Exhibit 10.31
BLUESTONE SOFTWARE, INC.
CONVERTIBLE SUBORDINATED SECURED NOTE
AND WARRANT
PURCHASE AGREEMENT
JANUARY 21, 1999
CONVERTIBLE SUBORDINATED SECURED NOTE
AND
WARRANT PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 21st day of January, 1999, by and
between Bluestone Software, Inc., a Delaware corporation (the "Company"), and
the investors listed on SCHEDULE A hereto, each of which is herein referred to
as an "Investor."
INTENDING TO BE LEGALLY BOUND, and in consideration of the mutual
agreements stated below, the parties agree as follows:
1. PURCHASE AND SALE OF CONVERTIBLE SUBORDINATED SECURED NOTES AND
WARRANTS.
1.1 SALE AND ISSUANCE OF CONVERTIBLE SUBORDINATED NOTES AND
WARRANTS. Subject to the terms and conditions of this Agreement, each Investor
agrees, severally, to purchase at a Closing or Closings (as hereinafter
defined), and the Company agrees to sell and issue to such Investor at such
Closing(s): (1) convertible subordinated secured notes of the Company in the
form attached hereto as EXHIBIT A (individually, a "Note" and collectively, the
"Notes") in an aggregate principal amount up to the amount set forth opposite
such Investor's name on SCHEDULE A; and (2) related warrants in the form
attached hereto as EXHIBIT B (individually, a "Warrant" and collectively, the
"Warrants") to purchase up to that number of shares of the Company's Common
Stock, par value $.001 per share ("Common Stock"), set forth opposite such
Investor's name on SCHEDULE A. The purchase price for each Note purchased and
sold hereunder shall be 99.9% of the principal amount thereof, and the purchase
price for each related Warrant purchased and sold hereunder shall be .1% of the
principal amount of such Note.
1.2 PURCHASE AND SALE PROCEDURES. At any time and from time to
time after the date hereof and prior to May 30, 1999, the Company may request (a
"Company Request") that the Investors purchase from the Company all or a portion
of the total aggregate principal amount of Notes (the "Requested Investment
Amount") and related Warrants that the Investors have agreed to purchase
pursuant to Section 1.1. In order to be effective, any such Company Request
shall be in writing, signed by the President and Chief Financial Officer of the
Company and delivered to the Investors c/o each of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Vice
President, General Electric Capital Corporation, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. Case, Vice President, Patricof & Co. Ventures, Inc., ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (or such other representative of the
Investors as shall be selected from time to time by the written consent of all
of the Investors and as to which the Investors shall have notified the Company).
Subject to the terms and conditions of this Agreement, upon receipt of an
effective Company Request, each Investor, severally, shall purchase, and the
Company shall sell and issue to such Investor, (i) a Note in the principal
amount equal to the product of (A) the Requested Investment Amount, multiplied
by (B) a fraction, the numerator of which is the aggregate principal amount of
Notes set forth opposite such Investors' name on SCHEDULE A and the denominator
of which is the total of the aggregate principal amount of Notes set forth
opposite all of the Investor's names on SCHEDULE A (an "Investor's Allocable
Note Amount"), and (ii) a Warrant to purchase a number of shares of Common Stock
equal to the quotient
of (A) the product of the principal amount of the Note being purchased and sold
pursuant to clause (i), multiplied by .20, divided by (B) .62 (an "Investor's
Allocable Warrants").
1.3 CLOSINGS. Each purchase and sale of the Notes and related
Warrants contemplated hereunder shall take place at the offices of Blank Rome
Comisky & ▇▇▇▇▇▇▇▇ LLP, One ▇▇▇▇▇ Square, Philadelphia, Pennsylvania at 10:00
a.m. on the third business day following the Investor's receipt of an effective
Company Request, or at such other time and place as the Company and the
Investors mutually agree upon orally or in writing (each time and place shall be
designated as a "Closing); provided, however, that if acceptable to the Company
and the Investors, a Closing may be effected by facsimile transmission of
executed copies of the documents delivered at the Closing and payment of the
purchase price specified in Section 1.1 and by sending original copies of the
documents delivered at the Closing by reputable overnight delivery service,
postage or delivery charges prepaid, for delivery to the parties at their
addresses stated on the signature page of this Agreement by the third business
day following the Closing. At each Closing, the Company shall deliver to or for
the benefit of each Investor: (i) a Note, substantially in the form of EXHIBIT
A, in the principal amount equal to such Investor's Allocable Note Amount; and
(ii) certificates representing Warrants to purchase that number of shares of the
Company's Common Stock equal to the Investor's Allocable Warrants, against
payment of the purchase price therefor by check or wire transfer of immediately
available funds.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Knowing that each
Investor is relying thereon, the Company hereby represents, warrants to, and
agrees with, each Investor that, except as set forth on a Disclosure Letter
attached hereto as Schedule B (the "Disclosure Letter") furnished to each
Investor and special counsels for the Investors, specifically identifying the
relevant subparagraph hereof, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties.
2.2 CAPITALIZATION AND VOTING RIGHTS. The authorized capital of
the Company will consist immediately prior to the Closing, of:
(i) PREFERRED STOCK. (a) 5,526,316 shares of Series A
Convertible Preferred Stock, $.001 par value per share ("Series A
Preferred Stock"), all of which are outstanding and (b) 8,782,695 shares
of Series B Preferred Stock ("Series B Preferred Stock"), all of which
are outstanding. The rights, privileges and preferences of the Series A
Preferred Stock and Series B Preferred Stock are as stated in the
Company's Second Amended and Restated Certificate of Incorporation (the
"Restated Certificate"). The Series A Preferred Stock and Series B
Preferred Stock are collectively herein referred to as "Preferred Stock".
