EXHIBIT 10.1
LOGICAL DESIGN SOLUTIONS, INC.
9% SENIOR SUBORDINATED DEBENTURE
AND WARRANT PURCHASE AGREEMENT
Dated as of March 19, 1997
LOGICAL DESIGN SOLUTIONS, INC.
9% SENIOR SUBORDINATED DEBENTURE
AND WARRANT PURCHASE AGREEMENT
Dated as of March 19, 1997
TABLE OF CONTENTS
ARTICLE I
PURCHASE AND SALE OF SENIOR DEBENTURES AND WARRANTS
1.1 Purchase and Sale of Subordinated Debentures...................... 1
1.2 Issuance of Warrants.............................................. 1
1.3 Investment Units.................................................. 1
1.4 Warrant Shares.................................................... 2
1.5 Closing........................................................... 2
1.6 Use of Proceeds................................................... 2
1.7 Distributions to Certain Shareholders............................. 2
1.8 Termination of S Corporation Status............................... 3
1.9 Merger of LDS and LDSI............................................ 3
1.10 Issuance of Junior Subordinated Debentures........................ 3
1.11 Option Pools...................................................... 4
1.12 Description of Senior Debentures.................................. 4
1.13 Description of Junior Debentures.................................. 5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRINCIPAL SHAREHOLDERS
2.1 Organization and Corporate Power................................... 5
2.2 Authorization...................................................... 6
2.3 Government Approvals............................................... 6
2.4 Authorized and Outstanding Stock................................... 7
2.5 Subsidiaries....................................................... 7
2.6 Financial Information.............................................. 7
2.7 Events Subsequent to the Date of the Financial Statements.......... 8
2.8 Litigation......................................................... 8
2.9 Compliance with Laws and Other Instruments......................... 8
2.10 Taxes.............................................................. 8
2.11 Real Property; Environmental Matters............................... 9
2.12 Personal Property................................................. 10
2.13 Patents, Trademarks, etc.......................................... 10
2.14 Agreements of Directors, Officers and Employees................... 10
2.15 Governmental and Industrial Approvals............................. 11
2.16 Contracts and Commitments......................................... 11
2.17 Registration Rights............................................... 11
2.18 Insurance Coverage................................................ 11
2.19 Employee Matters.................................................. 11
2.20 No Brokers or Finders............................................. 12
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2.21 Transactions with Affiliates...................................... 12
2.22 Assumptions; Guarantees, etc. of Indebtedness of Other Persons.... 12
ARTICLE III
AFFIRMATIVE COVENANTS OF THE COMPANY
3.1 Accounts and Reports.............................................. 12
3.2 Payment of Taxes.................................................. 14
3.3 Maintenance of Key Man Insurance.................................. 14
3.4 Compliance with Laws, etc......................................... 14
3.5 Inspection........................................................ 14
3.6 Corporate Existence; Ownership of Subsidiaries.................... 15
3.7 Compliance with ERISA............................................. 15
3.8 Board Approval.................................................... 15
3.9 Financings........................................................ 15
3.10 Meetings of the Board of Directors................................ 15
3.11 Rule 144A Information............................................. 15
ARTICLE IV
NEGATIVE COVENANTS OF THE COMPANY
4.1 Investments in Other Persons...................................... 16
4.2 Distributions..................................................... 16
4.3 Dealings with Affiliates.......................................... 17
4.4 Merger............................................................ 17
4.5 Limitation on Options............................................. 18
4.6 Limitation on Subsidiary Dividends and Other Distributions........ 18
4.7 No Conflicting Agreements......................................... 18
4.8 Change in Business................................................ 18
4.9 Indebtedness...................................................... 18
4.10 Minimum Net Income................................................ 18
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
5.1 Representations and Warranties.................................... 19
5.2 Permitted Transfers; Legends...................................... 21
ARTICLE VI
SUBORDINATION OF DEBENTURES
6.1 Agreement to Subordinate.......................................... 22
6.2 Acceleration of Senior Debt....................................... 22
6.3 Insolvency, Etc................................................... 23
6.4 Payments Held in Trust............................................ 23
6.5 The Company's Obligations Unconditional........................... 23
6.6 Subrogation Upon Payment of Senior Debt........................... 23
6.7 Notice............................................................ 24
6.8 Knowledge......................................................... 24
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ARTICLE VII
CONDITIONS OF PURCHASERS' OBLIGATION
7.1 Effect of Conditions.............................................. 24
7.2 Representations and Warranties.................................... 24
7.3 Performance....................................................... 24
7.4 No Material Adverse Change........................................ 24
7.5 Opinion of Counsel................................................ 25
7.6 Board Election.................................................... 25
7.7 Redemption Agreement.............................................. 25
7.8 Shareholders Agreement............................................ 25
7.9 Registration Rights Agreement..................................... 25
ARTICLE VIII
CONDITIONS OF THE COMPANY'S OBLIGATIONS
8.1 Effect of Conditions.............................................. 25
8.2 Representations and Warranties.................................... 25
8.3 Performance....................................................... 25
8.4 Payment........................................................... 25
ARTICLE IX
DEFAULTS AND REMEDIES
9.1 Events of Default; Acceleration................................... 26
9.2 Rescission of Acceleration........................................ 28
ARTICLE X
CERTAIN DEFINITIONS
ARTICLE XI
MISCELLANEOUS
11.1 Senior Debenture Payments......................................... 30
11.2 Form, Registration, Transfer and Exchange of Senior Debentures.... 31
11.3 Survival of Representations....................................... 31
11.4 Parties in Interest............................................... 31
11.5 Debentures Owned by Affiliates.................................... 32
11.6 Amendments and Waivers............................................ 32
11.7 Notices........................................................... 32
11.8 Expenses.......................................................... 33
11.9 Counterparts...................................................... 33
11.10 Effect of Headings................................................ 33
11.11 Transferability as Unit........................................... 33
11.12 Governing Law..................................................... 34
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EXHIBITS
A Form of 9 % Senior Subordinated Debenture
B Warrant Agreement
C Merger Agreement
D Form of 9% Junior Subordinated Debenture
E Opinion of Xxxxx & Xxxx LLP
F Redemption Agreement
G Shareholders Agreement
H Registration Rights Agreement
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March 19, 1997
To: The Persons listed on
Schedule 1.1 attached hereto:
------------
Re: Senior Subordinated Debentures and Warrants
Ladies and Gentlemen:
Logical Design Solutions, Inc., a New Jersey corporation ("LDS"), and Xxxx
Xxx Xxxxxx and Xxxxxx Xxxxxx (each a "Principal Shareholder" and collectively
the "Principal Shareholders"), hereby agree with each of you as follows:
ARTICLE I
PURCHASE AND SALE OF SENIOR DEBENTURES AND WARRANTS
1.1 Purchase and Sale of Subordinated Debentures. At the Closing (as herein
defined), LDS will sell to you (the "Purchasers") for the aggregate purchase
price of Five Million Two Hundred Forty - Three Thousand Nine Hundred and Two
($5,243,902) Dollars 9% Senior Subordinated Debentures of the Company (as
defined herein) (the "Senior Debentures") in the aggregate principal amount of
$5,540,735.71. Each of the Purchasers agrees to purchase, separately and
severally, the aggregate amount of Senior Debentures and Warrants (as defined
below) set forth opposite its name on Schedule 1.1 hereto. The Company shall not
be obligated to sell any of the Senior Debentures or the Warrants unless all
conditions set forth in Article VIII hereof shall have been satisfied or waived.
The Senior Debentures shall be in the form of Exhibit A attached hereto.
1.2 Issuance of Warrants. At the Closing, LDS will issue to the Purchasers
warrants (the "Warrants") to acquire an aggregate of 215,000 shares of common
stock, no par value per share (the "Common Stock"), of LDS. The Warrants will be
issued pursuant to a Warrant Agreement in the form of Exhibit B attached hereto
(the "Warrant Agreement").
1.3 Investment Units. The Senior Debentures and the Warrants constitute
investment units ("Investment Units") for the purposes of Section 1273(c)(2)(A)
of the Internal Revenue Code of 1986 as amended (the "Code"). In accordance with
such section and Section 1273(b)(2) of the Code, the issue price of investment
units of a Purchaser is the amount such Purchaser pays for its Senior Debenture.
LDS and the Purchasers agree that within thirty (30) days after the Closing they
will in good faith agree in writing as to the allocation of the issue price
between the Senior Debentures and the Warrants in proportion to their respective
fair market values. None of the parties will take any position in its tax
returns that is inconsistent with such agreed upon allocation. LDS will provide
the Purchasers with any information necessary for them to report their income
from this transaction properly.
1.4 Warrant Shares. LDS shall at all times reserve from its authorized but
unissued capital a sufficient number of shares of Common Stock (the "Warrant
Shares") for issuance upon exercise of the Warrants granted pursuant to the
Warrant Agreement.
1.5 Closing. Subject to the satisfaction or waiver of the conditions set
forth in Articles VII and VIII hereof, the sale and purchase of the Senior
Debentures and Warrants shall be made at a closing (the "Closing") to be held at
the offices of Xxxxxxxx, Xxxxxxx & Xxxxxxx, A Professional Corporation, 000
Xxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx, at 10:00 A.M. on March 19, 1997 or such
later date as may be agreed upon by the Company and the Purchasers. The date on
which the Closing occurs is referred to herein as the "Closing Date". Payment at
the Closing for the Senior Debentures and Warrants shall be by wire transfer
payable in immediately available federal funds. Each Purchaser shall pay that
amount for the Senior Debentures and Warrants being acquired by it at the
Closing as is set forth on Schedule 1.1 hereof. At the Closing, the Company will
deliver to each Purchaser one or more notes representing the Senior Debentures
purchased by such Purchaser and one or more warrant certificates evidencing the
Warrants being acquired by such Purchaser in such denominations and issued in
such names as may be requested by such Purchaser.
1.6 Use of Proceeds. The proceeds from the sale of the Senior Debentures
and Warrants will be used to provide working capital and to fund business
expansion and expenses associated with the transaction contemplated in this
Agreement.
1.7 Distributions to Certain Shareholders. The parties agree that the
following distributions shall be made to shareholders of LDS and Logical Design
Solutions International, Inc. ("LDSI") at or prior to the Closing:
(a) Prior to the Closing, each of LDS and LDSI shall have distributed to
their respective shareholders an aggregate amount of $1,014,6004 representing
their aggregate retained earnings as of December 31, 1995.
(b) It is expected that within 120 days following the Closing, Xxxx
Atlantic will commit to make to LDSI a payment or payments in the aggregate
amount of $1.7 million relating to the licensing of LDSI's Teletrac product
(such payment referred to herein as the "Prospective Exclusivity Payment"). The
parties agree that if within such 120 day period Xxxx Atlantic does commit to
make such payment, LDSI will distribute to its sole shareholder the account
receivable consisting of such commitment to make such payment. Neither LDS nor
LDSI shall have any obligation to make any such distributions to the extent that
Xxxx Atlantic does not commit to make such Prospective Exclusivity Payment.
(c) At or prior to the Closing, LDS and LDSI shall have distributed to
their respective shareholders amounts equal to the federal and state income
taxes payable by such shareholders (at an assumed rate of 37%), as shareholders
of S corporations, an aggregate amount of $634,798.27 with respect to the income
earned by LDS and LDSI during the period January 1, 1996 through December 31,
1996, and $215,596.41 with respect to income earned by LDS and LDSI during the
period January 1, 1997 through February 28, 1997; provided, however, that no
such distributions shall be made with respect to any income tax incurred by such
shareholders with respect to the other distributions set forth in this Section
1.7, nor with respect to the receipt
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by such shareholders of the Junior Subordinated Debentures described below.
Following the Closing, if it is determined that the Company has either
overdistributed or underdistributed amounts otherwise payable to the Principal
Shareholders, appropriate adjustments will be made.
1.8 Termination of S Corporation Status. LDS shall take such steps as the
Purchasers may request to terminate its status as an S corporation, effective as
of the Closing Date.
1.9 Merger of LDS and LDSI. (a) Immediately following the distribution
described in Section 1.7(b), and in all events within 120 days following the
Closing, LDS and LDSI shall be merged (such transaction referred to herein as
the "Merger"), with LDS surviving such Merger. As used hereafter in this
Agreement, the term "Company" shall mean LDS prior to the Merger, and shall mean
LDS as the surviving corporation following the Merger; provided that for
purposes of Article 11, except as otherwise noted, the term "Company" shall mean
LDS and LDSI on a combined basis as if the Merger had occurred prior to the date
hereof. Such merger shall be effected on the terms set forth in the merger
agreement in the form of Exhibit C attached hereto (the "Merger Agreement")
which shall be approved by the shareholders of each of LDS and LDSI and executed
on behalf of each such corporation prior to the Closing Date. The Principal
Shareholders agree that they shall take such action as may be required to effect
such merger in accordance with the terms of the Merger Agreement.
(b) Unless expressly called for or permitted by this Agreement or otherwise
consented to by the Purchasers in writing, from the Closing Date through the
date of the Merger, LDSI shall:
(i) perform in all material respects all obligations of LDSI under
agreements, contracts and instruments relating to or affecting its
properties, assets and business;
(ii) comply in all material respects with all statutes, laws,
ordinances, rules and regulations applicable to the Company;
(iii) not merge or consolidate with, or agree to merge or consolidate
with, or purchase substantially all the assets of, or otherwise acquire a
business or any corporation;
(iv) not make any dividends, distribution or other payments with
respect to its capital stock;
(v) not incur any indebtedness for borrowed money;
(vi) not incur any capital expenditure, or commit to an), such capital
expenditure, in excess of $5,000; and
(vii) not create or enlarge or enhance any employee benefit plan or
enter into any employment contract or increase compensation paid to any
officer paid to LDSI.
1.10 Issuance of Junior Subordinated Debentures. Effective as of March 18,
1997, LDS and LDSI distributed to the Principal Shareholders as set forth on
Schedule 1.10 of 9% Junior Subordinated Debentures in the forms of Exhibit D and
D-1, respectively, attached hereto
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(collectively, the "Junior Debentures" and, together with the Senior Debentures,
the "Debentures") in the aggregate principal amount of $1,114,289.50. The Junior
Debentures will be subordinate to the Senior Debentures as hereinafter set
forth.
1.11 Option Pools. Within thirty (30) days after the Closing, Date, there
shall be established three option plans (collectively, the "Option Plans"), each
of which shall be reasonably acceptable in form and substance to the Purchasers
and shall provide for the issuance of options, as follows:
(a) An option pool ("Option Pool A") will be established for current and
future senior management members and directors of the Company, and there shall
be reserved for issuance thereunder 100,000 shares of common stock.
(b) An option pool ("Option Pool B") shall be established for the Principal
Shareholders, with the exercise price of options granted pursuant thereto based
upon an equity evaluation of the Company of $40 million and there shall be
50,000 shares of Common Stock reserved for issuance under such plan.
(c) A third option pool ("Option Pool C") will be established for Xxxx
Xxxxxx and Xxxxxx Xxxxxx, with the exercise price of options granted pursuant
thereto based upon an equity valuation of the Company of $60 million. There
shall be 50,000 shares of Common Stock reserved for issuance under such plan.
1.12 Description of Senior Debentures. The Senior Debentures shall have the
following terms, and shall be entitled to the following rights and benefits:
(a) The principal amount of the Senior Debentures shall be paid March 19,
2002. The Senior Debentures may, at each Purchaser's option, be pre consummation
of a Liquidity Event (as herein defined). The Company may prepay the Senior
Debentures at any time and from time to time in whole or in installments of $
100,000, without premium or penalty. Each such prepayment shall be preceded by
two Business Days' notice. Any partial prepayment of the Senior Debentures shall
be allocated among all holders of Senior Debentures pro rata in proportion to
the principal amount of the Senior Debentures held by each.
(b) The Senior Debentures shall bear interest from the date of issuance
until the date of payment of principal in full at the rate of 9% per year.
Interest shall be computed on the basis of a 360-day year and the actual number
of days elapsed, on the unpaid principal amount of the Senior Debentures.
Interest shall accrue and compound annually and shall be paid upon payment of
principal.
(c) Any interest not paid when due and payable shall thereafter be paid on
demand by the Purchasers, together with a late charge of two percent (2%) of the
amount of interest payment due.
(d) All payments of principal and interest on the Senior Debentures shall
be made by the Company in lawful money of the United States of America in
immediately available federal funds (or at the request of the holder of a Senior
Debenture, by certified or bank check or wire transfer) on the date such payment
is due.
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(e) The indebtedness evidenced by the Senior Debentures shall be junior and
subordinate in right of payment to all Senior Debt, as that term is defined in
Article VI hereof but shall be senior in right of payment to all indebtedness
evidenced by the Junior Debentures.
1.13 Description of Junior Debentures.
(a) The principal amount of the Junior Debentures shall be payable in full
on March 19, 2003. The Junior Debentures may, at the holders' option, be prepaid
in full upon consummation of a Liquidity Event. The Company may prepay the
Junior Debentures from time to time in whole or installments of $100,000,
without premium or penalty. Each such prepayment shall be preceded by two
Business Days' notice. Any partial prepayment of the Junior Debentures shall be
allocated among all holders of Junior Debentures pro rata in proportion to the
principal amount of the Junior Debentures held by each.
(b) The Junior Debentures shall bear interest on the date of issuance until
the date of payment of principal in full at the rate of 9% per year. Interest
shall be computed on the basis of a 360-day year and the actual number of days
elapsed, on the unpaid principal amount of the Junior Debentures. Interest shall
accrue and compound annually and shall be paid upon payment of principal.
(c) Any interest not paid when due and payable shall thereafter be paid on
demand by the holders of the Junior Debentures, together with a late charge of
2% of the amount of interest payment due.
(d) All payments of principal and interest on the Junior Debentures shall
be made by the Company in lawful money of the United States of America in
immediately available federal funds (or at the request of a holder of a Junior
Debenture, by certified or bank check or wire transfer) on the date such payment
is due.
(e) The indebtedness evidenced by the Junior Debentures shall be junior and
subordinate in right of payments to all Senior Debt, as that term is defined in
Article VI hereof, including, with respect to the Senior Debentures,
indebtedness evidenced thereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE PRINCIPAL SHAREHOLDERS
In order to induce the Purchasers to purchase the Senior Debentures and
Warrants, the Company and the Principal Shareholders, acting jointly and
severally, make the following representations and warranties which shall be
true, correct and complete in all respects on the date hereof and shall be true,
correct and complete in all material respects as of the Closing except for those
representations and warranties that address matters only as of a particular date
or only with respect to a specific period of time:
2.1 Organization and Corporate Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own its properties and to carry on its business
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as presently conducted. The Company is qualified as a foreign corporation in
good standing in each jurisdiction in which it owns or leases real property or
maintains employees.
2.2 Authorization. (a) The Company has all necessary corporate power and
has taken all necessary corporate action required for the due authorization,
execution, delivery and performance by the Company of this Agreement, the
Warrant Agreement, the Debentures, the Shareholders Agreement, the Redemption
Agreement and the Registration Rights Agreement (such agreements other than this
Agreement hereinafter referred to collectively as the "Related Agreements") and
any other agreements or instruments executed by the Company in connection
herewith or therewith and the consummation of the transactions contemplated
herein or therein, and for the due authorization, issuance and delivery of the
Debentures, the Warrants, and upon exercise of the Warrants pursuant to the
terms of the Warrant Agreement and upon payment of the exercise price therefor,
the Warrant Shares. The issuance of the Debentures, the Warrants and the Warrant
Shares does not require any further corporate action and is not and, except as
set forth in the Related Agreements, will not be subject to any preemptive
right, right of first refusal or the like. This Agreement and the Related
Agreements and the other agreements and instruments executed by the Company in
connection herewith or therewith will each be a valid and binding obligation of
the Company enforceable in accordance with its respective terms, except as
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally and except as enforcement thereof is
subject to general principles of equity (regardless of whether enforcement is
considered' in a proceeding in equity or at law).
