the Company delivered in or replacement therefor. The Warrants shall
be exercisable at a purchase price, subject to adjustment, of $0.01 per Warrant
Share.
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Section 3.2. Purchase and Sale of Warrants. On the Closing Date, the
Company agrees to issue and sell to the Purchaser, and, subject to and in
reliance upon the representations, warranties, terms, and conditions of this
Agreement, the Purchaser agrees to purchase, a Warrant entitling the Purchaser
(subject to the terms and conditions provided therein) to acquire up to 111,093
Warrant Shares. The Warrant shall represent not less than 0.3% of the fully-
diluted outstanding shares of the Common Stock as of the date of this Agreement.
Upon and concurrent with the purchase of additional Notes, the Purchaser shall
purchase additional Warrants for up to an aggregate 111,093 Warrant Shares
(representing up to 0.3% of the fully-diluted outstanding shares of the Common
Stock as of the date of this Agreement) on a pro rata basis.
ARTICLE IV
CONDITIONS TO PURCHASER'S OBLIGATION
------------------------------------
The obligation of the Purchaser to purchase and pay for the Notes and
Warrants at the closing of the transactions contemplated by this Agreement (the
"Closing") is subject to the following conditions, all or any of which the
Purchaser may waive in writing:
Section 4.1. Representations and Warranties. Each of the representations
and warranties of the Company set forth in Article VI shall be true and correct
in all respects at the time of, and immediately after giving effect to, each
sale of the Notes and the Warrants as contemplated by this Agreement.
Section 4.2. Documentation at Closing. The Purchaser shall have received
prior to or at the Closing all of the following, each in form and substance
satisfactory to the Purchaser and its counsel:
(a) A certificate from a duly authorized officer of the Company stating
that the representations and warranties contained in Article VI and any other
Investment Documents are true and correct and that no condition or event has
occurred or is continuing or will result from the execution and delivery of this
Agreement or the Investment Documents that constitutes an Event of Default or
would constitute an Event of Default but for the requirement that notice be
given, or time elapse, or both.
(b) Execution and delivery of the Bank Subordination Agreement in form and
substance satisfactory to Purchaser and its counsel.
(c) Payment of the Commitment Fee identified in Section 2.12 as to which
the Purchaser gives the Company notice at the Closing.
(d) Any consents required for the Company to enter into this Agreement and
satisfy its obligation hereunder.
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(e) Those other documents referenced in any schedule hereto or relating to
the transactions contemplated by this Agreement as the Purchaser or its counsel
may reasonably request.
Section 4.3. No Default. At the time of and immediately after giving effect
to the sale of the Notes and the Warrants there shall exist no Event of Default
and no condition, event or act that, with the giving of notice or lapse of time,
or both, would constitute an Event of Default.
Section 4.4. Equity Investment. The Company shall have completed the
proposed investment transaction with Microsoft Corporation and Oak Investment
Partners VII, Limited Partnership concurrently with or prior to the Closing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
Section 5.1. Representations and Warranties of the Purchaser. As a material
inducement to the Company to enter into and consummate the transactions
contemplated by this Agreement, the Purchaser hereby represents and warrants
that:
(a) The Purchaser has duly authorized, executed, and delivered this
Agreement and those Investment Documents that require execution by the
Purchaser.
(b) It is the Purchaser's present intention to acquire the Securities for
its own account.
(c) The Securities are being and will be acquired for the purpose of
investment and not with a view to distribution or resale thereof.
(d) The Purchaser acknowledges that it has reviewed and discussed the
Company's business, affairs, and current prospects with those officers and
others as it has deemed appropriate or desirable in connection with the
transactions contemplated by this Agreement. The Purchaser further acknowledges
that it has requested, received, and reviewed that information, and that it has
undertaken an investigation and made further inquiries of officers of the
Company and others as it has deemed appropriate or desirable in connection with
the transactions; provided, however, that no investigation made at any time by
or on behalf of the Purchaser shall have any effect whatsoever on the
representations and warranties of the Company hereunder, which will survive any
investigation.
(e) The Purchaser understands that it must bear the economic risk of its
investment for an indefinite period of time because the Securities are not, and
will not be, registered under the Securities Act or any applicable state
securities laws and may not be resold unless subsequently registered under the
Securities Act and any other laws or unless an exemption from registration is
available. The Purchaser also understands that it is not contemplated that any
registration will be made under the Securities Act or any state securities laws,
or that the Company will take all
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reasonable steps which will make the provisions of Rule 144 under the Securities
Act available to permit resale of the Securities.
(f) The Purchaser represents that it has sufficient knowledge and
experience in financial and business matters so that it is capable of evaluating
the merits and risks of its investment in the Securities. The Purchaser further
represents that it is an "accredited investor" as that term is defined in Rule
501 of Regulation D of the Commission under the Securities Act and Indiana Code
23-2-1-1-(a) with respect to the purchase of the Securities.
(g) No Person has or will have, as a result of the transactions
contemplated by this Agreement any rights, interest or valid claim against or
upon the Company for any commission, fee or other compensation as a finder or
broker because of any act or omission by the Purchaser or any agent of the
Purchaser except as provided in Section 2.12.
(h) The Purchaser hereby acknowledges that the Notes, the Warrants, each
certificate representing Warrant Shares, and any other securities issued in
respect of the Warrant Shares upon any stock split, stock dividend,
recapitalization, merger, or similar event (unless no longer required in the
opinion of counsel to the Company) shall bear a legend substantially in the
following form:
[THIS] [NOTE] [WARRANT] [HAS] [THESE SHARES HAVE] NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE OR OTHER SECURITIES
LAWS, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, OR ASSIGNED EXCEPT (i)
PURSUANT TO REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS, OR (ii) IF, IN
THE OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, THE PROPOSED
TRANSFER MAY BE EFFECTED IN COMPLIANCE WITH ALL APPLICABLE SECURITIES LAWS,
WITHOUT REGISTRATION.
The acquisition by the Purchaser of the Securities shall constitute a
confirmation by it of the foregoing representations.
Section 5.2. Transferees Bound. The Purchaser understands and acknowledges
with the Company that the Company shall not issue or transfer any Note, Warrant,
or Warrant Shares unless the Person to whom they are being issued or transferred
shall deliver to the secretary of the Company written representations
substantially similar to those in Section 5.1 or other representations of its
investment intent and experience as are reasonably acceptable to counsel for the
Company.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
As a material inducement to the Purchaser to enter into and consummate the
transactions contemplated by this Agreement, the Company represents and warrants
to the Purchaser as follows:
Section 6.1. Organization, Good Standing, and Qualification. The Company is
duly incorporated, validly existing, and in good standing under the laws of the
State of Illinois, without limitation on the duration of its corporate
existence, and has filed all reports that it is required to file with the
Secretary of State of the State of Illinois and all other governmental
authorities as required to maintain its corporate existence. The Company has all
requisite corporate power and authority to own, lease, and operate its
properties and to carry on its business as it is now conducted and as it is now
proposed to be conducted. The Company is qualified as a foreign corporation and
is in good standing in each state or jurisdiction where the failure to so
qualify would have a material adverse effect on the Company. The Company has
previously delivered to the Purchaser complete and correct copies of its Amended
and Restated Articles of Incorporation and Bylaws, as amended, copies of which
are attached as Exhibits 6.1(a) and 6.1(b), respectively. The Company is not in
violation of its Amended and Restated Articles of Incorporation or its Bylaws.
Section 6.2. Capital Structure of the Company and Investments in the
Company.
(a) The authorized capitalization of the Company consists of 46,491,917
shares of Common Stock, par value $.001 per share (the "Common Stock") and
18,466,778 shares of Preferred Stock, of which 1,228,917 shares have been
designated as Series A Preferred Stock, 13,526,786 shares have been designated
as Series B Preferred Stock, and 3,711,075 shares have been designated as Series
C Preferred Stock. Immediately prior to the Closing, 12,019,842 shares of Common
Stock, 1,228,917 shares of Series A Preferred Stock, and 13,526,786 shares of
Series B Preferred Stock and 3,469,136 shares of Series C Preferred Stock will
be validly issued and outstanding, fully paid and nonassessable.
(b) All of the issued and outstanding shares of Common Stock, Series A
Preferred Stock and Series B Preferred Stock were issued by the Company in
compliance with all applicable laws and regulations, including but not limited
to all federal, state, and other securities laws and regulations. The Notes and
the Warrants, when issued pursuant to this Agreement, shall be duly and validly
issued and shall be issued by the Company in reliance on the representations and
warranties of the Purchaser and any transferees in compliance with all
applicable laws and regulations, including but not limited to all federal,
state, and other securities laws and regulations. The Warrant Shares, when
issued pursuant to the Warrants, shall be duly and validly issued, shall be
fully paid and nonassessable, and shall be issued by the Company in compliance
with all applicable laws and regulations, including but not limited to federal,
state, and other securities laws and regulations. All Shares of Series C
Preferred Stock and Common Stock issuable upon conversion of the Series C
Preferred Stock, when issued, shall be duly and validly issued, fully paid and
nonassessable and issued in compliance with
-12-
all applicable laws and regulations, including but not limited to federal,
state, and other securities laws and regulations.
