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EXHIBIT 4.7
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of December 30,
1998, is made and entered into between BLUE RIDGE INVESTORS LIMITED PARTNERSHIP,
a North Carolina limited partnership (the "Purchaser") which is a Federal
Licensee under the Small Business Investment Act of 1958, as amended (the "SBIC
Act"); I 3S, INC., a Texas corporation (the "Company"); XXXXX X. XXXXX, XXXX X.
XXXXXXX, XXXX X. XXXXX, XX., XXXXXXX XX PRICE, XXXXXX XXXXXX, SPOTSWOOD CAPITAL,
LLC ("Spotswood") and I3S FUNDING I, L.L.C. ("Funding") (collectively, the
"Shareholders") who execute this Agreement solely for the purpose of agreeing to
the provisions of Section 2 hereof and waiving any and all preemptive rights
with respect to the issuance of the Class C Shares hereunder.
Purchaser wishes to purchase from the Company, and the Company wishes to
sell to Purchaser, 162,232 shares of the Company's Class C Common Stock, no par
value per share (the "Class C Shares"), on the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the mutual agreements, representations
and warranties contained in this Agreement, the parties hereto agree as follows:
1. SALE AND PURCHASE OF CLASS C SHARES; THE CLOSING
a. Sale and Purchase of Class C Shares. Subject to the terms and conditions
set forth in this Agreement, at the Closing provided for in paragraph 1.d.
below, the Company shall sell to Purchaser, and Purchaser shall buy from the
Company, One Hundred Sixty Two Thousand Two Hundred Thirty-Two (162,232) Class C
Shares for an aggregate purchase price of Five Hundred Thousand Dollars
($500,000). The Class C Shares, together with the Class C Common Stock
previously issued to Purchaser, shall represent at the time of issuance 7.10% of
all outstanding
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common stock of the Company on a fully diluted basis (i.e. calculated as if all
outstanding options, warrants or other rights to acquire or purchase shares of
the Company's common stock, had been exercised).
b. Payment of Purchase Price. At the Closing, Purchaser shall deliver the
sum of Five Hundred Thousand Dollars ($500,000) to the Company by way of a wire
transfer in complete payment for the Class C Shares.
c. Delivery of Stock Certificate. In consideration for Purchaser's payment
for the Class C Shares, at the Closing the Company shall deliver to Purchaser a
stock certificate representing the Class C Shares.
d. The Closing. The closing of the sale and purchase of the Class C Shares
contemplated hereby (the "Closing"), shall take place at the offices of the
Company, 0000 Xxxxx Xxxx, Xxxxx 000, Xxxxxx, Xxxxx, at 10:00 a.m. on the date
hereof, or such other date and time as Purchaser and the Company shall mutually
agree in writing (the "Closing Date"). At the Closing, the Company
simultaneously shall sell (i) 162,232 shares of Class C Common Stock to
Spotswood for $500,000 on substantially the same terms and conditions that are
set forth herein with respect to the sale of the Class C Shares to Purchaser,
and (ii) 648,927 shares of Class B Common Stock to Funding for $2,000,000.
2. PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE CLASS C SHARES
a. Voting. Except as provided in Section 2.i below, the Class C Shares
shall be entitled to vote on all matters voted on at a shareholders' meeting,
with the same voting rights per share as are granted to the Company's Class A
Common Stock and Class B Common Stock. Purchaser acknowledges that 81,279 of the
Class C Shares shall be transferred to a voting trust pursuant to a
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Voting Trust Agreement among certain of the parties hereto dated the date hereof
(the "Voting Trust Agreement").
b. Preemptive Rights. Until such time as a Purchaser Approved Offering (as
defined below) has been consummated or Purchaser has otherwise sold all of its
Class C Shares or other equity interests in the Company, Purchaser shall have
preemptive rights with regard to any future issuances of common stock of the
Company (other than an issuance of common stock pursuant to options that are
approved by the holders of the Company's Class B Common Stock) permitting
Purchaser to purchase additional common shares pro rata at the same price and on
the same terms and conditions of such issuance; provided, however, that if the
holders of the Company's Class B Common Stock waive their rights with respect to
a future issuance of common stock, Purchaser shall not have preemptive rights
with respect to that issuance. For purposes of this Agreement, a Purchaser
Approved Offering shall mean the consummation of an underwritten public offering
of common stock of the Company on the New York Stock Exchange, the American
Stock Exchange, or The Nasdaq Stock Market, Inc. pursuant to a registration
statement filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "1933 Act"), covering the offer and sale of common
stock of the Company to the public at a price resulting in gross proceeds from
such sale to the Company (before deduction of underwriting discounts and
expenses of sale) of not less than $50,000,000.
c. Right of First Refusal. Except in the event of and after the
consummation of a Purchaser Approved Offering, and except for gifts, charitable
donations or sales in each case representing less than One Percent (1%) of the
Company's outstanding common stock in the aggregate, no shareholder shall be
permitted to dispose of any shares of the Company's common
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stock unless such shares shall have been offered for sale in writing first to
the Company and then to the other shareholders of the Company pro rata. In the
event a shareholder desires to transfer any common shares, the shareholder
desiring to make such transfer (the "Transferring Shareholder") shall deliver
written notice (the "Offer Notice") to the Company and to all other shareholders
at least sixty (60) days prior to the proposed transfer. The Offer Notice will
disclose in reasonable detail the proposed number of shares to be transferred,
the proposed transferee and the proposed price, terms and conditions of the
transfer.
i. Upon receipt of the Offer Notice, the Company shall have the option (the
"Company's Option") for a period of thirty (30) days to purchase or otherwise
acquire all or part of the shares described in the Offer Notice for an aggregate
amount (such aggregate amount being hereinafter referred to as the "Option
Price") equal to the bona fide purchase price to be paid by the proposed
purchaser as described in the Offer Notice (which amount shall be zero if the
proposed transfer would take the form of a gift or other gratuitous transfer).
The Company shall notify in writing all then current shareholders as to whether
it will exercise, partially exercise or not exercise the Company's Option before
the expiration of the Company's Option.
ii. In the event that the Company does not elect to fully exercise the
Company's Option within thirty (30) days after receipt of the Offer Notice, the
remaining shareholders shall have the option (each a "Shareholder's Option") for
a period of ten (10) days from the earlier of (i) their receipt of written
notice from the Company of its decision not to exercise or to only partially
exercise the Company's Option, or (ii) the expiration of the Company's Option
(the "Other Shareholder Election Period"), to purchase or otherwise acquire all
or part of the remaining shares which the Company does not choose to purchase
pursuant to the Company's Option, in proportion to their
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respective ownership of shares which, for purposes of such determination, shall
include without duplication all outstanding options, warrants or other rights
owned by such shareholders that are convertible into shares as of the date of
such notice from the Company (or the expiration of the Company's Option), for an
amount equal to the applicable portion of the Option Price. Each shareholder
shall notify in writing all then current shareholders as to whether such
shareholder will exercise, partially exercise or not exercise the shareholder's
option before the expiration of the Other Shareholder Election Period.
iii. For a period of ten (10) days from the earlier of (i) the receipt by
the other shareholders of a written notice from a shareholder that it does not
want to exercise its option or will only partially exercise its option, or (ii)
the expiration of the Other Shareholder Election Period, the other shareholders
shall have the right to purchase or otherwise acquire such shareholder's portion
of the shares described in the Offer Notice in proportion to their respective
ownership of shares (determined as described in Section 2.c.ii. above).
iv. If shares of a Transferring Shareholder remain unsold after compliance
with the procedures set forth in this Section 2.c., the Company shall have the
final option for ten (10) days to purchase or otherwise acquire all of the
remaining shares proposed to be transferred for an amount equal to the
applicable portion of the Option Price. If, however, the Company and the other
shareholders do not individually or collectively elect to purchase all of the
shares being offered, the Transferring Shareholder may, within thirty (30) days
after the expiration of the Other Shareholder Election Period (subject to the
provisions of Section 0.x.xx. below), transfer all of the shares specified in
the Offer Notice to the transferee identified in the notice at the price and
terms stated in the Offer Notice. Any shares so transferred thereupon shall
continue to be subject to this Agreement, and the
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transferee shall have the rights and obligations set forth in this Agreement
hereunder with respect to such shares. If the Transferring Shareholder fails to
consummate such transfer within the thirty-day period after the expiration of
the Other Shareholder Election Period, any transfer of the shares thereafter
shall again be subject to the provisions of this Section 2.c.
v. Unless otherwise agreed in writing, signed by the person against whom
such writing is sought to be enforced, the closing of any acquisition of common
shares hereunder pursuant to the Company's Option or a Shareholder's Option
shall take place within forty-five (45) days of an applicable option's exercise.