(b) Each Principal Shareholder has full legal capacity and unrestricted
power to execute and deliver this Agreement and the Related Agreements to which
he or she is a party, and any other agreements or instruments executed by him or
her in connection herewith or therewith and to consummate the transactions
contemplated herein or therein. This Agreement, the Related Agreements and the
other agreements and instruments executed by the Principal Shareholders in
connection herewith or therewith each will be a valid and binding obligation of
the Principal Shareholders enforceable in accordance with its respective terms,
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws relating
to or affecting enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
(c) Each Principal Shareholder owns, of record and beneficially, the number
of shares of Common Stock set forth opposite his or her name on Schedule 2.4
hereto, free and clear of any pledges, security interests, liens, charges or
other encumbrances.
2.3 Government Approvals. No consent, approval, license or authorization
of, or designation, declaration or filing with, any court or governmental
authority is or will be required on the part of the Company or the Principal
Shareholders in connection with the execution, delivery and performance by the
Company or the Principal Shareholders of this Agreement, any of the Related
Agreements and any other agreements or instruments executed by the Company or
the Principal Shareholders in connection herewith or therewith, or in connection
with the issuance of the Debentures, the Warrants and the Warrant Shares, except
for (i) those which have already been made or granted, (ii) those which may be
required under state securities or "blue
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sky" laws, and (iii) the filing of registration statements with the Securities
and Exchange Commission (the "Commission") and any applicable state securities
commission as specifically provided for in the Registration Rights Agreement.
2.4 Authorized and Outstanding Stock. The authorized capital stock of LDS
consists of 1,500,000 shares of Common Stock, of which 785,000 shares are
validly issued and outstanding and held of record and owned beneficially by the
Persons set forth on Schedule 2.4 attached hereto, free and clear of all liens,
security interests, restrictions on transfer, and other encumbrances, and the
authorized capital stock of LDSI consists of 2,500 shares of Common Stock, of
which 100 shares are validly issued and outstanding and held of record and owned
beneficially by the Persons set forth on Schedule 2.4 attached hereto, free and
clear of all liens, security interests, restrictions on transfer, and other
encumbrances. All issued and outstanding shares of capital stock of LDS and LDSI
are, and upon exercise of the Warrants pursuant to the terms of the Warrant
Agreement and upon payment of the exercise price therefor, all Warrant Shares
will be, duly and validly authorized, validly issued and fully paid and
non-assessable and free from any restrictions on transfer, except for
restrictions imposed by federal or state securities or "blue-sky" laws and
except for those imposed pursuant to this Agreement and any Related Agreement.
Except as set forth on Schedule 2.4, there are no outstanding warrants, options,
commitments, preemptive rights, rights to acquire or purchase, conversion rights
or demands of any character relating to the capital stock or other securities of
LDS or LDSI. All issued and outstanding shares of capital stock of LDS and LDSI
were issued (i) in transactions exempt from the registration provisions of the
Act, and (ii) in compliance with or in transactions exempt from the registration
provisions of applicable state securities or "blue-sky" laws.
2.5 Subsidiaries. The Company does not have any Subsidiaries or other
equity investment in any other Person.
2.6 Financial Information. The Company has previously delivered to the
Purchasers the financial statements of the Company for the year ended December
31, 1996, accompanied by the audit report of Ernst & Young LP (the "Audited
Financial Statements"), and the financial statements of the Company for the year
ended December 31, 1995 and for the two months ended February 28, 1997 (the
"Unaudited Financial Statements" and, together with the Audited Financial
Statements, the "Financial Statements"). The Financial Statements are in
accordance with the books and records of the Company and present fairly in
accordance with generally accepted accounting principles applied on a basis
consistent with prior periods the financial condition and results of operations
of the Company as of the dates and for the periods shown; provided, however,
that the Unaudited Financial Statements do not have all footnotes recorded in
accordance with generally accepted accounting principles, and are subject to
year-end adjustments. Except in connection with the transactions contemplated
herein, the Company has no liability or obligation, contingent or otherwise,
which is not adequately reserved against or reflected in the Audited Financial
Statements, except for liabilities and obligations incurred in the ordinary
course of business since December 31, 1996. Since December 31, 1996, except in
connection with the transactions contemplated herein, (i) there has been no
change in the business, assets, liabilities, condition (financial or otherwise)
or operations of the Company except for changes in the ordinary course of
business which would not have a Material Adverse Effect, and (ii) none of the
business, prospects, condition (financial or otherwise), operations,
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property or affairs of the Company has been materially adversely affected by any
occurrence or development, individually or in the aggregate, whether or not
insured against.
2.7 Events Subsequent to the Date of the Financial Statements. Except in
connection with the transactions contemplated herein, and except as set forth on
Schedule 2.7, since December 31, 1996, the Company has not, except in the
ordinary course of business, (i) issued any stock, stock options, warrants or
other securities convertible into or exchangeable for capital stock, or any bond
or other corporate security, (ii) borrowed any money (except under revolving
lines of credit which existed as of December 31, 1996) or mortgaged, pledged or
subjected to any lien any of its assets, tangible or intangible, (iii) sold,
assigned or transferred any of its tangible assets, or canceled any debt or
claim, or (iv) suffered any material loss of property or waived any right of
substantial value. Except as set forth on Schedule 2.7, since December 31, 1996,
the Company has not declared or made any payment or distribution to stockholders
or purchased or redeemed any shares of its capital stock or other securities.
2.8 Litigation. Except as otherwise set forth on Schedule 2.8 hereto, there
is no litigation or governmental proceeding or investigation pending or, to the
knowledge of the Company or the Principal Shareholders threatened, against the
Company or affecting any of its properties or assets, or against any officer,
key employee or shareholder of the Company in his or her capacity as such, and,
to the knowledge of the Company and the Principal Stockholders, no event has
occurred nor does there exist any condition on the basis of which any
litigation, proceeding or investigation is reasonably likely to be instituted
with any substantial likelihood of recovery where such recovery would have a
Material Adverse Effect. Neither the Company nor any officer, key employee or
shareholder of the Company in his or her capacity as such is, to the knowledge
of the Company and the Principal Shareholders, in material default with respect
to any order, writ, injunction, decree, ruling or decision of any court,
commission, board or other government agency.
2.9 Compliance with Laws and Other Instruments. The Company is in
compliance with all of the provisions of this Agreement and of its charter and
by-laws, and, in all material respects with the provisions of each mortgage,
indenture, lease, license, other agreement or instrument, judgment, decree,
judicial order, statute, and regulation by which it is bound or to which it or
its properties are subject. Neither the execution, delivery or performance of
this Agreement and the Related Agreements nor the consummation of the
transactions contemplated hereby and thereby, nor the offer, issuance, sale or
delivery of the Debentures, the Warrants and Warrant Shares, with or without the
giving of notice or passage of time, or both, will violate, or result in any
breach of, or constitute a default under, or result in the imposition of any
encumbrance upon any asset of the Company pursuant to any provision of its
charter or by-laws, subject to the Charter Amendments, or any statute, rule or
regulation, contract, lease, judgment, decree or other document or instrument by
which the Company is bound or to which it or any of its properties are subject,
or will cause the Company to lose the benefit of any right or privilege it
presently enjoys or cause any Person who is expected to normally do business
with the Company to discontinue to do so on the same basis, except for
violations, breaches, defaults, encumbrances or losses which would not have a
Material Adverse Effect.
2.10 Taxes. Each of LDS and LDSI is a S corporation within the meaning of
the Internal Revenue Code of 1986, as amended (the "Code") for federal income
tax purposes and
8
has been a S corporation continually since the date of its formation. The
Company has filed all tax returns, reports and forms (including statements of
estimated taxes owed) required to be filed within the applicable periods for
such filings and has paid all taxes required to be paid, and has established
adequate reserves (net of estimated tax payments already made) for the payment
of all taxes payable in respect to the period subsequent to the last periods
covered by such returns. All such tax returns, reports and forms are true,
correct and complete. Each of LDS and LDSI has properly classified for tax
purposes all employees, consultants and independent contractors, and has made
all filings and has withheld and paid all taxes, required to have been filed,
withheld or paid in connection with services provided by such persons. Adequate
amounts have been withheld by LDS and LDSI from its respective employees for all
periods in compliance with the tax, social security and unemployment withholding
provisions of all federal, state, local and foreign laws. No deficiencies for
any tax are currently assessed against LDS or LDSI, and no tax returns of LDS or
LDSI have ever been audited, and, to the knowledge of LDS or LDSI and the
Principal Shareholders, there is no such audit pending and the Company has not
received any notice for any taxing authority that it is contemplating such an
audit. There is no tax lien, whether imposed by any federal, state or local
taxing authority, outstanding against the assets, properties or business of LDS
or LDSI, other than any lien for taxes not yet due and payable. For the purposes
of this Agreement, the term "tax" shall include all federal, state, local and
foreign taxes, including income, franchise, property, sales, use, gross
receipts, excise, withholding, payroll and employment taxes or other similar
assessments of any kind whatsoever, including all interest, penalties and
additions imposed with respect to such amounts.
2.11 Real Property; Environmental Matters.
(a) Schedule 2.11 sets forth the addresses and uses of all real property
that the Company owns or leases or subleases, and any lien (exclusive of any
statutory landlord's lien) or encumbrance for which the Company is liable and
which the Company has secured with any such owned real property or leasehold
interest, specifying in the case of each such lease or sublease, the name of the
lessor or sublessor, as the case may be, the lease term and the obligations of
the lessee thereunder (or in lieu thereof, attaching a copy of such lease or
sublease). There are no defaults by the Company, or to the actual knowledge of
the Company and the Principal Shareholders (without investigation by the Company
or the Principal Shareholders), by any other party thereto, which might curtail
in any material respect the present use by the Company of the property listed on
Schedule 2.11. The performance by the Company of this Agreement and the Related
Agreements will not result in the termination of, or in any increase of any
amounts payable under, any lease listed on Schedule 2.11.
(b) All real property, owned or leased by the Company comply with all
applicable laws, rules, regulations, order, ordinances, judgments and decrees of
any governmental authorities with respect to all environmental statutes, rules
and regulations. The Company has not received notice of, nor does the Company or
any Principal Shareholder have knowledge of, any past or present events,
conditions, circumstances, activities, practices, incidents, actions or plans of
the Company which may cause noncompliance with, or which may give rise to any
liability for any claim, action, suit, proceeding, hearing, or investigation,
based on or related to the disposal, storage, handling, manufacture, processing,
distribution, use, treatment or transport, or the emission, discharge, release
or threatened release into the environment, of any Substance (as defined
herein). As used in this Section 2.11, the term "Substance" or "Substances"
shall mean
9
any pollutant, hazardous substance, hazardous material, hazardous waste or toxic
waste, as defined in any presently enacted federal, state or local statute or
any regulation that has been promulgated pursuant thereto. No part of any of the
real property owned or leased by the Company has been listed or proposed for
listing on the National Priorities List established by the United States
Environmental Protection Agency, or any other such list by any federal, state or
local authorities.
(c) The Company has all registrations, permits, licenses, and approvals
issued by or on behalf of any federal, state or local governmental body or
agency if any ("Environmental Permits") that are required in connection with the
operation by the Company of its business, the discharge or emission of
Substances by the Company from real property owned or leased by the Company or
the generation, treatment, storage, transportation, or disposal of any such
Substances by the Company.
2.12 Personal Property. Except as set forth on Schedule 2.12 and except for
property sold or otherwise disposed of in the ordinary course of business since
December 31, 1996, the Company owns free and clear of any liens or encumbrances,
all of the personal property reflected as owned by the Company in the most
recent balance sheet contained in the Financial Statements, and all other
material items of personal property acquired by the Company through the date
hereof. All material items of such personal property are in normal operating
condition, wear and tear excepted.
2.13 Patents, Trademarks, etc. Set forth on Schedule 2.13 is a list and
brief description of all material patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service xxxx applications
trade names and copyrights and all applications for such that are in the process
of being prepared, owned by or registered in the name of the Company, or of
which the Company is a licensor or licensee or in which the Company has any
right, and in each case a brief description of the nature of such right. The
Company owns or possesses adequate licenses or other rights to use all patents,
patent applications, trademarks, trademark applications, service marks, service
xxxx applications, trade names, copyrights, manufacturing processes, formulae,
trade secrets and know how (collectively, "Intellectual Property") necessary or
desirable to the conduct of its business as conducted and as proposed to be
conducted, and to conduct and market any educational course or program now
marketed or conducted by the Company and no claim is pending or, to the
knowledge of the Company and the Principal Shareholders, threatened to the
effect that the operations of the Company infringe upon or conflict with the
asserted rights of any other person under any Intellectual Property, or that the
Company does not have the right to market any educational course or program, and
there is no known basis for any such claim (whether or not pending or
threatened). No claim is pending or, to the knowledge of the Company and the
Principal Shareholders, threatened to the effect that any such Intellectual
Property owned or licensed by the Company, or which the Company otherwise has
the right to use, is invalid or unenforceable by the Company, and there is no
known basis for any such claim (whether or not pending or threatened).
2.14 Agreements of Directors, Officers and Employees. To the knowledge of
the Company, no director, officer or employee of or consultant to the Company is
in violation of any terms of any employment contract, non-competition agreement,
non-disclosure agreement, patent disclosure or assignment agreement or other
contract or agreement containing restrictive
10
covenants relating to the right of any such director, officer, employee or
consultant to be employed or engaged by the Company because of the nature of the
business conducted or proposed to be conducted by the Company, or relating to
the use of trade secrets or proprietary information of others.
2.15 Governmental and Industrial Approvals. The Company has all the
material permits, licenses, orders, franchises and other rights and privileges
of all federal, state, local or foreign governmental or regulatory bodies
necessary for the conduct of its business as presently conducted. All such
permits, licenses, orders, franchises and other rights and privileges are in
full force and effect and, to the knowledge of the Company and the Principal
Shareholders, no suspension or cancellation of any of them is threatened, and
none of such permits, licenses, orders, franchises or other rights and
privileges will be affected by the consummation of the transactions contemplated
in this Agreement and the Related Agreements.
2.16 Contracts and Commitments. Except in connection with the transactions
set forth herein, and except as set forth on Schedule 2.16 attached hereto, the
Company has no contract, obligation or commitment which is material or which
involves a potential material commitment or any stock redemption or stock
purchase agreement, stock option plan, shareholders' agreement, financing
agreement, license or real property lease. For purposes of this Section 2.16, a
contract, obligation or commitment shall be deemed material if it requires
expenditures to be made by the Company within one year from the date hereof in
excess of $100,000 or requires payment to the Company within one year from the
date hereof in excess of $100,000 and is not cancelable by the Company without
penalty within 30 days.
2.17 Registration Rights. The Company has not granted any rights relating
to registration of its capital stock under the Act or state securities laws
other than those contained in the Registration Rights Agreement.
2.18 Insurance Coverage. Schedule 2.18 hereto contains an accurate list of
the insurance policies currently maintained by the Company. Except as described
on Schedule 2.18, there are currently no claims pending against the Company
under any insurance policies currently in effect and covering the property,
business or employees of the Company, and all premiums due and payable with
respect to the policies maintained by the Company have been paid to date. All
such policies are in full force and effect and provide insurance, including
without limitation, liability insurance, in such amounts and against such risks
as is customary for companies engaged in similar businesses to the Company to
protect employees, properties, assets, businesses and operations of the Company.
2.19 Employee Matters. Except as set forth on Schedule 2.19, and except as
set forth herein, the Company does not have in effect any employment agreements,
consulting agreements, deferred compensation, severance, pension or retirement
agreements or arrangements, bonus, incentive or profit-sharing plans or
arrangements, or labor or collective bargaining agreements, written or oral. The
Company and the Principal Shareholders have no knowledge that any of the
officers or other key employees of the Company presently intends to terminate
his employment. The Company is in compliance in all material respects with all
applicable laws and regulations relating to labor, employment, fair employment
practices, terms and conditions of employment, and wages and hours. The Company
is in material compliance
11
with the terms of all plans, programs and agreements listed on Schedule 2.19,
and each such plan, program or agreement is in material compliance with all of
the requirements and provisions of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"). No such plan or program has engaged in any
"prohibited transaction" as defined in Section 4975 of the Code, or has incurred
any "accumulated funding deficiency" as defined in Section 302 of ERISA, nor has
any reportable event as defined in Section 4043(b) of ERISA occurred with
respect to any such plan or program. With respect to each plan listed on
Schedule 2.19, any required filings, including all filings required to be made
with the United States Department of Labor and Internal Revenue Service, have
been timely filed, except where the failure to make such filings will not have a
Material Adverse Effect. The consummation of the transactions contemplated
hereby will not entitle any employee of the Company to receive any bonus,
severance or other payment.
2.20 No Brokers or Finders. Except for a fee in the amount of $200,000
payable to Samedan, Inc., of which fee $80,000 shall be paid by the Company in
cash at the Closing, and $120,000 of which shall be paid through the issuance of
Senior Debentures and Warrants as provided in Article 1, the parties hereto
agree that no person has or will have, as a result of the transactions
contemplated by this Agreement, any right, interest or claim against or upon the
Company or any Purchaser for any commission, fee or other compensation as a
finder or broker because of any act or omission by the Company or any Purchaser.
2.21 Transactions with Affiliates. Except as set forth on Schedule 2.21,
and except as set forth herein, there are no loans, leases or other continuing
transactions between the Company on the one hand, and any officer or director of
the Company or any person owning five percent (5%) or more of the Common Stock
of the Company or any respective family member or affiliate of such officer,
director or shareholder on the other hand.
2.22 Assumptions; Guarantees, etc. of Indebtedness of Other Persons. Except
as set forth on Schedule 2.22, the Company has not assumed, guaranteed, endorsed
or otherwise become directly or contingently liable on or for any indebtedness
for borrowed money of any other Person, except guarantees by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business.
ARTICLE III
AFFIRMATIVE COVENANTS OF THE COMPANY
Without limiting any other covenants and provisions hereof, the Company
covenants and agrees that except as is otherwise provided in Sections 3.12, 3.13
and Section 11.4, it will observe the following covenants on and after the
Closing Date and until the first to occur of (i) consummation of a Qualified
Public Offering, and (ii) repayment in full of all obligations under the
Debentures and redemption of all Warrant Shares.
3.1 Accounts and Reports. The Company will, and will cause each of its
Subsidiaries to, maintain a system of accounts in accordance with generally
accepted accounting principles consistently applied and the Company will, and
will cause each of its Subsidiaries to, keep full
12
and complete financial records. The Company will furnish to each Purchaser the
information set forth in this Section 3.1.
(a) Within ninety (90) days after the end of each fiscal year, a copy of
the consolidated and consolidating balance sheet of the Company and its
Subsidiaries as at the end of such year, together with consolidated and
consolidating statements of income, shareholders' equity and cash flow of the
Company and its Subsidiaries for such year, setting forth in each case in
comparative form the corresponding figures for the preceding fiscal year, all in
reasonable detail and accompanied by the unqualified report of Ernst & Young LP
or such other of the six largest public accountant firms (measured by total
revenues) as may be selected from time to time by the Board of Directors;
provided that such consolidating statements need not be audited.
(b) Within thirty (30) days after each month, a preliminary consolidated
and consolidating balance sheet of the Company and its Subsidiaries as of the
end of such month and preliminary consolidated and consolidating statements of
income, shareholders' equity and cash flow for such month and for the period
commencing at the end of the previous fiscal year and ending with the end of
such month, setting forth in each case in comparative form the corresponding
figures for the corresponding period of the preceding fiscal year, all in
reasonable detail.
(c) At the time of delivery of each monthly and annual statement, a
certificate, executed by either the president or chief financial officer of the
Company stating that such officer has reviewed the provisions of Articles III,
IV and IX of this Agreement and has no knowledge of any default by the Company
or any Subsidiary in the performance or observance of any of the provisions
thereof or, if such officer has such knowledge, specifying such default.
(d) Not later than thirty (30) days prior to the end of each fiscal year, a
copy of the operating plan and budget for the next fiscal year required under
Section 3.8.