(c) The owners of record or beneficially of the outstanding shares of
Common Stock and options or warrants to acquire Common Stock, including the
number of shares owned or subject to option or to a warrant, are set forth in
Schedule 6.2. The Company has no treasury stock.
(d) Except as contemplated by or referred to in this Agreement or set
forth in Schedule 6.2, the Company has no outstanding options, warrants,
conversion rights, agreements, or commitments for the issuance, transfer, or
sale of any security of the Company.
(e) Except as set forth in the Amended and Restated Voting and Co-Sale
Agreement and pursuant to proxies granted under the terms of the Company's Stock
Option Plan, there exists no restrictive stock transfer, voting trust, or other
agreement or commitment relating to the transfer or voting of any equity
security of the Company.
(f) The Company has granted no registration rights or preemptive rights
with respect to any of the Company's securities, except as contemplated by this
Agreement, the Amended and Restated Voting and Co-Sale Agreement and the Amended
and Restated Registration Rights Agreement.
Section 6.3. Title to the Notes and the Warrants. Company shall issue the
Notes and the Warrants to the Purchaser free and clear of all liens,
encumbrances, equitable rights of third parties, options, claims, pledges, and
other limitations on the ownership, exercisability, or ability to transfer the
Notes and the Warrants, except as created by the Purchaser, contemplated by the
Investment Documents, or as imposed by applicable securities laws. The Company
shall issue the Warrant Shares pursuant to the Warrants free and clear of all
liens, encumbrances, equitable rights of third parties, options, claims,
pledges, and other limitations on the ownership, voting, or ability to transfer
the Warrant Shares, except as created by the Purchaser, contemplated by the
Investment Documents, or as imposed by applicable securities laws.
Section 6.4. Compliance with Securities Laws. Assuming the accuracy of the
representations and warranties of the Purchaser and any transferees hereunder,
and compliance by Purchaser with the terms of the Warrant, the transactions
provided for in or contemplated by this Agreement, including but not limited to
the issuance of the Notes, the Warrants, and the Warrant Shares, are exempt from
the registration and prospectus delivery requirements of the Securities Act of
1933, as amended ("Securities Act"), and any securities registration or
prospectus delivery requirements under applicable state or other securities
laws, including but not limited to the Indiana Securities Law, as amended, and
the Illinois Securities Act, as amended, and the Company has complied with and
shall comply with all requirements of the exemptions from registration and
prospectus delivery under federal, state, or other securities laws upon which
the Company is relying.
-13-
Section 6.5. Authority. The execution and delivery of this Agreement by the
Company, the issuance of the Notes, the Warrants, and the Warrant Shares by the
Company, and the execution and delivery of each of the other agreements and
documents executed and delivered by the Company in connection with the
transactions provided for in or contemplated by this Agreement (collectively
this Agreement, the Notes, the Warrants, and all other documents delivered by or
on behalf of the Company at the Closing in connection therewith are hereinafter
referred to as the "Investment Documents"), and the consummation of the
transactions provided for in or contemplated by the Investment Documents have
been duly authorized by all necessary corporate action of the Board of Directors
and the shareholders of the Company. As of the Closing, no holder of any
securities of the Company will have any appraisal or dissenters' rights as a
result of the adoption of the Amended and Restated Articles of Incorporation or
as a result of any of the transactions contemplated by this Agreement.
Section 6.6. Validity; No Violation.
(a) The Investment Documents represent or will represent valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms. Except as set forth in Schedule 6.6, neither the
execution and delivery of each of the Investment Documents by the Company nor
the consummation by the Company of the transactions provided for in or
contemplated by any of the Investment Documents will:
(1) conflict with or result in a breach of any provision of the
Amended and Restated Articles of Incorporation or the Bylaws of the
Company, or constitute a material default under or give rise to any right
of termination, cancellation, or acceleration under any of the terms,
conditions, or provisions of any note, lien, bond, mortgage, indenture,
license, lease, agreement, or other instrument or obligation to which the
Company is a party, or by which the Company or any of its properties or
assets is bound;
(2) violate any judgment, order, writ, injunction, or decree of any
court, administrative agency, or governmental body applicable to the
Company or any of its properties, assets, or outstanding debt or equity
securities; or
(3) cause, or give any person grounds to cause (with or without
notice, the passage of time, or both), the maturity of any material
liability or obligation of the Company to be accelerated or increased.
(b) Except as has been already obtained by the Company, no consent or
approval by any governmental authority or any other person or entity is required
in connection with the Company's execution and delivery of each of the
Investment Documents or the consummation by the Company of the transactions
provided for in or contemplated by the Investment Documents, including but not
limited to the issuance of the Notes, the Warrants, and the Warrant Shares by
the Company to the Purchaser.
-14-
Section 6.7. No Equity Investments. Except as set forth in Schedule 6.7,
the Company does not hold, own, or control, directly or indirectly, any debt or
equity interest in any corporation, partnership, joint venture, or other entity.
Section 6.8. Financial Statements. Attached as Exhibit 6.8 are true and
complete copies of the unaudited balance sheet of the Company as of March 31,
1998, and the draft audited balance sheet of the Company as of December 31, 1997
(the "Balance Sheets"), and related statements of income and cash flows,
unaudited as of March 31, 1998 and draft audited as of December 31, 1997
(collectively, with the Balance Sheets, the "Financial Statements"). The
Financial Statements (including any related schedules and notes) are true,
correct, and complete in all material respects, and present fairly the financial
position and results of operations and cash flows of the Company on the dates
and for the periods indicated. Without limiting the generality of the foregoing,
the Balance Sheets included in the Financial Statements disclose all of the
material debts, liabilities, and monetary obligations of any nature (whether
absolute, accrued, or contingent and whether due or to become due) of the
Company as of their respective dates that, in accordance with generally accepted
accounting principles, are required to be disclosed in the Balance Sheets.
Section 6.9. No Material Adverse Change. Since May 31, 1998, there has been
no material adverse change in the financial condition, operating results,
assets, operations, business prospects, employee relations, or customer or
supplier relations of the Company.
Section 6.10. Absence of Undisclosed Liabilities and Encumbrances. Except
for those liabilities and obligations disclosed on the Balance Sheet or set
forth in Schedule 6.10 or Schedule 6.16, the Company has no obligations or
liabilities, fixed or contingent, ▇▇▇▇▇▇ or inchoate, in the individual amount
of $25,000 or more or in an aggregate amount of $50,000 or more. Except as
listed in Schedule 6.10, the Company has granted no, and is not subject to any,
liens or encumbrances on any of its assets or properties.
Section 6.11. Tax Matters. Except as set forth in Schedule 6.11:
(a) all applicable federal, state, local, and foreign tax returns and tax
reports required to be filed by the Company have been filed with the appropriate
governmental agencies in all jurisdictions in which those returns and reports
are required to be filed and all of those returns and reports were true,
correct, and complete in all material respects when filed and on the date of
this Agreement;
(b) all applicable federal, state, local, and foreign income, profits,
franchise, sales, use, occupation, property, excise, payroll, and other taxes
(including interest and penalties) due and payable from the Company have been
fully paid;
(c) neither the Internal Revenue Service nor any state, local, or foreign
taxing authority has raised any issues with respect to any tax return, report,
election, or filing, or any tax matter of the
-15-
Company and, to the knowledge of the Company, there is no unpaid assessment or
any basis for assessment by any taxing authority; and
(d) neither the Internal Revenue Service nor any state, local, or foreign
taxing authority has advised the Company that it has examined any federal,
state, local, or foreign income tax or franchise tax returns of or in respect of
the Company.
Section 6.12. Title to Property and Related Matters. The Company has good
and marketable title to all of its assets and properties (or interests therein),
real or personal, tangible or intangible, that it owns or leases, free and clear
of all mortgages and all liens, pledges, charges, security interests,
encumbrances, easements, encroachments, rights of third parties, and other
interests of any kind or character, except:
(a) those set forth in Schedule 6.12; and
(b) liens for real and personal property taxes not yet due and payable.
Except as set forth in Schedule 6.12, the assets and properties of the
Company are in a condition reasonably suitable for its operations and no
condition exists that materially interferes with the use of any of the Company's
assets or properties in the ordinary course of its business.
Section 6.13. Real Property Owned. The Company does not own any real
property.