(ii) COMMON STOCK. 38,135,327 shares of common stock, $.001
par value per share ("Common Stock"), of which (a) 18,382,695 shares have
been reserved for issuance upon conversion of the shares of Series B
Preferred Stock and 5,526,316 shares have been reserved for issuance upon
conversion of the shares of Series A Preferred Stock (together, the
"Conversion Shares"), (b) 700,000 shares have been reserved for issuance
upon conversion of the convertible term note held by ▇▇▇▇ ▇▇▇▇▇▇ in the
principal amount of $500,000 (the "▇▇▇▇ ▇▇▇▇▇▇ Conversion Shares"), (c)
3,561,523 shares have been reserved for issuance upon the exercise of
outstanding options (the "1996 Plan Options") granted to certain
employees of the Company pursuant to the Company's Amended and Restated
1996 Incentive and Non-Qualified Stock Option Plan (the "1996 Plan"), (d)
300,000 shares have been reserved for issuance upon the exercise of
outstanding options granted to ▇▇▇ ▇▇▇▇▇▇ (the "▇▇▇▇▇▇ Options"), (e)
630,352 shares have been reserved for issuance upon the exercise of
options to be granted in the future to certain employees of the Company
under the 1996 Plan, (f) 26,316 shares have been reserved for issuance
upon the exercise of warrants granted to Silicon Valley Bank (the
"Silicon Valley Bank Warrants"), and (g) 9,008,125 shares are currently
issued and outstanding.
(iii) The outstanding shares of Preferred Stock and Common
Stock are all duly and validly authorized and issued, fully paid and
nonassessable, and were issued in accordance with the registration or
qualification provisions of the Securities Act of 1933, as amended (the
"Act") and any relevant state securities laws or pursuant to valid
exemptions therefrom.
(iv) Except for (a) the conversion privileges of the
Preferred Stock, (b) the rights provided in the registration rights
provisions of the Restated Investors' Rights Agreement (the "Restated
Investors' Rights Agreement") dated as of April 23, 1998 by and between,
among others, the Company and each of the Investors and the Company's
Restated Certificate, (c) any other rights created under this Agreement,
the Restated Investors' Rights Agreement, the Restated First Refusal and
Co-Sale Agreement ("Restated First Refusal and Co-Sale Agreement") dated
as of April 23, 1998 by and between, among others, the Company and each
of the Investors and the Restated Voting Agreement ("Restated Voting
Agreement") dated as of April 23, 1998 by and between, among others, the
Company and each of the Investors, the Notes and the Warrants, and (d) as
of the Closing (I) 700,000 shares of Common Stock reserved for issuance
upon conversion of the convertible term note held by ▇▇▇▇ ▇▇▇▇▇▇ in the
principal amount of $500,000, (II) 300,000 shares of Common Stock
reserved for issuance upon exercise of the ▇▇▇▇▇▇ Options, (III)
3,561,523 shares of Common Stock reserved for issuance upon the exercise
of the 1996 Plan Options, and (IV) 26,316 shares reserved for issuance
upon exercise of the Silicon Valley Bank Warrants, there are not
outstanding any options, warrants, rights (including conversion or
preemptive rights) or agreements for the purchase or acquisition from the
Company of any shares of its capital stock. The Company has reserved an
additional 630,352 shares of its Common Stock for purchase upon exercise
of options to be granted in the future to certain employees under the
1996 Plan. Except for the Series A and B Preferred Stock, the Company is
not a party or subject to any agreement or understanding, and, to the
best of the Company's knowledge, there is no agreement or understanding
between any persons and/or entities, which affects or relates to the
voting or giving of written consents by a director of
the Company or the voting or giving of written consents by a director or
stockholder with respect to any security.
2.3 SUBSIDIARIES. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity. The Company is not a participant in any
joint venture, partnership, or similar arrangement.
2.4 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization and execution and delivery of this Agreement, the Notes and the
Warrants and the performance of all obligations of the Company hereunder and
thereunder, has been taken or will be taken prior to the Closing. This
Agreement, the Notes and the Warrants constitute valid and legally binding
obligations of the Company, enforceable in accordance with their respective
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies, and to the extent the indemnification provisions contained in the
Restated Certificate may be limited by applicable federal or state securities
laws.
2.5 VALID ISSUANCE OF EQUITY SECURITIES. The Series B Preferred
issuable upon conversion of the Notes purchased by the Investors hereunder and
the Common Stock issuable upon conversion of such Series B Preferred Stock, will
be duly and validly reserved for issuance, and upon issuance in accordance with
the terms of the Notes, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Notes and under applicable
state and federal securities laws. The Common Stock issuable upon exercise of
the Warrants have been duly and validly reserved for issuance and, upon issuance
will be duly and validly issued, fully paid, and nonassessable and will be free
of restrictions on transfer other than restrictions on transfer under this
Agreement, the Notes and the Warrants and under applicable state and federal
securities laws.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement (except such additional steps as may be necessary
to qualify the offer and sale of the Notes and Warrants under applicable state
securities laws, which such steps have been taken or shall be timely taken by
the Company).
2.7 OFFERING. Subject in part to the truth and accuracy of each
Investor's representations set forth in Section 3 of this Agreement the offer,
sale and issuance of the Notes and the Warrants as contemplated by this
Agreement are exempt from the registration requirements of the Act, and neither
the Company nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
2.8 LITIGATION. Except as set forth in the Disclosure Schedule,
there is no action, suit, proceeding or investigation pending or currently
threatened against the Company that questions
the validity of this Agreement, the Notes or the Warrants or the right of the
Company to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any material adverse change in the assets, condition, affairs
or prospects of the Company, financially or otherwise, or any change in the
current equity ownership of the Company, nor is the Company aware that there is
any basis for the foregoing. The foregoing includes, without limitation,
actions, suits, proceedings or investigations pending or threatened (or any
basis therefor known to the Company) involving the prior employment of any of
the Company's employees, their use in connection with the Company's business of
any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers.
Except as set forth in the Disclosure Schedule, the Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. Except as set forth in the
Disclosure Schedule, there is no action, suit, proceeding or investigation by
the Company currently pending or that the Company intends to initiate.
2.9 PATENTS AND TRADEMARKS. The Company owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
("Intellectual Property") necessary for its business as now conducted and as
proposed to be conducted without any conflict with or infringement of the rights
of others. The Disclosure Letter contains a complete list of all patents and
patent applications of the Company. There are no outstanding options, licenses,
or agreements of any kind relating to the Company's Intellectual Property, nor
is the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the Intellectual Property of any other person or entity.
The Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed to be conducted, would
violate any of the Intellectual Property of any other person or entity. The
Company is not aware that any of the Company's employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement, the Notes or the Warrants nor the carrying on of the
Company's business by the employees of the Company, nor the conduct of the
Company's business as proposed to be conducted, will, to the best of the
Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to utilize any inventions of
any of its employees (or people it currently intends to hire) made prior to
their employment by the Company.
2.10 COMPLIANCE WITH OTHER INSTRUMENTS.
(a) The Company is not in violation or default of any
provision of its Restated Certificate or Bylaws, or of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound,
or, to the best of its knowledge, of any provision of any federal or state
statute, rule or regulation applicable to the Company. Except as set forth in
the
Disclosure Letter, the execution, delivery and performance of this Agreement,
the Notes and the Warrants, and the consummation of the transactions
contemplated hereby and thereby, will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and/or giving
of notice, either a default under any such provision, instrument, judgment,
order, writ, decree or contract or an event that results in the creation of any
lien, charge or encumbrance upon any assets of the Company or the suspension,
revocation, impairment, forfeiture, or nonrenewal of any material permit,
license, authorization, or approval applicable to the Company, its business or
operations or any of its assets or properties.
(b) The Company has avoided every condition, and has not
performed any act, the occurrence of which would result in the Company's loss of
any material right granted under any license, distribution or other agreement.
2.11 AGREEMENTS; ACTION
(a) Except for agreements explicitly contemplated hereby
and by the Notes and the Warrants, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound that may involve (i) obligations
(contingent or otherwise) of, or payments to the Company in excess of, $25,000,
or (ii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company, or (iii) provisions restricting or affecting the
development, manufacture or distribution of the Company's products or services,
or (iv) indemnification by the Company with respect to infringements of
proprietary rights.
(c) Since the date of the Latest Balance Sheet (as defined
below), the Company (i) has not declared or paid any dividends or authorized or
made any distribution upon or with respect to any class or series of its capital
stock, (ii) except for (A) the convertible term note in the principal amount of
$500,000 payable to ▇▇▇▇ ▇▇▇▇▇▇ (the "▇▇▇▇ ▇▇▇▇▇▇ Term Note"), (B) the
$1,750,000 working capital line of credit with Silicon Valley Bank (the "Silicon
Valley Working Capital Line of Credit"), (C) the $2,000,000 equipment line of
credit with Silicon Valley Bank (the "Silicon Valley Equipment Line of Credit"),
(D) the promissory note dated as of April 17, 1997 in the principal amount of
$500,000 payable to BCI (as defined herein) the "BCI Note"), and (E) the notes
in the principal amount of $55,897 and $75,000, respectively, payable to
Colonial Pacific Leasing (the "Colonial Pacific Leasing Notes"), does not
currently have outstanding any indebtedness for money borrowed or any other
liabilities individually in excess of $25,000 or, in the case of indebtedness
and/or liabilities individually less than $25,000, in excess of $75,000 in the
aggregate, (iii) has not made any loans or advances to any person, other than
ordinary advances for travel expenses, or (iv) has not sold, exchanged or
otherwise disposed of any of its assets or rights, other than the sale of its
inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Restated Certificate or Bylaws that materially adversely affects its business as
now conducted or as proposed to be conducted, its properties or its financial
condition.
(f) Any agreements, understandings, instruments or
contracts with the parties to contracts listed in Schedule 2.11 of the
Disclosure Letter which were entered into prior to the date of such contracts
listed in Schedule 2.11 of the Disclosure Letter are no longer in force or
effect.
2.12 RELATED-PARTY TRANSACTIONS. Except as set forth in Schedule
2.12 of the Disclosure Letter, no employee, officer, or director of the Company
or member of his or her immediate family is indebted to the Company, nor is the
Company, except for its obligations under the ▇▇▇▇ ▇▇▇▇▇▇ Term Note and the BCI
Note, indebted (or committed to make loans or extend or guarantee credit) to any
of them. To the best of the Company's knowledge, none of such persons has any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship, or
any firm or corporation that competes with the Company, except that employees,
officers, or directors of the Company and members of their immediate families
may own stock in publicly traded companies that may compete with the Company. No
member of the immediate family of any officer or director of the Company is
directly or indirectly interested in any material contract with the Company.
2.13 FINANCIAL PLAN. The Financial Plan, as defined in Section
5.15 herein,will be prepared in good faith by the Company and will not contain
any untrue statement of a material fact nor will it omit to state a material
fact necessary to make the statements made therein not misleading, except that
with respect to projections contained in the Financial Plan, the Company will
represent only that such projections were prepared in good faith by the Company
and that the Company reasonably believes there is a reasonable basis for such
projections.
2.14 PERMITS. The Company has all franchises, permits, licenses,
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company, and the
Company believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted in the
Financial Plan. The Company is not in default in any material respect under any
of such franchises, permits, licenses, or other similar authority.
2.15 ENVIRONMENTAL AND SAFETY LAWS. To the best of the Company's
knowledge, the Company is not in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and to
the best of its knowledge, no material expenditures are or will be required in
order to comply with any such existing statute, law or regulation.
2.16 MANUFACTURING AND MARKETING RIGHTS The Company has not
granted rights to manufacture, produce, assemble, license, market, or sell its
products to any other person and is not bound by any agreement that affects the
Company's exclusive right to develop, manufacture, assemble, distribute, market
or sell its products.
2.17 DISCLOSURE. The Company has fully provided each Investor
with all the information that such Investor has requested for deciding whether
to purchase the Notes and the Warrants. Neither this Agreement, the Notes or the
Warrants nor any other written statements or certificates made or delivered in
connection herewith or therewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein not misleading. There is no fact within the knowledge of the Company,
or any of the Company's officers which has not been disclosed herein or in
writing by them to the Investors and which materially adversely affects, or in
the future in their opinion may, insofar as they can now foresee, materially
adversely affect the business, properties, assets or condition, financial or
otherwise, of the Company. Other than as stated in the Disclosure Letter,
without limiting the foregoing, the Company has no knowledge or belief that
there exists, or there is, pending or planned, any patent, invention, device,
application or principle or any statute, rule, law, regulation, standard or
condition which would materially adversely affect the condition, financial or
otherwise, or the operations of the Company.