If any such closing does not take place within such forty-five day period, then
the shares that were to be acquired shall be offered in accordance with this
Section 2.c. as though the applicable option had not been exercised.
vi. Notwithstanding the foregoing provisions of this Section 2.c., the
following shall apply in the event of any Involuntary Transfer of common shares.
An "Involuntary Transfer" shall mean any transfer caused by the death of a
shareholder, as well as any transfer, proceeding or action by, through, as a
consequence of, or in which a shareholder shall be deprived or divested of any
right, title or interest in or to any of the common stock of the Company,
including, without limitation, any seizure under levy, attachment or execution,
any transfer in connection with bankruptcy (whether pursuant to a filing of a
voluntary or an involuntary petition under the United States Bankruptcy Code, or
any amendments, modifications, revisions or successors statutes thereto) or
other court proceeding to a debtor-in-possession, trustee in bankruptcy or
receiver or other officer or agency, any transfer to a state or to a public
officer or agency pursuant to any statute pertaining to escheat or abandoned
property, any transfer pursuant to a separation agreement, equitable
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distribution agreement or community property distribution agreement, or the
entry of a final court order in a divorce proceeding from which there is no
further right of appeal.
In the event of any Involuntary Transfer, the Company shall give written
notice to each shareholder upon the occurrence, or prospective occurrence, of
such Involuntary Transfer within fifteen (15) days of the date on which the
Company is notified of the occurrence or prospective occurrence of such
Involuntary Transfer. The foregoing provisions of this Section 2.c. then shall
apply, except (i) the Option Price shall be the value of the Company as
determined by a qualified representative of a nationally recognized investment
banking or accounting firm mutually agreeable to the Company, Purchaser, and the
shareholder who made, or may make, the Involuntary Transfer, multiplied by the
percentage of all equity interests in the Company that is then represented by
the shares that are the subject of the Involuntary Transfer, such independent
appraised value to take into account the earnings and book value of the Company,
and (ii) the appraiser shall deliver written notice of such valuation to the
Company and to all other shareholders promptly following his completion of such
valuation, and such written notice shall be considered the Option Notice for
purposes of this Section 2.c. The cost of the appraisal shall be shared equally
by the Company and the shareholder who made, or may make, the Involuntary
Transfer.
At the closing of any purchase by the Company or any shareholders pursuant
to this Section 0.x.xx., the involuntary transferee shall deliver certificates
representing the common shares being purchased, duly endorsed for transfer and
accompanied by all requisite stock transfer taxes, and such shares shall be
conveyed free and clear of any liens, claims, options, charges, encumbrances or
rights of others arising through the action or inaction of the involuntary
transferee, and the
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involuntary transferee shall so represent and warrant. The involuntary
transferee shall further represent and warrant that he is the beneficial owner
of such shares.
In the event the provisions of this Section 0.x.xx. shall be held to be
unenforceable with respect to any particular Involuntary Transfer of common
stock, or if all of the shares subject to the Involuntary Transfer are not
purchased by the Company and/or one or more shareholders, and if the involuntary
transferee subsequently desires to transfer such common stock, the involuntary
transferee shall be deemed to be a "Transferring Shareholder" under Section 2.c.
and shall be bound by the other provisions of this Agreement.
vii. Notwithstanding anything to the contrary contained in this Section
2.c., no shareholder shall transfer any common shares at any time if such action
would constitute a violation of any federal or state securities laws or a breach
of the conditions to any exemption from registration of the shares under any
such laws or a breach of any undertaking or agreement of such shareholder
entered into pursuant to such laws or in connection with obtaining an exemption
thereunder. Each shareholder agrees that any shares purchased or acquired by
such shareholder shall bear appropriate legends restricting the sale or other
transfer of such shares in accordance with applicable federal and state
securities laws, in addition to a legend referring to the restrictions set forth
in this Agreement.
d. Rights With Regard to Registration of Purchaser's Common Shares.
i. In the event that the Company registers any of its common stock or other
securities under federal and state securities laws for a primary offering or a
secondary offering by the Company or any of the officers or directors of the
Company who are also shareholders (a "Management Shareholder"), Purchaser shall
have piggy-back registration rights to include all common stock then owned by
Purchaser (collectively, the "Purchaser's Common Shares"), in any
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such offering on a pro rata basis. The Company shall give Purchaser notice of
such proposed registration at least thirty (30) days prior to the filing of a
registration statement. Upon the written request of Purchaser delivered to the
Company within twenty (20) days after the receipt of the notice from the
Company, which request shall state the number of Purchaser's Common Shares that
Purchaser wishes to sell or distribute publicly under the registration statement
proposed to be filed by the Company, the Company shall use its best efforts to
register Purchaser's Common Shares, and to cause such registration to become and
remain effective so long as the Company keeps such registration effective as to
any other common stock of the Company. Purchaser's Common Shares registered
pursuant to this Section 2.d.i. must be purchased and offered for sale by a bona
fide underwriter or underwriters in a public offering on a firm commitment
basis. The Company's managing underwriter shall have the right to limit in whole
or in part the total number of Purchaser's Common Shares to be sold hereunder,
so long as such limitation is applied on a pro rata basis with respect to all
shares proposed or requested to be registered by the Company and all
shareholders. The expenses of any such offering shall be borne by the Company,
except for Purchaser's pro rata share of any underwriter's discount or sales
agent's commission.
ii. If, in connection with any registration under this Section 2.d, any of
the common shares of Company stock require registration or qualification under
the securities or "blue sky" laws of any state, or the approval of any state
governmental official or authority, the Company shall take all requisite action
and use its best efforts to cause such shares to be duly registered, qualified
or approved as may be required. If any shares meet the criteria for listing on
any exchange on which such stock of the Company is then listed, the Company
shall apply for and use its best efforts to obtain a listing of all such shares
on such exchange.
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iii. Except as provided in Section 2.d.i. above, the Company shall pay all
of the expenses in connection with the registration of any shares of Company
stock, including, without limitation, the costs of preparing, printing and
filing the registration statement in compliance with the 1933 Act, the fees and
expenses of counsel and accountants for the Company, Management Shareholders and
Purchaser for qualifying the offering under the securities or "blue sky" laws
and regulations of the state in which the offering is qualified.
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e. Sale of the Company.
i. At any time after April 4, 2000, and before the consummation of a
Purchaser Approved Offering, if a bona fide offer is made by any person (other
than Purchaser, or any person or entity related to or affiliated with
Purchaser), to purchase all or substantially all of the assets or shares of
stock of the Company, and Funding gives the Company written notice that it
desires such offer to be accepted, the Company and its shareholders shall either
accept the offer and consummate the sale on the terms and conditions of the
offer (in which case, if the transaction is a stock sale or merger, Purchaser
also shall sell all of its equity interests in the Company on those terms and
conditions), or the Company shall acquire all the equity interests owned by
Purchaser and Funding in the Company on the same terms and conditions as the
offer; provided, however, that if such offer is made prior to April 4, 2002, the
Company shall have no such obligation unless the total consideration of such
offer is at least $50,000,000. If at any time Funding approves the sale of
substantially all of the assets or shares of stock of the Company, then
Purchaser shall vote its shares in favor of the transaction so approved and, if
the transaction is a stock sale or merger, shall sell all of its equity
interests in the Company on the terms and conditions so approved.
In determining the total consideration for purposes of the foregoing, any
deferred payment shall be discounted to present value at a discount rate of
eight percent (8%) per annum. If the total consideration set forth in the offer
includes anything other than cash and/or marketable securities (the "Non-Cash
Consideration") then the Company, at its option, may acquire Purchaser's equity
interests for the product of (a) either (i) the Non-Cash Consideration specified
or (ii) cash in the amount of the fair market value of the total consideration
set forth in the offer, multiplied by (b) the percentage of all outstanding
equity interests of the Company that then is owned by Purchaser. Such fair
market
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value shall be determined pursuant to the terms of the Stock Purchase Agreements
dated April 4, 1997, March 31, 1998 and the date hereof by and among the
Company, Funding and the other stockholders of the Company (the "Funding
Purchase Agreements").