Section 6.14. Real Property Leased. The Company leases all real property
necessary to carry on its business as its is presently conducted and as
presently proposed to be conducted by the Company. With respect to all real
property leased by the Company:
(a) the Company is the owner and holder of the entire interest in the
leasehold estates purported to be granted by the leases;
(b) the Company is not in material default under any lease and each lease
constitutes a valid and binding obligation of the Company;
(c) there are no declared defaults currently existing, the Company has not
received any notices of default, and, to the knowledge of the Company, no events
have occurred that with notice, the lapse of time, or otherwise would constitute
a material default under any of the real estate leases to which the Company is a
party; and
(d) except as set forth in Schedule 6.14, all improvements owned by the
Company (including buildings and other structures) on the real estate leased by
the Company conform in all material respects to applicable federal, state,
local, and foreign laws and regulations (including, but not limited to, those
relating to environmental protection, conservation, occupational safety and
health, zoning, and building) and the real estate leased by the Company is zoned
for the purpose for
-16-
which the Company uses or presently proposes to use it. All improvements
(including buildings and other structures) owned by the Company on the real
estate leased by the Company are in good condition and repair (ordinary wear and
tear excepted) and there does not exist any condition that materially interferes
with the economic value or the use thereof as presently used or as presently
proposed to be used by the Company.
Section 6.15. Intellectual Property.
(a) Except as provided in Schedule 6.15, the Company owns or has an
irrevocable license to use all patents, trade secrets, copyrights, trademarks,
service marks, trade names, trade dress, inventions, discoveries, improvements,
processes, formulae, compositions, proprietary rights or data, shop rights,
ideas or know-how, computer software, data, and documentation, manufacturing and
production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, and technical data, whether
patentable or not, and other intellectual property necessary to carry on its
business as it is presently conducted by the Company (collectively the
"Intellectual Property"). Set forth in Schedule 6.15 is a true and complete list
of:
(i) all patents, trademarks, service marks, trade names, and
registered copyrights and registrations and applications therefor owned,
held, or used by the Company; and
(ii) all licenses related to the Intellectual Property to which the
Company is a party (including as to each license the name of the licensor
or licensee, as applicable, a description of the subject matter of the
license, basic royalty rate, termination date, renewal option, and whether
any advance royalty payments are required).
(b) Except as set forth in Schedule 6.15 the Company owns or has the
unqualified right to use all of the Intellectual Property and registrations and
applications therefor free and clear of all liens, encumbrances, or rights of
any other person, corporation, or other entity. Except as set forth in Schedule
6.15, all Intellectual Property and applications and registrations therefor are
duly authorized, issued, valid, and have not been canceled, amended, or
modified, and the Company is not aware of any facts that would invalidate or
render any of them unenforceable. Except as set forth in Schedule 6.15, the
Intellectual Property contains no components that the Company does not have the
right to use.
(c) All personnel who have participated in the development of proprietary
works for the Company either have been party to a for-hire relationship or have
assigned to the Company all title in such proprietary works. Except as set forth
in Schedule 6.15, no third party has at any time had access to the Intellectual
Property except for persons who have entered into, and who are in full
compliance with, confidentiality and nondisclosure agreements with regard to the
Intellectual Property. Except as set forth in Schedule 6.15, no person has
asserted any royalty claim or other claim whatsoever, including but not limited
to claims of ownership, direct or indirect, in respect of the Intellectual
Property, in respect of which or by reason of which the Company is, or may
become, indebted in any respect whatsoever to any person, or his or her heirs or
assigns. Except as set forth
-17-
in Schedule 6.15, the Company is not, nor has the Company received any notice
alleging that it is, infringing, likely to infringe, or otherwise acting
adversely to any known right or claimed right of any person under or with
respect to any Intellectual Property. None of the employees of the Company is
subject to any contractual or other arrangements with any other company that
restrict the activities in which they engage or propose to engage in on behalf
of the Company and the activities of the current employees to date in connection
with their employment by the Company will not give rise to any valid claim by a
former employer that the current employees or the Company have appropriated or
used any intellectual property of the former employer.
Section 6.16. Contracts, Agreements, and Commitments. Except as set forth
in Schedule 6.16, the Company is not a party to, or bound by any written or
oral:
(a) contract with or commitment to any labor union;
(b) contract or commitment for the employment of any shareholder,
director, officer, or employee or any other type of contract or understanding
with any shareholder, director, officer, or employee that the Company cannot
immediately terminate without cost or other liability;
(c) profit-sharing, bonus, stock option, pension, retirement, stock
purchase, or similar plan or agreement, formal or informal, providing benefits
to any current or former shareholder, director, officer, or employee;
(d) contract or commitment of any other nature with any current or former
shareholder, director, officer, or employee;
(e) indenture, mortgage, promissory note, loan agreement, or other
agreement or commitment for the borrowing of money, incurrence of debt, or the
use of credit;
(f) contract or commitment continuing over a period of more than six
months from the date of this Agreement for the future purchase of materials,
supplies, equipment, or services involving in the aggregate more than $5,000 or
for a quantity in excess of normal operating requirements;
(g) contract or commitment for charitable contributions;
(h) contract or commitment for capital expenditures involving more than
$5,000;
(i) contract or commitment with any dealer, sales representative, broker,
distributor, jobber, advertiser, or sales agency;
(j) joint venture contract, affiliation contract, or other commitment or
arrangement involving a sharing of profits or expenses;
-18-
(k) contract or commitment limiting the freedom of the Company to compete
in any line of business, in any geographic area, or with any person;
(l) contract or commitment with respect to the acquisition of the
business, assets, properties, or equity securities of any other person or
entity;
(m) contract or commitment for the sale of any of its assets, property, or
rights other than in the ordinary course of the Company's business;
(n) guaranty of the obligations of third parties;
(o) policy of insurance or surety; or
(p) warranty agreement with respect to its services rendered or its
products sold or leased.
The contracts, agreements, and commitments listed on Schedule 6.16
("Material Contracts") constitute all of the Material Contracts to which the
Company is a party, and each such Material Contract represents a binding
obligation of the parties thereto enforceable against the parties in accordance
with their respective terms and conditions, and, except as disclosed in Schedule
6.16, there is no material breach or default of any provision of any Material
Contract by the Company, or to its knowledge, by any party thereto. No event has
occurred that, with notice or the lapse of time or both, would constitute a
material breach or default by the Company, or to its knowledge, by any party
thereto, to any Material Contract or would cause or permit acceleration of any
Material Contract or the creation of any lien, encumbrance, or security interest
in or upon any of the assets or properties of the Company.
Section 6.17. Litigation. Except as set forth in Schedule 6.17, there are
no actions, suits, legal or administrative proceedings, investigations, or
claims pending or to the knowledge of the Company threatened against the
Company, or involving or affecting any of its assets or properties, whether at
law or in equity, whether civil or criminal in nature or whether before or by a
federal, state, municipal, or other governmental department, commission, board,
bureau, agency, or instrumentality, domestic or foreign. Neither the Company nor
any of its assets is subject to any judicial or administrative order, judgment,
or decree. In addition, except as set forth on Schedule 6.17, the Company is not
aware of any facts that might result in or form the basis for any action, suit,
or other proceeding, and the Company has not received notice of any violation or
investigation of any violation of any law, regulation, ordinance, order, or
other requirement relating to the operations of the Company. The designation in
Schedule 6.17 of whether a claim is insured or uninsured is true and correct.
Section 6.18. Compliance; Governmental Authorization. Except as set forth
in Schedule 6.18, the Company:
(a) has complied with all federal, state, local, and foreign laws,
regulations, ordinances, and orders (including without limitation, those
relating to environmental protection, conservation,
-19-
occupational safety and health, and equal employment opportunity) ("Laws") that
apply to the Company and its business, the violation of which would have a
material adverse effect on the Company;
(b) has not received or been made the subject of any claims, charges, or
investigations, or threats of claims, charges, or investigations, alleging the
failure of the Company to comply with any Laws;
(c) has never made any illegal payment of any kind, directly or
indirectly, including, without limitation, payments, gifts or gratuities, to any
United States or foreign national, any state or local government officials, or
their employees or agents;
(d) has all federal, state, local, and foreign governmental licenses,
franchises, consents, and permits ("Permits") the lack of which would have a
material adverse effect on the Company, its business and the business it
proposes to conduct, and those Permits are in full force and effect, no
violations have been recorded in respect of those Permits, and no proceeding is
pending or threatened to revoke or limit any of those Permits; and
(e) has complied with all judicial or administrative orders, writs,
injunctions, and decrees applicable to the Company or to any of the Company's
operations, assets, or properties.
Section 6.19. Labor Relations. Except as set forth in Schedule 6.19, the
Company:
(a) has paid in full all wages, salaries, commissions, bonuses, and other
compensation due and owing for all services performed for it by its employees;
(b) is in compliance with all federal, state, local, and foreign laws,
regulations, and ordinances respecting employment and employment practices,
terms, and conditions of employment, and wages and hours the failure of which
would have a material adverse effect on the Company;
(c) does not have any unfair labor practice complaint pending or, to the
knowledge of the Company, threatened against it before the National Labor
Relations Board and has no representation question pending or, to the knowledge
of the Company, threatened against it with respect to its employees;
(d) has no labor strike, dispute, slowdown, or stoppage pending, or, to
the knowledge of the Company, threatened against it;
(e) has no grievance pending or, to the knowledge of the Company,
threatened against it;
(f) is not currently negotiating any collective bargaining agreement; and
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(g) is not aware that any executive or key employee of the Company or any
group of employees of the Company has any current or immediate plans to
terminate employment with the Company.