2.18 REGISTRATION RIGHTS. Except as provided in the registration
rights provisions of the Restated Investors' Rights Agreement and the Company's
Restated Certificate, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
2.19 TITLE TO PROPERTY AND ASSETS. The Company owns its property
and assets free and clear of all mortgages, liens, loans and encumbrances,
except (i) as reflected on Schedule 2.1(f) of the Security Agreement dated as of
the date hereof between the Investors and the Company, (ii) for liens for
current taxes not yet delinquent, (iii) for liens imposed by law and incurred in
the ordinary course of business for obligations not past due to carriers,
warehousemen, laborers, materialmen and the like, (iv) for liens in respect of
pledges or deposits under workers' compensation laws or similar legislation, (v)
for minor defects in title, none of which, individually or in the aggregate,
materially interferes with the use of such property or (vi) for such
encumbrances and liens that arise in the ordinary course of business and do not
materially impair the Company's ownership or use of such property or assets.
With respect to the property and assets it leases, the Company is in compliance
with such leases and, to the best of its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances.
2.20 FINANCIAL STATEMENTS. The Company has delivered to each
Investor consolidated audited financial statements (balance sheet, operating
statement and statement of cash flows) of the Company as of and for the fiscal
year ended December 31, 1997 and those of Bluestone Consulting, Inc., a New
Jersey corporation (the "Predecessor Corporation") as of and for each of the
fiscal years ended December 31, 1996 and 1995 (the "Audited Financial
Statements"), and consolidated unaudited financial statements (balance sheet,
operating statement and statement of cash flows) of the Company as of November
30, 1998 and for the eleven (11) months then ended (the "Unaudited Financial
Statements" together with the Audited Financial Statements, the "Financial
Statements"). The Financial Statements fairly present the financial condition
and operating results of the Company and the Predecessor Corporation as of the
dates, and for the periods, indicated therein, subject to normal year-end audit
adjustments. The Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated and with each other, except that the Unaudited
Financial Statements may not contain all footnotes required by generally
accepted accounting principles. Except as set forth in the Financial Statements,
the Company has no material liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to December
31, 1997, and (ii) obligations under contracts and commitments incurred in the
ordinary course of business, which, individually or in the aggregate, are not
material to the financial condition or operating results of the Company. Except
as disclosed in the Financial Statements, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
2.21 CHANGES. Except as disclosed in the Disclosure Schedule,
since December 31, 1997, the date of the latest audited balance sheet included
in the Financial Statements (the "Latest Balance Sheet"), there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the Company (as
such business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the assets, properties, financial
condition, operating results, prospects or business of the Company (as such
business is presently conducted and as it is proposed to be conducted);
(e) any material change or amendment to a material contract
or arrangement by which the Company or any of its assets or properties is bound
or subject;
(f) any resignation or termination of employment of any key
officer of the Company; and the Company, to the best of its knowledge, does not
know of the impending resignation or termination of employment of any such
officer;
(g) any mortgage, pledge, transfer of a security interest
in, or lien, created by the Company, with respect to any of its material
properties or assets, except liens for taxes not yet due or payable;
(h) any loans or guarantees made by the Company to or for
the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business; or
(i) to the best of the Company's knowledge, any other event
or condition of any character that might materially and adversely affect the
assets, properties, financial condition, operating results, prospects or
business of the Company (as such business is presently conducted and as it is
proposed to be conducted).
2.22 EMPLOYEE BENEFIT PLANS. Except as set forth in the
Disclosure Letter, the Company has not established, maintained or contributed to
any Employee Benefit Plans as defined in the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and the Company has not proposed any Employee
Benefit Plans which the Company will establish, maintain, or to which the
Company will contribute or be required to contribute, and the Company has not
proposed any changes to any Employee Benefit Plans now in effect (all of the
preceding referred to collectively hereinafter as the "Company's Employee
Benefit Plans"). True and correct copies and descriptions, to the extent that
they exist, of all of the Company's Employee Benefit Plans have been previously
provided to the Investors. Each of the Company's Employee Benefit Plans, which
is intended to be qualified under Section 401(a) of the Code is so qualified.
Favorable letters of determination of such tax-qualified status from the IRS
have been previously provided to the Investors. With respect to the Company's
Employee Benefit Plans, the Company will have made, on or prior to the Closing,
all payments required to be made by it on or prior to the Closing and will have
accrued (in accordance with generally accepted accounting principles
consistently applied and the requirements of ERISA) as of the Closing all
payments due but not yet payable as of the Closing. The Company has previously
provided to the Investors a true and correct copy of the most current Form 5500
and any other form or filing required to be submitted to any governmental agency
with regard to any of the Company's Employee Benefit Plans. All of the Company's
Employee Benefit Plans are, and have been, operated in full compliance with
their provisions and with all applicable Laws including, without limitation,
ERISA and the Code and the regulations and rulings thereunder. The Company and
all fiduciaries of the Company's Employee Benefit Plans have complied with the
provisions of the Company's Employee Benefit Plans and with all applicable Laws
including, without limitation, ERISA and the Code and the regulations and
rulings thereunder. There has been no termination or partial termination
(including any termination or partial termination attributable
to this sale) of any of the Company's Employee Benefit Plans. The Company has
never established, maintained or had the obligation to contribute to a defined
benefit plan (as defined in the Code or ERISA), an Employee Benefit Plan that is
subject to the minimum funding standards of the Code or ERISA, or a
multiemployer (as defined in the Code or ERISA). Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute or otherwise) becoming due from the
Company under any of the Company's Employee Benefit Plans, (ii) increase any
benefits otherwise payable under any of the Company's Employee Benefit Plans, or
(iii) result in the acceleration of the time of payment or vesting of any such
benefits to any extent. There are no pending actions, claims or lawsuits which
have been asserted or instituted against any of the Company's Employee Benefit
Plans, the assets of any of the trusts under such plans, the plan sponsor, the
plan administrator or against any fiduciary of any of the Company's Employee
Benefit Plans (other than routine benefit claims) nor does the Company have
knowledge of facts which could form the basis for any such action, claim or
lawsuit. There are no investigations or audits of any of the Company's Employee
Benefit Plans, any trusts under such plans, the plan sponsor, the plan
administrator or any fiduciary of any of the Company's Employee Benefit Plans
which have been threatened or instituted nor does the Company have knowledge of
facts which could form the basis for any such investigation or audit. No event
has occurred or will occur which will result in liability to the Company in
connection with any Employee Benefit Plan established, maintained, or
contributed to (currently or previously) by the Company or by any other entity
which, together with the Company, constitute elements of either (i) a controlled
group of corporations (within the meaning of Section 414(b) of the Code), (ii) a
group of trades or businesses under common control (within the meaning of
Sections 414(c) of the Code or 4001 of ERISA), (iii) an affiliated service group
(within the meaning of Section 414(m) of the Code) or (iv) another arrangement
covered by Section 414(o) of the Code. For purposes of this Agreement, "Employee
Benefit Plan" means (i) any employee benefit plan, as defined in Section 3(3) of
ERISA and (ii) any other plan, trust agreement or arrangement for any bonus,
severance, hospitalization, vacation, incentive or deferred compensation,
pension or profit-sharing, retirement, payroll savings, stock option, equity
compensation, group insurance, death benefit, fringe benefit, welfare or any
other employee benefit plan or fringe benefit arrangement of any nature
whatsoever, including those benefiting retirees or former employees.