If the offer contemplates an asset sale, the Company may acquire
Purchaser's equity interests for cash equal to the product of (a) the after-tax
value to the Company of the consideration set forth in the offer multiplied by
(b) the percentage of all outstanding equity interests of the Company that is
then owned by Purchaser. If the Company decides to acquire Purchaser's and
Funding's equity interests, the Company shall acquire Purchaser's and Funding's
equity interests for cash within ninety (90) days from the date of Funding's
written notice.
ii. At any time before the consummation of a Purchaser Approved
Offering, if any assets or stock of the Company is sold for any reason, or if
the Company is merged or consolidated, then the following payments (the
"Management Shareholder Payments") to the Management Shareholders in connection
with such sale, merger or consolidation shall be deemed, for purposes of this
Agreement, as part of the total consideration to be paid for the Company so that
Purchaser shall be entitled to receive from the Company, pari passu with the
rights of holders of the Company's Class B Common Stock and all other holders of
the Company's Class C Common Stock to be paid with respect to the Management
Shareholder Payments, and before any distribution to shareholders, a priority
distribution equal to the product of (1) the sum of (a) all payments made to a
Management Shareholder in consideration of any covenant not to compete or
consulting agreement, plus (b) the component of any compensation to a Management
Shareholder for employment services that is in excess of the prevailing industry
average compensation, paid by companies that are similar to the company that
will be making the payments to the Management Shareholder, for the
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management responsibilities actually to be performed by the Management
Shareholder, as such average compensation is mutually agreed between the
Company, the Management Shareholder and Funding, or if they cannot agree, then
as determined by a current survey of total compensation conducted by a qualified
representative of a nationally recognized investment banking or accounting firm
mutually agreeable to the Company, the Management Shareholder, and Funding,
multiplied by (2) the percentage of all equity interests in the Company that is
then owned by Purchaser.
The priority distribution due Purchaser under this Paragraph 2.e.ii. shall
be paid on the same schedule as the Management Shareholder Payments are received
by the Management Shareholder. If the Company has insufficient funds to pay the
portion of the priority distribution that is due at the time a Management
Shareholder receives a Management Shareholder Payment, the Management
Shareholders receiving Management Shareholder Payments shall pay Purchaser the
amount of such insufficiency pro rata in accordance with the proportionate
amounts of each such Management Shareholder's Payments, such amount to be paid
on the same schedule as the payments are received by the Management Shareholder.
f. Right of Co-Sale. In addition to the rights set forth in Section 2.c, at
any time prior to the consummation of a Purchaser Approved Offering, Purchaser
shall have the right to participate pro rata to the full extent of its equity
interest in the Company in any sale or transfer of stock, other than a gift,
charitable donation or other sale or transfer representing less than One Percent
(1%) of the Company's outstanding common stock, by the Company or any
shareholder of the Company.
g. Rights of Class C Shares on Liquidation, Dissolution or Winding Up.
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The following provisions shall apply until the earlier of (i) the
consummation of a Purchaser Approved Offering, or (ii) the redemption or
conversion of all outstanding shares of the Company's Class C Common Stock:
i. In the event of any liquidation, dissolution or winding up of the
Company (including without limitation a liquidation or reorganization under
Chapter 11 of the United States Bankruptcy Code of 1978, as amended and as may
hereafter be amended), (a "Liquidation"), after payment of any priority
distributions due to Purchaser under Section 2.e.ii. above, the holders of the
Company's Class C Common Stock then outstanding shall be entitled to be paid out
of the assets of the Company available for distribution to its shareholders
(pari passu with the holders of the Company's Class B Common Stock, and before
any payment shall be made to the holders of any shares of the Company's Class A
Common Stock) an amount equal to the stated value of $2.1692 (subject to
appropriate adjustment for stock dividends, stock splits, combinations, and
similar recapitalizations affecting the Company's Class C Common Stock) per
share of the Company's Class C Common Stock (the "Stated Value"), with such
amount to be calculated as of the date of such payment. Section 2.g. of the
Stock Purchase Agreement among the parties dated July 10, 1998 is hereby amended
so that the term "Stated Value" as set forth therein shall mean $2.1692 (subject
to appropriate adjustment for stock dividends, stock splits, combinations, and
similar recapitalizations affecting the Company's Class C Common Stock) per
share of the Company's Class C Common Stock.
ii. If, upon any Liquidation, the assets of the Company available for
distribution to its shareholders shall be insufficient (a "Liquidation
Insufficiency") to pay the holders of the Company's Class C Common Stock and
Class C Common Stock the full amount to which they shall
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be entitled pursuant to Section 2.g.i., the holders of the Company's Class B
Common Stock and the holders of the Company's Class C Common Stock shall be
entitled to receive, pari passu, all the assets of the Company available for
distribution to its shareholders.
iii. If there is no Liquidation Insufficiency and payment shall have been
made to the holders of the Company's Class B Common Stock and the holders of the
Company's Class C Common Stock of the full amount to which they are entitled,
the holders of the Company's Class B Common Stock and the holders of the
Company's Class C Common Stock shall then be entitled to share in all remaining
assets and funds of the Company ratably in proportion to the number of shares of
Company common stock held by such holder.
iv. Unless such transaction is approved by the directors elected by the
holders of the Company's Class B Common Stock, the merger or consolidation of
the Company into or with another corporation in which the stockholders of the
Company shall own less than Fifty Percent (50%) of the voting securities of the
surviving corporation or the sale, transfer or lease (but not including a
transfer or lease by pledge or mortgage to a bona fide lender) of all or
substantially all of the assets of the Company shall be deemed to be a
Liquidation as such term is used in this Section 2.g. The amount deemed
distributed to the holders of the Company's Class B Common Stock and the holders
of the Company's Class C Common Stock upon any such merger or consolidation
shall be the cash or the value of the property, rights or securities distributed
to such holder by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined by a competent
independent appraiser mutually agreed upon by the holders of the Company's Class
B Common Stock and the Company. The Company shall, upon receipt of such
appraiser's valuation, give prompt written notice of the appraiser's valuation
to the holders of the Company's Class B
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Common Stock and the holders of the Company's Class C Common Stock. The fees of
such appraiser shall be shared 50% by the Company, and 50% (shared pro rata) by
the holders of the Company's Class B Common Stock and the holders of the
Company's Class C Common Stock.
v. The Company's Articles of Incorporation shall contain provisions
consistent with this Section 2.g. until the earlier of (i) the consummation of a
Purchaser Approved Offering, or (ii) the redemption or conversion of all
outstanding shares of the Company's Class C Common Stock.
i. Representation on the Board of Directors; Visitation Rights. Until a
Purchaser Approved Offering has been consummated or Purchaser no longer owns any
equity interest in the Company, there shall be, and the Company's Articles of
Incorporation shall provide for, at least five (5) members on the Company's
Board of Directors, two (2) of whom shall be elected by the holders of the
Company's Class B Common Stock voting as a class, and the remainder of whom
shall be elected by the holders of the Company's Class A Common Stock voting as
a class. The holders of the Company's Class B Common Stock shall have the right
to remove and replace two (2) members of the Board at any time, and the holders
of the Company's Class A Common Stock shall have the right to remove and replace
the remaining members of the Board at any time. The Company shall pay each
director elected by the holders of the Company's Class B Common Stock a fee of
Two Thousand Five Hundred Dollars ($2,500.00) for attendance at each meeting of
the Board of Directors. Board meetings will occur at least quarterly. The
holders of the Company's Class C Common Stock shall have the right to appoint a
representative who shall have the right to attend meetings of the Company's
Board of Directors as a visitor.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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In connection with the purchase of the Class C Shares hereunder, the
Company hereby represents and warrants to Purchaser as follows:
a. Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas. The Company
has the requisite corporate power and authority to own or lease its properties
and to carry on its business as now conducted. The Company is duly qualified and
in good standing as a foreign corporation authorized to do business in each of
the jurisdictions in which the failure to be so qualified would have a material
adverse effect on the Company and has delivered to Purchaser a good standing
certificate for each such jurisdiction.
The Company has delivered to Purchaser true and complete copies of the
Company's Articles of Incorporation and Bylaws (the "Organizational Documents"),
in each case as amended to the date hereof, and such Organizational Documents
are in full force and effect on the date hereof. The Company has delivered to
Purchaser a true and complete list of all officers and directors of the Company.