(e) Promptly upon receipt thereof, any written report, any so called
"management letter", and any other reports submitted to the Company or any
Subsidiary by its independent public accountants relating to the business,
prospects or financial condition of the Company and its Subsidiaries.
(f) Promptly after the commencement thereof, notice of (i) all actions,
suits and proceedings before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, affecting the
Company (or any Subsidiary) which, if successful, would have a Material Adverse
Effect; and (ii) all material defaults by the Company or any Subsidiary (whether
or not declared) under any agreement for money borrowed (unless waived or cured
within applicable grace periods);
(g) Promptly upon sending, making available, or filing the same, all
reports and financial statements as the Company (or any Subsidiary) shall send
or make available generally to the shareholders of the Company as such or to the
Commission; and
(h) Such other information with regard to the business, properties or the
condition or operations, financial or otherwise, of the Company or its
Subsidiaries as the Purchasers may from time to time reasonably request.
13
3.2 Payment of Taxes. The Company will pay and discharge (and cause any
Subsidiary to pay and discharge) all taxes, assessments and governmental charges
or levies imposed upon it or upon its income or profits, or upon any properties
belonging to it, prior to the date on which penalties attach thereto, and all
lawful claims which, if unpaid, might become a lien or charge upon any
properties of the Company (or any Subsidiary), provided that neither the Company
nor any Subsidiary shall be required to pay any such tax, assessment, charge,
levy or claim which (i) has not been asserted or is not owed, or (ii) is being
contested in good faith and by proper proceedings if the Company or such
Subsidiary shall have set aside on its books adequate reserves in the opinion of
management and the Company's independent accountants with respect thereto.
3.3 Maintenance of Key Man Insurance. The Company will, at its expense, use
its best effort to maintain a life insurance policy with a death benefit of at
least $ 1,000,000 with a responsible and reputable insurance company payable to
the Company on the life of each of Xxxx Xxx Xxxxxx and Xxxxxx Xxxxxx. The
Company will maintain such policies and will not cause or permit any assignment
of the proceeds of such policies and will not borrow against such policies. The
Company will add one designee of the Purchasers as a notice party to such
policy, and will request that the issuer of each policy provide such designee
with ten (10) days' notice before either such policy is terminated (for failure
to pay premium or otherwise) or assigned, or before any change is made in the
designation of the beneficiary thereof. Each of the Principal Shareholders
hereby represents and warrants that he or she has not in the past been denied
insurance on usual and customary rates available for an insured without a
pre-existing condition, and that he or she has no knowledge of any fact or
circumstance which would prevent the Company from obtaining life insurance on
his or her life at such usual and customary rates.
3.4 Compliance with Laws, etc. The Company will comply (and cause each of
its Subsidiaries to comply) with all applicable laws, rules, regulations and
orders of any governmental authority, the noncompliance with which would have a
material adverse effect on the business, condition or results of operations of
the Company and its Subsidiaries, taken as a whole.
3.5 Inspection. At any reasonable time during normal business hours and
from time to time, but not more frequently than once per calendar quarter,
respectively, for all Purchasers and not more than once every twelve months for
all unaffiliated transferees of the Purchasers, as a group, the Company (and
each of its Subsidiaries) will permit (i) any one or more of the Purchasers who
then own, of record or beneficially, any Debentures, Warrants or Warrant Shares
who owns, of record or beneficially, at least ten percent (10%) of the then
outstanding principal amount of the Debentures, Warrants or Warrant Shares, and
(ii) any of the agents or representatives of the foregoing Persons, to examine
and make copies of and extracts from the records and books of account of and
visit the properties of the Company (and any of its Subsidiaries) and to discuss
the Company's affairs, finances and accounts with any of its officers or
directors; provided that any Person or Persons exercising rights under this
Section 3.5 shall (i) use all reasonable efforts to ensure that any such
examination or visit results in a minimum of disruption to the operations of the
Company and (ii) shall agree in writing to keep any proprietary information of
the Company disclosed to him in the course of such inspection confidential in a
manner consistent with prudent business practices and treatment of such Person's
or Persons' own confidential information and not use such proprietary
information for
14
any purpose in competition with the Company's business. The rights granted under
this Section 3.5 shall be in addition to any rights which any Purchaser may have
under applicable law.
3.6 Corporate Existence; Ownership of Subsidiaries. The Company will, and
will cause its Subsidiaries to, at all times preserve and keep in full force and
effect their corporate existence, and rights and franchises material to the
business of the Company and its Subsidiaries, taken as a whole, and will
qualify, and will cause each of its Subsidiaries to qualify, to do business as a
foreign corporation in any jurisdiction where the failure to do so would have a
Material Adverse Effect. The Company shall at all times own of record and
beneficially, free and clear of all liens, charges, restrictions, claims and
encumbrances of any nature, a majority of the issued and outstanding capital
stock of each of its Subsidiaries.
3.7 Compliance with ERISA. The Company will comply (and cause each of its
Subsidiaries to comply) in all material respects with all minimum funding
requirements applicable to any pension or other employee benefit plans which are
subject to ERISA or to the Code, and comply in all other material respects with
the provisions of ERISA and the Code, and the rules and regulations thereunder,
which are applicable to any such plan. Neither the Company nor any of its
Subsidiaries will permit any event or condition to exist which could permit any
such plan to be terminated under circumstances which cause the lien provided for
in Section 4068 of ERISA to attach to the assets of the Company or any of its
Subsidiaries.
3.8 Board Approval. Not later than thirty (30) days prior to the end of
each fiscal year, the Company will prepare and submit to its Board of Directors
for its approval prior to such year end an operating plan and budget, cash flow
projections and profit and loss projections, all itemized in reasonable detail
for the immediately following year.
3.9 Financings. The Company will promptly provide to the Board of Directors
the details and terms of, and any brochures or investment memoranda prepared by
the Company related to, any possible financing of any nature for the Company (or
any of its Subsidiaries), whether initiated by the Company or any other Person.
3.10 Meetings of the Board of Directors. The Directors shall schedule
regular meetings not less frequently than once every fiscal quarter. The Company
shall reimburse all members of the Board of Directors of the Company for all
direct out-of-pocket expenses incurred by them in attending such meetings.
3.11 Rule 144A Information. The Company shall, upon the written request of
any Purchaser, provide to such Purchaser and to any prospective institutional
transferee of the Debentures designated by such Purchaser, such financial and
other information as is reasonably available to the Company or can be obtained
by the Company without material expense and as such Purchaser may reasonably
determine is required to permit such transfer to comply with the requirements of
Rule 144A promulgated under the Act.
15
ARTICLE IV
NEGATIVE COVENANTS OF THE COMPANY
Without limiting any other covenants and provisions hereof, the Company
covenants and agrees that except as is otherwise provided in Section 11.4, it
will comply (and will cause each Subsidiary to comply) for the benefit of the
Purchasers with each of the provisions of this Article IV on and after the
Closing Date and until the first to occur of (i) consummation of a Qualified
Public Offering and (ii) repayment of all obligations under the Debentures and
redemption of all Warrants or Warrant Shares.
4.1 Investments in Other Persons. The Company will not make or permit any
Subsidiary to make any loan or advance to any Person, or purchase, otherwise
acquire, or permit any Subsidiary to purchase or otherwise acquire, the capital
stock or assets of any Person without the prior approval of the Purchasers,
except:
(i) investments by the Company or a Subsidiary in evidences of
indebtedness issued or fully guaranteed by the United States of America and
having a maturity of not more than one year from the date of acquisition;
(ii) investments by the Company or a Subsidiary in certificates of
deposit, notes, acceptances and repurchase agreements having a maturity of
not more than one year from the date of acquisition issued by a bank
organized in the United States having a combined capital and surplus of at
least $50,000,000;
(iii) loans, advances or investments from the Company to any
Subsidiary, a Subsidiary to the Company or from a Subsidiary to another
Subsidiary;
(iv) investments by the Company or a Subsidiary in A-rated or better
commercial paper having a maturity of not more than one year from the date
of acquisition; and
(v) investments by the Company or a Subsidiary in "money market" fund
shares, or in "money market" accounts fully insured by the Federal Deposit
Insurance Corporation and sponsored by banks and other financial
institutions, provided that such "money market" fund or "money market"
accounts invest principally in investments of the types described in
clauses (i), (ii) or (iv) of this subsection 4. 1.
4.2 Distributions. Except as otherwise expressly set forth in this
Agreement and the Related Agreements, the Company will not declare or pay any
dividends, purchase, redeem, retire, or otherwise acquire for value any of its
capital stock (or rights, options or warrants to purchase such shares) now or
hereafter outstanding, return any capital to its shareholders as such, or make
any distribution of assets to its shareholders as such, or permit any Subsidiary
to do any of the foregoing, except that the Subsidiaries may declare and make
payment of cash and stock dividends, return capital and make distributions of
assets to the Company and except that nothing herein contained shall prevent the
Company from:
16
(i) effecting a stock split or declaring or paying any dividend
consisting of shares of any class of capital stock to the holders of shares
of such class of capital stock; or
(ii) complying with the terms of the Redemption Agreement.
4.3 Dealings with Affiliates. Except as set forth herein and in the Related
Agreements, and except for those transactions listed in Schedule 4.3 attached
hereto, the Company will not enter into any transaction with any officer or
director of the Company or any Subsidiary or holder of any class of capital
stock of the Company, or any member of their respective immediate families or
any corporation or other entity directly or indirectly controlling, controlled
by or under common control with one or more of such officers, directors or
shareholders or members of their immediate families, unless the interest of such
person is disclosed in advance to the Board of Directors, such transaction is on
arm's-length terms which are no less favorable to the Company or any Subsidiary
than those which could have been obtained from an unaffiliated third party, and
such transaction is approved by a disinterested majority of the Board of
Directors of the Company or such Subsidiary.
4.4 Merger. Except as set forth herein, the Company shall not, and shall
not permit any Subsidiary to merge or consolidate with any other corporation, or
sell, assign, lease or otherwise dispose of or voluntarily part with the control
of (whether in one transaction or in a series of transactions) all, or
substantially all, of its assets (whether now owned or hereinafter acquired) or
sell, assign or otherwise dispose of (whether in one transaction or in a series
of transactions) any of its accounts receivable (whether now in existence or
hereinafter created) at a discount or with recourse, to any Person, or permit
any Subsidiary to do any of the foregoing, (i) except for sales or other
dispositions of assets in the ordinary course of business, and (ii) except that
(a) any wholly owned Subsidiary may merge into or consolidate with or transfer
assets to any other wholly owned Subsidiary, and (b) any wholly owned Subsidiary
may merge into or transfer assets to the Company. Notwithstanding the provisions
of this Section 4.4, if in connection with the sale, merger or consolidation of
the Company, (i) all of the Debentures are paid in full, and the Purchasers
receive with respect to their Warrants or Warrant Shares cash or "Liquid
Securities" (as herein defined), and (ii) if such transaction is consummated
prior to the fourth anniversary of the Closing Date, the amount to be received
by the Purchasers for their Warrants or Warrant Shares is at least equal to the
amount paid by the Purchasers for the Senior Debentures, less all interest paid
or accrued by the Company on the Senior Debentures, then the Company may
consummate such transaction without the approval of the Purchasers. The term
"Liquid Securities" means securities which are tradeable without regard to
volume limitations (except for (i) such restrictions on transfer that may be
imposed in order for a transaction to be accounted for as a pooling of
interests, and (ii) for restrictions under an issuer's internal guidelines
pertaining to transfers by affiliates), and which have been issued by an entity
with market capitalization of at least $750 million, and for which the average
daily trading volume of such securities during the 30 day period immediately
preceding such transaction exceeds 100,000 shares; provided that if securities
are received pursuant to an agreement which provides for the filing of a
registration statement to cover or permit resales of such securities, such
securities shall be deemed "Liquid Securities".
17
4.5 Limitation on Options. Except as otherwise expressly set forth in this
Agreement and the Related Agreements, the Company shall not grant any options,
warrants or other rights to acquire shares of Common Stock or other equity
securities of the Company, other than pursuant to the Option Plans.
4.6 Limitation on Subsidiary Dividends and Other Distributions. The Company
shall not permit any of its Subsidiaries, directly or indirectly, to create or
suffer to exist or become effective any encumbrances or restrictions on the
ability of any of its Subsidiaries to (i) pay dividends or make any other
distributions on its capital stock or any other interest or participation in its
profit owned by any of the Company or any of its Subsidiaries, or pay any
indebtedness owed by any of the Subsidiaries, (ii) make loans or advances to the
Company, or (iii) transfer any of its properties or assets to the Company.
4.7 No Conflicting Agreements. The Company agrees that neither it nor any
Subsidiary will, without the consent of the Purchasers, enter into or amend any
agreement, contract, commitment or understanding which would restrict or
prohibit the exercise by the Purchasers of any of their rights under this
Agreement or any of the Related Agreements.
4.8 Change in Business. The Company will continue to remain principally
engaged in the line of business in which it is engaged on the date hereof, and
will not, without the consent of the Purchasers, enter into any unrelated
business.
4.9 Indebtedness. Except as otherwise expressly set forth in this Agreement
and the Related Agreements, the Company will not, and will not permit any
Subsidiary to, incur or suffer to remain any Indebtedness for borrowed money
other than (i) Indebtedness evidenced by the Senior Debentures, (ii)
Indebtedness evidenced by the Junior Debentures, (iii) Indebtedness consisting
of Senior Debt, (iv) Indebtedness under a bank line of credit, (v) Indebtedness
incurred or assumed in connection with the acquisition of a Person to the extent
permitted under Sections 4.1 and 4.4 and (vi) as expressly set forth in this
Agreement and the Related Agreements. In addition, the Company will not incur
any Indebtedness ranking senior to or pari passu with the Senior Debentures
(other than trade payables in the normal course of business) if for any
consecutive twelve month period ending at the close of any fiscal quarter
occurring after the Closing Date, Consolidated Net Income before interest and
taxes for such twelve month period is less than 1.5 times the interest payments
on the Senior Debentures and any debt ranking senior or pari passu with the
Senior Debentures (including non-cash interest on the Senior Debentures) for
such twelve month period.
4.10 Minimum Net Income. The Company and its Subsidiaries shall have
Consolidated Net Income for the twelve consecutive months ending on the last day
of each of its fiscal quarters (treated as a single accounting period),
commencing with the quarter ending March 31, 1997, of at least $ 1.00.
Notwithstanding the provision of Section 4.10, if the Board of Directors of the
Company (including all designees of Summit Ventures IV, L.P.) unanimously
approves a business plan or budget that forecasts Consolidated Net Income of
less than $1.00, then this Section 4.10 shall be deemed to have been waived with
respect to the period of time covered by such business plan or budget, and the
Purchasers shall not have any right of acceleration under Article IX, or any
right to designate additional directors under the Shareholder
18
Agreement if Consolidated Net Income is less than $1.00 during the period
covered by such business plan or budget.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
5.1 Representations and Warranties. Each Purchaser hereby represents and
warrants to the Company as follows:
(a) With respect to such of the Purchasers as are individuals, such
Purchaser has full legal capacity and unrestricted power to execute and deliver
this agreement and the Related Agreements to which he or she is a party, and any
other agreements or instruments executed by him or her in connection herewith or
therewith and to consummate the transactions contemplated herein or therein.
With respect to such of the Purchasers as are partnerships, such Purchaser is a
limited partnership duly organized, validly existing and in good standing under
the laws of the State of Delaware and has all requisite partnership power and
authority and has taken all necessary partnership action required for the due
authorization, execution, delivery and performance by the Purchaser of this
Agreement and the Related Agreements, and any other agreements or instruments
executed by the Purchaser in connection herewith or therewith and the
consummation of the transactions contemplated herein or therein;
(b) This Agreement, the Related Agreements and the other agreements and
instruments executed by such Purchaser in connection herewith or therewith will
each be a legal, valid and binding obligations of such Purchaser, enforceable
against such Purchaser in accordance with their respective terms;
(c) No consent, approval, license or authorization of, or designation,
declaration or filing with, any court or governmental authority is or will be
required on the part of the Purchasers in connection with the execution,
delivery and performance by the Purchasers of this Agreement, any Related
Agreements and any other agreements or instruments executed by the Purchasers in
connection herewith or therewith.
(d) The Purchasers are in compliance with all the provisions of this
Agreement and their organizational and partnership documents, if any, and in all
material respects with the material provisions of each other agreement or
instrument, judgment, decree, judicial order, statute and regulation by which
they are bound or to which they are subject. Neither the execution, delivery or
performance of this Agreement and the Related Agreements nor the consummation of
the transactions contemplated hereby and thereby, will materially violate, or
result in any material breach of, or constitute a default under any provision of
the Purchasers organization or partnership documents, if any, or any statute,
rule or regulation, contract, lease, judgment, decree or other document or
instrument by which the Purchasers is bound.
(e) Each Purchaser is acquiring the Senior Debentures, Warrants and Warrant
Shares solely for its own account as an investment and not with a view to any
distribution or resale thereof in violation of the Securities Act. Each
Purchaser has been advised that the Senior Debentures, Warrants and Warrant
Shares have not been registered under the Securities Act or
19
under the provisions of any state securities or "blue sky" law. Each Purchaser,
by accepting the Senior Debentures, Warrants and Warrant Shares, agrees and
acknowledges that it will not directly or indirectly, offer, transfer, sell,
assign, pledge, encumber, hypothecate or dispose of any of such Senior
Debentures, Warrants or Warrant Shares (or to solicit any offers to purchase or
otherwise acquire or take a pledge of any of the Senior Debentures, Warrants or
Warrant Shares) unless such offer, transfer, sale, assignment, pledge,
encumbrance, hypothecation or other disposition is made (i) pursuant to an
effective registration statement under the Securities Act and in compliance with
all applicable state securities or "blue sky" laws or (ii) pursuant to an
available exemption from registration under, or otherwise in compliance with,
the Securities Act and all applicable state securities or "blue sky" laws. Such
Purchaser understands and agrees that in the case of a transfer or other
disposition made pursuant to clause (ii) above, each Purchaser of Senior
Debentures, Warrants or Warrant Shares shall be required to provide to the
Company an opinion of counsel reasonably satisfactory to the Company to the
effect that registration under the Securities Act is not required and a written
certification (or in the Company's discretion, an opinion of counsel reasonably
acceptable to the Company (who may be counsel employed by the Purchaser)) that
qualification or registration under any such state securities laws and
regulations is not required (or that any applicable state qualification or
registration requirements have been satisfied in full).
(f) Each Purchaser is an "Accredited Investor" (as such term is defined in
Rule 501 of Regulation D of the Securities Act). The financial situation of the
Purchaser is such that it can afford to bear the economic risk of holding the
unregistered Senior Debentures, Warrants or Warrant for an indefinite period of
time. Each Purchaser can afford to suffer the complete loss of its investment in
the Senior Debentures, Warrants or Warrant Shares. The knowledge and experience
of the Purchaser in financial and business matters is such that it is capable of
evaluating the risk of the investment in the Securities. Each Purchaser
acknowledges that it has had access to such financial and other information, and
has been afforded the opportunity to ask such questions of representatives of
the Company and receive answers thereto, as the each Purchaser has deemed
necessary in connection with its decision to purchase the Senior Debentures,
Warrants or Warrant Shares, and that no representation or warranties, express or
implied, are being made by the Company with respect to the Company, the Senior
Debentures, Warrants or Warrant Shares, other than those expressly set forth
herein.
(g) Such Purchaser has been advised and understands that the Senior
Debentures, Warrants and Warrant Shares have not been registered under the Act,
on the grounds that no distribution or public offering of the Senior Debentures,
Warrants or Warrant Shares is to be effected, and that in this connection, the
Company is relying in part on the representations of such Purchaser set forth in
this Article V;
(h) Such Purchaser has been further advised and understands that no public
market now exists for any of the securities issued by the Company and that a
public market may never exist for the Senior Debentures, Warrants or Warrant
Shares; and
(i) Except as set forth on Schedule 5.1, no person has or will have, as a
result of the transaction contemplated by this Agreement, any right, interest or
claim against or upon the Purchasers or the Company or any of its Subsidiaries
for any commission, fee or other compensation as a finder or broker because of
any act or omission by such Purchaser.