Section 6.20. Compensation. Set forth in Schedule 6.20 is a true and
complete list of all shareholders, directors, officers, and employees of the
Company who during the twelve month period following the Closing Date will be
entitled to receive direct or indirect remuneration from the Company, including
but not limited to bonuses and the fair market value of all options, shares, and
all other property, in an aggregate amount in excess of $100,000.
Section 6.21. Benefit Plans. Except as set forth on Schedule 6.21(a), the
Company has not established, or maintained, contributed to, and has no legal
obligation to contribute to or any liabilities with respect to any (a) "employee
welfare benefit plan" (as defined in Section 3 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), including, but not limited to, any
multiemployer plan (as defined in Section 3 of ERISA), or (b) any "employee
pension benefit plan" (as defined in Section 3 of ERISA), including, but not
limited to, any multi-employer plan (as defined in Section 3 of ERISA). Set
forth on Schedule 6.21(b) is a true and complete list of all health care plans,
insurance plans, severance plans, vacation plans, deferred compensation plans,
bonus plans, stock option plans, retiree health or other benefit plans, and
other employee benefit plans, agreements, practices, or commitments by or of the
Company (collectively the "Plans"). The Plans have been administered in
compliance with all applicable laws.
Section 6.22. Related Transactions. Except as set forth in Schedule 6.22:
(a) no current or former shareholder, director, officer, or employee of
the Company is presently, or has been, a party to any transaction with the
Company (including but not limited to any contract, agreement, or other
arrangement providing for the furnishing of services by, or the rental of real
or personal property from, or otherwise requiring payments to, any such
shareholder, director, officer, or employee), except for employment arrangements
for the payment of cash compensation in the ordinary course of the Company's
business and the purchase by certain shareholders and directors prior hereto of
equity securities of the Company; and
(b) to the best of the Company's knowledge, no director, officer, or
employee of the Company, or current shareholder of the Company, is the direct or
indirect owner of any interest in any corporation, firm, association, or
business organization that competes with or supplies materials to the Company,
nor does any such person receive income from any source other than the Company
that relates to the business of, or should properly accrue to, the Company,
except for ownership of not more than 5% of any corporation traded on a national
securities exchange or an automated inter-dealer quotation system (e.g.,
NASDAQ).
Section 6.23. Broker's or Finder's Fees. Except as set forth in Section
2.12, no agent, broker, investment banker, person, or firm acting on behalf of
or under the authority of the Company is or will be entitled to any broker's or
finder's fee or any other commission or similar fee directly or
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indirectly from the Company in connection with any of the transactions
contemplated by the Investment Documents.
Section 6.24. Minute Books and Stock Record Books. The minute books of the
Company contain complete and accurate records of all meetings and other
corporate actions of its shareholders and its Board of Directors, including but
not limited to committees of its Board of Directors. The stock record books of
the Company contain complete and accurate records of all transactions involving
equity securities of the Company.
Section 6.25. Registration Rights. Except as contemplated by the Amended
and Restated Registration Rights Agreement, the Company has not agreed to
register any of its securities under the Securities Act of 1933, as amended, or
under any state or other securities laws.
Section 6.26. Qualified Small Business Stock.
(a) As of and immediately following the Closing, the shares of Preferred
Stock will meet each of the requirements for qualification as "qualified small
business stock" set forth in Section 1202(c) of the Internal Revenue Code of
1986, as amended (the "Code"), including without limitation the following: (i)
the Company will be a domestic C corporation, (ii) the Company will not have
made any purchases of its own shares described in Code Section 1202(c)(3)(B)
during the one-year period preceding the Closing, and (iii) the Company's (and
any predecessor's) aggregate gross assets, as defined in Code Section
1202(d)(2), at no time between June 1, 1997, through the Closing have exceeded
or will exceed $50 million, taking into account the purchase price paid for the
Notes under this Agreement and taking into account the assets of any
corporations required to be aggregated with the Company in accordance with Code
Section 1202(d)(3).
(b) As of the Closing, (i) at least 80% (by value) of the assets of the
Company are used by it in the active conduct of one or more qualified trades or
businesses, as defined in Code Section 1202(e)(3), (ii) no more than 10% of the
total value of the Company's assets consists of real property which is not used
in the active conduct of a qualified trade or business, as defined in Code
Sections 1202(e)(3) and 1202(e)(7), and (iii) the Company is an eligible
corporation, as defined in Code Section 1202(e)(4).
Section 6.27. Disclosure. The Company has not withheld from the Purchaser
any material facts relating to the assets, properties, operations, financial
condition, or prospects of the Company. No representation or warranty of the
Company in any of the Investment Documents, and no statement contained in any
certificate or other instrument delivered by the Company in connection with the
transactions contemplated by any of the Investment Documents contains or will
contain any untrue statement of a material fact, or omits or will omit to state
a material fact necessary in order to make the statements contained herein or
therein not misleading.
Section 6.28. Customers, Vendors, and Suppliers. None of the ten largest
customers of the Company (based on total sales volume for the latest full fiscal
year) or five largest vendors or
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suppliers of merchandise or supplies (based on total purchase volume for the
latest full fiscal year) to the Company has canceled or otherwise terminated or
made any threat to cancel or otherwise terminate its relationship with the
Company, nor has any customer, vendor or supplier indicated an intent or desire
to materially decrease its sales volume or purchase volume, as the case may be,
with the Company.
ARTICLE VII
COVENANTS OF THE COMPANY
------------------------
The Company shall comply with, and the officers shall cause the Company to
comply with, each of the following covenants:
Section 7.1. Affirmative Covenants of the Company Other Than Reporting
Requirements. Without limiting any other covenants, and provisions hereof, the
Company covenants, and agrees that until repayment in full of the aggregate
outstanding principal balance of the Notes together with all interest, and
premium, if any, due thereon, it will perform and observe the following
covenants and provisions:
(a) Punctual Payment. Pay the principal of, and interest on the Notes at
the times, and place, and in the manner provided in the Notes and in this
Agreement.
(b) Maintenance of Corporate Status. The Company shall preserve, and
maintain its corporate existence, rights, franchises, and privileges in the
jurisdiction of its incorporation, and qualify, and remain qualified, as a
foreign corporation in each jurisdiction in which qualification is necessary or
desirable in view of its business, operations, or the ownership of its
properties, except where the failure to remain so qualified would not, either
individually or in the aggregate, have a material adverse effect; provided,
however, that nothing herein contained shall prevent the Company from
reincorporating under the laws of the State of Delaware. The Company shall
preserve and maintain all licenses and other rights to use patents, processes,
licenses, trademarks, trade names, inventions, intellectual property rights, or
copyrights owned or possessed by it and necessary to the conduct of its business
except where the failure to do so should not have a material adverse effect.
(c) Compliance with Governing Documents. The Company shall comply with all
of its obligations under its Amended and Restated Articles of Incorporation, its
Bylaws, and the other Investment Documents.
(d) Reservation of Series C Preferred Stock. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Series C Preferred Stock, solely for the purpose of issuance upon the exercise
of the Warrants, up to 222,186 shares of Series C Preferred Stock (as adjusted
for any stock dividends, combinations, splits and the like with respect to the
Series C Preferred Stock). The Company shall take all actions necessary to
assure that all Warrant Shares may be issued without violation of any applicable
law or regulation or any requirements of any
-23-
domestic securities exchange upon which shares of Series C Preferred Stock may
be listed (except for official notice of issuance, which the Company shall
transmit to the Purchaser immediately upon receipt).
(e) Meetings of the Board of Directors. The Company agrees to furnish to
the Purchaser written notice of and an agenda prior to each regularly scheduled
meeting of the Board of Directors or any committee thereof. The Company shall
provide the Purchaser with a copy of all notices, agendas, and minutes of all
meetings of the Board of Directors, including reports given to or prepared by
the Board of Directors or any committee thereof. The Company shall pay all
reasonable travel expenses of any director related to attending meetings of the
Board of Directors or committees thereof. The Board of Directors shall meet at
least once every three months.