The Company has no Affiliates (as defined in Rule 12b-2 of Regulation 12B
promulgated under the Securities Exchange Act of 1934, as amended), except for
officers, directors and shareholders disclosed to Purchaser pursuant to this
Agreement.
b. Capital Stock. The authorized capital stock of the Company consists of
Twenty-Five Million (25,000,000) shares of Class A Common Stock, no par value
per share, of which Four Million Six Hundred Fifty-Five Thousand Three Hundred
(4,655,300) shares are duly and validly issued and outstanding, fully paid and
non-assessable, Twenty-Five Million (25,000,000) shares of Class B Common Stock,
no par value per share, of which Four Million Nine Hundred Seventy-Nine Thousand
Seven Hundred Seventy-Seven (4,979,777) shares will be duly and validly issued
and outstanding, fully paid and non-assessable upon Closing, and Twenty-Five
Million (25,000,000) shares of Class
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C Common Stock, no par value per share, of which Two Million Seventy-Four
Thousand Four Hundred Sixty-Four (2,074,464) shares will be duly and validly
issued and outstanding, fully paid and non-assessable upon Closing (One Million
Thirty-Seven Thousand Two Hundred Thirty-Two (1,037,232) shares to Purchaser,
and One Million Thirty-Seven Thousand Two Hundred Thirty-Two (1,037,232) shares
to Spotswood).
All of the outstanding Class A Common Stock of the Company is owned by the
Shareholders other than Funding (except for shares held by others constituting,
in the aggregate, less than 0.25% of the outstanding capital stock of the
Company), and all of the outstanding Class B Common Stock of the Company is
owned by Funding. The Company does not have any other shares, classes of shares
or other debt or equity securities which are authorized, issued or outstanding.
None of the stock has been issued in violation of any preemptive rights.
The Class C Shares are duly authorized and upon issuance to the Purchaser
shall be validly issued to Purchaser, free and clear of all liens or rights of
any nature whatsoever, and without violation of any preemptive rights but
subject, as to 81,279 of the Class C Shares, to the Voting Trust Agreement.
Except for the options described on Schedule 3.b., there are no outstanding
subscriptions, options, rights, warrants, calls, convertible securities or other
rights, agreements or commitments which obligate the Company to issue, call,
repurchase, redeem or transfer any of its capital stock, or that restrict the
transfer of or otherwise relate to the Company's capital stock.
c. Business. The Company is engaged primarily in the business of hardware
and service sales, Internet access, communications networking and related
consulting.
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d. Investments. The Company does not own or have, directly or indirectly,
any material interest or investment (whether as equity or debt) in, or own any
of the capital stock of, any corporation, partnership, joint venture, business,
trust or other entity.
e. Authority. The Company has all requisite power and authority to execute
and deliver this Agreement and to perform all of its obligations hereunder. The
execution, delivery and performance of this Agreement and the transactions
contemplated hereby have been duly authorized by all necessary corporate actions
of the Board of Directors and shareholders of the Company. This Agreement is a
valid and binding obligation of the Company, enforceable against it in
accordance with their respective terms and conditions.
f. No Consents. No consent, waiver, approval, license or authorization of,
or designation, declaration or filing with, any person or governmental or
regulatory authority on the part of the Company is required in connection with
the execution or delivery by the Company of this Agreement, nor the consummation
by the Company of the transactions contemplated hereby.
g. No Violation. Neither the execution and delivery of this Agreement, nor
the consummation by the Company of the transactions contemplated hereby, shall
(a) conflict with the Organizational Documents of the Company, (b) violate or
constitute a default under any contract or other agreement to which the Company
is a party or by which the Company is bound, (c) violate any law, rule or
regulation of any state or of the United States or any judgment, decree, order,
regulation or rule of any court or any governmental or regulatory authority, or
(d) result in or require the creation of any lien or other encumbrance upon or
with respect to the Class C Shares or any of the assets or other securities of
the Company.
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h. Financial Statements. Attached hereto as Schedule 3.h. are unaudited
financial statements, balance sheets, income statements and cash flow statements
of the Company for the years ended December 31, 1996 and December 31, 1997 (the
"Financial Statements"). To the best knowledge of the Company, the Financial
Statements have been prepared in conformity with GAAP, and fairly and accurately
reflect the financial condition of the Company as of the respective dates
thereof in conformity with GAAP. To the best knowledge of the Company, all
interim financial statements for periods after December 31, 1997 that have been,
or pursuant to Section 5.c below will be, delivered to Purchaser, have been and
will be prepared in conformity with GAAP, and fairly and accurately reflect the
financial condition of the Company as of the respective dates thereof in
conformity with GAAP.
The Company does not have any debts, liabilities or other obligations of
any nature (whether contingent or fixed, accrued or not accrued, liquidated or
not liquidated, known or unknown, asserted or not asserted, and including
without limitation any direct or indirect obligation to provide funds in respect
of, or to guarantee, act as surety for, or assume, any debt, liability or other
obligation of any nature of any individual, corporation, joint venture,
partnership or other entity) except (i) liabilities specifically disclosed or
reserved against on the Financial Statements, (ii) liabilities which in the
aggregate are not material, (iii) ordinary business expenses incurred in the
ordinary course of business since the date of the last Financial Statements, or
(iv) liabilities disclosed on Schedule 3.h. Except as disclosed on Schedule
3.h., the Company is current on all debts, accounts payable and lease payments
as of the date hereof.
i. No Material Adverse Change. Since the date of the most recent Financial
Statements there has been no material adverse change in the condition, financial
or otherwise, assets, liabilities
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or business of the Company, nor has there been any event or condition of any
character that has or may in the future materially and adversely affect the
business or prospects of the Company. Since the date of the most recent
Financial Statements there has been no dividend or other distribution or payment
in respect of the stock of the Company.
j. Taxes. The Company has paid or made adequate provision for payment of
all federal, state and local income, payroll, sales, property and other taxes,
assessments, liabilities, fees and other governmental charges (including
interest and penalties) whether or not in dispute, which have or may become due
with respect to any period ending on or prior to the Closing Date, and has filed
all required tax returns and reports which are required to be filed. No tax
deficiency has been asserted, proposed or threatened against the Company for
taxes for the current year or for any prior period which has not been fully
settled or paid, nor has any issue been raised by the Internal Revenue Service
or any other taxing authority which reasonably can be expected to result in a
deficiency for any period. The Company's tax returns have never been audited,
nor has the Company received any notice of a planned audit or any communication
that would lead a reasonable person to believe that an audit is currently being
considered by a tax authority.
k. Contracts. The Company is not in material breach of or in material
default under any contract, commitment, agreement, loan, lease or other
instrument (the "Contracts") which materially and adversely affects the Company,
and the Company is not aware of any breach by any other party to any of the
Contracts. The terms of all Contracts are in all material respects arm's length
terms.
l. Property. Except for the property leased pursuant to the leases listed
on Schedule 3.l. (copies of which have been provided to Purchaser), and the
liens described on Schedule 3.1, the Company has good and marketable title to
all real and personal property reflected on the Financial
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Statements, and to all assets acquired since the date of the most recent
Financial Statements, free and clear of any material liens, claims or
encumbrances, except for liens for taxes not yet due and payable and inventory
which has either been used or consumed or has been sold in the ordinary course
of business. To the best of the Company's knowledge, there are no material
assets used by the Company in the conduct of its business which are not either
owned by the Company or leased to the Company under one of the leases described
in Schedule 3.x.
x. Lawsuits. Except as set forth in Schedule 3.m., there is no pending
claim, suit or action, or legal, administrative, arbitration or other proceeding
or governmental investigation, nor is there any basis for any such action,
before any federal, state, local, or other court or governmental authority, nor
to the best of the knowledge of the Company, has any such action been
threatened, (i) against the Company or (ii) against any of the officers or
directors of the Company. The Company has delivered to Purchaser a true and
correct copy of the pleadings in all lawsuits in which the Company is a party.
The Company does not know of any judgment, order, writ, injunction, decree or
award that has been issued by, or requested of, any court, administrative or
governmental agency, arbitrator or other authority which does or may result in
any material adverse change in the business, properties, assets or financial
condition of the Company.
n. Compliance with Laws. The Company is in substantial compliance, and at
all times the Company has conducted its business and affairs in substantial
compliance, with all federal, state and local statutes, laws, ordinances,
requirements, rules, regulations or orders applicable to its business, including
without limitation the Occupational Safety Health Act of 1970, as amended; the
Equal Employment Opportunity Act of 1972, as amended; federal, state and local
laws, rules and regulations of the Federal Trade Commission and other
governmental authorities relating to
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franchising; state and federal securities laws; and laws and regulations
requiring licenses or permits (including, without limitation, permits relating
to the handling or discharge of Hazardous Materials) or the payments of taxes.