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(j) Such Purchaser is not subscribing for the Senior Debentures, Warrants
and Warrant Shares as a result of or subsequent to any advertisement, article,
notice or other communication published in any newspaper, magazine or similar
media or broadcast over television or radio or presented at any seminar or
meeting;
(k) Each of the Purchasers represents, warrants and covenants that it shall
maintain in confidence, and shall not use or disclose without the prior written
consent of the Company, any information identified as confidential that is
furnished to it by the Company ("Confidential Information") in connection with
the herein contemplated offering (the "Offering"). This obligation of
confidentiality shall not apply, however, to any information (a) in the public
domain through no unauthorized act or failure to act by any Purchaser, (b)
lawfully disclosed to such Purchaser by a third party who possessed such
information without any obligation of confidentiality, (c) known previously by
such Purchaser or lawfully developed by such Purchaser independent of any
disclosure by the Company, or (d) disclosed to legal or financial advisors in
the ordinary course of evaluating this investment; provided, however, that such
advisors agree to be bound by the provisions of this Section 5.1(k). Each
Purchaser further covenants that such Purchaser shall return to the Company all
tangible materials containing such information upon request by the Company.
Notwithstanding the foregoing, in the event that a Purchaser is required by
subpoena, civil investigative demand or similar legal process to disclose any
Confidential Information, such Purchaser agrees that it will promptly notify the
Company of such request or requirement prior to any such disclosure so that the
Company may seek to oppose such disclosure or to obtain an appropriate
protective order or other appropriate remedy. Such Purchaser shall not be liable
for the disclosure of Confidential Information pursuant to the preceding
sentence unless such disclosure was caused by or resulted from a previous
disclosure not permitted by this Agreement. Such Purchaser agrees that it will
exercise its best efforts, without cost to such Purchaser, to assist the Company
in obtaining a protective order or other reliable assurance that confidential
treatment will be accorded the Confidential Information. The foregoing
provisions of this Section 5.1 (k) notwithstanding, any Purchaser may disclose
and use any Confidential Information in connection with the enforcement of its
rights hereunder and in any action, suit or is preceding relating thereto.
5.2 Permitted Transfers; Legends. The Company agrees that it will permit a
transfer of Senior Debentures, Warrants and Warrant Shares by a Purchaser which
is a partnership or limited liability company to an affiliated partnership or
limited liability company of such Purchaser, and that following consummation of
the first sale of equity securities by the Company pursuant to a registration
statement filed under the Act, it will permit, upon prior written request, (i) a
transfer of the Senior Debentures, Warrants and Warrant Shares by a partnership
to one or more of its partners, where no consideration is exchanged therefor by
such partners, or to a retired or withdrawn partner who retires or withdraws
after the date hereof in full or partial distribution of his interest in such
partnership, or to the estate of any such partner or the transfer by gift will
or intestate succession of any partner to his spouse or to his siblings, lineal
descendants or ancestors of such partner of his spouse, or to a trust created
for the benefit of one or more of the foregoing and (if such Person agrees to be
subject to this Agreement and Related Agreements and) (ii) a sale or other
transfer of any of the Senior Debentures, Warrants or Warrant Shares, if the
transferee agrees in writing to be subject to the terms hereof and the Related
Agreements to the same extent as if it were an original Purchaser hereunder and
upon obtaining assurance satisfactory to the Company that such transaction is
exempt from the
21
registration requirements of, or is covered by an effective registration
statement under the Act and applicable state securities or "blue-sky" laws,
including without limitation, receipt of an unqualified opinion of counsel
reasonably satisfactory to the Company. The certificates representing the Senior
Debentures, Warrants or Warrant Shares shall bear a legend evidencing such
restriction on transfer substantially in the following form:
"This security has been acquired for investment and has not been
registered under the Securities Act of 1933 (the "Act") or the
securities laws of any state. This security may not be transferred by
sale, assignment, pledge or otherwise unless (i) a registration
statement therefor under the Act is in effect or (ii) the corporation
has received an opinion of counsel, which opinion is reasonably
satisfactory to the corporation to the effect that such registration
is not required under the Act or the securities laws of any state.
ARTICLE VI
SUBORDINATION OF DEBENTURES
6.1 Agreement to Subordinate. The Company agrees, and each holder of the
Debentures by its acceptance thereof agrees, that notwithstanding any other
provision of this Agreement or the Debentures, the payment of the principal of
and interest on each and all of the Debentures shall be subordinate and junior
in right of payment, to the extent and in the manner hereinafter set forth, to
the prior payment in full of all Indebtedness of the Company at any time
outstanding for money borrowed from commercial banks, including any extensions,
renewals, modifications or refinancings thereof, whether outstanding on the date
hereof or hereafter created or incurred, which is not by its terms subordinate
and junior to or on parity with the Debentures and which is permitted hereby at
the time it is created or incurred, and that such subordination is for the
benefit of and may be enforced by the holder(s) of Senior Debt against the
Company and any holder of the Debentures. Furthermore, each holder of a Junior
Debenture, by his or her acceptance thereof agrees, that notwithstanding any
other provision of this Agreement or the Junior Debentures, the payment of the
principal of and interest on each and all of the Junior Debentures shall be
subordinate and junior in right of payment, to the extent and in the manner
hereinafter set forth, to the prior payment in full of all Indebtedness of the
Company under the Senior Debentures, and that such subordination is for the
benefit of and may be enforced by the holders of Senior Debt against the Company
and any holder of the Junior Debentures. Such Indebtedness of the Company to
which the Debentures are subordinate and junior is referred to herein as "Senior
Debt", and in the case of the Junior Debentures, the term Senior Debt shall also
include any obligations of the Company under the Senior Debentures. Each holder
of Debentures by its acceptance thereof agrees to execute, acknowledge and
deliver such instruments, subordination agreements, inter-creditor agreements
and other agreements as any holder of Senior Debt may from time to time request
which are not on terms inconsistent with the terms hereunder in order to
confirm, reflect and implement such subordination.
6.2 Acceleration of Senior Debt. Upon maturity of any Senior Debt, whether
by acceleration (unless waived or rescinded in writing), lapse of time or
otherwise, no payment shall be made on account of principal of or interest on
the Debentures until all principal of and
22
accrued and unpaid interest on all such matured Senior Debt shall have been paid
in full or such payment shall have been duly provided for.
6.3 Insolvency, Etc. In the event of any insolvency or bankruptcy
proceeding, or any receivership, liquidation, reorganization or similar
proceedings in connection therewith (or upon the distribution of the assets of
the Company in connection therewith) relative to the Company or to its property,
or in the event of any proceedings for voluntary liquidation, dissolution or
other winding-up of the Company, whether or not involving insolvency or
bankruptcy, upon any assignment for the benefit of creditors, or any other
marshaling of the assets and liabilities of the Company, then and in such event
the holders of Senior Debt shall be entitled to receive payment in full of all
obligations of principal and accrued and unpaid interest with respect to Senior
Debt before the holders of Debentures shall be entitled to receive any payment
of principal or interest upon the Debentures, provided, however, that if a
payment or distribution in respect of the Debentures (i) is authorized by a
final, non-appealable order or decree giving explicit effect to the
subordination of the Debentures to Senior Debt and made by a court of competent
jurisdiction in a reorganization or bankruptcy proceeding or (ii) is in the form
of securities or obligations which by their terms are subordinate and junior (at
least to the extent provided in this Article VI) to the payment of all Senior
Debt then outstanding, then such payment or distribution may be made to the
holders of Debentures notwithstanding the occurrence of the events described in
this Section 6.3.
6.4 Payments Held in Trust. If the holder of any Debenture receives any
payment or distribution of any character, whether in cash, securities or other
property, or whether in the form of a payment from the Company or any guarantor
or any other party, with respect to such Debentures which such holder is not
entitled to receive on account of the provisions of this Article VI and has
knowledge or has received notice that it is not so entitled, such holder will
hold any amounts so received in trust for the benefit of the holders of Senior
Debt and will forthwith turn over such payment or distribution to the holders of
Senior Debt and upon receipt such payment or distribution shall be applied to
Senior Debt until the same shall have been paid in full.
6.5 The Company's Obligations Unconditional. The provisions of this Article
VI are for the purpose of defining the relative rights of holders of Senior Debt
on the one hand, and the holders of Debentures on the other hand, against the
Company and its property. Nothing herein shall impair, as between the Company,
its creditors other than the holders of Senior Debt, and the holders of
Debentures, the obligation of the Company, which is unconditional and absolute,
to pay to the holders thereof the full amount of the principal and accrued and
unpaid interest on the Debentures, in accordance with the terms thereof and the
provisions hereof, and to comply with all of its covenants and agreements
contained herein; nor shall anything herein prevent the holder of any Debentures
from exercising all remedies otherwise permitted by applicable law or hereunder
upon default hereunder or under any Debenture, subject to the rights, if any,
under this Article VI of holders of Senior Debt to receive payments and
distributions otherwise payable to the holders of Debentures.
6.6 Subrogation Upon Payment of Senior Debt. Subject to such conditions as
the holder(s) of Senior Debt may require, upon payment in full of all Senior
Debt, the holders of the Debentures shall be subrogated to the rights of the
holders of Senior Debt to receive payments or
23
distributions of assets of the Company applicable to Senior Debt, to the extent
that distributions otherwise payable to the holders of Debentures have been
applied to the payment of Senior Debt, until the principal of and accrued and
unpaid interest on the Debentures shall have been paid in full. For the purposes
of such subrogation, no payments or distributions to the holders of Senior Debt
of any cash, property or securities which the holders of Debentures would be
entitled to receive except for the provisions of this Article VI shall, as
between the Company and its creditors (other than the holders of Senior Debt)
and the holders of Debentures, be deemed to be a payment by the Company to or on
account of Senior Debt.
6.7 Notice. The Company shall promptly notify the holders of Debentures of
any facts known to the Company that would cause a payment of any obligations
with respect to the Debentures to violate this Article VI, but failure to give
such notice shall not affect the subordination of the Debentures to Senior Debt
provided herein.
6.8 Knowledge. No holder of any Debenture shall at any time be charged with
knowledge of any of the events described in Sections 6.2 or 6.3 hereof or the
existence of any other facts which would prohibit the making of any payment of
monies to such holder or the taking of any acceleration or other action by such
holder by virtue of the provisions of this Article VI unless and until such
holder shall have received written notice of such events or facts signed, as the
case may be, by an officer of the Company or by the holder of Senior Debt.
ARTICLE VII
CONDITIONS OF PURCHASERS' OBLIGATION
7.1 Effect of Conditions. The obligation of the Purchaser to purchase and
pay for the Debentures and Warrants at the Closing shall be subject at its
election to the satisfaction or waiver of each of the conditions stated in the
following Sections of this Article.
7.2 Representations and Warranties. The representations and warranties of
the Company and the Principal Shareholders contained in this Agreement shall be
true and correct in all material respects on the Closing Date with the same
effect as though made on and as of that date, and the Purchasers shall have
received a certificate dated as of such Closing Date and signed on behalf of the
Company and the Principal Shareholders to that effect.
7.3 Performance. The Company and the Principal Shareholders shall have
performed and complied in all material respects with all of the agreements,
covenants and conditions contained in this Agreement required to be performed or
complied with by it and them at or prior to such Closing Date, and the
Purchasers shall have received a certificate dated as of such Closing Date and
signed on behalf of the Company and the Principal Shareholders to that effect.
7.4 No Material Adverse Change. The business, properties, assets or
condition (financial or otherwise) of the Company shall not have been materially
adversely affected since the date of this Agreement, whether by fire, casualty,
act of God or otherwise, and there shall have been no other changes in the
business, properties, assets, condition (financial or otherwise), management or
prospects of the Company that would have a Material Adverse Effect.
24
7.5 Opinion of Counsel. The Purchasers shall have received an opinion,
dated the Closing Date, from Xxxxx & Xxxx LLP, counsel to the Company, in the
form attached as Exhibit E.
7.6 Board Election. Concurrently with the Closing, the Board of Directors
of the Company shall have been expanded to seven members, two of whom shall be
designees of the Purchasers as provided in the Shareholders' Agreement.
7.7 Redemption Agreement. The Company shall have executed and delivered to
the Purchasers the Redemption Agreement in the form of Exhibit F attached
hereto.
7.8 Shareholders Agreement. The Company and the Principal Shareholders
shall have executed and delivered to the Purchasers the Shareholders Agreement
in the form of Exhibit G attached hereto, and the existing shareholder agreement
among the Company and the Principal Shareholders shall have been terminated.
7.9 Registration Rights Agreement. The Company shall have executed and
delivered to the Purchasers the Registration Rights Agreement in the form of
Exhibit H attached hereto.
ARTICLE VIII
CONDITIONS OF THE COMPANY'S OBLIGATIONS
8.1 Effect of Conditions. The obligation of the Company to sell the
Debentures and Warrants at the Closing shall be subject at its election to the
satisfaction or waiver of each of the conditions stated in the following
Sections of this Article.
8.2 Representations and Warranties. The representations and warranties of
the Purchasers contained in this Agreement shall be true and correct in all
material respects on the Closing Date with the same effect as though made on and
as of that date and the Company shall have received a certificate on the Closing
Date and signed on behalf of each Purchaser to that effect.
8.3 Performance. The Purchasers shall have performed and complied in all
material respects with all of the agreements, covenants and conditions contained
in the Agreement required to be performed or complied with by them at or prior
to such Closing, and the Company shall have received a certificate dated as of
such Closing and signed on behalf of the Purchasers to that effect.
8.4 Payment. Each of the Purchasers shall have delivered payment to the
Company in respect of their purchases of the Senior Debentures and Warrants.
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ARTICLE IX
DEFAULTS AND REMEDIES
9.1 Events of Default; Acceleration
An "Event of Default" occurs if:
(1) The Company defaults in the payment of any principal or interest of any
Debenture when the same shall become due, either by the terms thereof or
otherwise as herein provided; or
(2) In the case of the Senior Debentures, the Company or any Subsidiary
shall fail to perform or observe any covenant contained in Article IV of this
Agreement, other than Section 4.10, and such default shall not have been
remedied within twenty calendar days after such default shall first have become
known to any officer of the Company or written notice thereof shall have been
received by the Company (regardless of the source of such notice); or
(3) In the case of the Senior Debentures, the Company shall fail to perform
or observe the covenant contained in Section 4.10, and such failure shall
continue for at least twenty-four (24) months, commencing with any month
following the month in which the Closing Date occurs.
(4) In the case of the Senior Debentures, the Company or any of its
Subsidiaries defaults in the performance or observance of any other agreement,
term or condition contained in the Senior Debentures, this Agreement or the
Related Agreements and such default shall not have been remedied within twenty
calendar days after such default shall first have become known to any officer of
the Company or written notice thereof shall have been received by the Company
(regardless of the source of such notice); or
(5) The Company or any Subsidiary shall default (subject to any applicable
grace period) in the payment of any principal of or premium, if any, or interest
on any other Indebtedness or obligation with respect to borrowed money the
outstanding principal of which is, at the time of such default, in an aggregate
amount greater than $100,000 or shall default in the performance of any material
term of any instrument evidencing such Indebtedness or of any mortgage,
indenture or agreement relating thereto, and the effect of such default is to
cause, or to permit the holder or holders of such obligation to cause, such
Indebtedness or obligation to become due and payable prior to its stated
maturity, unless such failure to pay or perform shall have been waived in
writing by the requisite holders of such Indebtedness or other obligation; or
(6) The Company or any Subsidiary pursuant to or within the meaning of any
Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an
involuntary case,
26
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(D) makes a general assignment for the benefit of its creditors, or
(E) is the debtor in an involuntary case which is not dismissed within
60 days of the commencement thereof; or
(7) A court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) provides for relief against the Company or any Subsidiary in an
involuntary case,
(B) appoints a Custodian of the Company or any Subsidiary for all or
substantially all of its property, or
(C) orders the liquidation of the Company or any Subsidiary; or
(8) A final, non-appealable judgment for the payment of money in an amount
in excess of $200,000 shall be rendered against the Company or any of its
Subsidiaries (other than any judgment as to which a reputable insurance company
shall have accepted full liability in writing) and shall remain undischarged for
a period (during which execution shall not be effectively stayed) of 30 days
after the date on which the right to appeal has expired; or
(9) Any representation or warranty made by the Company in this Agreement or
in the Related Agreements shall prove to be materially false or incorrect on the
date as of which made; then and in any such case (a) upon the occurrence of any
Event of Default described in clause (6) or (7) above, the unpaid principal
amount of and accrued and unpaid interest on the Debentures shall automatically
become due and payable, without presentment, demand, protest or notice of any
kind, all of which are hereby waived by the Company, and (b) upon the occurrence
of any other Event of Default, in addition to any other rights, powers and
remedies permitted by law or in equity, the holder or holders of greater than
50% in principal amount of the Senior Debentures then outstanding may, at its or
their option, by notice in writing to the Company, declare all of the Debentures
to be, and all of the Debentures shall thereupon be and become, immediately due
and payable together with interest accrued and unpaid thereon and all other sums
due hereunder, without presentment, demand, protest or other notice of any kind,
all of which are waived by the Company.
Upon the occurrence of any such Event of Default, the holders of Debentures
may proceed to protect and enforce their rights by an action at law, suit in
equity or other appropriate proceeding, whether for the specific performance of
any agreement contained herein or in the Debentures held by them, for an
injunction against a violation of any of the terms hereof or thereof, or for the
pursuit of any other remedy which it may have by virtue of this Agreement or
pursuant to applicable law. The Company shall pay to the holders of Debentures
upon demand the reasonable costs and expenses of collection and of any other
actions referred to in this Article IX, including without limitation reasonable
attorney's fees, expenses and disbursements.
27
No course of dealing and no delay on the part of the holders of Debentures
in exercising any of their rights shall operate as a waiver thereof or otherwise
prejudice the rights of any holder of the Debentures, nor shall any single or
partial exercise of any right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
No right, power or remedy conferred hereby or by the Debentures on the holders
thereof shall be exclusive of any other right, power or remedy referred to
herein or therein or now or hereafter available at law, in equity, by statute or
otherwise.
9.2 Rescission of Acceleration. At any time after any declaration of
acceleration of all the Debentures shall have been made pursuant to Section 9.1
by any holder or holders of the Senior Debentures and before a judgment or
decree for the payment of money due has been obtained by such holder or holders,
the holder or holders of at least a majority in aggregate principal amount of
the Senior Debentures at the time outstanding may, by written notice to the
Company and to the other holders of the Debentures rescind and annul such
declaration and its consequences, provided that (i) the principal of and accrued
and unpaid interest on the Debentures which shall have become due otherwise than
by such declaration of acceleration shall have been duly paid, and (ii) all
Events of Default other than the nonpayment of principal of and accrued and
unpaid interest on the Debentures which have become due solely by such
declaration of acceleration shall have been cured or waived by the holders of a
majority in aggregate principal amount of the Debentures at the time
outstanding. No rescission or annulment referred to above shall affect any
subsequent Default or any right, power or remedy arising out of such subsequent
Default.
ARTICLE X
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"Act" means the Securities Act of 1933, as amended.
"Agreement" means this 9% Senior Subordinated Debenture and Warrant
Purchase Agreement as from time to time amended and in effect between the
parties.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"Business Day" shall mean day which is not a legal holiday in the
Commonwealth of Massachusetts or the City of Boston or New York City.
"Cash and Cash Equivalents" means cash and investments in certificates of
deposit, money market funds and obligations issues or guaranteed by the United
States Government or any instrumentality thereof, in each case only if due and
payable on demand or within thirty (30) days after the date of purchase.
"Closing" shall have the meaning set forth in Section 1.5.
28
"Closing Date" shall have the meaning set forth in Section 1.5.