2.23 TAX MATTERS.
(a) Except as set forth on Schedule 2.23 of the Disclosure
Letter, the Company has filed all Tax Returns (as defined below) which it was
required to file under applicable laws and regulations; all such Tax Returns are
complete and correct in all respects and have been prepared in compliance with
all applicable laws and regulations; the Company has paid all Taxes (as defined
below) due and owing by it with respect to any period ending on or before the
Closing (whether or not such Taxes are required to be shown on a Tax Return) and
have withheld and paid over to the appropriate taxing authority all Taxes which
it is required to withhold from amounts paid or owing to any employee,
stockholder, creditor or other third party with respect to any period ending on
or before the Closing; the Company has not waived any statute of limitations
with respect to any Taxes or agreed to any extension of time with respect to any
Tax Return; the accrual for Taxes on
the Latest Balance Sheet would be adequate to pay all Tax liabilities of the
Company if its current tax year were treated as ending on the date of the Latest
Balance Sheet; since the date of the Latest Balance Sheet, the Company has not
incurred any liability for Taxes other than in the ordinary course of business;
the assessment of any additional Taxes for periods for which Tax Returns have
been filed by the Company shall not exceed the recorded liability therefor on
the Latest Balance Sheet; the federal income Tax Returns of the Company have
been audited or closed for all tax years through 1992; except as set forth on
Schedule 2.23 of the Disclosure Letter no foreign, federal, state or local tax
audits or administrative or judicial proceedings are pending or being conducted
with respect to the Company, no information related to Tax matters has been
requested by any foreign, federal, state or local taxing authority and no
written notice indicating an intent to open an audit or other review has been
received by the Company from any foreign, federal, state or local taxing
authority; and there are no material unresolved questions or claims concerning
the Company's Tax liability;
(b) The Company has not made an election under Section
341(f) of the Internal Revenue Code of 1986, as amended (the "Code"). The
Company is not liable for the Taxes of another person under (i) Treas. Reg.
Section 1.1502-6 (or comparable provisions of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or indemnity or (iv)
otherwise. The Company is not a party to any tax sharing agreement. The
Company has disclosed on their federal income Tax Returns any position taken
for which substantial authority (within the meaning of Section
6662(d)(2)(B)(i) of the Code) did not exist at the time the return was filed.
The Company has not made any payments, is obligated to make payments or is a
third party to an agreement that could obligate it to make any payments that
would not be deductible under Section 280G of the Code;
(c) As of the Closing, the Company is a qualified small
business within the meaning of Section 1202(c) of the Code. During the period
beginning one year prior to the Closing Date through the Closing, the Company
has not made a significant redemption of its stock within the meaning of
Section 1202(c)(3)(B) of the Code;
(d) The Company has made a valid election under Section
1362(a) of the Code to be treated as an "S corporation" within the meaning of
Section 1361 of the Code, which election has been effective for all tax periods
from the date of the Company's formation to the issuance of the Series A
Preferred Stock;
(e) The formation of Bluestone Consulting, Inc., a Delaware
corporation ("BCI") by the Company and the distribution of its stock to the
shareholders (the "Spin-off") did not and will not result in any Tax to the
Company, and for purposes of subsection 2.23(a) above, such formation and
distribution shall not be considered a transaction occurring in the ordinary
course of business; and
(f) For purposes of this Agreement, the term "Tax" or
"Taxes" means federal, state, county, local, foreign or other income, gross
receipts, ad valorem, franchise, profits, sales or use, transfer, registration,
excise, utility, environmental, communications, real or personal property,
capital stock, license, payroll, wage or other withholding, employment, social
security, severance, stamp, occupation, alternative or add-on minimum, estimated
and other taxes of any kind
whatsoever (including, without limitation, deficiencies, penalties, additions to
tax, and interest attributable thereto) whether disputed or not. The term "Tax
Return" means any return, information report or filing with respect to Taxes,
including any schedules attached thereto and including any amendment thereof.
2.24 INSURANCE. The Company has in full force and effect fire
and casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed, and key man insurance covering ▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ as specified in the Disclosure
Letter. The Company will obtain key man insurance in the amount of $1,000,000
covering ▇▇▇▇▇ ▇▇▇▇▇▇ within forty-five (45) days after the date of this
Agreement.
2.25 BOOKS AND RECORDS. The minute books and stock record books
of the Company provided to the Investors contain (i) minutes of all meetings of
the stockholders, board of directors and any committee of the board of
directors, (ii) written statements of all actions taken by the Stockholders,
board of directors and any committee of the board of directors without a
meeting, and (iii) records of the issuance, transfer and cancellation of all
shares of capital stock and other securities, in each case since the time of
incorporation. Such minute books and stock record books reflect all transactions
referred to therein accurately and completely.