The Company has not received any notice asserting any noncompliance. The Company
has all licenses, permits and approvals necessary for the conduct of its
business. The Company has not granted a license or other right to use any
tangible or intangible assets used in or related to the business. From the
Company's inception, none of the Company's directors or officers have been
arrested or convicted of any material crime, nor have any of them been bankrupt
or served as an officer or director of a bankrupt company.
o. Environmental Matters.
i. To the best of the Company's knowledge, neither the Company nor any
property owned or operated by the Company has been or is in violation of, nor
does the Company have any liabilities under, any Environmental Law (as defined
in Section 3.o.iii.). To the best of the Company's knowledge, there are no
actions, suits or proceedings, demands, claims, notices, or investigations
(including, without limitation, notices, demand letters or requests for
information from any Environmental Agency (as defined in Section 3.o.v.),
instituted, pending, or threatened, relating to any liability under any
Environmental Law of the Company or respecting any property owned or operated by
the Company.
ii. To the best of the Company's knowledge, no Hazardous Materials (as
defined in Section 3.o.iv.) have been generated, treated, stored or disposed of
at, or transported to or from, any properties owned or operated by the Company
at any time, except in compliance with applicable Environmental Laws. To the
best of the Company's knowledge, no friable asbestos containing material is in
use, or is or has been stored or disposed of, on or upon any properties owned or
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operated by the Company. To the best of the Company's knowledge, no
polychlorinated biphenyls ("PCBs") are located on or in any properties owned or
operated by the Company in any form or device, including, without limitation, in
the form of electrical transformers, fluorescent light fixtures with ballasts,
or cooling oils, except in compliance with applicable Environmental Laws. To the
best of the Company's knowledge, no underground storage tanks are located on any
properties owned or operated by the Company or were located on any properties
owned or operated by the Company and subsequently removed or filled.
iii. "Environmental Law" means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with any
Environmental Agency relating to (i) the protection, preservation or restoration
of the environment (including, without limitation, air water vapor, surface
water, groundwater, drinking water supply, surface soil, subsurface soil, plant
and animal life or any other natural resource), and/or (ii) the usage, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release, or disposal of any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, whether by type or by quantity, including any material
containing any such substance as a component.
iv. "Hazardous Materials" means solid waste (as that term is defined under
the Resource Conservation and Recovery Act, 42 U.S.C.A. Section 6901 et seq.
("RCRA"), and the regulations adopted pursuant to RCRA), hazardous waste (as
that term is defined under RCRA and the regulations adopted pursuant to RCRA),
hazardous substances (as that term is defined in the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C.A. Section 9601 et seq.
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("CERCLA"), and the regulations adopted pursuant to CERCLA), and other
pollutants, including, without limitation, any solid, liquid, gaseous or thermal
irritant or contaminant, such as smoke, vapor, soot, fumes, acids, alkalis or
chemicals.
v. "Environmental Agency" means the United States Environmental
Protection Agency, any state agency in a state where the Company owns or
operates properties which is similar in jurisdiction to the United States
Environmental Protection Agency, or any other federal, state or local agency
responsible for regulating or enforcing laws, rules, regulations and ordinances
relating to (i) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface soil, subsurface soil, plant and animal life or
any other natural resource), and/or (ii) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production, release,
or disposal of any substance presently listed, defined, designated or classified
as hazardous, toxic, radioactive, or dangerous, or otherwise regulated, whether
by type or by quantity, including any material containing any such substance as
a component.
p. Intellectual Property. The Company is the sole and exclusive owner of,
or has the valid and continuous right to use, free and clear of all liens,
claims, and encumbrances, all trademarks, service marks, trade names, trade
secrets, copyrights, patents, franchises and applications therefor, or other
intangible property, owned by, licensed to or otherwise used by the Company. The
Company also is the sole and exclusive owner of, or has the valid and continuous
right to use, free and clear of all liens, claims and encumbrances, all
background technologies and manufacturing procedures used by it in providing
services or products to its customers. The Company has not infringed or
otherwise violated any trademark, service xxxx, trade name, trade secret,
copyright,
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patent, franchise or other intangible property right of another. Except as set
forth on Schedule 3.p., the Company is not required to pay any royalty, license
fee, commission or other payment to any person or entity with respect to any
trademark, service xxxx, trade name, trade secret, copyright, patent, franchise
or other intangible property. The Company has not granted any person or entity
the right to use any of the Company's trademarks, service marks, trade names,
trade secrets, copyrights, patents, technology or other intangible property, nor
is it aware of any such use by another person or entity.
q. Insurance. Schedule 3.q. contains a true and correct list, together with
copies of certificates or cover pages, of all policies of insurance owned and/or
maintained by the Company. All physical properties and assets of the Company are
covered by fire and other insurance against casualty loss customarily covering
properties and assets of comparable businesses in this region, in amounts which
are reasonable in light of existing replacement costs. The Company maintains
general liability, workers' compensation and other usual types of insurance in
reasonable amounts. The Company is not now in default regarding the provisions
of any policy of insurance, and has not and shall not have failed to give any
notice or present any claim thereunder in due and timely fashion.
r. Books and Records. To the best of the Company's knowledge, the books and
accounts and other corporate records of the Company are complete and correct in
all material respects.
s. Employee Relations. Since the date of the most recent Financial
Statements, there has been no material adverse change in the relationship
between the Company and its employees nor any strike or labor disturbance by
such employees and, to the best of the Company's knowledge, such a change,
strike or labor disturbance is not likely. The Company is in substantial
compliance with all
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applicable laws relating to the employment of labor, including without
limitation any provisions thereof relating to wages and hours, discrimination
due to age, religion, sex, national origin, disability or immigration status.
Schedule 3.s. contains true, complete and correct information as to the
names and rates of compensation (regardless of form) of all current employees of
the Company, together with information as to any bonus, incentive, insurance,
compensation plan, welfare, retirement, defined benefit, 401(k), pension, profit
sharing, salary reduction, deferred compensation, stock purchase, stock option,
vacation, holiday and sick pay or other similar benefit plans (said plans being
referred to as the "Plans") in which any such employees of the Company
participate. All obligations of the Company, whether arising by operation of
law, by contract or by past custom, for payment by it to trusts, retirement
plans or other funds or any governmental agency with respect to unemployment
compensation benefits, social security benefits or any other benefits for
employees of the Company have been paid or shall be paid by the Company at the
time the Company is obligated to make such payments. All benefits payable
directly to the Company's employees have been paid or shall be paid by the
Company at the time the Company is obligated to make such payments. All
reasonably anticipated obligations of the Company, whether arising by operation
of law, by contract or by past custom, for vacation and holiday pay, bonuses and
other forms of compensation or benefits which are or may become payable to
employees or any of them have been paid, or shall be paid, in accordance with
the provisions of applicable laws, regulations, benefit plans or policies.
t. Broker Fee. All broker, finder or professional fees associated with the
transactions contemplated by this Agreement have been disclosed in this
Agreement or on Schedule 3.t, and shall be paid by the Company as and when due.
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u. Customers and Suppliers. The Company does not know of any customer or
supplier of the Company who intends to terminate or reduce its business with the
Company, whether as a result of this Agreement or otherwise. The Company is not
bound by any concession or arrangement with any customer or supplier which is
outside the ordinary course of the Company's business or not made generally
available to other customers or suppliers of the Company.
v. Employee Benefit Plans. True, complete and correct copies of all
relevant documents with respect to the Plans, including, but not limited to,
each of the following documents: (i) a copy of the Plan and each related trust
or other funding agreement, including insurance contracts (and all amendments
thereto) (ii) the last filed Form 5500; (iii) the most recent determination
letter received from the United States Internal Revenue Service with respect to
each Plan that is intended to be qualified under Section 401 of the Internal
Revenue Code of 1986, as amended (the "Code"); and (iv) the summary plan
descriptions and all material modifications thereto, have been delivered to
Purchaser.
All Plans comply in all substantial respects and the Company has
administered and operated each such Plan in substantial compliance with the
requirements of applicable law, including, without limitation, the Employee
Retirement Income Security Act of 1974 as amended ("ERISA"), and the Code, and
no such Plan that is subject to Part 3 of Subtitle B of Title I of ERISA has
incurred any "accumulated funding deficiency" within the meaning of Section 302
of ERISA or Section 412 of the Code, whether or not waived.
The Company does not maintain and is not required to contribute to any
multi employer plan (as defined in Section 3(37) of ERISA) for the benefit of
employees or former employees of the Company.
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The Pension Benefit Guaranty Corporation ("PBGC") has not instituted
proceedings to terminate any of the Company's defined benefit plans and no
condition exists that presents a risk that such proceedings shall be instituted.
There has been no "reportable event" within the meaning of Section 4043(b) of
ERISA with respect to any defined benefit plan and no defined benefit plan has
been terminated within the preceding six years or is expected to be terminated.