"Commission" shall have the meaning set forth in Section 2.3.
"Company" shall have the meaning set forth in Section 1.9.
"Consolidated Net Income" means, for any period, the Company's and its
Subsidiaries' consolidated net income after any income and franchise tax, as
determined in conformity with generally accepted accounting principles
consistently applied, but excluding: (a) the income of any Person (other than
Subsidiaries of the Company) in which the Company or any of its Subsidiaries has
an ownership interest, unless received by the Company or its Subsidiary under
cash distributions; (b) any after-tax gains or losses attributable to asset
dispositions; and (c) to the extent not included in clauses (a) and (b) above,
any after-tax extraordinary non-cash gains or extraordinary non-cash losses.
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
"Default" shall mean an Event of Default or any event which with notice or
lapse of time or both would become an Event of Default.
"Event of Default" shall have the meaning set forth in Section 9.1.
"Indebtedness" means all obligations, contingent or otherwise, whether
current or long-term, which in accordance with generally accepted accounting
principles would be classified upon the obligor's balance sheet as indebtedness
(other than deferred taxes) and shall also include capitalized leases,
guarantees, endorsements (other than for collection in the ordinary course of
business) or other arrangements whereby responsibility is assumed for the
obligations of others, including any agreement to purchase or otherwise acquire
the obligations of others or any agreement, contingent or otherwise, to furnish
funds for the purchase of goods, supplies or services for the purpose of payment
of the obligations of others, excluding accounts payable incurred in the
ordinary course of business.
"Lien" shall mean any mortgage, deed of trust, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement, and the
filing of or agreement to give any financing statement under the Uniform
Commercial Code of any jurisdiction).
"Liquidity Event" shall mean any one or more of the following: (i) a
liquidation, dissolution or winding-up of the Company, whether voluntary or
involuntary; (ii) a sale, merger or similar transaction involving the Company,
as the result of which those persons who held 100% of the voting stock of the
Company immediately prior to such transaction do not hold more than 50% of the
voting stock of the Company (or the surviving or resulting entity) after giving
effect to such transaction; (iii) the sale of all or substantially all of the
assets of the Company; or (iv) consummation of the first Qualified Public
Offering.
29
"Material Adverse Effect" means a material and adverse effect on the
assets, liabilities, properties, business, results of operation, prospects or
condition (financial or otherwise) of the Company and its Subsidiaries, taken as
a whole.
"Person" means an individual, corporation, partnership, joint venture,
trust or unincorporated organization or a government or agency or political
subdivision thereof.
"Purchasers" shall have the meaning set forth in Section 1.1.
"Qualified Public Offering" means the first public offering of securities
of the Company pursuant to a registration statement filed under the Act in which
the gross proceeds received by the Company are at least $30 million and in
connection with which the Senior Debentures are paid in full.
"Related Agreements" shall have the meaning set forth in Section 2.2.
"Senior Debt" shall have the meaning set forth in Section 6.1.
"Subsidiary" or "Subsidiaries" means any corporation, association or other
business entity of which the Company and/or any of its other Subsidiaries
directly or indirectly owns at the time more than fifty percent (50%) of the
outstanding voting shares of every class of such corporation or trust other than
directors' qualifying shares.
"Tangible Net Worth" means the value of the Company's tangible assets less
its liabilities, as determined in accordance with generally accepted accounting
principles, consistently applied.
ARTICLE XI
MISCELLANEOUS
11.1 Senior Debenture Payments. The Company agrees that, so long as any
Purchaser shall hold any Senior Debentures, it will make payments of principal
and interest on any Senior Debenture held by such Purchaser not later than 2:00
p.m., Boston, Massachusetts time, on the date such payment is due, in
immediately available federal funds, by credit to the Purchaser's account, as
specified in Schedule 1.1 hereto, or such other account or accounts as the
Purchaser may designate in writing, notwithstanding any contrary provision
contained herein or any Senior Debenture with respect to the place of payment.
Each Purchaser agrees that, before disposing of any Senior Debenture, it or its
nominee will make a notation thereon of all principal payments previously paid
thereon and of the date to which interest thereon has been paid, and will notify
the Company of the name and address of the transferee of such Senior Debenture
and will follow the procedures set forth in Section 5.2 hereof and in the
Related Agreements. At the election of any subsequent holder of any Senior
Debenture which has made the same agreements relating to such Senior Debenture
as the Purchaser has made in this Section 11.1, the Company will make payments
of principal and interest to the account of such successor holder in the same
manner as set forth above.
30
11.2 Form, Registration, Transfer and Exchange of Senior Debentures. The
Senior Debentures are issuable as registered notes and in denominations of not
less than $ 10,000 or any integral multiple thereof. The Company shall keep at
its principal office the register in which the Company shall provide for the
registration of the Senior Debentures and for transfers of the Senior
Debentures. Upon surrender for registration of transfer of any Senior Debenture
at such office, the Company shall execute and deliver, at its expense, one or
more new such Senior Debenture or Senior Debentures of like tenor and of like
aggregate principal amount, which new Senior Debenture or Senior Debentures
shall each be a registered Senior Debenture. At the option of the holder of any
Senior Debenture, such Senior Debenture may be exchanged for other Senior
Debentures, of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Senior Debenture to be exchanged at the office of
the Company. Whenever any Senior Debenture is so surrendered for exchange, the
Company shall execute and deliver, at its expense, the Senior Debentures which
the holder thereof making the exchange is entitled to receive. Every Senior
Debenture presented or surrendered for registration of transfer shall be duly
endorsed, or be accompanied by a written instrument of transfer duly executed by
the holder of such Senior Debenture or such holder's attorney-in-fact duly
authorized in writing and the holder thereof shall agree in writing to follow
the procedures set forth in Section 5.2 hereof and in the Related Agreements
relating to transfers. Any Senior Debenture issued in exchange for any Senior
Debenture or upon transfer thereof shall carry the rights to unpaid interest and
interest to accrue which were carried by the Senior Debenture so exchanged or
transferred, and neither gain nor loss of interest shall result from any such
transfer or exchange. Upon receipt by the Company of an affidavit of the
treasurer, assistant treasurer, or other responsible official of any Purchaser
(or, in the case of holders of Senior Debentures other than a Purchaser,
evidence reasonably satisfactory to the Company) of the ownership of and the
loss, theft, destruction or mutilation of a Senior Debenture and (i) in case of
loss, theft or destruction of a Senior Debenture, of indemnity reasonably
satisfactory to it or (ii) in the case of the mutilation of any Senior
Debenture, upon surrender and cancellation thereof, the Company, at its expense,
shall execute and deliver in lieu thereof a new Senior Debenture of like tenor
and of a like principal amount and dated and bearing interest from the date to
which interest has been paid on such lost, stolen, destroyed or mutilated Senior
Debenture.
11.3 Survival of Representations. The representations, warranties,
covenants and agreements made herein or in any certificates or documents
executed in connection herewith shall survive the execution and delivery hereof
and the closing of the transactions contemplated hereby.
11.4 Parties in Interest. Except as otherwise set forth herein, all
covenants, agreements, representations, warranties and undertakings contained in
this Agreement shall be binding on and shall inure to the benefit of the parties
hereto and their respective successors and assigns of the parties hereto
(including transferees of any of the Debentures, Warrants and Warrant Shares).
Notwithstanding the foregoing, (i) no transferee of Debentures, Warrants or
Warrant Shares, other than an affiliate of the Purchasers, shall have the right
to enforce the covenants contained in Section 4.4, and (ii) if a Debenture and
Warrant have been transferred to a Person other than an affiliate of a Purchaser
and all Debentures have been paid in full, then such unaffiliated transferee
shall not have the benefit of, and shall have no rights under, any of the
provisions of Articles III and IV hereof other than the provisions of Sections
3.1 and 3.5, each of which shall continue in full force and effect for the
benefit of such transferee.
31
11.5 Debentures Owned by Affiliates. For the purposes of applying all
provisions of this Agreement the Debentures or shares owned of record by any
affiliate of a Purchaser shall be deemed to be owned by such Purchaser. For the
purpose of this Agreement, the term "affiliate" shall mean any Person
controlling, controlled by or under common control with, a Purchaser and any
general or limited partner of any Purchaser. Without limiting the foregoing,
each Purchaser shall be considered an affiliate of each other Purchaser.
11.6 Amendments and Waivers. This Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of not less than a majority in aggregate principal amount of the Senior
Debentures at the time outstanding; and each holder of any Debenture at the time
or thereafter outstanding shall be bound by any consent authorized by this
Section 11.6, whether or not such Debenture shall have been marked to indicate
such consent, but any Debenture issued thereafter shall contain a reference or
bear a notation referring to any such consent; provided that notwithstanding
anything in this Section 11.6 to the contrary, without the written consent of
(a) the holder or holders of all Senior Debentures at the time outstanding, no
consent, amendment or waiver to or under this Agreement shall extend or reduce
the maturity of any Senior Debenture, or reduce the rate or affect the time of
payment of interest with respect to any Senior Debenture, or affect the time,
amount or allocation of any required prepayments, or reduce the proportion of
the principal amount of the Senior Debentures required with respect to any
consent, amendment or waiver, (b) the holder or holders of all Junior Debentures
at the time outstanding, no consent, or waiver to or under this Agreement shall
extend or reduce the maturity of any Junior Debenture, or reduce the rate or
effect at the time of payment of interest with respect to any Junior Debenture,
or effect the time, amount or allocation of any required prepayments, or reduce
the portion of the principal amount of the Junior Debentures required with
respect to any consent, amendment or waiver, and (c) the holder or holders of
all Debentures at the time outstanding, no amendment to this Agreement shall
affect the provisions of Article VI. The Company shall promptly send copies of
any amendment, consent or waiver (and any requests for any such amendment,
consent or waiver) relating to this Agreement or the Debentures to each holder
of the Debentures and, to the extent practicable, shall consult with holder of
the Debentures, in connection with each such amendment, consent and waiver. No
course of dealing between the Company and the holder of any of the Debentures
nor any delay in exercise any rights hereunder or any of the Debentures shall
operate as a waiver of any rights of any holder of such Debentures. The Company
will reimburse the Purchasers for the reasonable fees and expenses of counsel
incurred in connection with any amendment or modification of this Agreement or
any of the Related Agreements or any waiver hereof or thereof.
11.7 Notices. All notices, requests, consents, reports and demands shall be
in writing and shall be hand delivered, sent by facsimile or other electronic
medium, or mailed, postage prepaid, to the Company or to the Purchasers at the
address set forth below or to such other address as may be furnished in writing
to the other parties hereto:
32
The Company: Logical Design Solutions, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Attention: President
Fax: (000) 000-0000
with copy to: Xxxxx & Xxxx LLP
Xxx Xxxxx Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx
Attention: Xxxxxx X. Xxxxxxxx, Esquire
Fax: (000) 000-0000
The Purchasers: The address set forth opposite the Purchaser's name on
Schedule 1.1 attached hereto.
with copy to: Xxxxxxxx, Xxxxxxx & Xxxxxxx,
A Professional Corporation
000 Xxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxx Xxxxxx, Esquire
Fax: (000) 000-0000
11.8 Expenses. Immediately upon consummation of the Closing, the Company
shall pay all reasonable costs and expenses of the Purchasers in connection with
the investigation, preparation, execution and delivery of this Agreement (and
due diligence related thereto) and the other instruments and documents to be
delivered hereunder and the transactions contemplated hereby and thereby,
including the reasonable fees and disbursements of Xxxxxxxx, Xxxxxxx & Xxxxxxx,
A Professional Corporation, special counsel to the Purchasers, provided that
such aggregate payment shall not exceed $45,000. If the purchase of the
Debentures is not consummated in accordance with the terms of this Agreement,
the Company shall not be required under this Agreement to pay any of the
Purchasers' costs or expenses.
11.9 Counterparts. This Agreement and any exhibit hereto may be executed in
multiple counterparts, each of which shall constitute an original but all of
which shall constitute but one and the same instrument. One or more counterparts
of this Agreement or any exhibit hereto may be delivered via telecopier, with
the intention that they shall have the same effect as an original counterpart
hereof.
11.10 Effect of Headings. The article and section headings herein are for
convenience only and shall not affect the construction hereof.
11.11 Transferability as Unit. Prior to payment of a Senior Debenture
included in an Investment Unit or exercise of a Warrant included in an
Investment Unit, no holder may separately transfer a Senior Debenture or Warrant
without transferring to the same transferee the other security comprising the
Investment Unit.
33
11.12 Governing Law. This Agreement shall be deemed a contract made under
the laws of The Commonwealth of Massachusetts and together with the rights and
obligations of the parties hereunder, shall be construed under and governed by
the laws of such Commonwealth.
* * * * *
34
LOGICAL DESIGN SOLUTIONS, INC.
9% SENIOR SUBORDINATED DEBENTURE
AND WARRANT PURCHASE AGREEMENT
Counterpart Signature Page
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
Company, whereupon, this letter shall become a binding agreement among us.
Very truly yours,
LOGICAL DESIGN SOLUTIONS, INC.
/s/ Xxxx Xxx Xxxxxx
By: -------------------------------------
Name: Xxxx Xxx Xxxxxx
Title: President
PRINCIPAL SHAREHOLDERS:
----------------------
/s/ Xxxx Xxx Xxxxxx
-----------------------------------------
Xxxx Xxx Xxxxxx
/s/ Xxxxxx Xxxxxx
-----------------------------------------
Xxxxxx Xxxxxx
LOGICAL DESIGN SOLUTIONS, INC.
9% SENIOR SUBORDINATED DEBENTURE
AND WARRANT PURCHASE AGREEMENT
Counterpart Signature Page
PURCHASERS:
----------
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.,
Its General Partner
By: Stamps, Xxxxxxx & Co. IV,
Its General Partner
/s/ Xxxxx Xxxxx
By: -------------------------------------
General Partner
SUMMIT INVESTORS III, L.P.
/s/ Xxxxx Xxxxx
By: -------------------------------------
Authorized Signatory
/s/ Xxxx X. Xxxxxx
-----------------------------------------
Xxxx X. Xxxxxx
SAMEDAN, INC.
/s/ Xxxx X. Xxxxxx
By: -------------------------------------
LOGICAL DESIGN SOLUTIONS, INC.
Schedule 1.1
Senior Debentures
Principal Amount of Total Purchase
Debentures to be Number of Shares Price of
Name and Address Purchased Covered by Warrants Investment Units
---------------- ------------------- ------------------- ----------------
Summit Ventures IV, L.P. $5,032,521 194,770.50 $4,750,000
000 Xxxxxxxx Xxxxxx
Xxxxxx, XX 022 10
Attention: Xxxxx X. Xxxxx
Summit Investors 111, L.P. $ 246,312.71 10,229.50 249,500
000 Xxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx
Samedan, Inc. $ 243,902 10,000 243,902
00 Xxxxxxxx Xxxxx
Xxxxxxx, XX 00000
------------------- ------------------- ----------------
Totals $5,540,735.71 215,000 $5,243,902
=================== =================== ================
Logical Design Solution, Inc.
Schedule 1.10
Junior Debentures
Principal Amount of Junior Principal Amount of Junior
Subordinated Debentures for Subordinated Debentures for
Investment Logical Design Solutions, Logical Design Solutions
Name and Address Inc. International, Inc.
---------------------- ------------------------------ ------------------------------
Xxxx Xxx Xxxxxx $695,122.45 $378,777.33
000 Xxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Xxxxxx X. Xxxxxx
00-00 Xxxxxxxx Xxxxx
Xxxxx 000
Xxxxxxxxxx, XX 00000 40,389.74
-------------- --------------
Total: $735.512.19 $378.777
============== ==============
Logical Design Solutions, Inc.
Schedule 2.4
Authorized and Outstanding Stock
Logical Design Solutions, Inc. # Shares Authorized # Shares Outstanding
------------------------------ ------------------- --------------------
at 12/31/1996 1,500,000
Xxxx Xxx Xxxxxx 706,500
Xxxxxx X. Xxxxxx _________ 78,500
------
Total 1,500,000 785,000
Logical Design Solutions, Inc. 2,500
at 12/31/96
Xxxx Xxx Xxxxxx ______ 100
-----
Total 2,500 100
* Employment Agreements for E. Xxxxx Xxxxxxxxx and Xxxxxx X. Xxxx provide for
the issuance of Stock Options. Such Options are at the sole discretion of
the corporation. As of December 31, 1996, no such Options have been issued.
* A new Stock Option plan is being developed.
Logical Design Solutions
Schedule 2.7
Subsequent Events
(i) None
(ii) None
(iii) None
(iv) None
Stockholders distributions representing accumulated Retained Earnings are as
follows:
LDS
Xxxx Xxx Xxxxxx $1,023,997
Xxxxxx X. Xxxxxx $ 142,989
LDSI
Xxxx Xxx Xxxxxx $ 823,200
Logical Design Solutions
Schedule 2.8
Divorce proceedings between Mr. and Xxx. Xxxxxx. As of the date hereof, there
has been no claim relating to Logical Design Solutions, Inc. ("LDS") or to any
shares of LDS held by any shareholder of LDS.
Logical Design Solutions, Inc.
Schedule 2.11
Real Property Environmental Matters
Rental Address Lessor Term of the Lease Use of Property
-------------- ------ ----------------- ---------------
000 Xxxxx Xxxxxx Xxxx & Wentworth April 15, 1996 to July 15, 0000 Xxxxxx
Xxxxx 000 000 Xxxxx Xxxxxx $20,913.42 Monthly +
Xxxxxxxxxx, XX 00000 Xxxxxxxxxx, XX 00000 $111.60 for share of Cafe
000 Xxxxx Xxxxxx Xxxx & Xxxxxxxxx March 1, 1997 to July 15, 0000 Xxxxxx
Xxxxx 000 000 Xxxxx Xxxxxx $9,100 Monthly + amortized
Xxxxxxxxxx, XX 00000 Xxxxxxxxxx, XX 00000 portion of build out costs
(estimated at $800 per month)
No Environmental Issues Exist
Logical Design Solutions, Inc.
Schedule 2.12
Personal Property
------------------------------------------------------------------------------
Computer Equipment Financed through Sanwa Leasing Corporation
See Exhibit I Attached Hereto
Computer Equipment Financed through GE Capital
(Previously Xxxxxx Financial Corp.)
See Exhibit 2 Attached Hereto
Computer Equipment Financed through Summit Bank (Previously United Jersey Bank)
See Exhibit 3 Attached Hereto
Logical Design Solutions, Inc.
Schedule 2.13
Patents. Trademarks, Etc.
LoQical Design Solutions, Inc.
Pending Trademark Application Xxxx: LDS WEBTRAC
Class: International Class 9
Description: Computer software programs, and instruction
manuals and demo disks sold together, for
monitoring and reporting usage of various sites on
the Internet computer network, in International Class 9.
Date of first use: On or before October 30, 1995
Application Number: 75027878
Filing Date: December 5, 1995
Logical Design Solutions International, Inc.
Copyright Registration Title Of This Work: Tele-Trac
Registration Number: TX 3 704 768
Effective Date Of Registration: Jan 10, 1994
Nature Of Authorship: Computer Program
Logical Design Solutions, Inc.
Schedule 2.16
Contracts and Commitments
The following Project Commitments are expected to generate in excess of $100,000
during the coming year:
Client Project ID Proiect Name Project Tvpe
------ ---------- ------------ ------------
Advanta ADV2 Advanta Booster Project Time & Materials
Advanta ADV5 Avdanta Corporate Site Time & Materials
AT&T DPPG AT&T Personnel Guide - Print Time & Materials
AT&T CLSS AT&T BMD Local Service Site Time & Materials
AT&T DMHC AT&T Health Care Time & Materials
Lucent LHRW Lucent HR Website Time & Materials
NCR NCR2 XXX Xxxxx 00 - Case Mgmt Time & Materials
AT&T DMEV AT&T HR Self Service Vision Time & Materials
J&J JJSS J&J Employee Self Service Fixed Fee ($505,000)
Vanguard VRRC Vanguard Retirement Center Fixed Fee ($230,000)
AT&T CICM AT&T Commercial Markets Time & Materials
Xxxx Atlantic BAV2 Xxxx Atlantic View @ Once 2.0 Fixed Fee ($620,000)
Time Telecom TMI I Time Telecom Malaysia Fixed Fee ($350,000)
New Zealand NIVS New Zealand Telecom Fixed Fee ($800,000)
Project Commitments are cancelable by LDS, or the Client Company with written
notice.