(f) Compensation Committee of the Board. The Company shall take all steps
and complete all actions necessary to maintain the Compensation Committee of the
Board of Directors (the "Compensation Committee"). The Compensation Committee
shall consist of four members of the Board of Directors, one of whom shall be
the Series A Director (as that term is defined in the Amended and Restated
Voting and Co-Sale Agreement), one of whom shall be a Series B Director (as that
term is defined in the Amended and Restated Voting and Co-Sale Agreement), and,
until an initial public offering of securities of the Company, one of whom shall
be the Chief Executive Officer of the Company. Except as provided in the
foregoing sentence with respect to the Chief Executive Officer of the Company,
no member of the Compensation Committee shall be an employee or officer of the
Company. The Compensation Committee shall make recommendations as to the
compensation of all officers and employees with aggregate annual compensation
from the Company in excess of $80,000 and shall make recommendations about the
establishment and continuation of benefit, stock option, or bonus programs
applying generally to all employees or any class of employees of the Company.
All actions of the Compensation Committee shall require the affirmative vote of
a majority of the members thereof. All recommendations of the Compensation
Committee shall be subject to approval by the Board of Directors at any annual,
regular or special meeting thereof.
(g) Audit Committee of the Board. The Company shall take all steps and
complete all actions necessary to maintain the Audit Committee of the Board of
Directors (the "Audit Committee"). The Audit Committee shall consist of three
members of the Board of Directors, one of whom shall be the Series A Director,
and one of whom shall be a Series B Director. No member of the Audit Committee
shall be an employee or officer of the Company. The Audit Committee shall make
recommendations for the appointment of the Company's independent accountants to
examine and audit the books and accounts of the Company and shall review the
nature of non-audit related services to be rendered by the Company's independent
public accountants and the fees to be paid for those services, the auditing
arrangements and the scope of the independent public accountants' examination of
the books, the results of the audits, and any problems identified by the
independent public accountants regarding internal controls. The Audit Committee
also shall meet with the Company's Chief Financial officer regarding internal
auditing matters and controls. All actions of the Audit Committee shall require
the affirmative vote of a majority of the members thereof. All
-24-
recommendations of the Audit Committee shall be subject to approval by the Board
of Directors at any annual, regular, or special meeting.
(h) Operating Plan and Budget. At least 30 days prior to the beginning of
each fiscal year, the Company shall in good faith prepare, submit for approval
of the Board of Directors, and deliver to the Purchaser an operating plan and a
budget for that fiscal year. Based upon all information then available to the
Company, the operating plan shall set forth in reasonable detail a summary of
the intended operations of the Company for the fiscal year. The budget shall
contain estimated statements of monthly revenues, expenses, and cash flow.
(i) Accounts and Records. The Company shall maintain its financial
accounts and records in conformity with generally accepted accounting principles
applied on a consistent basis and all such accounts and records shall be true,
correct, and complete in all material respects.
(j) Information, and Financial Reports. The Company shall:
(i) deliver to the Purchaser as soon as available, and in any event
within 90 days after the close of each fiscal year of the Company, (i) an
audited balance sheet of the Company as of the close of that fiscal year,
and audited statements of income, cash flows, and shareholders' equity of
the Company for the fiscal year then ended, and accompanied by an
unqualified audit report thereon containing an opinion of a firm of
independent certified public accountants, which must be a nationally
recognized "Big Six" accounting firm; and (ii) a copy of that accounting
firm's annual management letter to the Company's Board of Directors; and
(ii) deliver to the Purchaser within 20 days after the end of each
calendar month of each fiscal year of the Company, unaudited financial
statements of the Company, including a balance sheet as of the end of that
month, and statements of income and cash flows for that month and for the
period from the beginning of the fiscal year to the end of that month. Each
statement shall set forth in comparative form the figures for the
corresponding periods of the preceding fiscal year, and for the
corresponding periods reflected in the annual budget of the Company, and
shall include a brief management report discussing the Company's results of
operations and all material developments in the financial affairs of the
Company.
All financial statements of the Company shall be prepared and shall report
the information contained therein in conformity with generally accepted
accounting principles applied on a consistent basis, subject to customary year-
end adjustments. If any accounting principle, method of valuation, or government
regulation followed in preparation of the Company's financial statements is
modified to any extent, the Company shall so notify the Purchaser, and shall
disclose in writing to the Purchaser the effect that the modification will have
on the financial position or results of operations of the Company. All audited
financial statements of the Company delivered to the Purchaser pursuant to this
Agreement shall be accompanied by a letter of the firm of certified public
accountants certifying the same, and stating that the statements have been
prepared in compliance with the provisions of this Section 7.1. Other financial
statements of the Company and reports delivered to
-25-
the Purchaser pursuant to this Agreement shall be accompanied by a certificate
signed by the Company's Chief Financial Officer certifying that they have been
prepared in compliance with the provisions of this Section 7.1.
(k) Litigation. The Company shall promptly notify the Purchaser in writing
of all litigation where the amount in controversy exceeds $25,000 or the
aggregate amount in any 12 month period exceeds $150,000, and all proceedings
before any governmental or regulatory body to which the Company is a party or as
a result of which the Company's assets, properties, or operations may be
affected.
(l) Inspection Rights. At any reasonable time and from time to time and
upon reasonable advance notice, the Company shall permit the Purchaser or any of
their agents or representatives, to examine and make copies of and extracts from
the records and books of account of, and visit and inspect the properties of,
the Company and to discuss the affairs, finances and accounts of the Company
with any of their officers or directors and independent accountants. All
reasonable out-of-pocket expenses of the Purchaser (or their agents or
representatives), or the Company incurred in connection with any such inspection
following an Event of Default shall be borne by the Company.
(m) Requests for Information; Notices. The Company shall promptly furnish
to the Purchaser any information reasonably requested by the Purchaser to
determine whether the Company is complying with the provisions of this Agreement
or any of the other Investment Documents. The Company shall notify the Purchaser
promptly in writing of the occurrence of any "Event of Default," as defined in
Section 8.1 of this Agreement, or of any event that could become an Event of
Default with the lapse of time or otherwise.
(n) Compliance with Laws. The Company shall comply with all applicable
federal, state, local, foreign, and other laws, regulations, and ordinances, and
with all federal, state, local, and foreign governmental licenses, and permits
necessary for conducting its business. The Company shall not knowingly engage in
any activities that infringe upon the intellectual property rights of any other
person, corporation, partnership, or other entity.
(o) Disclosure of Information by the Purchaser. Notwithstanding any
confidentiality provisions of Section 9.3 or any other agreement entered into by
the Purchaser in favor of the Company, the Company consents to disclosure by the
Purchaser of any of the Company's financial or other information provided under
this Agreement that is not a trade secret of the Company, (i) to the partners,
advisory board members, and legal, accounting, insurance, and investment banking
advisers of the Purchaser, (ii) to appropriate federal, state, local, and
regulatory authorities as and to the extent required by law, and (iii) to any
transferee of the Notes, the Warrants or the Warrant Shares; provided, however,
that if the recipient is a person listed in part (i) or part (iii) of this
Section 7.1, the recipient shall have been advised of the Purchaser's
confidentiality obligations with respect to the information to be disclosed.
-26-
(p) Payment of Taxes, and Trade Debt. The Company shall pay, and
discharge, all taxes, assessments, and governmental charges or levies lawfully
imposed upon it or upon its income or profits or business, or upon any
properties belonging to it, prior to the date on which penalties attach thereto,
and all lawful claims that, if unpaid, would by law be a lien or charge upon any
properties of the Company, provided that the Company shall not be required to
pay any tax, assessment, charge, levy, or claim that is being contested in good
faith and by appropriate proceedings if the Company shall have set aside on its
books adequate reserves with respect thereto. The Company shall pay, when due,
or in conformity with customary trade terms, all lease obligations, all trade
debt, and all other Indebtedness incident to the operations of the Company,
except those being contested in good faith, and by appropriate proceedings if
the Company shall have set aside on its books adequate reserves with respect
thereto.
(q) Maintenance of Properties.
(i) The Company shall maintain all tangible personal property used in
the business of the Company in good operating condition (ordinary wear and
tear excepted), and shall make all repairs, renewals, replacements,
additions, and improvements to those properties as are necessary or
appropriate.
(ii) The Company shall maintain all Intellectual Property, and all
applications and registrations therefor owned or held by the Company or
hereafter owned or held by the Company in full force and effect in the
United States of America, and except where application, registration, or
maintenance of any registration or patent would not be cost-effective, in
other countries in which the Company shall engage in business, including
but not limited to the prosecution of applications to register or perfect
rights or claims in, and to any Intellectual Property, the registration of
license agreements, the timely filing of affidavits of use, renewals, or
other maintenance filings, and the timely payment of filing, issue, and
maintenance fees. The Company shall not abandon or let lapse or pass to the
public domain any of the Intellectual Property now or hereafter owned or
held by the Company, shall not encumber or license others to use the
Intellectual Property rights owned by it except in the ordinary course of
the Company's business, and shall maintain the confidentiality and trade
secret status of all Intellectual Property that is confidential except
where disclosure is necessary to obtain copyright registrations or patents,
or is necessary or desirable in the prudent conduct of the Company's
business.