No liability (other than for the payment of premiums) to the PBGC has been or is
expected to be incurred by the Company or any officer, director, shareholder or
employee of the Company with respect to any defined benefit plan.
w. Unlawful Payments. Neither the Company nor any shareholder, director,
officer, agent, employee or other person associated with or acting on the
Company's behalf has directly or indirectly, used any corporate funds for
unlawful contributions, gifts, entertainment or for other unlawful expenses
relating to political activity; made any unlawful payment to foreign or domestic
governmental officials or employees or to foreign or domestic political parties
or campaigns from corporate funds; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on the books or records of the Company; or made any bribe,
rebate payoff, influence payment, kickback or other unlawful payment to any
person or entity, private or public, regardless of form, whether in money,
property, or services, to obtain favorable treatment in securing business or to
obtain special concessions or to pay for favorable treatment for business
secured or for special concessions already obtained.
x. Small Business Concern. The Company, taken together with its
"affiliates" (as that term is defined in Section 121.401 of Title 13 of the Code
of Federal Regulations), is a "Small Business Concern" within the meaning of
Section 103(5) of the SBIC Act, and the regulations
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thereunder including Title 13, Code of Federal Regulations, Section 121.3, and
meets the applicable size eligibility criteria set forth in Title 13, Code of
Federal Regulations, Section 121.802(a)(2). The Company does not presently
engage in any activities for which a small business investment company is
prohibited from providing funds by the SBIC Act and the regulations thereunder,
including Title 13, Code of Federal Regulations, Section 107.
y. Small Business Administration Documentation. The Company has provided
the Purchaser with a Small Business Administration ("SBA") Form 480 (Size Status
Declaration) and SBA Form 652 (Assurance of Compliance) which have been
completed and executed by the Company, and SBA Form 1031 (portfolio Finance
Report), Part A of which has been completed by the Company.
z. No Omission. The Company has not intentionally omitted to state to
Purchaser any material fact relating to the Company that is necessary in order
to make the statements made to Purchaser in this Agreement, in the light of the
circumstances under which they were made, not misleading.
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4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
In connection with the sale of the Class C Shares hereunder, Purchaser
hereby represents and warrants to the Company that:
a. Organization. Purchaser is a limited liability company duly organized,
validly existing and in good standing under the laws of North Carolina.
b. Authority. Purchaser has all requisite power and authority to execute
and deliver this Agreement and to perform all of its obligations hereunder. The
execution, delivery and performance of this Agreement and the transactions
contemplated hereby have been duly authorized by all necessary action of
Purchaser. This Agreement is a valid and binding obligation of Purchaser,
enforceable against it in accordance with its terms and conditions.
c. No Violation. Neither the execution and delivery of this Agreement, nor
the consummation by Purchaser of the transactions contemplated hereby, shall (i)
conflict with the Articles of Organization or Operating Agreement of Purchaser,
(ii) violate or constitute a default under any contract or other agreement to
which Purchaser is a party or by which Purchaser is bound, or (iii) violate any
law, rule or regulation of any state or of the United States or any judgment,
decree, order, regulation or rule of any court or any governmental or regulatory
authority, which would have a material adverse effect on the Company or the
transactions contemplated herein.
d. No Consents. No consent, waiver, approval, license or authorization of,
or designation, declaration or filing with, any person or governmental or
regulatory authority on the part of Purchaser is required in connection with the
execution or delivery by Purchaser of this Agreement or the consummation by
Purchaser of the transactions contemplated hereby or thereby, except to the
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extent obtained by Purchaser prior to Closing or to the extent that their
failure to be obtained would not have a material adverse effect on the Company
or the transactions contemplated hereby.
5. AFFIRMATIVE COVENANTS AND AGREEMENTS
From the date hereof, until the consummation of a Purchaser Approved
Offering or the sale by Purchaser of all of its equity interests in the Company,
the Company shall comply with the following:
a. Conduct of Business. The Company (a) shall conduct its business in the
ordinary course and, without the prior written consent of Funding, except in the
ordinary course of business, shall not enter into, or permit the Company or any
assets of the Company to become bound by or subject to, any Contract, and (b)
shall continue to manage the inventories, accounts receivable, accounts payable
and payroll of the Company in accordance with past practice in the ordinary
course of business. The Company shall promptly notify Purchaser of any actions
or proceedings of the type described in Section 3.m.
b. Corporate Examination and Investigations. Purchaser, shall be entitled,
through its employees and representatives, including, without limitation,
Purchaser's counsel and accountants, on a reasonable basis, to make such
investigation of the assets, properties, business and operations of the Company
and such examination of its books, records and financial condition, as Purchaser
wishes. Any such investigation and examination shall be conducted at reasonable
times and under reasonable circumstances and the Company shall cooperate fully
therein. No such investigation undertaken by Purchaser shall relieve the Company
of any liability hereunder. In order that Purchaser may have full opportunity to
make such business, accounting and legal review, examination or investigation,
the Company shall make available at its principal office to the representatives
of
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Purchaser during such period all such information and copies of such documents
concerning the affairs of the Company as such representatives may reasonably
request and shall cause the officers, employees, consultants, agents,
accountants and attorneys of the Company to cooperate fully with such
representatives in connection with such review and examination. The information
obtained by Purchaser shall remain confidential and shall be disclosed only to
the officers, employees managers, members, prospective members and
representatives of Purchaser or the SBA.
c. Delivery of Financial Materials. The Company shall deliver to Purchaser
(i) within thirty (30) days of the end of each month, monthly year-to-date
financial statements prepared in accordance with GAAP (including profit and
loss, cash flow, and balance sheet) and certified by the Company's chief
financial officer, a backlog report, customer contract job status report,
accounts receivable, accounts payable agings and a monthly one-page management
summary of operations; and (ii) within ninety (90) days after the fiscal year
end, (a) an annual independent certified audit from an outside accounting firm
designated by the Company and reasonably acceptable to Funding and (b)
projections for the next year in the same format as the financial statements.
d. Other Deliveries. The Company shall deliver to Purchaser the following
documents or information as applicable: (i) within thirty (30) days after
filing, a copy of all material documents filed with government agencies,
including without limitation, the Internal Revenue Service, the Environmental
Protection Agency and the Securities Exchange Commission; (ii) within thirty
(30) days after filing, a copy of any pleadings of any lawsuits filed by or
against the Company; (iii) within ten (10) days after receipt, a copy of any
notification received by the Company of any defaults under any Contracts to
which the Company is a party, and (iv) within ten (10) days after delivery to
the
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Company's senior lender, a copy of any reports, certificates or information
provided to the Company's senior lender.
e. Insurance. The Company shall carry and maintain in effect insurance
coverage with reputable insurers, which coverage in respective amounts, types
and risks insured is adequate for the business conducted by the Company as
reasonably determined by Funding. Such insurance coverage shall include, without
limitation, directors' and officers' liability insurance.
f. Activities and Proceeds.
(i) Neither the Company nor any of its subsidiaries will engage in any
activities or use directly or indirectly the proceeds from the Class C
Shares for any purpose for which a small business investment company is
prohibited from providing funds by the SBIC Act and the regulations
promulgated thereunder, including Title 13, Code of Federal Regulations,
Section 107.
ii. The Company will use the proceeds from the Class C Shares to
provide working capital to develop existing and future projects. The
Company will deliver within ninety (90) days of the Closing to Purchaser a
written report, certified as correct by the Company's chief financial
officer, verifying the purposes and the amounts for which proceeds from the
Class C Shares have been disbursed, and, if the proceeds have not been
fully disbursed within that ninety-day period, an additional report also so
certified, delivered not later than the end of each succeeding ninety-day
period, verifying the purposes and the amounts for which proceeds have been
disbursed. The Company will supply to Purchaser such additional information
and documents as Purchaser reasonably requests with respect to use of
proceeds and will permit Purchaser to have access to any and all Company
records and
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information and personnel as Purchaser deems necessary to verify how
proceeds have been or are being used and to assure that the proceeds have
been used for the purposes specified. The Company agrees that any diversion
by the Company of the proceeds of the Class C Shares for any purpose other
than those set forth above, without the prior written consent of Purchaser,
will constitute a breach of the covenants of the Company under this
Agreement (a "Proceeds Event of Default").
iii. The Company will not, without obtaining the prior written
approval of Purchaser, change within one (1) year of the Closing the
Company's business activity from that described above to a business
activity which a small business investment company is prohibited from
providing funds by the SBIC Act and the regulations promulgated thereunder.