In addition to project commitments, LDS is obligated for $100,000 or more to the
following commitments:
Xxxx & Wentworth Lease for Offices - Suite 103 $1,145,864
Suite 105 $ 477,750 + Amortized Cost of Build Out
Employment Agreements over $ 100,000 for the following employees:
Xxxx X. Xxxxxx
Xxxxxx X. Xxxxxx
Xxxxxx X. Xxxx
E. Xxxxx Xxxxxxxxx
Xxxxxx Xxxx
Agreement dated March 8, 1997 with Xxxx Xxxxxx.
Logical Design Solutions, Inc.
Schedule 2.18
Insurance Coverage
Business Owners Policy
Agent: Xxxxxx & Xxxxxxxx Insurance
Insurance Co: LMI Insurance Company
0000 XxxxXxxxx Xxxx
Xxxxxxx, XX 00000
Policy #: CB29-13004
Workers Compensation Ploicy
Agent: Xxxxxx & Xxxxxxxx Insurance
Insurance Co: LMI Insurance Company
0000 XxxxXxxxx
Xxxx Xxxxxxx, XX 00000
Policy IM: WC2914429
Life Insurance - Xxxx X. Xxxxxx
Insurance Co: The Midland Life Insurance Company
000 Xxxx Xxxxx Xxxxxx
Xxxxxxxx, XX 00000
Policy #: 57313
Disability Insurance - Xxxx X. Xxxxxx
Agent: Xxxxxxxx X. Xxxxxx
Insurance Co: Northwestern Mutual Life
000 X. Xxxxxxxxx Xxx.
Xxxxxxxxx, XX 00000
Policy # D-790-864
DI-161-646
Company Health Insurance
Insurance Co: Aetna Life & Casualty
00 Xxxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000-0000
Policy#'s: 127335-010-00700
127335-010-00000
127335-010-00702
Company Dental Plan
Insurance Co: New England Insurance
Healthplan Services, Inc.
0000 Xxxxxxxx Xxxx
Xxxxx, XX 00000
Policy TN792884-2
Group Life Insurance / Group Long Tenn Disability
Insurance Co: Unum Life Insurance of America
XX Xxx 0000-X0000
Xxxxxxxxxxxx, XX 00000-0000
ID/ Policy#: 513104
There are no outstanding claims
Logical Design Solutions, Inc.
Schedule 2.19
Employee Matters
All employees have signed the EMPLOYEE CONFIDENTIALITY, NONDISCLOSURE AND
RESTRICTIVE COVENANT AGREEMENT. See attached schedule for listing of current LDS
employees.
Xxxxxx Xxxxxx, E. Xxxxx Xxxxxxxxx, and Xxx Xxxx have all signed individual
Employment Agreements.
All Independent Contractors have signed the INDEPENDANT CONTRACTORS AGREEMENT.
See attached schedule for listing of current LDS independent contractors.
All full-time employees are eligible to participate in the companies 401k
defined benefits program after six months of employment.
Logical Design Solutions, Inc.
Schedule 2.21
Transactions with Affiliates
None.
Logical Design Solutions, Inc.
Schedule 2.22
Assumptions. Guarantees. etc. of Indebtedness of Other Persons
None
Logical Design Solutions, Inc.
Schedule 5.1
Representation and Warranties
Agreement dated March 8, 1997 with Xxxx Xxxxxx.
LOGICAL DESIGN SOLUTIONS
EMPLOYEE LISTING BY DEPARTMENT
EXECUTIVE:
Xxxxxx, Xxxx X.
Xxxxxx, Xxxxxx X.
Xxxxxxxxx, E. Xxxxx
Xxxx, Xxxxxx X.
HUMAN RESOURCES:
----------------
Xxxxxxx, Xxxxxxx
Xxxxxx, Xxxxx
Links, Xxxxxx
Xxxxxx, Xxxxx
Xxxxxxxxx, Xxxxxx
ACCOUNTING/FINANCE:
Xxxxxx, Xxxxx X.
PRODUCTS & SERVICES:
Alvi, Xxxxx Xxxxx, Xxxxx
Xxxxxxx, Xxxx Xxxxxx, Xxxx X.
Xxxxxxx, Xxxxxxxx Xxxxxxx, Xxxxxxx
Xxxxx, Xxxxxxx Xxxxx, Xxxx
Xxxxxxxxxx, Xxxxxx Xxx, Xxxxx
Xxxxx, Xxxxxx Xxxx,Xxxxxx
Xxxxxxx, Xxxxxxxx Xxxx, Xxxxxxxxx
Xxxxxxxx, Xxxxxx XxxXxxx, Xxxxxx
Xxxxxxx, Xxxx Xxxxx, Xxxxxx
Cuorno, Xxxx Xxxx, Xxxxx
Xxxxxxx, Xxxx Xxxxxx, Xxxx
Xxxxx, Xxxxxx Xxxxx, Xxxxxxxxxx
Xxxxxx, Xxxxxxx Saint-Andre, Xxxxx
Xxxxxx, Xxxxxx Xxxxxxxxx, Xxxxxxxx
Xxxxxxxxxxx, Xxxxxxx Xxxxxx, Xxxxxx
Xxxxxx, Xxxxxx Xxxxxxx, Xxxxxxx
Xxxxxxxx, Xxxxx Xxxxxxxx, Xxxx
Xxxxxx, Xxxxxxx Xxxxx, Xxxxxxxx
Xxxxxx, Xxxxx Xxxxxx, Xxxxxxx
Xxxxxxx, Xxxxx Xxxxxx,Xxxxx
Xxxxx, Xxxxxxx Xxxxxx, Xxxxxxxxxx
Xxxxxx, Xxxxx TitQie, Xxxxxxx
Xxxx, Xxxx Xxxxxxxx, Xxxxxx
Xxxxxxx, Xxxxxx Xxxx, Xxxx
Xxxxxxxxxxx, Xxxx Xxxxxx, Xxxxx
Xxxxx, Yan
LOGICAL DESIGN SOLUTIONS
INDEPENDANT CONTRACTORS
Bergger, Xxxx
Xxxxxx, Xxxxxxx
Xxxxxxxxxxx, Xxx
Xxxxx, Xxxxx
Xxxx, Xxxxx
Xxxx, Xxxxx
EXECUTION COPY
LOGICAL DESIGN SOLUTIONS, INC.
THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1993 (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE. THIS
SECURITY MAY NOT BE TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE OR OTHERWISE UNLESS
(i) A REGISTRATION STATEMENT FOR THIS SECURITY UNDER THE ACT IS IN EFFECT OR
(ii) THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL, WHICH OPINION IS
REASONABLY SATISFACTORY TO THE CORPORATION TO THE EFFECT THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE ACT OR THE SECURITIES LAWS OF ANY STATE.
9% Senior Subordinated Debenture
Due March 19, 2002
Morristown, New Jersey
No. S-1 March 19, 1997
FOR VALUE RECEIVED, Logical Design Solutions, Inc., a New Jersey
corporation (the "Company"), hereby, promises to pay to Summit Ventures IV,
L.P., or its registered assigns, the sum of Five Million, Thirty-Two Thousand,
Five Hundred Twenty-One Dollars ($5,032,521) on March 19, 2002, together with
interest, computed on the basis of the actual number of days elapsed over a 360-
day year, on the unpaid principal balance hereof until paid in full at the rate
of nine percent (9%) per annum from the date hereof. Interest shall accrue and
compound annually and shall be paid upon each payment or prepayment of
principal.
Any interest not paid when due and payable shall thereafter be paid on
demand by the holder of this Debenture (as defined below) together with a late
charge of two percent (2%) of the amount of interest payment due.
All payments of principal (including any prepayments or redemptions) and
interest hereunder shall be made by the Company in lawful money of the United
States of America in immediately available federal funds (or, at the request of
the holder of this Debenture, by certified or bank check or wire transfer) not
later than 2:00 p.m., Boston, Massachusetts, time, on the date each such payment
is due, by crediting an account in the United States as the holder of this
Debenture may designate in writing to the Company before the scheduled payment
date.
This Debenture is one of a duly authorized issue of Debentures of the
Company designated as its "9% Senior Subordinated Debentures due March 19, 2002"
(herein called the "Debentures"), in the aggregate principal amount of
$5,296,833.71 and issued under a 9% Senior Subordinated Debenture and Warrant
Purchase Agreement, dated as of March 19, 1997 (herein
53
called the "Agreement"), among the Company, certain of its shareholders, Summit
Ventures IV, L.P., Summit Investors III, L.P., Xxxx X. Xxxxxx and Samedan, Inc.,
to which Agreement and all agreements supplemental thereto reference is hereby
made for a statement of the respective rights and duties thereunder of the
Company, and the holders of the Debentures, and the terms upon which the
Debentures are delivered.
The principal of this Debenture is subject to prepayment under certain
circumstances, together with accrued interest, all as more particularly set,
forth in the Agreement. The Company agrees to make such payments of principal
and interest on the date and in the amount set forth in the Agreement.
Notwithstanding anything herein contained to the contrary, the indebtedness
evidenced by the Debenture is, to the extent provided in the Agreement,
subordinate and subject in right of payment to the prior payment in full of all
Senior Debt (as defined in the Agreement), and this Debenture is issued subject
to such provisions, and each holder of Debentures, by accepting the same, agrees
to and shall be bound by such provisions and agrees to take such action as may
be necessary or appropriate to effectuate the subordination as provided in the
Agreement.
In case an Event of Default, as defined in the Agreement, shall have
occurred and be continuing uncured or unwaived, the principal of all of the
Debentures may be in certain circumstances declared, and upon such declaration
shall become, immediately due and payable, in the manner, with the effect and
subject to the conditions provided in the Agreement.
No reference herein to the Agreement and no provisions of this Debenture or
of the Agreement shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this
Debenture at the times, places, and rates, and in the coin or currency, herein
prescribed.
Under certain circumstances more fully set forth in the Agreement, this
Debenture is transferable by the registered owner hereof, in person or by duly
authorized attorney, on the books of the Company to be kept for that purpose,
upon surrender and cancellation of this Debenture, upon presentation of a duly
executed written instrument of transfer satisfactory to the Company and upon the
transferee's written agreement to be bound by the provisions of the Agreement,
and thereupon a new Debenture or Debentures, of the same aggregate principal
amount and in authorized denominations, will be issued to the transferee or
transferees in exchange therefor; and this Debenture, with or without other
Debentures may in like manner be exchanged for one or more new Debentures of
other authorized denominations but of the same aggregate principal amount, all
subject to the terms and conditions set forth in the Agreement. Any such
transfer or exchange shall be without charge by the Company. Transfer tax or the
like (if any) shall be paid by the holder hereof or the Transferee.
All terms used in this Debenture which are not defined herein and are
defined in the Agreement shall have the meanings assigned to them in the
Agreement.
This Debenture shall be deemed to be a contract made under the laws of the
Commonwealth of Massachusetts and shall for all purposes be construed in
accordance with the laws of said Commonwealth.
54
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed as a sealed instrument.
LOGICAL DESIGN SOLUTIONS, INC.
By: /s/ Xxxx Xxx Xxxxxx
----------------------
Attest: /s/ E. Xxxxx Xxxxxxxxx Name: Xxxx Xxx Xxxxxx
------------------------- Title: President
161611-1
55
EXECUTION COPY
LOGICAL DESIGN SOLUTIONS, INC.
THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1993 (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE. THIS
SECURITY MAY NOT BE TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE OR OTHERWISE UNLESS
(i) A REGISTRATION STATEMENT FOR THIS SECURITY UNDER THE ACT IS IN EFFECT OR
(ii) THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL, WHICH OPINION IS
REASONABLY SATISFACTORY TO THE CORPORATION TO THE EFFECT THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE ACT OR THE SECURITIES LAWS OF ANY STATE.
9% Senior Subordinated Debenture
Due March 19, 2002
Morristown, New Jersey
No. S-2 March 19, 1997
FOR VALUE RECEIVED, Logical Design Solutions, Inc., a New Jersey
corporation (the "Company"), hereby, promises to pay to Summit Investors III,
L.P., or its registered assigns, the sum of Two Hundred Sixty-Four Thousand,
Three Hundred Twelve and 71/100 Dollars ($264,312.71) on March 19, 2002,
together with interest, computed on the basis of the actual number of days
elapsed over a 360-day year, on the unpaid principal balance hereof until paid
in full at the rate of nine percent (9%) per annum from the date hereof.
Interest shall accrue and compound annually and shall be paid upon each payment
or prepayment of principal.
Any interest not paid when due and payable shall thereafter be paid on
demand by the holder of this Debenture (as defined below) together with a late
charge of two percent (2%) of the amount of interest payment due.
All payments of principal (including any prepayments or redemptions) and
interest hereunder shall be made by the Company in lawful money of the United
States of America in immediately available federal funds (or, at the request of
the holder of this Debenture, by certified or bank check or wire transfer) not
later than 2:00 p.m., Boston, Massachusetts, time, on the date each such payment
is due, by crediting an account in the United States as the holder of this
Debenture may designate in writing to the Company before the scheduled payment
date.
This Debenture is one of a duly authorized issue of Debentures of the
Company designated as its "9% Senior Subordinated Debentures due March 19, 2002"
(herein called the "Debentures"), in the aggregate principal amount of
$5,540,735.71 and issued under a 9% Senior Subordinated Debenture and Warrant
Purchase Agreement, dated as of March 19, 1997 (herein
56
called the "Agreement"), among the Company, certain of its shareholders, Summit
Ventures IV, L.P., Summit Investors III, L.P., Xxxx X. Xxxxxx and Samedan, Inc.,
to which Agreement and all agreements supplemental thereto reference is hereby
made for a statement of the respective rights and duties thereunder of the
Company, and the holders of the Debentures, and the terms upon which the
Debentures are delivered.
The principal of this Debenture is subject to prepayment under certain
circumstances, together with accrued interest, all as more particularly set
forth in the Agreement. The Company agrees to make such payments of principal
and interest on the date and in the amount set forth in the Agreement.
Notwithstanding anything herein contained to the contrary, the indebtedness
evidenced by the Debenture is, to the extent provided in the Agreement,
subordinate and subject in right of payment to the prior payment in full of all
Senior Debt (as defined in the Agreement), and this Debenture is issued subject
to such provisions, and each holder of Debentures, by accepting the same, agrees
to and shall be bound by such provisions and agrees to take such action as may
be necessary or appropriate to effectuate the subordination as provided in the
Agreement.
In case an Event of Default, as defined in the Agreement, shall have
occurred and be continuing uncured or unwaived, the principal of all of the
Debentures may be in certain circumstances declared, and upon such declaration
shall become, immediately due and payable, in the manner, with the effect and
subject to the conditions provided in the Agreement.
No reference herein to the Agreement and no provisions of this Debenture or
of the Agreement shall alter or impair the obligation of the Company, which is
absolute And unconditional, to pay the principal of and interest on this
Debenture at the times, places, and rates, and in the coin or currency, herein
prescribed.
Under certain circumstances more fully set forth in the Agreement, this
Debenture is transferable by the registered owner hereof, in person or by duly
authorized attorney, on the books of the Company to be kept for that purpose,
upon surrender and cancellation of this Debenture, upon presentation of a duly
executed written instrument of transfer satisfactory to the Company and upon the
transferee's written agreement to be bound by the provisions of the Agreement,
and thereupon a new Debenture or Debentures, of the same aggregate principal
amount and in authorized denominations, will be issued to the transferee or
transferees in exchange therefor; and this Debenture, with or without other
Debentures may in like manner be exchanged for one or more new Debentures of
other authorized denominations but of the same aggregate principal amount, all
subject to the terms and conditions set forth in the Agreement. Any such
transfer or exchange shall be without charge by the Company. Transfer tax or the
like (if any) shall be paid by the holder hereof or the Transferee.
All terms used in this Debenture which are not defined herein and are
defined in the Agreement shall have the meanings assigned to them in the
Agreement.
This Debenture shall be deemed to be a contract made under the laws of the
Commonwealth of Massachusetts and shall for all purposes be construed in
accordance with the laws of said Commonwealth.
57
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed as a sealed instrument.
LOGICAL DESIGN SOLUTIONS, INC.
By: /s/ Xxxx Xxx Xxxxxx
----------------------
Attest: /s/ E. Xxxxx Xxxxxxxxx Name: Xxxx Xxx Xxxxxx
------------------------- Title: President
161612-1
58
EXECUTION COPY
LOGICAL DESIGN SOLUTIONS, INC.
THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1993 (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE. THIS
SECURITY MAY NOT BE TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE OR OTHERWISE UNLESS
(i) A REGISTRATION STATEMENT FOR THIS SECURITY UNDER THE ACT IS IN EFFECT OR
(ii) THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL, WHICH OPINION IS
REASONABLY SATISFACTORY TO THE CORPORATION TO THE EFFECT THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE ACT OR THE SECURITIES LAWS OF ANY STATE.
9% Senior Subordinated Debenture
Due March 19, 2002
Morristown, New Jersey
No. S-3 March 19, 1997
FOR VALUE RECEIVED, Logical Design Solutions, Inc., a New Jersey
corporation (the "Company"), hereby, promises to pay to Samedan, Inc., or its
registered assigns, the sum of Two Hundred Forty-Three Thousand, Nine Hundred
Two Dollars ($243,902) on March 19, 2002, together with interest, computed on
the basis of the actual number of days elapsed over a 360-day year, on the
unpaid principal balance hereof until paid in full at the rate of nine percent
(9%) per annum from the date hereof. Interest shall accrue and compound annually
and shall be paid upon each payment or prepayment of principal.
Any interest not paid when due and payable shall thereafter be paid on
demand by the holder of this Debenture (as defined below) together with a late
charge of two percent (2%) of the amount of interest payment due.
All payments of principal (including any prepayments or redemptions) and
interest hereunder shall be made by the Company in lawful money of the United
States of America in immediately available federal funds (or, at the request of
the holder of this Debenture, by certified or bank check or wire transfer) not
later than 2:00 p.m., Boston, Massachusetts, time, on the date each such payment
is due, by crediting an account in the United States as the holder of this
Debenture may designate in writing to the Company before the scheduled payment
date.
This Debenture is one of a duly authorized issue of Debentures of the
Company designated as its "9% Senior Subordinated Debentures due March 19, 2002"
(herein called the "Debentures"), in the aggregate principal amount of
$5,540,735.71 and issued under a 9% Senior Subordinated Debenture and Warrant
Purchase Agreement, dated as of March 19, 1997 (herein
59
called the "Agreement"), among the Company, certain of its shareholders, Summit
Ventures IV, L.P., Summit Investors III, L.P., Xxxx X. Xxxxxx and Samedan, Inc.,
to which Agreement and all agreements supplemental thereto reference is hereby
made for a statement of the respective rights and duties thereunder of the
Company, and the holders of the Debentures, and the terms upon which the
Debentures are delivered.
The principal of this Debenture is subject to prepayment under certain
circumstances, together with accrued interest, all as more particularly set
forth in the Agreement. The Company agrees to make such payments of principal
and interest on the date and in the amount set forth in the Agreement.
Notwithstanding anything herein contained to the contrary, the indebtedness
evidenced by the Debenture is, to the extent provided in the Agreement,
subordinate and subject in right of payment to the prior payment in full of all
Senior Debt (as defined in the Agreement), and this Debenture is issued subject
to such provisions, and each holder of Debentures, by accepting the same, agrees
to and shall be bound by such provisions and agrees to take such action as may
be necessary or appropriate to effectuate the subordination as provided in the
Agreement.