(r) Insurance. The Company shall maintain, with financially sound and
reputable insurers, insurance with respect to its assets, properties, and
business against those casualties and contingencies, and in those types and
amounts as would be deemed necessary or advisable by prudent persons engaged in
similar businesses. The Company shall furnish to the Purchaser upon request a
schedule of insurance, specifying risks covered, the amounts of coverage, the
names of insurers, and the costs of the insurance. At least annually, the
Company shall review the insurance coverage, and shall modify the scope and
magnitude of the coverage commensurate with the growth of the Company and
consistent with prudent business practices. Upon the request of the Purchaser
from
-27-
time to time, the Company shall promptly supplement the insurance schedules to
reflect any change in insurance coverage.
(s) Bonding. The Company shall continue to maintain a fidelity bond upon
officers and employees having access to cash on hand or on deposit of the
Company, in such amounts and form as is reasonable under customary business
practices in the industry in which the Company intends to do business.
(t) Life Insurance. The Company shall continue to maintain in full force,
a life insurance policy in an amount of not less than $1,000,000 on the life of
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇. The Company shall be the sole owner and beneficiary of the
group term life insurance policy. The Company shall deliver a certificate of
insurance to the Purchaser evidencing the policy. The Company shall also use its
reasonable commercial efforts to renew a life insurance policy in an amount of
not less than $1,000,000 on the life of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
(u) Use of Proceeds. The Company shall use proceeds from the sale of the
Notes and the Warrants to the Purchaser hereunder and the sale of the Warrant
Shares pursuant to the Warrants for general working capital to be allocated for
research, development, distribution, marketing, and sales of software products
and related hardware products, and payment of costs and expenses related to the
preparation, execution, and delivery of the Investment Documents and to the
transactions contemplated by the Investment Documents and for any other purposes
approved by the Board of Directors.
(v) Certificate of the Chief Executive Officer and Chief Financial
Officer. In connection with the delivery to the Purchaser of the Company's
annual audited financial statements, the Company shall deliver to the Purchaser
a certificate of the Company's Chief Executive Officer and its Chief Financial
Officer stating that the Company has observed and complied with the covenants
set forth in Section 7.1 and Section 7.2 during the preceding fiscal year.
(w) Notice. Notwithstanding any other provision of this Agreement, for as
long as an Affiliate of Purchaser is represented on the Board of Directors of
the Company, the Company's obligations to provide notices and/or other documents
to the Purchaser under Section 7.1(e) and (j) will be satisfied if the Company
provides such Affiliate with such notices and/or other documents.
Section 7.2. Negative Covenants of the Company. Without limiting any other
covenants, and provisions hereof, the Company covenants and agrees that until
repayment in full of the aggregate outstanding principal balance of the Notes
together with all interest, and premium, if any, due thereon, it will comply
with and observe the following covenants and provisions:
(a) Amendments. The Company shall not amend, modify, or repeal any
provision of the Amended and Restated Articles of Incorporation or the Bylaws,
and the Company shall not amend the Amended and Restated Registration Rights
Agreement or the Amended and Restated Voting and Co-Sale Agreement except in
accordance with their respective terms and conditions thereof.
-28-
(b) Certain Transactions. The Company shall not, directly or indirectly,
become a party to, be the subject of, or engage in any "Transaction," as
hereinafter defined. The term "Transaction" shall mean a single transaction or a
series of related transactions constituting (i) a sale or lease of all or
substantially all of the assets of the Company except in the ordinary course of
business; (ii) a merger or consolidation with the Company or to which the
Company is a party; (iii) a share exchange in which stock of the Company will be
acquired by another corporation or the stock of the Company will be issued to
shareholders of another corporation; (iv) the purchase of any assets, properties
or shares of capital stock of or from any individual, corporation, partnership,
or other entity except in the ordinary course of business; (v) a joint venture
with any other person involving an aggregate consideration exceeding $100,000 in
any one transaction or exceeding $100,000 in any 12 month period; or (vi) the
acquisition of a subsidiary or creation of any subsidiary of the Company that is
not wholly-owned.
(c) New Securities. The Company shall not authorize or issue (i) any
equity securities; (ii) any notes, debentures, evidences of indebtedness, or
other debt securities of the Company, including debt securities convertible into
equity securities of the Company, but excluding evidences of indebtedness under
the terms of Section 7.2(l) of this Agreement; or (iii) rights, options, or
warrants convertible, exchangeable, or exercisable into equity or debt
securities of the Company; provided, however, notwithstanding the foregoing, the
Company may issue the Warrants to the Purchaser as contemplated by this
Agreement, a warrant or warrants to purchase up to 19,753 shares of Series C
Preferred Stock to Third Coast Venture Lease Partners I, L.P. in connection with
its providing equipment lease financing to the Company, options pursuant to the
Stock Option Plan (and Common Stock upon exercise of those options), Common
Stock upon conversion of Preferred Stock, and Common Stock or Series C Preferred
Stock, as applicable, upon exercise of the Warrants issued to Comdisco, Inc.,
Third Coast Venture Lease Partners I, L.P., and the Purchaser.
(d) Senior Securities. The Company shall not create (by classification or
otherwise) any new class or series of shares having rights, preferences, or
privileges senior to or on a parity with the Series C Preferred Stock.
(e) Redemption and Dividends. Except as permitted or required by the
Investment Documents and/or the Stock Option Plan, the Company shall not apply
any of its assets to the redemption, retirement, purchase, or acquisition,
directly or indirectly, through subsidiaries (as defined in Section 425 of the
Code) or otherwise, of any shares of its capital stock. The Company shall not
declare or pay any dividends or make any distributions with respect to any
shares of capital stock except for dividends or distributions with respect to
the Series A Preferred Stock, the Series B Preferred Stock, and the Series C
Preferred Stock upon declaration by the Board of Directors.
(f) Preservation of Small Business Stock Status. After the Closing, the
Company shall not (i) elect under Code Section 1362 to be treated as an S
corporation; (ii) fail to use at least 80% (by value) of its assets in the
active conduct of one or more qualified trades or businesses within the meaning
of Code Section 1202(e)(3) for the entire five year period following the
Closing; (iii) cease to be a C corporation which is an eligible corporation as
defined in Code Section 1202(e)(4); or (iv)
-29-
perform any act, or omit any act, if such act or omission would preclude the
Purchaser from claiming the exclusion set forth at Code Section 1202(a). The
Company shall submit such reports as the Secretary of the United States Treasury
shall prescribe pursuant to Code Section 1202(d)(1)(C) or 1202(k) to carry out
the purposes of Code Section 1202.
(g) Issue and Transfer of Shares. The Company shall not issue or transfer
on its records any shares of Common Stock, or other equity securities of the
Company held by a shareholder who is a party to the Amended and Restated Voting
and Co-Sale Agreement unless, if required by the Amended and Restated Voting and
Co-Sale Agreement, the transferee has agreed in writing to become a
"Shareholder" as that term is defined in the Amended and Restated Voting and Co-
Sale Agreement, and the Company has verified that the transferring shareholder
has complied with that shareholder's obligations under the Amended and Restated
Voting and Co-Sale Agreement.
(h) Change in Operations. The Company shall not change in any material
respect, by internal expansion or by any form of acquisition, any line of
business not directly related to development, production, distribution, sale or
support of computer software and related hardware and information systems and
integrating the foregoing with third party network systems.
(i) Defaults and Breaches. The Company shall not permit to exist any
default or breach by the Company of any contract provision beyond any grace
period provided for in any contract if the breach or default may result in an
amount in excess of $50,000 becoming due and payable by the Company prior to its
stated maturity; provided, however, that the existence of any default or breach
may be contested in good faith by the Company by appropriate proceedings if
adequate reserves (as determined in accordance with GAAP, consistently applied)
have been established on its books with respect thereto.
(j) Investments. The Company shall not invest in or otherwise divert any
of the funds of the Company to any individual, corporation, or business entity,
except in the ordinary course of business and consistent with prudent business
practices.
(k) Indebtedness. The Company shall not create, assume, incur, or in any
manner become liable in respect of any debt except for (i) indebtedness with
respect to trade payables or other expenses incurred in the ordinary course of
business; (ii) indebtedness with respect to equipment acquisition or leasing or
the lease of office or other space, in the ordinary course of business; and
(iii) money borrowed by the Company from financial institutions providing
financing to the Company in the ordinary course of business.
(l) Liens and Encumbrances. The Company shall not create, incur, assume,
or suffer to exist any mortgage, pledgee lien, or other encumbrance of any kind
on the Company's assets or properties now owned or hereafter acquired, other
than those encumbrances (i) identified under Section 6.11 of this Agreement;
(ii) incurred in connection with financing from financial institutions permitted
by Section 7.2(k); (iii) with respect to secured equipment financing or
equipment lease transactions permitted by this Agreement; (iv) imposed by any
governmental authority for taxes,
-30-
assessments, or charges not yet due or which are being contested in good faith
and by appropriate proceedings; (v) pledges or deposits under workers
compensation or other employee-related legislation; and (vi) cash deposits to
secure performance of leases, surety and appeal bonds, and other obligations of
a substantially similar nature incurred in the ordinary course of business.