2.26 USE OF PROCEEDS. The net proceeds received by the Company
from the sale of the Notes shall be used by the Company for general corporate
and working capital purposes.
2.27 LABOR MATTERS. The Company is not a party to any collective
bargaining agreement covering employees of the Company's business, nor does any
labor union or collective bargaining agent represent any of the employees of the
Company's business. Except as set forth in the Disclosure Letter, there is no
labor strike, slow-down or stoppage pending or, to the Company's knowledge,
threatened by the employees of the Company's business.
2.28 "YEAR 2000". The Company's computer system and software
(including all software and applications developed for or sold to any customer
or client) are able to accurately process date data, including but not limited
to, calculating, comparing and sequencing from, into and between the twentieth
century (through year 1999), the year 2000 and the twenty-first century,
including leap year calculations. To the best knowledge of the Company, it is
not aware of any inability on the part of any service provider to timely remedy
such service provider's own deficiencies in respect of the year 2000 problem.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor
hereby represents and warrants that:
3.1 AUTHORIZATION. Each Investor has full power and authority
to enter into the this Agreement, the Notes and the Warrants, and each such
Agreement constitutes its valid and legally binding obligation, enforceable in
accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent the indemnification provisions
contained in Restated Certificate may be limited by applicable federal or state
securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with such Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Notes and the Warrants to be received by such Investor
and the Common Stock issuable upon exercise of the Warrants together with the
New Equity Securities (as defined in the Notes) and Common Stock issuable upon
conversion or exercise of the Notes (collectively, the "Securities") will be
acquired for investment for such Investor's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof
except in accordance with the Act, and that such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, such Investor further represents that
such Investor does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Securities.
3.3 DISCLOSURE OF INFORMATION. Such Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Notes and the Warrants. Such Investor further represents
that it has had an opportunity to ask questions and receive answers from the
Company regarding the terms and conditions of the offering of the Notes and the
Warrants and the business, properties, prospects and financial condition of the
Company. The foregoing, however, does not limit or modify the representations
and warranties of the Company in Section 2 of this Agreement or the right of the
Investors to rely thereon.
3.4 INVESTMENT EXPERIENCE. Such Investor is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Notes and
the Warrants. If other than an individual, Investor also represents it has not
been organized for the purpose of acquiring the Notes and the Warrants.
3.5 ACCREDITED INVESTOR. Such Investor is an "accredited
investor" within the meaning of Securities and Exchange Commission ("SEC") Rule
501 of Regulation D, as presently in effect.
3.6 RESTRICTED SECURITIES. Such Investor understands that the
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as
they are being acquired from the Company in a transaction not involving a public
offering and therefore may not be sold, transferred or otherwise disposed of
without registration under the Act or an exemption therefrom, and that in the
absence of an effective registration statement covering the Securities or an
available exemption from registration under the Act, the Securities must be held
indefinitely. In this connection, such Investor represents that it is familiar
with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
3.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Securities unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by this Section 3 to the extent this Section is then applicable, and:
(a) There is then in effect a Registration Statement under
the Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b)(i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company that
such disposition will not require registration of such shares under the Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of paragraphs (a) and
(b) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by an Investor that is a partnership to a partner of
such partnership or a retired partner of such partnership who retires after the
date hereof, or to the estate of any such partner or retired partner or the
transfer by gift, will or intestate succession of any partner to his or her
spouse or to the siblings, lineal descendants or ancestors of such partner or
his or her spouse, if the transferee agrees in writing to be subject to the
terms hereof to the same extent as if he or she were an original Investor
hereunder.
3.8 LEGENDS. It is understood that the certificates evidencing
the Securities may bear one or all of the following legends:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND SUCH STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT."
4. CONDITIONS OF THE INVESTOR'S EXECUTION OF THIS AGREEMENT. On or
before the execution of this Agreement by the Investors, the Company shall have
fulfilled the following conditions:
4.1 OPINION OF COMPANY COUNSEL. Each Investor shall have
received from counsel for the Company, an opinion, dated as of the date hereof,
in the form and content satisfactory to each of the Investors and attached
hereto as Exhibit C.
4.2 SECRETARY'S CERTIFICATE. The Investors shall have received
a certificate, dated the date hereof, of the Secretary of the Company to the
effect (i) that attached thereto is a true and complete copy of the Certificate
of Incorporation and the By-laws of the Company in each case as in effect on the
date thereof, (ii) that attached thereto is a true and complete copy of all
resolutions adopted by the Board of Directors of the Company authorizing the
execution, delivery and performance of this Agreement, the Notes and the
Warrants, (iii) the attached thereto is a good standing certificate or telegram
dated within ten business days prior to the date hereof and (iv) that set forth
in such certificate is a list of incumbent officers and specimen signatures.
4.3 RELATED AGREEMENTS. Each Investor shall have received from
the Company, unless otherwise previously provided, the following agreements in
form and content satisfactory to each of the Investors:
(i) BANK LENDING AGREEMENTS. Any and all lending agreements
by and between the Company and its primary lender for working capital,
capital equipment leases and software leases;
(ii) SHAREHOLDER LENDING AGREEMENTS. Any and all lending
agreements by and between the Company and the shareholders of BCI; and
(iii) SERVICES AGREEMENTS. Any and all agreements by and
between the Company and BCI regarding the provision of consulting
services by BCI to the Company.
4.4 SECURITY AGREEMENT. Each Investor shall have received a
security agreement (the "Security Agreement") executed by the Company, in the
form and content satisfactory to each of the Investors and attached hereto as
EXHIBIT D.
4.5 EMPLOYMENT AGREEMENT. Each Investor shall have received
copies of an employment agreement (the "Employment Agreement"), executed by the
Company and ▇▇▇ ▇▇▇▇▇▇ in the form and content satisfactory to each of the
Investors and attached hereto as EXHIBIT E.
4.6 WAIVER OF DEFAULT. Each of the Investors shall have
received copies of a written waiver, in form and content satisfactory to each of
the Investors, from Silicon Valley Bank waiving any and all defaults by the
Company under the loan agreement between the Company and Silicon Valley Bank.