The Company agrees that any such changes in its business activity without
such prior written consent of Purchaser will constitute a breach of the
covenants of the Company under this Agreement (an "Activity Event of
Default").
iv. If either a Proceeds Event of Default or an Activity Event of
Default occurs, Purchaser hereunder shall have the right to demand
immediate repayment of the purchase price of the Class C Shares, together
with interest at the rate of 12% per annum to the date of repayment, and
the Company will immediately make such payment within three (3) days of
receipt of a demand. The payment remedy is in addition to any and all other
rights and remedies against the Company and others to which Purchaser may
be entitled.
6. FOREBEARANCES OF THE COMPANY
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Except with the prior written consent of Funding, or the affirmative vote
of the directors elected by the holder of the Class B Shares, until the
consummation of a Purchaser Approved Offering or sale by Purchaser of all of its
equity interests in the Company, the Company shall not:
a. carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, change its
corporate structure or establish or acquire any new subsidiary or invest in any
Affiliates;
b. enter into (i) any material agreement, arrangement, lease or commitment
not made in the ordinary course of business;
c. issue or sell any shares of capital stock representing in excess of One
Percent (1%) of the outstanding shares of the Company (except pursuant to the
exercise of options described on Schedule 3.b., or options issued to employees
pursuant to the terms of the Company's Stock Option Plan as in effect on the
date hereof), or create any new class or series of securities;
d. issue, grant or authorize any options (except options described on
Schedule 3.b., or options issued to employees pursuant to the terms of the
Company's Stock Option Plan as in effect on the date hereof), convertible debt
or preferred stock representing, in the aggregate, in excess of One Percent (1%)
of the outstanding shares of the Company, or redeem any outstanding shares of
the Company representing, in the aggregate, in excess of One Percent (1%) of the
outstanding shares of the Company.
e. amend or repeal its Organizational Documents;
f. merge with any other corporation or permit any other corporation to
merge into it or consolidate with any other corporation; acquire control over
any other corporation or organization
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or create any subsidiary; or liquidate, sell or otherwise dispose of any assets
or acquire any assets, other than in the ordinary course of its business
consistent with past practice;
g. fail to maintain its corporate existence in good standing or fail to
comply in any material respect with any laws, regulations, ordinances or
governmental actions applicable to it and to the conduct of its business;
h. transact any business or enter any agreement with the Company's Board of
Directors, any shareholder, or any other individual officer of the Company,
unless such transaction is negotiated and consummated at arm's length;
i. increase the rate of compensation of, pay or agree to pay any bonus to,
or provide any other employee benefit or incentive to, any of its directors,
officers or employees, except in a manner consistent with past practice and
approved by the Compensation Committee of the Company's Board of Directors;
j. change the location or nature of its business operations or invest any
funds in any entity not strictly related to its business;
k. file any bankruptcy or receivership petition or make an assignment for
the benefit of creditors;
l. agree to do any of the foregoing.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
The obligation of Purchaser to enter into and complete the Closing is
subject, at its option, to the fulfillment on or prior to the Closing Date of
the following conditions, the imposition of which is solely for the benefit of
Purchaser, any one or more of which may be waived by Purchaser:
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a. The representations and warranties of the Company contained in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
b. The Company shall have performed in all material respects all
obligations and complied with all covenants or forebearances required by this
Agreement to be performed or complied with by the Company on or prior to the
Closing Date.
c. The Company shall have delivered a certificate to Purchaser, dated the
Closing Date and signed by the President and the Secretary or Treasurer of the
Company, to the effect that the applicable conditions set forth in this Section
have been satisfied.
d. The Company shall have delivered a certificate to Purchaser, dated the
Closing Date and signed by the Secretary or an Assistant Secretary of the
Company, certifying and attaching a copy of the Company's Organizational
Documents as in effect as of the Closing Date.
e. Purchaser shall have received an opinion of counsel to the Company,
dated the Closing Date, as to such matters as Purchaser may reasonably request
with respect to the transactions contemplated hereby.
f. Purchaser shall have received all such certified resolutions,
certificates, documents or instruments with respect to the Company as Purchaser
may reasonably require to carry out the intent and purpose of this Agreement.
g. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, which has or may have, in the
opinion of Purchaser, a materially adverse effect on the assets, properties,
business, operations or condition (financial or otherwise) of the Company.
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h. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated hereby or to seek
damages or a discovery order in connection with such transactions.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligation of the Company to enter into and complete the Closing is
subject, at its option, to the fulfillment on or prior to the Closing Date of
the following conditions, the imposition of which is solely for the benefit of
the Company, any one or more of which may be waived by the Company:
a. The representations and warranties of Purchaser contained in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
b. Purchaser shall have performed in all material respects all obligations
and complied with all covenants required by this Agreement to be performed or
complied with by Purchaser on or prior to the Closing Date.
c. Purchaser shall have delivered a certificate to the Company, dated the
Closing Date and signed by the President and the Secretary or Treasurer of the
general partner of Purchaser, to the effect that the applicable conditions set
forth in this Section have been satisfied.
d. The Company shall have received all such certified resolutions,
certificates, documents or instruments with respect to Purchaser as the Company
may reasonably require to carry out the intent and purpose of this Agreement.
e. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory
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body, to restrain, modify or prevent the carrying out of the transactions
contemplated hereby or to seek damages or a discovery order in connection with
such transactions.
9. EXPENSES
At Closing, the Company shall (i) pay Geneva Associates, LLC a total
advisory fee of $75,000 for its services in connection with the transactions
contemplated hereunder and under the Stock Purchase Agreements with Spotswood
and Funding each dated the date hereof, and (ii) pay all reasonable
out-of-pocket costs and expenses (including, without limitation, legal,
accounting and consulting fees) incurred by Purchaser in connection with its due
diligence and the negotiation, preparation, execution and performance of this
Agreement and the transactions contemplated hereby. Amounts to be paid by the
Company at Closing under Section 9(ii) shall be paid directly out of the payment
of the purchase price for the Class C Shares at Closing.
10. INDEMNIFICATION
a. Obligation of the Company to Indemnify. The Company agrees to indemnify,
defend and hold harmless Purchaser against and in respect of any and all claims,
demands, costs, expenses, obligations, liabilities, damages, recoveries and
deficiencies, including, without limitation, interest, penalties and reasonable
attorneys' fees ("Losses"), which directly or indirectly arise, result from or
relate to the breach by the Company of, or the failure by the Company to comply
with or perform, the Company's representations, warranties, covenants or
agreements contained in this Agreement. To compensate Purchaser for the
reduction in the capitalization of the Company as the result of any
indemnification payment by the Company hereunder, the amount of any
indemnification payment hereunder shall be equal to the sum of (i) the amount of
Purchaser's Losses plus (ii) an amount such that, following the indemnification
payment, Purchaser would be in the same position as if the
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shareholders of the Company (other than Purchaser) had made such indemnification
payment to Purchaser directly.
b. Obligation of Purchaser to Indemnify. Purchaser agrees to indemnify,
defend and hold harmless the Company against and in respect of any and all
Losses which directly or indirectly arise, result from or relate to the breach
by Purchaser of, or the failure by Purchaser to comply with or perform, any of
its representations, warranties, covenants or agreements contained in this
Agreement.
11. TERMINATION
a. This Agreement may be terminated subject to this Section 11, as follows:
i. At any time on or prior to the Closing Date, by the mutual written
consent of the Company and Purchaser;
ii. At any time on or prior to the Closing Date, by Purchaser in
writing, if the Company has, or by the Company in writing if Purchaser has,
in any material respect, breached (i) any covenant or undertaking contained
herein or (ii) any representation or warranty contained herein, and in the
case of (i) and (ii) if such breach has not been cured by the earlier of
ten (10) days after the date on which written notice of such breach is
given to the party committing such breach or the Closing Date;
iii. On the Closing Date, by either Purchaser or the Company in
writing, if any of the conditions precedent to the obligations of such
party to consummate the transactions contemplated hereby have not been
satisfied or fulfilled; or
iv. By either Purchaser or the Company in writing, if the Closing Date
has not occurred by the close of business on December 31, 1998.
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b. Effect of Termination. In the event of a termination of this Agreement
for any reason, each party may seek any remedies available to it, including
claims for damages, specific performance or injunctive relief.
12. CLAIMS FOR INDEMNIFICATION
Any claim for indemnification which is based upon a final judgment, decree
or award of a court of competent jurisdiction requiring the payment of money by
any party to this Agreement or any of its officers, directors or controlling
persons, shall be conclusive as to the amount of such claim, provided a
certified copy of such judgment, decree or award accompanies the notice relating
to such claim and provided further that the party seeking indemnification shall
have complied with Section 14 of this Agreement.