In case an Event of Default, as defined in the Agreement, shall have
occurred and be continuing uncured or unwaived, the principal of all of the
Debentures may be in certain circumstances declared, and upon such declaration
shall become, immediately due and payable, in the manner, with the effect and
subject to the conditions provided in the Agreement.
No reference herein to the Agreement and no provisions of this Debenture or
of the Agreement shall alter or impair the' obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this
Debenture at the times, places, and rates, and in the coin or currency, herein
prescribed.
Under certain circumstances more fully set forth in the Agreement, this
Debenture is transferable by the registered owner hereof, in person or by duly
authorized attorney, on the books of the Company to be kept for that purpose,
upon surrender and cancellation of this Debenture, upon presentation of a duly
executed written instrument of transfer satisfactory to the Company and upon the
transferee's written agreement to be bound by the provisions of the Agreement,
and thereupon a new Debenture or Debentures, of the same aggregate principal
amount and in authorized denominations, will be issued to the transferee or
transferees in exchange therefor; and this Debenture, with or without other
Debentures may in like manner be exchanged for one or more new Debentures of
other authorized denominations but of the same aggregate principal amount, all
subject to the terms and conditions set forth in the Agreement. Any such
transfer or exchange shall be without charge by the Company. Transfer tax or the
like (if any) shall be paid by the holder hereof or the Transferee.
All terms used in this Debenture which are not defined herein and are
defined in the Agreement shall have the meanings assigned to them in the
Agreement.
This Debenture shall be deemed to be a contract made under the laws of the
Commonwealth of Massachusetts and shall for all purposes be construed in
accordance with the laws of said Commonwealth.
60
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed as a sealed instrument.
LOGICAL DESIGN SOLUTIONS, INC.
By: /s/ Xxxx Xxx Xxxxxx
----------------------
Attest: /s/ E. Xxxxx Xxxxxxxxx Name: Xxxx Xxx Xxxxxx
------------------------- Title: President
161614-1
61
EXECUTION COPY
WARRANT AGREEMENT
LOGICAL DESIGN SOLUTIONS, INC.
DATED AS OF March 19, 1997
62
WARRANT AGREEMENT
Table of Contents
Page
----
1. ISSUE OF WARRANT TO PURCHASERS, FORM OF WARRANTS.......... 3
2. REGISTRATION.............................................. 3
3. TRANSFER OF WARRANTS...................................... 4
4. TERM; EXERCISE............................................ 4
5. SURRENDER OF WARRANT CERTIFICATES......................... 5
6. MUTILATED OR MISSING WARRANT CERTIFICATE.................. 5
7. RESERVATION OF COMMON STOCK, ETC.......................... 5
8. ANTI-DILUTION ADJUSTMENTS................................. 6
8.1 Extraordinary Distributions............................... 6
8.2 Equitable Adjustments..................................... 6
8.3 Notice of Adjustment...................................... 6
8.4 Reflection of Adjustments on Certificates................. 7
9. [INTENTIONALLY OMITTED]................................... 7
10. CERTAIN EVENTS........................................... 7
11. ABSENCE OF REGISTRATION.................................. 8
12. INFORMATION COVENANTS.................................... 8
12.1 Notice of Stockholder Meetings........................... 8
12.2 Notice of Distributions.................................. 9
12.3 Financial Statements, etc................................ 9
12.4 Proper Books and Records................................. 9
13. NOTICES.................................................. 9
14. WARRANT OBLIGATIONS INDEPENDENT OF DEBT OBLIGATIONS...... 9
15. FRACTIONAL INTERESTS..................................... 10
16. BINDING EFFECT; SURVIVAL................................. 10
17. COUNTERPARTS............................................. 10
18. GOVERNING LAW............................................ 10
63
WARRANT AGREEMENT dated as of March 19, 1997, between Logical Design
Solutions, Inc., a New Jersey corporation (the "Company"), and the purchasers
set forth on Schedule I attached hereto (each individually a "Purchaser" and
----------
collectively the "Purchasers"). The Purchasers, so long as they are holders of
any warrants hereunder, together with any permitted transferees or assignees who
are registered holders of any warrant issued hereunder or a like warrant or
warrants issued upon the transfer of such warrant (each individually a "Warrant"
and collectively the "Warrants") are referred to collectively as the "Holders"
and individually as a "Holder."
WHEREAS, pursuant to the terms of a 9% Senior Subordinated Debenture and
Warrant Purchase Agreement dated as of March 19, 1997, among the Company,
certain shareholders of the Company and the Purchasers (the "Purchase
Agreement"), the Company has agreed to issue to each Purchaser a Warrant as
hereinafter described to purchase shares of the Company's Common Stock, no par
value per share (together with any other or additional classes of the Company's
capital stock for which the Warrants may become exercisable in accordance with
Section 8.4 of this Agreement, the "Common Stock"), upon the terms and subject
to the conditions set forth in the Purchase Agreement; and
WHEREAS, the Company wishes to set forth, among other things, the
provisions of such Warrants and the terms and conditions on which such Warrants
may be issued, exchanged, exercised and replaced;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
Section 1. Issue of Warrant to Purchasers, Form of Warrants. The Company
shall on the date hereof issue and deliver to the Purchasers Warrants to
purchase an aggregate of 215,000 shares of Common Stock, subject to adjustment
pursuant to Section 8 hereof, for the purchase price set forth in the Purchase
Agreement. Each Purchaser shall receive a Warrant to purchase the number of
shares of such Common Stock set forth opposite such Purchaser's name on Schedule
I attached hereto. Each Warrant, and any additional Warrants which may be issued
upon partial exercise, replacement or transfer of such Warrant or Warrants,
shall be evidenced by, and subject to the terms of, a Warrant Certificate
(including the Forms of Election to Purchase and Assignment attached thereto, a
"Warrant Certificate") in the form of Exhibit A attached hereto, in each case
executed on behalf of the Company by the manual or facsimile signature of the
President or Vice President of the Company, under its corporate seal affixed or
in facsimile, and attested to by the Secretary or an Assistant Secretary of the
Company. A Warrant Certificate evidencing the original Warrant issued to each
Purchaser shall be executed and delivered to such Purchaser simultaneously with
the execution of this Agreement. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Warrants and the issuance of
Common Stock upon the exercise of Warrants.
Section 2. Registration. All Warrant Certificates shall be numbered and
shall be registered in a warrant register (the "Warrant Register") as they are
issued. Subject to its compliance with the foregoing, the Company shall be
entitled to treat the registered Holder of any Warrant on the Warrant Register
as the owner in fact of such Warrant for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the
64
part of any other person or entity, and shall not be liable for any registration
of transfer of Warrants which are registered or to be registered in the name of
a fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with the knowledge of such facts that its
participation therein amounts to bad faith.
Section 3. Transfer of Warrants. Any Warrant may be transferred or endorsed
to another party in whole or in part by (i) surrendering to the Company, or its
duly authorized agent, for cancellation the existing Warrant Certificate
evidencing the Warrant to be transferred, endorsed or accompanied by a written
instrument of transfer, in form satisfactory to the Company, duly executed by
the Holder thereof in person or by a duly authorized representative, agent or
attorney-in-fact appointed in writing, (ii) by supplying the Company with an
opinion of counsel, which opinion shall be reasonably satisfactory to the
Company, to the effect that registration under the Securities Act of 1933 has
been accomplished or is not necessary in connection with such transfer of
Warrants, and (iii) by having the transferee agree in writing to be bound by the
provisions of the Purchase Agreement, this Agreement, the Shareholders
Agreement, dated March 19, 1997, by and among the Company, certain of its
shareholders, and the Purchasers (the "Shareholders Agreement"), and the
Redemption Agreement, dated March 19, 1997, by and among the Company and the
Purchasers (the "Redemption Agreement"). Upon receipt thereof, the Company shall
issue and deliver, in the name of the transferee, a new Warrant Certificate
containing the same terms as the surrendered Warrant Certificate. In the case of
the transfer of fewer than all of the rights evidenced by the surrendered
Warrant Certificate, the Company shall issue a new Warrant Certificate to the
Holder thereof for the remaining number of shares specified in the Warrant
Certificate so surrendered.
Section 4. Term; Exercise. A Warrant entitles the Holder thereof to
purchase the number of shares of Common Stock specified in the Warrant
Certificate held by such Holder at a purchase price of $.01 per share (the
"Exercise Price") at any time after 12:01 p.m. on March 20, 1997 and on or
before 5:00 p.m. Boston Time on such date (the "Expiration Date") as is
specified in a written note (the "Termination Notice") given by the Company to
each registered holder of a Warrant Certificate; provided that such Termination
Notice may not be given prior to March 19, 2004, and provided further that the
Expiration Date shall be at least thirty (30) days after the date on which the
Termination Notice is given. The Exercise Price and the number of shares
issuable upon exercise of any Warrant are subject to adjustment upon the
occurrence of certain events, pursuant to the provisions of Section 8 of this
Agreement. Subject to the provisions of this Agreement, the Holder of a Warrant
shall have the right, which may be exercised in whole or in part, to purchase
from the Company, and the Company shall issue and sell to such Holder, the
number of fully paid and non-assessable shares of Common Stock (together with
any other shares of the Company's Common Stock issuable upon exercise of
Warrants, the "Shares") specified in the Warrant Certificate held by such
Holder. Such right shall be exercised by surrender to the Company, or its duly
authorized agent, of such Warrant Certificate, with the Form of Election to
Purchase attached thereto duly completed and signed, and upon payment to the
Company of the Exercise Price, as adjusted in accordance with the provisions of
Section 8, for the number of Shares in respect of which the Warrant is then
exercised. Payment of such Exercise Price may be made in cash, by certified
check or bank draft payable to the order of the Company, by wire transfer of
immediately available funds, or by cancellation of the Warrant with respect to
such number of Shares as have a fair market value
65
(determined in good faith by the Board of Directors of the Company without
regard to minority or illiquidity discount) equal to the Exercise Price of the
Warrants which are being exercised. Upon such surrender of the Warrant
Certificate and payment of the Exercise Price as aforesaid, the Company shall
issue and cause to be delivered with all reasonable dispatch to or upon the
written order of the Holder of such Warrant, in such name or names as such
Holder may designate (assuming such designation is to a transferee as permitted
under Paragraph 3 hereof), a certificate or certificates for the number of full
Shares so purchased, together with cash, as provided in Section 15 of this
Agreement, in respect of any fraction of a Share otherwise issuable upon such
surrender. Such certificate or certificates shall be deemed to have been issued
and any person or entity so designated to be named therein shall be deemed to
have become a holder of record of such Shares as of the date of the surrender of
the Warrant Certificate and payment of the Exercise Price as aforesaid;
provided, however, that if, at the date of surrender of a Warrant Certificate
and payment of such Exercise Price, the transfer books for the Common Stock (or,
upon adjustment, such other class of stock as may be purchasable upon the
exercise of the Warrant) shall be closed, the certificates for the Shares in
respect of which such Warrant is then exercised shall be issued as of the date
on which such books shall next be opened (whether before, on or after the
Expiration Date) and until such date the Company shall be under no duty to
deliver any certificate for such Shares; provided further, however, that the
transfer books shall not be closed at any time for a period longer than forty-
eight (48) hours unless otherwise required by law. A Warrant shall be
exercisable, at the election of the Holder thereof, either for all or for part
only of the Shares specified in the Warrant Certificate and if any Warrant is
exercised in part prior to the Expiration Date, the Company shall issue a new
Warrant Certificate for the remaining number of Shares specified in the Warrant
Certificate so surrendered.
Section 5. Surrender of Warrant Certificates. Any surrender of a Warrant
Certificate for transfer pursuant to Section 3 above or upon exercise pursuant
to Section 4 above shall be made (a) to the Company at its principal office or
(b) to the Company at such other place or to such agent of the Company as the
Company shall hereafter notify the Holders.
Section 6. Mutilated or Missing Warrant Certificate. If a Warrant
Certificate is mutilated, lost, stolen or destroyed, the Company shall issue and
deliver (a) in exchange and substitution for and upon cancellation of any
mutilated Warrant Certificate or (b) in lieu of and in substitution for any
Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of like
tenor representing an equivalent right or interest. Upon receipt by the Company
of an affidavit of the treasurer, assistant treasurer, or other responsible
official of any Purchaser (or, in the case of holders of Warrants other than a
Purchaser, evidence reasonably satisfactory to the Company) of the ownership of
and the loss, theft, destruction, or mutilation of a Warrant and (i) in case of
loss, theft, or destruction of a Warrant, of indemnity reasonably satisfactory
to it, or (ii) in the case of the mutilation of any Warrants, upon surrender and
cancellation thereof, the Company, at its expense, shall execute and deliver in
lieu thereof a new Warrant of like tenor. Transfer taxes or the like (if any)
shall be paid by the Purchaser or the transferee.
Section 7. Reservation of Common Stock, etc. The Company shall reserve for
so long as any Warrant remains outstanding a number of authorized and unissued
Shares sufficient to provide for the exercise of all such Warrants, and the
transfer agent for the Common Stock, which may be the Company (the "Transfer
Agent"), is hereby irrevocably authorized and directed at all times until the
Expiration Date to reserve such number of authorized and unissued
66
Shares as necessary for such purpose. The Company shall keep copies of this
Agreement on file with the Transfer Agent and shall supply the Transfer Agent
with duly executed stock certificates for such purpose and will itself provide
or otherwise make available any cash payable as provided in Section 15 of this
Agreement. All Warrant Certificates surrendered upon the exercise of Warrants
shall be canceled, and such canceled Warrant Certificates shall constitute
sufficient evidence of the number of Shares which have been issued upon the
exercise of Warrants. The Company shall furnish to the Transfer Agent a copy of
all notices of adjustment, and certificates related thereto, required to be
transmitted to each Holder pursuant to Section 8.6 hereof.
Section 8. Anti-dilution Adjustments. The number and kind of Shares
purchasable upon exercise of the Warrants shall be subject to adjustments from
time to time upon the happening of the events hereinafter specified. No
adjustment shall be made for any cash dividends or any Shares issued or issuable
upon exercise of the Warrants. Notwithstanding any other provision hereof or of
any Warrant, the Exercise Price shall not in any event be less than the par
value (if any) of the Common Stock. The Company hereby covenants that, to the
extent permitted by law, the par value of each share of Common Stock shall not
be more than $.01 and the Company will not increase such par value so long as
any Warrant is outstanding.
a. Extraordinary Distributions. If the Company makes any distribution of
its assets upon or with respect to its Common Stock, as a liquidating or partial
liquidating dividend, or other than as a dividend payable out of earnings or any
surplus legally available for dividends under the laws of the jurisdiction of
incorporation of the Company, each Holder of a Warrant shall, upon the exercise
of such Warrant after the record date for such distribution or, in the absence
of a record date, after the date of such distribution, receive, in addition to
the shares subscribed for, the amount of such assets (or, at the option of the
Company, a sum equal to the value thereof at the time of distribution as
reasonably determined in good faith by the board of directors of the Company)
which would have been distributed to such Holder if such Holder had exercised
such Holder's Warrant immediately prior to the record date for such distribution
or, in the absence of a record date, immediately prior to the date of such
distribution.
b. Equitable Adjustments. If the Company (i) declares or pays a dividend
on its Common Stock in shares of its capital stock or makes a distribution in
shares of Common Stock, (ii) subdivides its outstanding Common Stock, (iii)
combines its outstanding Common Stock into a smaller number of shares of Common
Stock or (iv) issues any shares of its capital stock in a reclassification of
its Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing entity), the
number of Shares of Common Stock for which Warrants are exercisable in effect at
the time of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification shall be proportionately adjusted
so that the Holder of any Warrant exercised after such date shall be entitled to
receive the aggregate number and kind of shares which, if such Warrant had been
exercised immediately prior to such time, it would have owned upon such exercise
and been entitled to receive upon such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur, but no duplicative adjustment shall be made hereunder.
67
c. Notice of Adjustment. Whenever an adjustment is made pursuant to this
Section 8, the Company shall promptly cause a notice setting forth the adjusted
number of Shares issuable upon exercise of each Warrant to be mailed to each
Holder at such Holder's last address appearing on the Warrant Register and shall
cause a certified copy thereof to be mailed to the Transfer Agent, if such
Transfer Agent is not the Company. The Company shall, upon the request in
writing of the Holders of a majority of the Warrants, retain a nationally
recognized firm of independent public accountants of recognized standing
selected by the board of directors of the Company to make any computation
required by this Section 8, and a certificate signed by such firm shall be
conclusive evidence of the correctness of such adjustment, which shall be
binding on the Holders and the Company.
d. Reflection of Adjustments on Certificates. Notwithstanding any
adjustments in the number or kind of Shares purchasable upon exercise of
Warrants, any Warrant Certificate theretofore or thereafter issued may continue
to express the same price and number and kind of Shares as are stated in the
Warrant Certificate initially issuable pursuant to this Agreement.
Section 9. [Intentionally Omitted].
Section 10. Certain Events. If any of the following occurs on or before the
Expiration Date:
i. a consolidation or merger of the Company with or into another
entity (other than any merger as to which the Company is the surviving
corporation and there is no change in the Common Stock in connection therewith),
ii. a liquidating dividend with respect to the Common Stock, or
iii. a tender offer or exchange offer with respect to the Common Stock
(other than a tender offer opposed by the Company's board of directors),
(each, an "Event"), then, in connection with any such Event, each Holder of a
Warrant shall have the right, in lieu of exercising such Warrant in advance of
such Event and receiving the consideration which a Holder of the Shares issuable
upon exercise of such Warrant would receive in connection with such
consolidation or merger, liquidating dividend or tender offer (the "Event
Consideration"), upon surrender of the Warrant Certificate evidencing such
Warrant to the Company or its duly authorized agent or to the depositary or
exchange agent, as the case may be, to receive the Event Consideration with
respect to the Shares for which such Warrant is exercisable reduced by the
Exercise Price. Such reduction in the Event Consideration shall first be applied
to any cash included in the Event Consideration and, to the extent that such
cash is less than the Exercise Price, the amount of the securities or other
property to be received by such Holder shall be reduced by an amount that,
together with any such cash, is (in the reasonable judgment of the Company's
board of directors) equal to the Exercise Price. The Company hereby covenants
(1) to give notice of any Event specified in (a) or (b) above to each
Holder of Warrants at least fifteen (15) business days in advance of the
record date for determining stockholders' rights with respect to such
Event, and
68
(2) that any agreements, resolutions, offers or other documents with
respect to any Event shall contain terms consistent with the provisions of
this Section 10 and, in the case of any Event specified in (c) above, shall
be forwarded to each Holder of Warrants.
The provisions of this Section 10 shall also apply to successive Events.
Section 11. Absence of Registration. By acceptance of a Warrant Certificate
evidencing the Warrant, each Holder represents and agrees that such Holder is
acquiring the Warrant, and that upon exercise thereof it will acquire the
Shares, with its own funds for its own account for investment, and not with a
view to any sale, distribution or transfer thereof in violation of the
Securities Act of 1933 (the "Securities Act").
Each Holder acknowledges that such Holder has been informed by the Company
or by the previous Holder of the Warrant that the Warrant may not, under the
Securities Act and applicable regulations thereunder, be re-sold, transferred or
otherwise disposed of without registration under the Securities Act or an
applicable exemption from the registration requirements of the Securities Act.
Warrant Certificates and shares of Common Stock issuable upon exercise of
Warrants shall bear
the following legend:
THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1993 (THE "ACT") OR THE SECURITIES LAWS OF ANY
STATE. THIS SECURITY MAY NOT BE TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE OR
OTHERWISE UNLESS (i) A REGISTRATION STATEMENT FOR THIS SECURITY UNDER THE
ACT IS IN EFFECT OR (ii) THE CORPORATION HAS RECEIVED AN OPINION OF
COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY TO THE CORPORATION TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR THE
SECURITIES LAWS OF ANY STATE.