4.7 1999 FINANCIAL PLAN. Each Investor shall have received from
the Company, a copy of the Company's 1999 Financial Plan (the "Financial Plan")
in form and content satisfactory to each of the Investors.
4.8 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated hereunder and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' special counsels, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
4.9 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF
INCORPORATION. Each Investor shall have received a copy of an amendment to the
Company's Certificate of Incorporation, as filed with the Secretary of State
of the State of Delaware, increasing the Company's authorized shares of Common
Stock to 53,000,000 shares and its authorized shares of Series B Preferred Stock
to 12,640,720 shares, all as set forth on EXHIBIT F .
4.10 AMENDMENT TO INVESTORS' RIGHTS AGREEMENT. Each Investor
shall have received an amendment, executed by the Company, to that certain
Investors' Rights Agreement dated as of April 23, 1998, between the Company and
certain investors, amending the definition of "Registrable Securities" to
include shares of Common Stock issued or issuable pursuant to or in connection
with the Notes and Warrants, substantially in the form as EXHIBIT G.
4.11 DUE DILIGENCE. All matters investigated by the Investors in
the course of their due diligence shall be satisfactory to each of the
Investors, special counsels for Investors and the respective accountants for the
Investors.
5. CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING. The obligations
of each Investor under subsection 1.1 of this Agreement are subject to the
fulfillment on or before each Closing of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
in writing thereto:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of such
Closing.
5.2 PERFORMANCE. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before such Closing.
5.3 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to each Investor at the Closing a certificate stating that the
conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating
that there shall have been no adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since the
date of the Financial Statements.
5.4 QUALIFICATIONS. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state (except for certain post-Closing Federal or Blue Sky filings
required under applicable securities laws) that are required in connection with
the lawful issuance and sale of the Securities pursuant to this Agreement shall
be duly obtained and effective as of such Closing.
5.5 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at such Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' special counsels, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
5.6 NOTES. The Company shall have executed and delivered the
Notes to be issued at such Closing.
5.7 WARRANTS. The Company shall have executed and delivered the
Warrants to be issued at the Closing.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before each Closing of each of the following conditions by
that Investor:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investors contained in Section 3 shall be true on and as of
the Closing.
6.2 PAYMENT OF PURCHASE PRICE. The Investors shall have
delivered the purchase price specified in Section 1.1.
6.3 QUALIFICATIONS. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state (except for certain post-Closing Blue Sky filings required under
applicable state securities laws) that are required in connection with the
lawful issuance and sale of the Securities pursuant to this Agreement shall be
duly obtained and effective as of such Closing.
7. STATE SECURITIES LAWS. The Company will provide applicable notices
and legends as may be required by applicable state securities laws.
8. INDEMNIFICATION.
(a) In addition to all rights and remedies available to the
Investors at law or in equity, the Company shall indemnify, defend and hold
harmless each of the Investors and any parent, subsidiary, associate, affiliate,
partner, shareholder, director, officer, shareholder or agent of each such
Investor, and each subsequent holder of the Notes, Warrants or Securities and
their respective affiliates, stockholders, officers, directors, employees,
agents, representatives, successors and
permitted assigns (all of the foregoing are collectively referred to as the
"Indemnified Parties") from and against and pay on behalf of or reimburse such
party as and when incurred all losses (including, without limitation,
diminutions in value), liabilities, demands, claims, actions or causes of
action, costs, damages, judgments, debts, settlements, assessments,
deficiencies, taxes, penalties, fines or expenses, whether or not arising out of
any claims by or on behalf of any third party, including interest, penalties,
reasonable attorneys' fees and expenses and all reasonable amounts paid in
investigation, defense or settlement of any of the foregoing (collectively,
"Losses") which any such party may suffer, sustain or become subject to, as a
result of, in connection with, or relating to or by virtue of:
(i) any material misrepresentations or material breach of
warranty on the part of the Company under Section 2;
(ii) without duplication of subsection 8(a)(i), any
material misrepresentation in or material omission from any of the
representations or warranties contained in any certificate, document or
instrument or the Disclosure Letter delivered to the Investors by or on
behalf of the Company in connection herewith;
(iii) any material nonfulfillment or breach of any covenant
or agreement on the part of the Company under this Agreement or under any
certificate, document or instrument delivered in connection therewith; or
(iv) any action, demand, proceeding, investigation or claim
by any third party (including, without limitation, governmental agencies)
against or affecting the Company and/or its affiliates or subsidiaries
which, if successful, would give rise to or evidence the existence of or
relate to a material breach of (A) any of the representations or
warranties at the time made or (B) covenants of the Company.
In determining each Investor's right to indemnification under this Section 8 for
material misrepresentations in connection with a representation that expressly
includes a materiality standard or material breach of a representation,
warranty, covenant or other agreement that expressly includes a standard of
materiality, such materiality standard shall not be given independent effect. In
determining any diminution in value in the Investor's investment under this
Section 8, any diminution in value resulting from payments by the Company
pursuant to clauses (i), (ii), (iii) or (iv) shall be taken into account;
provided however, that the diminution in value resulting from each such payment
shall only be taken into account one time.
(b) Notwithstanding the foregoing, and subject to the following
sentence, upon judicial determination, which is final and no longer appealable,
that the act or omission giving rise to the indemnification hereinabove provided
resulted primarily out of or was based primarily upon the Indemnified Party's
gross negligence, fraud or willful misconduct (unless such action was based upon
the Indemnified Party's reliance in good faith upon any of the representations,
warranties, covenants or promises made by the Company herein), the Company shall
not be responsible for any Losses sought to be indemnified in connection
therewith, and the Company shall be entitled to
recover from the Indemnified Party all amounts previously paid in full or
partial satisfaction of such indemnity, together with all costs and expenses of
the Company reasonably incurred in effecting such recovery, if any.
(c) All indemnification rights hereunder shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereunder indefinitely, regardless of any
investigation, inquiry or examination made for or on behalf of, or any knowledge
of any of the Investors and/or any of the other Indemnified Parties or the
acceptance by either Investor of any certificate or opinion.