Any claim for indemnification shall be conclusive in all respects thirty
(30) days after receipt by the other party of notice thereof, unless within such
period the indemnifying party shall have sent to the party seeking
indemnification, and the party seeking indemnification shall have received,
notice questioning the propriety of the claim, in which case such claim, unless
settled by agreement of the parties, shall be promptly referred to arbitration
as provided in Section 13. In the event that a party makes a claim for
indemnification, and the indemnifying party contests that claim but the claim is
not settled or referred to arbitration within sixty (60) days after receipt by
the indemnifying party of notice of the claim from the party seeking
indemnification, such claim shall be regarded as conclusive in all respects.
13. DISPUTE RESOLUTION
All disputes arising hereunder between the parties shall be referred to
arbitration under the Uniform Arbitration Act as adopted in Delaware, according
to the rules of the American Arbitration
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Association. Judgment upon the award by the arbitrator may be entered in any
court having jurisdiction thereof. As part of such award, the arbitrator shall
be promptly paid by the party that initiates the proceeding, but the portion of
each such fee and expenses which represents the same percentage thereof as the
percentage of the amount of the claim represented by the amount awarded shall be
added to the amount of the award and shall be borne by the indemnifying party.
Any award shall be a conclusive determination of the matter and shall be binding
upon Purchaser and the Company and shall not be contested by either of them.
Arbitration proceedings shall be held in the city of Dover, Delaware unless the
parties agree upon another location. In any such action the prevailing party, in
the judgment of the arbitrator, shall be entitled to an award of its costs and
attorneys' fees incurred in the action.
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14. THIRD PARTY CLAIMS
In the event that any legal proceeding shall be instituted, or any claim or
demand shall be asserted, by any third party in respect of which indemnity may
be sought by Purchaser or the Company pursuant to the provisions of this
Agreement, the party seeking indemnification, with reasonable promptness after
obtaining knowledge of such proceeding, claim or demand shall give written
notice thereof to the other party, who shall then have the right, at its option
and expense, to be represented by counsel of its choice in connection with such
matter, which counsel shall be reasonably satisfactory to the party seeking
indemnification, and to defend against, negotiate, settle or otherwise deal with
any such proceeding, claim or demand; provided, however, that without the prior
written consent of the party seeking indemnification, which consent shall not be
unreasonably withheld, the indemnifying party shall not consent to the entry of
any judgment in or agree to any settlement of any such matters; and provided
further that the party seeking indemnification may retain counsel, at its own
expense, to represent it and participate in connection with any such proceeding
or claim or demand. Failure by the indemnifying party to notify the party
seeking indemnification of the indemnifying party's election to defend any
proceeding, claim or demand with respect to which indemnity is sought within
thirty (30) days after notice thereof shall have been given by the party seeking
indemnification shall be deemed a waiver by the indemnifying party of its right
to defend against such matter. If the indemnifying party assumes defense of any
such proceeding, claim or demand, it shall take or cause to be taken all steps
necessary in connection with such defense, and the party seeking indemnification
shall in all events be entitled to indemnity with respect to such matter, as
provided in this Agreement. In the event that the indemnifying party does not
elect to defend any proceeding, claim or demand with respect to which indemnity
is sought, the party seeking
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indemnification may defend against, settle or otherwise deal with any such
proceeding, claim or demand in such matter as it may in its good faith
discretion deem appropriate and the indemnifying party shall be liable for
indemnification with respect to such matter, including without limitation the
reasonable costs of such defense, as provided in this Agreement. In the event of
any proceeding, claim or demand by a third party with respect to which a claim
for indemnification is made hereunder, the parties hereto agree that they will
cooperate fully with each other in connection with the defense or settlement of
such matter.
15. MISCELLANEOUS.
a. Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
b. Waiver of Compliance. Any failure of Purchaser or of the Company to
comply with any obligation, agreement or condition contained herein may be
expressly waived in writing by the Company or Purchaser, respectively, but such
waiver or failure to insist upon strict compliance with such obligation,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. No waiver shall be binding unless
executed in writing by the party or parties making such waiver.
c. Assignment; Binding on Successors. This Agreement may not be assigned by
any party hereto without the written consent of the other parties hereto,
provided, however, that Purchaser may assign any or all of its rights and
obligations hereunder to any person or entity to whom Purchaser transfers any of
the Class C Shares; provided, however, that the Purchaser shall be the sole
representative of any such transferee in dealing with all matters pertaining to
this Agreement.
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This Agreement shall be binding on, and inure to the benefit of, the parties to
it and their respective legal representatives, successors and permitted assigns.
d. Representations and Warranties. All representations, warranties and
agreements of the parties contained in this Agreement, or in any Schedule,
instrument, certificate or other writing provided for herein, shall survive the
Closing.
e. Notices. Except as provided in this Section 15.e., all notices or other
communications hereunder shall be in writing and shall be effective (a) when
personally delivered by courier or otherwise to the party to be given such
notice or other communication, or (b) on the business day following the day such
notice or other communication is sent by telex, facsimile or similar electronic
device, fully prepaid, which telex, facsimile or similar electronic
communication shall promptly be confirmed by written notice or (c) on the fifth
day following the date of deposit in the United States mail if such notice or
other communication is sent by certified or registered air mail (or its
equivalent) with return receipt requested and postage thereon fully prepaid. The
addresses for such notices shall be as follows:
If to Purchaser:
Blue Ridge Investors Limited Partnership
c/o Blue Ridge Investors Group, Inc.
First Xxxxx Xxxxx
X.X. Xxx 00000
Xxxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxx and Xxxxxx X. XxXxxxxx
Facsimile: (000) 000-0000
With a copy to:
Brooks, Pierce, XxXxxxxx, Xxxxxxxx & Xxxxxxx, L.L.P.
Xxxx Xxxxxx Xxx 00000
Xxxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxx X. Xxxxxx
Facsimile (000) 000-0000
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If to the Company:
I 3S, Inc.
0000 Xxxxxxxxx Xxxxx
Xxxxxx, Xxxxx 00000
Attention: President
Facsimile: (000) 000-0000
With a copy to:
Xxxx X. Xxxxx, Xx.
0000 Xxxxxx Xxxx
Xxxx Xxxxxx Xxx 0000
Xxxxxx, Xxxxx 00000
Facsimile: (000) 000-0000
Any party hereto may, by notice to the other parties hereto, change its address
for receipt of notices hereunder.
f. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
g. Entire Agreement. This Agreement, including the Schedules, Exhibits and
other documents referred to herein which form a part hereof, embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties,
covenants or understandings, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by all of the parties hereto.
h. Headings; References. The headings appearing in this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement. All references herein to
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Sections, Exhibits and Schedules refer to the Sections contained in, and the
Exhibits and Schedules attached to, this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives on the day and year first
above written.
ATTEST: I 3S, INC.
/s/ [ILLEGIBLE] By: /s/ Xxxxx X. Xxxxx
----------------------------- ------------------------------
Xxxxx X. Xxxxx, President
(CORPORATE SEAL)
BLUE RIDGE INVESTORS LIMITED
PARTNERSHIP
By: Blue Ridge Investors Group, Inc.
By: /s/ Xxxx X. Xxxxx
------------------------------
Xxxx X. Xxxxx, President
The Shareholders execute this Agreement solely for the purpose of agreeing
to the provisions of Section 2 hereof and waiving any and all preemptive rights
with respect to the issuance of the Class C Shares hereunder, which rights are
hereby waived.
/s/ Xxxxx X. Xxxxx
-----------------------------------------------
Xxxxx X. Xxxxx
/s/ Xxxx X. Xxxxxxx
-----------------------------------------------
Xxxx X. Xxxxxxx
/s/ Xxxx X. Xxxxx, Xx.
-----------------------------------------------
Xxxx X. Xxxxx, Xx.
/s/ Charles Bo Price
-----------------------------------------------
Charles Bo Price
/s/ Xxxxxx Xxxxxx
-----------------------------------------------
Xxxxxx Xxxxxx
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I3S FUNDING I, L.L.C.
By: GENEVA ASSOCIATES, L.L.C., Manager
By: /s/ Xxxx X. Xxxxx
--------------------------------------
Xxxx X. Xxxxx, Member-Manager
SPOTSWOOD CAPITAL, LLC
By: /s/ Xxxxxxx X. Xxxxxxxx XX
--------------------------------------------
Xxxxxxx X. Xxxxxxxx XX, Member-Manager
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