Notwithstanding the foregoing, the Company shall not create, incur, assume, or
suffer to exist any mortgage, pledge, lien, or encumbrance of any kind with
respect to any Intellectual Property or with respect to the life insurance
policy required by Section 7.1(t), other than those encumbrances incurred in
connection with financing from financial institutions permitted by Section
7.2(k).
(m) Guarantees and Loans. The Company shall not guarantee or endorse an
obligation of, or make an advance or loan to, any individual, corporation, or
other business entity, or assume any contingent liability, except for (i) the
endorsement of negotiable instruments for deposit or collection in the ordinary
course of the Company's business; (ii) the advancement of travel expense,
relocation costs, or compensation in the ordinary course of the Company's
business and consistent with prudent business practices; and (iii) advance
payments to third parties for materials or services to the extent required to
obtain those materials or services in the ordinary course of business, and (iv)
advances against anticipated future license fees or royalties in connection with
acquisitions of software products or licensing rights with respect to software
products.
(n) Affiliate Transactions. Other than as provided on Schedule 7.2(n), the
Company shall not enter into or commit directly or indirectly to any arrangement
whereby the Company shall purchase, rent, or lease property or assets from, or
sell, transfer, or dispose of any properties or assets (regardless of whether in
the ordinary course of business or not) to any affiliate of the Company or any
shareholder, director, officer, or employee of the company, or any affiliate of
any of them. As used in this Section 7.2(n), the term "affiliate" means any
person or entity that directly or indirectly through one or more intermediaries
controls, is controlled by, or is under common control with the person or entity
specified; provided, however, that for purposes of this Section 7.2(n), the term
"affiliate" does not include wholly-owned subsidiaries of the Company.
(o) Transfer, Voting and Registration Rights Agreements. Except as set
forth on Schedule 7.2(o) or as contemplated by this Agreement and the other
Investment Documents, or the Amended and Restated Voting and Co-Sale Agreement
or Amended and Restated Registration Rights Agreement, the Company shall not
enter into any shareholder agreement, buy-sell agreement, restrictive share
transfer agreement, voting agreement, voting trust, or other agreement or
commitment relating to the transfer or voting of any equity securities of the
Company or any agreement providing registration rights to holders or prospective
holders of securities of the Company.
(p) Liquidation. The Company shall not liquidate, dissolve or effect a
recapitalization in any form of transaction.
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ARTICLE VIII
EVENTS OF DEFAULT
-----------------
Section 8.1. Events of Default. Each of the following events constitute
"Events of Default" for purposes of this Agreement:
(a) The Company fails to pay any installment of principal of or interest
on the Notes when due, and that failure continues for ten days.
(b) Any representation or warranty made by the Company in this Agreement
(or by any of its officers) in any certificate, instrument, or written statement
contemplated by or made or delivered pursuant to or in connection with this
Agreement, proves to have been incorrect in any material respect when made.
(c) The Company fails to perform or observe any other term, covenant or
agreement contained in this Agreement, the Notes, or the Warrants on its part to
be performed or observed, and any that failure remains unremedied for (i) ten
days after the Company receives written notice from the registered holder of the
Notes as to a payment default, and (ii) 30 days after the Company receives
written notice from the registered holder of the Notes as to defaults other than
payment defaults.
(d) The Company fails to pay any Indebtedness for borrowed money exceeding
$250,000 (other than as evidenced by the Notes) owing by the Company, or any
interest or premium thereon, when due (or, if permitted by the terms of the
relevant document, within any applicable grace period), whether the Indebtedness
shall become due by scheduled maturity, by required prepayment, by acceleration,
by demand or otherwise.
(e) The Company fails to perform any material term, covenant, or agreement
on its part to be performed under any agreement or instrument (other than this
Agreement or the Notes) evidencing or securing or relating to any Indebtedness
owing by the Company, as the case may be, when required to be performed (or, if
permitted by the terms of the relevant document, within any applicable grace
period), if the effect of the failure to pay or perform is to accelerate, or to
permit the holder or holders of the Indebtedness, or the trustee or trustees
under any agreement or instrument to accelerate the maturity of the
Indebtedness, unless the holder or holders of the Indebtedness or the trustee or
trustees waive the failure to pay or perform.
(f) The Company has financial difficulties as exclusively evidenced by (i)
its failure generally to pay or its inability to pay its debts as they become
due; (ii) admitting in writing its inability to pay its debts generally as they
become due; (iii) commencement of a voluntary case under Title 11 of the United
States Code ("Title 11") as from time to time in effect, or by its authorizing,
by appropriate proceedings of its board of directors or other governing body,
the commencement of a voluntary case; (iv) filing an answer or other pleading
admitting or failing to deny the material
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allegations of a petition filed against it commencing an involuntary case under
Title 11, or seeking, consenting to or acquiescing in the relief therein
provided or by its failing to controvert timely the material allegations of any
petition; (v) the entry of an order for relief in any involuntary case commenced
under Title 11; (vi) seeking relief as a debtor under any applicable law, other
than 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
by its consenting to or acquiescing in that relief; (vii) the entry of an order
by a court of competent jurisdiction (a) finding it to be bankrupt or insolvent,
(b) ordering or approving its liquidation, reorganization, or any modification
or alteration of the rights of its creditors, or (c) assuming custody of, or
appointing a receiver or other custodian for, all or a substantial part of its
property; or (viii) making an assignment for the benefit of, or entering into a
composition with, its creditors, or appointing or consenting to the appointment
of a receiver or other custodian for all or a substantial part of its property.
(g) Any judgment, writ, warrant of attachment or execution or similar
process is issued or levied against a substantial part of the property of the
Company, and that judgment, writ, or similar process is not released, vacated,
or fully bonded within 60 days after its issue or levy.
(h) The Company breaches any of its material obligations under the Amended
and Restated Voting and Co-Sale Agreement, or the Amended and Restated
Registration Rights Agreement.
Section 8.2. Remedies. If an Event of Default occurs and is continuing,
then:
(a) the Purchaser may, by notice to the Company, declare the entire unpaid
principal amount of the Note, all interest accrued, and unpaid thereon, and all
other amounts payable under this Agreement to be forthwith due, and payable,
whereupon the Note, all accrued interest, and all those amounts shall become and
be forthwith due and payable (unless an Event of Default has occurred under
Subsection 8.1(h) in which case all those amounts shall automatically become due
and payable), without presentment, demand, protest, or further notice of any
kind, all of which the Company hereby expressly waives; and
(b) the Purchaser may proceed to protect and enforce its rights by suit in
equity (including without limitation a suit for rescission), action at law,
and/or other appropriate proceeding either for specific performance of any
covenant, provision, or condition contained or incorporated by reference in this
Agreement or any term of the Articles of Incorporation of the Company, or in aid
of the exercise of any power granted in this Agreement or in the Amended and
Restated Articles of Incorporation of the Company, and, immediately, in the case
of Section 8.1(h).
Without in any way limiting the rights of the holders of the Note, the
Company hereby agrees that the holders of the Warrants or the Warrant Shares
would have no adequate remedy at law, for monetary compensation or otherwise,
for the damages that would be suffered if the Company failed to comply with its
obligations under the Warrants, and that the Company therefore agrees that the
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holders of the Warrants and the Warrant Shares shall be entitled to obtain
specific performance of the Company's obligations under the Warrants and this
Agreement.
Section 8.3. Annulment of Defaults. Section 8.1 is subject to the condition
that if there is an Event of Default, then, and in every case the holders of
66.67% or more in principal amount of all Notes then outstanding may, by written
instrument filed with the Company, rescind, and annul the declaration and its
consequences; but, no rescission or annulment shall extend to or affect any
subsequent default or Event of Default or impair any other right of the
Purchaser.
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1. Amendment and Certain Waivers. This Agreement may be amended
or modified only by a written agreement executed by the Company and (i) as to
the Notes, the holder or holders of at least 66.67% in principal amount of all
Notes then outstanding, and (ii) in the case of the Warrants or Warrant Shares,
the holder or holders of at least 66.67% of the Warrant Shares issued and
issuable upon exercise of the Warrants. In each case of an amendment or
modification, copies of the consents of the holder(s) of the Notes and the
Warrants or Warrant Shares, as the case may be, shall be delivered to each other
holder of the Notes and the Warrants or Warrant Shares. No consent will be
effective to reduce or to postpone the date fixed for the payment of the
principal (including any required redemption) or interest payable on any Notes
without the consent of the holder thereof or to alter or amend the consent
mechanism provided for under this Section 9.1.