(d) If for any reason the indemnity provided for in this Section 8
is unavailable to any Indemnified Party or is insufficient to hold each such
Indemnified Party harmless from all such Losses arising with respect to the
transactions contemplated hereunder, then the Company and the Indemnified Party
shall each contribute to the amount paid or payable by such Loss in such
proportion as is appropriate to reflect not only the relative benefits received
by the Company on the one hand, and such Indemnified Party on the other, but
also the relative fault of the Company on the one hand, and the Indemnified
Party on the other, as well as any relevant equitable considerations. In
addition, the Company agrees to reimburse any Indemnified Party upon demand for
all reasonable expenses (including legal counsel fees) incurred by such
Indemnified Party or any such other person in connection with investigating,
preparing or defending any such action or claim. The indemnity, contribution and
expense reimbursement obligations that the Company has under this Section 7
shall be in addition to any liability that the Company may otherwise have. The
Company further agrees that the indemnification and reimbursement commitments
set forth in this Agreement shall apply whether or not the Indemnified Party is
a formal party to any such lawsuits, claims or other proceedings.
(e) Any indemnification of either Investor or any other
Indemnified Party by the Company pursuant to this Section 8 shall be effected by
wire transfer of immediately available funds from the Company to an account
designated by such Investor or such other Indemnified Party within 15 days after
the determination thereof.
9. MISCELLANEOUS
9.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closings and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
9.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any Securities). Nothing in this Agreement express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
9.3 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Delaware without giving effect to
conflict of law principles. EACH OF THE PARTIES HEREBY WAIVES ANY RIGHTS IT MAY
HAVE TO TRIAL BY JURY IN ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF
THIS AGREEMENT, THE NOTES OR THE WARRANTS.
9.4 CONSENT TO JURISDICTION. The Company irrevocably consents
to the jurisdiction of the state courts of Delaware and the United States
District Court for the District of Delaware in any and all actions and
proceedings whether arising hereunder or under any other agreement or
undertaking and irrevocably agrees to service of process to the address of the
company set forth herein by certified mail, return receipt requested.
9.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one counterpart hereof.
9.6 TITLES AND SUBTITLES The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.7 NOTICES. Unless otherwise provided, all notices, consents
or other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given (i) when
delivered personally, (ii) three business days after being mailed by first class
mail, postage prepaid, or (iii) one business day after being sent by a reputable
overnight delivery service, postage or delivery charges prepaid, to the parties
at their respective addresses stated on the signature page of this Agreement.
Notices may also be given by prepaid telegram or facsimile and shall be
effective on the date transmitted if confirmed within 24 hours thereafter by a
signed original sent in the manner provided in the preceding sentence. Any party
may change its address for notice and the address to which copies must be sent
by giving notice of the new addresses to the other parties in accordance with
this Section 9.7, except that any such change of address notice shall not be
effective unless and until received.
9.8 FINDER'S FEE. Each party represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible. The Company agrees to indemnify
and hold harmless each Investor from any liability for any commission or
compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
9.9 EXPENSES. Subject to the provisions of Section 8, whether
or not the Closing is effected, the Company shall pay all costs and expenses
that it incurs with respect to the negotiation, execution, delivery and
performance of this Agreement and shall reimburse the reasonable fees and
out-of-pocket expenses of special counsel for General Electric Capital
Corporation not to exceed $10,000 and of special counsel for Patricof Ventures
and ▇▇▇▇▇ Capital not to exceed $20,000. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement or the Transaction
Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
9.10 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
75% of the aggregate principal amount of Notes being issued hereunder. Any
amendment or waiver effected in accordance with this Section 9.10 shall be
binding upon each holder of any securities purchased under this Agreement at the
time outstanding (including securities into which such securities are
convertible), each future holder of all such securities, and the Company.
9.11 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
9.12 AGGREGATION OF SECURITIES. All Securities held or acquired
by affiliated entities or persons shall be aggregated together for the purpose
of determining the availability of any rights under this Agreement.
9.13 ENTIRE AGREEMENT. This Agreement and the documents referred
to herein constitute the entire agreement with respect to the subject matter
hereof among the parties, and no party shall be liable or bound to any other
party in any manner by any warranties, representations, or covenants except as
specifically set forth herein or therein.
* * *
(SIGNATURES APPEAR ON NEXT PAGE.)
IN WITNESS WHEREOF, the parties have executed this Note and Warrant
Purchase Agreement, intending to be legally bound hereby, as of the date first
above written.
BLUESTONE SOFTWARE, INC.
By: /s/ P. ▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------------
Name: P. ▇▇▇▇▇ ▇▇▇▇▇▇
Title: President
Address: ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇. ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
INVESTORS:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Vice President
Address: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
[SIGNATURE PAGE TO THE CONVERTIBLE SUBORDINATED SECURED NOTE
AND WARRANT PURCHASE AGREEMENT]
THE P/A FUND, L.P.
By: FOSTIN CAPITAL PARTNERS II, L.P.
its General Partner
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: General Partner
Address: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
PATRICOF PRIVATE INVESTMENT CLUB, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.
its General Partner
By: PATRICOF & CO. MANAGERS, INC.
its General Partner
By: /s/ ▇▇▇▇▇▇▇ ▇. Case
-----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. Case
Title: Vice President
Address: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
[SIGNATURE PAGE TO THE CONVERTIBLE SUBORDINATED SECURED NOTE
AND WARRANT PURCHASE AGREEMENT]
APA EXCELSIOR IV, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.
its General Partner
By: PATRICOF & CO. MANAGERS, INC.
its General Partner
By: /s/ ▇▇▇▇▇▇▇ ▇. Case
-----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. Case
Title: Vice President
Address: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
▇▇▇▇▇▇ & CO. (CAYMAN) LTD., CUST. FOR
APA EXCELSIOR IV/OFFSHORE, L.P.
By: PATRICOF & CO. VENTURES, INC.
its Investment Advisor
By: /s/ ▇▇▇▇▇▇▇ ▇. Case
-----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. Case
Title: Managing Director
Address: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
[SIGNATURE PAGE TO THE CONVERTIBLE SUBORDINATED SECURED NOTE
AND WARRANT PURCHASE AGREEMENT]