Section 9.2. Benefit of Parties; Assignability. All of the terms and
conditions of this Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and assigns; provided, however, that
the Company may not delegate its responsibilities or assign its rights under
this Agreement without the prior written consent of (i) as to the Notes, the
holder or holders of at least 66.67% in principal amount of all Notes then
outstanding, and (ii) in the case of the Warrants or Warrant Shares, the holder
or holders of at least 66.67% of the Warrant Shares issued and issuable upon
exercise of the Warrants.
Section 9.3. Confidentiality. Except as specified in Section 7.1(h), the
Purchaser agrees to use reasonable efforts to keep confidential all information
provided to it under the terms and conditions of this Agreement and which is not
in the public domain. No party to this Agreement shall make any public
announcement of the transactions provided for in or contemplated by this
Agreement unless the form and substance of the announcement is mutually agreed
upon by all parties, which agreement shall not be unreasonably withheld or
delayed, or unless public disclosure is required by law.
Section 9.4. Cooperation. The parties agree that after the Closing they
will from time to time, upon the request of any other party and without further
consideration, execute, acknowledge, and deliver in proper form any further
instruments and take such other action as any other party may
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reasonably require to carry out effectively the transactions contemplated by
this Agreement and the Investment Documents.
Section 9.5. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 9.6. Cumulative Remedies and Survival. The rights and remedies
specified in this Agreement shall not be exclusive of any other right or remedy
and shall be cumulative and in addition to every other right or remedy now or
hereafter existing at law or in equity or by statute or otherwise that may be
available to the Purchaser and the holders of the Notes, Warrants, and Warrant
Shares. All representations and warranties of the Company in this Agreement and
the Investment Documents shall indefinitely survive the execution and delivery
of this Agreement and the Investment Documents. No investigation or review
carried out by or on behalf of the Purchaser shall impair the right of the
Purchaser to rely upon the representations and warranties in this Agreement and
the Investment Documents in accordance with their terms.
Section 9.7. Entire Agreement. This Agreement (including the Schedules
referred to and incorporated by reference herein that form a part of this
Agreement), and the Investment Documents contain the entire understanding of the
parties with respect to the subject matter hereof and thereof. There are no
representations, promises, warranties, covenants, or undertakings other than
those expressly set forth or provided for herein and therein. This Agreement and
the Investment Documents supersede all prior agreements and understandings
between the parties with respect to the transactions contemplated by this
Agreement and the Investment Documents, including but not limited to the
commitment letter between the Company and the Purchaser.
Section 9.8. Governing Law and Choice of Forum. All questions concerning
the relative rights of the Company and its shareholders shall be governed by the
laws of the State of Illinois. Illinois law shall govern the interpretation,
construction, and enforcement of this Agreement and all transactions and
agreements contemplated hereby, notwithstanding any state's choice of law rules
to the contrary.
Section 9.9. Indemnification. The Company agrees to indemnify, and hold
harmless the Purchaser, its subsidiaries, directors, officers, partners,
counsel, and employees (each, an "Indemnified Person"), from, and against any,
and all liability (including, without limitation, reasonable legal fees incurred
in defending against any liability) under, arising out of or are based upon (i)
the falsity or incorrectness as of the Closing Date of any representation or
warranty of the company contained in or made pursuant to the Investment
Documents; or (ii) the existence of any condition, event, or fact constituting,
or which with notice or passage of time, or both, would constitute a default in
the observance of any of the Company's undertakings or covenants under or
pursuant to the Amended and Restated Articles of Incorporation.. The obligations
of the Company under this Section 9.9 shall survive, and continue to be in full
force, and effect notwithstanding (a) the repayment of the Notes, and (b) the
termination of this Agreement. If any litigation or proceeding is brought
against any
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Indemnified Person in respect of which indemnity may be sought against the
Company pursuant to this Section 9.9, the Indemnified Person shall promptly
notify the Company in writing of the commencement of the litigation or
proceeding. In case any litigation or proceeding shall be brought against any
Indemnified Person, and the Indemnified Person shall notify the Company of the
commencement of the litigation or proceedings, the Company shall be entitled to
participate in the proceedings, and, to the extent that it wishes, jointly with
any other similarity notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the Indemnified Person.
Section 9.10. Interpretation. The terms and conditions of this Agreement
represent the results of bargaining and negotiations among the parties, each of
which has been represented by counsel of its own selection, and none of which
has acted under duress or compulsion, whether legal, economic or otherwise, and
represent the results of a combined draftsmanship effort. Consequently, the
terms and conditions hereof shall be interpreted and construed in accordance
with their usual and customary meanings and the parties hereby expressly waive
and disclaim in connection with the interpretation and construction hereof any
rule of law or procedures requiring otherwise, specifically including but not
limited to any rule of law to the effect that ambiguous or conflicting terms or
conditions contained herein shall be interpreted or construed against the party
whose counsel prepared this Agreement or any earlier draft hereof.
Section 9.11. Knowledge of the Company. As used in this Agreement, the
phrase "to the knowledge of the Company" and phrases of similar import shall
mean, and shall for all purposes be construed as, the collective actual
knowledge of the officers and directors of the Company other than those
directors representing the Purchaser.
Section 9.12. Notices. All notices, requests, demands, or other
communications that are required or may be given pursuant to the terms of this
Agreement shall be in writing and delivery shall be deemed sufficient in all
respects and to have been duly given on the date of service if delivered
personally or by facsimile transmission if receipt is confirmed to the party to
whom notice is to be given, or on the third day after mailing if mailed by
first-class mail, return receipt requested, postage prepaid, and properly
addressed as follows:
If to the Company: Open Port Technology, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇. ▇▇▇▇▇, ▇/▇▇/ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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If to Purchaser: CID Mezzanine Capital, L.P.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: Ice ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or, as to each of the foregoing, at any other address as shall be designated by
that Person in a written notice to the other party complying as to delivery with
the terms of this Section.
Section 9.13. Payments in Respect of Notes. The Purchaser, and any
successor holder of the Notes, by their acceptance thereof, agree that, with
respect to all sums received by them applicable to the payment of principal of
or interest on the Notes, equitable adjustment will be made among them so that,
in effect, all sums shall be shared ratably by all of the holders of the Notes
whether received by voluntary payment, by realization upon security, by the
exercise of the right of setoff, by counterclaim or cross-action or by the
enforcement of any or all of the Notes. If any holder of the Notes receives any
payment on its Notes in excess of its pro rata portion, then the holder
receiving the excess payment shall purchase for cash from the other holders an
interest in their Notes in those amounts as shall result in a ratable
participation by all of the holders in the aggregate unpaid amount of Notes then
outstanding. The Company shall not have any obligation to any Person under this
Section 9.14.
Section 9.14. Payments in Respect of Warrant. The Purchaser, and any
successor holder of the Warrants, by their acceptance thereof, agree that, with
respect to the sale to, or repurchase by, the Company or any Person directly or
indirectly affiliated with the Company or any of its directors, officers, or
shareholders, of the Warrants, equitable adjustment will be made among the
holders of the Warrants so that in effect all sums so received shall be shared
ratably in proportion to their respective holdings of Warrants. If any holder of
the Warrants receives any sum in respect of its Warrants in excess of its pro
rata portion, then the holder receiving the excess shall purchase for cash from
the other holders of the Warrants an interest in their Warrants in that amount
as shall result in a ratable participation of all of the holders in the
aggregate of all Warrants then outstanding. The Company shall not have any
obligation to any Person under this Section 9.15.
Section 9.15. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, that provision will be
-37-
ineffective only to the extent of the prohibition or invalidity, without
invalidating the remainder of this Agreement.
Section 9.16. Table of Contents and Captions. The Table of Contents and
captions of the Articles and Sections of this Agreement are solely for
convenient reference and shall not be deemed to affect the meaning or
interpretation of any provision of this Agreement.
Section 9.17. Validity of Provisions. Should any part of this Agreement for
any reason be declared by any court of competent jurisdiction to be invalid,
that decision shall not affect the validity of the remaining portion, which
shall continue in full force and effect as if this Agreement had been executed
with the invalid portion eliminated, it being the intent of the parties that
they would have executed the remaining portion of the Agreement without
including any part or portion that may for any reason be declared invalid.
Section 9.18. Waiver of Breach. Neither any waiver of any breach of, nor
any failure to enforce any term or condition of, this Agreement shall operate as
a waiver of any other breach of any term or condition, nor constitute nor be
deemed a waiver or release of any other rights, in law or at equity, or claims
that any party or any holder of Notes, Warrants, or Warrant Shares may have
against any other party or holder of Notes, Warrants, or Warrant Shares for
anything arising out of, connected with, or based upon this Agreement. No waiver
shall be enforceable against any person unless set forth in a written instrument
or agreement signed by that person. No waiver shall be deemed to occur as a
result of the failure of any party to enforce any term or condition of this
Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first written above.
OPEN PORT TECHNOLOGY, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
CID NEZZANINE CAPITAL, L.P.
By: CID Mezzanine Partners, L.P.,
as General Partner
By:
----------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇, General Partner
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