Section 12. Information Covenants.
a. Notice of Stockholder Meetings. Except as otherwise expressly stated
herein, nothing contained in this Agreement shall be construed as conferring
upon any Holder the right to receive dividends, to vote or to consent to or
receive notice as a stockholder in respect of the meetings of stockholders or
the election of directors of the Company or any other matter, or any rights
whatsoever as a stockholder of the Company; provided, however, that if a meeting
of the stockholders of the Company is called or if consents of the Company's
stockholders are solicited to consider and take action on a proposal for (i) the
declaration of a dividend with respect to Shares, other than in cash and payable
out of its earned surplus, (ii) the redemption or repurchase of any Shares,
other than pursuant to the Purchase Agreement, the Shareholders Agreement, or
the Redemption Agreement or pursuant to repurchase agreements with employees,
(iii) the voluntary dissolution of the Company or (iv) any consolidation, merger
or sale of all or substantially all of its property, assets, business and good
will as an entirety, then the Company
69
shall cause a notice thereof to be sent by first class mail, postage prepaid, at
least twenty (20) business days prior to the record date for determining
stockholders entitled to vote at such meeting or to take action with respect to
such consent, to each Holder of Warrants at such Holder's address appearing on
the Warrant Register; but failure to mail or to receive such notice or any
defect therein or in the mailing thereof shall not affect the validity of any
action taken at such meeting or by such consent.
b. Notice of Distributions. If the Company determines to make any
distribution on its Common Stock, then the Company shall deliver a notice of its
intention to make such distribution by first class mail, postage prepaid, at
least twenty (20) business days prior to the record date for such distribution
to each registered Holder of Warrants at such Holder's address appearing on the
Warrant Register, but failure to mail or to receive such notice or any defect
therein or in the mailing thereof shall not affect the validity of any action
taken in connection with such distribution.
c. Financial Statements, etc. Notwithstanding Section 12.1 above, the
Company shall promptly deliver to each Holder copies of all regular and periodic
financial information, proxy materials and other information and reports, if
any, which the Company or any of its subsidiaries shall file with the Securities
and Exchange Commission. In addition, the Company shall deliver to each Holder
all financial statements and other reports required to be delivered to holders
of Debentures pursuant to paragraph 3.1 of the Purchase Agreement.
d. Proper Books and Records. The Company covenants that it will keep
proper books and records in which full, true and correct entries in conformity
with generally accepted accounting principles shall be made of all dealings and
transactions in relation to its business and activities.
Section 13. Notices. Any notice pursuant to this Agreement to be given or
made by any Holder to or on the Company shall be made by hand delivery, prepaid
first-class mail (registered or certified, return receipt requested), telegraph,
facsimile transmission (receipt confirmed), or overnight air courier
guaranteeing next day delivery, addressed to the parties at their addresses set
forth in the Purchase Agreement.
Any notice or demand authorized by this Agreement to be given or made by the
Company to any Holder shall be sufficiently given or made (except as otherwise
provided in this Agreement) if sent as provided above, addressed to such
Holder's address appearing on the Warrant Register, with a copy, in the case of
a Purchaser, to Xxxxx Xxxxxx, Xxxxxxxx, Xxxxxxx & Xxxxxxx, 000 Xxxxxxx Xxxxxx,
Xxxxxx, Xxxxxxxxxxxxx 00000 (facsimile transmission number: (000) 000-0000).
Section 14. Warrant Obligations Independent of Debt Obligations. Pursuant
to the Purchase Agreement, the Company has issued 9% Senior Subordinated
Debentures Due March 18, 2002, and 9% Junior Debentures Due March 19, 2003
(collectively, the "Subordinated Notes") to the Purchasers. The obligations of
the Company or its affiliates with respect to the Warrants, including, without
limitation, the obligations set forth in this Agreement, are independent of any
obligations of the Company under the Subordinated Notes, and such obligations
with respect to the Warrants shall remain valid and binding notwithstanding the
70
performance of, or any breach by the Company or its affiliates with respect to,
their obligations under the Subordinated Notes.
Section 15. Fractional Interests. The Company shall not be required to
issue fractions of Shares on the exercise of Warrants. If the Company elects not
to issue fractions of Shares, then with respect to any fraction of a Share that
would otherwise have been issuable on the exercise of a Warrant, the Company
shall purchase such fraction for an amount in cash equal to the fraction of the
then current Exercise Price attributable to such fractional share.
Section 16. Binding Effect; Survival. This Agreement shall survive the
exercise of the Warrants and shall be binding upon the Company and its
successors and assigns and shall be binding upon and inure to the benefit of the
Holders of the Warrants and each holder of Shares issued upon exercise of the
Warrants.
Section 17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute but one and the same instrument.
Section 18. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the Commonwealth of
Massachusetts.
[The rest of this page intentionally left blank]
71
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as an instrument under SEAL as of the date for first above written.
LOGICAL DESIGN SOLUTIONS, INC.:
LOGICAL DESIGN SOLUTIONS, INC.
By: /s/ Xxxx Xxx Xxxxxx
----------------------
Name: Xxxx Xxx Xxxxxx
Title: President
SUMMIT VENTURES IV, L.P.:
By: Summit Partners IV, L.P.,
its General Partner
By: Stamps, Xxxxxxx & Co. IV,
its General Partner
By: /s/ Xxxxx Xxxxx
------------------
General Partner
SUMMIT INVESTORS III, L.P.
By: /s/ Xxxxx Xxxxx
------------------
Authorized Signatory
/s/ Xxxx X. Xxxxxx
---------------------
Xxxx X. Xxxxxx
72
EXHIBIT A
---------
WARRANT CERTIFICATE
THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1993 (THE "ACT") OR THE SECURITIES LAWS OF ANY
STATE. THIS SECURITY MAY NOT BE TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE OR
OTHERWISE UNLESS (i) A REGISTRATION STATEMENT FOR THIS SECURITY UNDER THE
ACT IS IN EFFECT OR (ii) THE CORPORATION HAS RECEIVED AN OPINION OF
COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY TO THE CORPORATION TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR THE
SECURITIES LAWS OF ANY STATE.
NO. ___ Xxxxx 00, 0000
XXXXXXXXXX AFTER 5:00 P.M.
BOSTON TIME ON TERMINATION DATE,
AS DETERMINED IN ACCORDANCE WITH
WARRANT AGREEMENT DATED MARCH 19, 1997
LOGICAL DESIGN SOLUTIONS, INC.
Warrant Certificate
THIS CERTIFIES THAT for value received, _______________, or its registered
assigns, is the owner of a Warrant which entitles it to purchase at any time
after 12:01 p.m. on March 20, 1997 and on or before 5:00 p.m. Boston Time on the
Expiration Date as provided in the Warrant Agreement (as hereinafter defined)
(the "Expiration Date"), ______________ fully paid and nonassessable Shares of
the Common Stock, no par value (the "Common Stock") of Logical Design Solutions,
Inc., a New Jersey corporation (the "Company"), at the purchase price of $.01
per share (the "Exercise Price") upon presentation and surrender of this Warrant
Certificate with the Form of Election to Purchase attached hereto duly executed.
The number of Shares which may be purchased upon exercise of the Warrant
evidenced by this Warrant Certificate is the number as of the date of the
original issue of such Warrant, based on the Shares of Common Stock of the
Company as constituted at such date. As provided in the Warrant Agreement, the
number and kind of Shares which may be purchased upon the exercise of the
Warrant evidenced by this Warrant Certificate are, upon the happening of certain
events, subject to modification and adjustment.
This Warrant Certificate and the Warrant it represents are subject to, and
entitled to the benefits of, all of the terms, provisions and conditions of a
certain Warrant Agreement dated as of March 19, 1997 (the "Warrant Agreement")
between the Company and the original holder hereof, which Warrant Agreement is
hereby incorporated herein by reference and made a part hereof and to which
Warrant Agreement reference is hereby made for a full description of the rights,
limitation of rights, obligations, duties and immunities hereunder of the
Company and the
73
holder of this Warrant Certificate. Copies of the Warrant Agreement are on file
at the principal office of the Company.
No fractional Shares of Common Stock need be issued upon the exercise of
any Warrant evidenced hereby, but in lieu thereof a cash payment may be made, as
provided in the Warrant Agreement.
No holder of this Warrant Certificate shall be entitled to vote or receive
dividends or be deemed the holder of Common Stock or any other securities of the
Company which may at any time be issuable on the exercise hereof for any
purpose, nor shall anything contained in the Warrant Agreement or herein be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue of stock, reclassification of stock, change of par value or change of
stock to no par value, consolidation, merger, conveyance or otherwise), to
receive notice of meetings (except as provided in the Warrant Agreement), or to
receive dividends or subscription rights or otherwise, until the Warrant
evidenced by this Warrant Certificate shall have been exercised and the Common
Stock purchasable upon the exercise thereof shall have become deliverable as
provided in the Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Company's Common Stock are closed
for any purpose, the Company shall not be required to make delivery of
certificates for Shares purchasable upon such exercise until the date of the
reopening of said transfer books.
74
IN WITNESS WHEREOF, Logical Design Solutions, Inc. has caused the signature
(or facsimile signature) of its President and Secretary to be printed herein and
its corporate seal (or facsimile) to be printed herein.
Attest: LOGICAL DESIGN SOLUTIONS, INC.
___________________________ By:______________________________
Secretary Xxxx Xxx Xxxxxx, President
75
FORM OF ELECTION TO PURCHASE
To be executed if the Holder desires to exercise the Warrant.
TO LOGICAL DESIGN SOLUTIONS, INC.:
The undersigned hereby irrevocably elects to exercise the Warrant evidenced
by this Warrant Certificate No. ____________ to purchase ____________ Shares of
Common Stock issuable upon the exercise of such Warrant and requests that
certificates for such Shares be issued in the name of:
--------------------------------------
Name
--------------------------------------
Address
--------------------------------------
Social Security Number
--------------------------------------
Date:_____________________ Signature (Signature must conform in all respects
to name of holder as specified on the face of this
Warrant Certificate)
If such number of Shares shall not be all the Shares with respect to which
this Warrant is exercisable, a new Warrant for the balance remaining of such
Shares will be registered in the name of and delivered to:
--------------------------------------
Name
--------------------------------------
Address
--------------------------------------
Social Security Number
--------------------------------------
Date:____________________ Signature (Signature must conform in all respects
to name of holder as specified on the face of this
Warrant Certificate)
76
ASSIGNMENT
(To be executed only upon assignment of Warrant Certificates)
For value received, ______________ hereby sells, assigns and transfers unto
______________ the within Warrant Certificate, together with all right, title
and interest therein, and does hereby irrevocably constitute and appoint
______________ attorney, to transfer said Warrant Certificate on the books of
the within-named Company, with full power of substitution in the premises.
Dated:_________________________
______________________________________________
NOTE:
The above signature should correspond exactly
with the name on the face of this Warrant
Certificate.
77
SCHEDULE I
Warrant Purchasers Number Purchased
------------------ ----------------
Summit Ventures IV, L.P. 194,770.50
Summit Investors III, L.P. 10,229.50
Xxxx X. Xxxxxx 10,000
TOTAL: 215,000
=======
78
WARRANT CERTIFICATE
THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1993 (THE "ACT") OR THE SECURITIES LAWS OF ANY
STATE. THIS SECURITY MAY NOT BE TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE OR
OTHERWISE UNLESS (i) A REGISTRATION STATEMENT FOR THIS SECURITY UNDER THE
ACT IS IN EFFECT OR (ii) THE CORPORATION HAS RECEIVED AN OPINION OF
COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY TO THE CORPORATION TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR THE
SECURITIES LAWS OF ANY STATE.
NO. W-1 March 19, 1997
TERMINABLE AFTER 5:00 P.M.
BOSTON TIME ON TERMINATION DATE,
AS DETERMINED IN ACCORDANCE WITH
WARRANT AGREEMENT DATED MARCH 19, 1997
LOGICAL DESIGN SOLUTIONS, INC.
Warrant Certificate
THIS CERTIFIES THAT for value received, Summit Ventures IV, L.P., or its
registered assigns, is the owner of a Warrant which entitles it to purchase at
any time after 12:01 p.m. on March 20, 1997 and on or before 5:00 p.m. Boston
Time on the Expiration Date as provided in the Warrant Agreement (as hereinafter
defined) (the "Expiration Date"), One Hundred Ninety Four Thousand Seven Hundred
Seventy and 50/100 (194,770.50) fully paid and nonassessable Shares of the
Common Stock, no par value (the "Common Stock") of Logical Design Solutions,
Inc., a New Jersey corporation (the "Company"), at the purchase price of $.01
per share (the "Exercise Price") upon presentation and surrender of this Warrant
Certificate with the Form of Election to Purchase attached hereto duly executed.
The number of Shares which may be purchased upon exercise of the Warrant
evidenced by this Warrant Certificate is the number as of the date of the
original issue of such Warrant, based on the Shares of Common Stock of the
Company as constituted at such date. As provided in the Warrant Agreement, the
number and kind of Shares which may be purchased upon the exercise of the
Warrant evidenced by this Warrant Certificate are, upon the happening of certain
events, subject to modification and adjustment.
This Warrant Certificate and the Warrant it represents are subject to, and
entitled to the benefits of, all of the terms, provisions and conditions of a
certain Warrant Agreement dated as of March 19, 1997 (the "Warrant Agreement")
between the Company and the original holder hereof, which Warrant Agreement is
hereby incorporated herein by reference and made a part hereof and to which
Warrant Agreement reference is hereby made for a full description of the rights,
limitation of rights, obligations, duties and immunities hereunder of the
Company and the
79
holder of this Warrant Certificate. Copies of the Warrant Agreement are on file
at the principal office of the Company.
No fractional Shares of Common Stock need be issued upon the exercise of
any Warrant evidenced hereby, but in lieu thereof a cash payment may be made, as
provided in the Warrant Agreement.
No holder of this Warrant Certificate shall be entitled to vote or receive
dividends or be deemed the holder of Common Stock or any other securities of the
Company which may at any time be issuable on the exercise hereof for any
purpose, nor shall anything contained in the Warrant Agreement or herein be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue of stock, reclassification of stock, change of par value or change of
stock to no par value, consolidation, merger, conveyance or otherwise), to
receive notice of meetings (except as provided in the Warrant Agreement), or to
receive dividends or subscription rights or otherwise, until the Warrant
evidenced by this Warrant Certificate shall have been exercised and the Common
Stock purchasable upon the exercise thereof shall have become deliverable as
provided in the Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Company's Common Stock are closed
for any purpose, the Company shall not be required to make delivery of
certificates for Shares purchasable upon such exercise until the date of the
reopening of said transfer books.
80
IN WITNESS WHEREOF, Logical Design Solutions, Inc. has caused the signature
(or facsimile signature) of its President and Secretary to be printed herein and
its corporate seal (or facsimile) to be printed herein.
Attest: LOGICAL DESIGN SOLUTIONS, INC.
/s/ E. Xxxxx Xxxxxxxxx By: /s/ Xxxx Xxx Xxxxxx
--------------------------------- ----------------------------------
Secretary Xxxx Xxx Xxxxxx, President
81
FORM OF ELECTION TO PURCHASE
To be executed if the Holder desires to exercise the Warrant.
TO LOGICAL DESIGN SOLUTIONS, INC.:
The undersigned hereby irrevocably elects to exercise the Warrant evidenced
by this Warrant Certificate No. _________ to purchase _________ Shares of Common
Stock issuable upon the exercise of such Warrant and requests that certificates
for such Shares be issued in the name of:
--------------------------------------
Name
--------------------------------------
Address
--------------------------------------
Social Security Number
--------------------------------------
Date:_____________________ Signature (Signature must conform in all respects
to name of holder as specified on the face of this
Warrant Certificate)
If such number of Shares shall not be all the Shares with respect to which
this Warrant is exercisable, a new Warrant for the balance remaining of such
Shares will be registered in the name of and delivered to:
--------------------------------------
Name
--------------------------------------
Address
--------------------------------------
Social Security Number
--------------------------------------
Date:_____________________ Signature (Signature must conform in all respects
to name of holder as specified on the face of this
Warrant Certificate)
82
ASSIGNMENT
(To be executed only upon assignment of Warrant Certificates)
For value received, ______________ hereby sells, assigns and transfers unto
______________ the within Warrant Certificate, together with all right, title
and interest therein, and does hereby irrevocably constitute and appoint
______________ attorney, to transfer said Warrant Certificate on the books of
the within-named Company, with full power of substitution in the premises.
Dated:______________________
___________________________________________
NOTE:
The above signature should correspond exactly
with the name on the face of this Warrant
Certificate.
83
WARRANT CERTIFICATE
THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1993 (THE "ACT") OR THE SECURITIES LAWS OF ANY
STATE. THIS SECURITY MAY NOT BE TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE OR
OTHERWISE UNLESS (i) A REGISTRATION STATEMENT FOR THIS SECURITY UNDER THE
ACT IS IN EFFECT OR (ii) THE CORPORATION HAS RECEIVED AN OPINION OF
COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY TO THE CORPORATION TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR THE
SECURITIES LAWS OF ANY STATE.
NO. W-2 March 19, 1997
TERMINABLE AFTER 5:00 P.M.
BOSTON TIME ON TERMINATION DATE,
AS DETERMINED IN ACCORDANCE WITH
WARRANT AGREEMENT DATED MARCH 19, 1997
LOGICAL DESIGN SOLUTIONS, INC.
Warrant Certificate
THIS CERTIFIES THAT for value received, Summit Investors III, L.P., or its
registered assigns, is the owner of a Warrant which entitles it to purchase at
any time after 12:01 p.m. on March 20, 1997 and on or before 5:00 p.m. Boston
Time on the Expiration Date as provided in the Warrant Agreement (as hereinafter
defined) (the "Expiration Date"), Ten Thousand Two Hundred Twenty Nine and
50/100 (10,229.50) fully paid and nonassessable Shares of the Common Stock, no
par value (the "Common Stock") of Logical Design Solutions, Inc., a New Jersey
corporation (the "Company"), at the purchase price of $.01 per share (the
"Exercise Price") upon presentation and surrender of this Warrant Certificate
with the Form of Election to Purchase attached hereto duly executed. The number
of Shares which may be purchased upon exercise of the Warrant evidenced by this
Warrant Certificate is the number as of the date of the original issue of such
Warrant, based on the Shares of Common Stock of the Company as constituted at
such date. As provided in the Warrant Agreement, the number and kind of Shares
which may be purchased upon the exercise of the Warrant evidenced by this
Warrant Certificate are, upon the happening of certain events, subject to
modification and adjustment.
This Warrant Certificate and the Warrant it represents are subject to, and
entitled to the benefits of, all of the terms, provisions and conditions of a
certain Warrant Agreement dated as of March 19, 1997 (the "Warrant Agreement")
between the Company and the original holder hereof, which Warrant Agreement is
hereby incorporated herein by reference and made a part hereof and to which
Warrant Agreement reference is hereby made for a full description of the rights,
limitation of rights, obligations, duties and immunities hereunder of the
Company and the holder of this Warrant Certificate. Copies of the Warrant
Agreement are on file at the principal office of the Company.
84
No fractional Shares of Common Stock need be issued upon the exercise of
any Warrant evidenced hereby, but in lieu thereof a cash payment may be made, as
provided in the Warrant Agreement.
No holder of this Warrant Certificate shall be entitled to vote or receive
dividends or be deemed the holder of Common Stock or any other securities of the
Company which may at any time be issuable on the exercise hereof for any
purpose, nor shall anything contained in the Warrant Agreement or herein be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue of stock, reclassification of stock, change of par value or change of
stock to no par value, consolidation, merger, conveyance or otherwise), to
receive notice of meetings (except as provided in the Warrant Agreement), or to
receive dividends or subscription rights or otherwise, until the Warrant
evidenced by this Warrant Certificate shall have been exercised and the Common
Stock purchasable upon the exercise thereof shall have become deliverable as
provided in the Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Company's Common Stock are closed
for any purpose, the Company shall not be required to make delivery of
certificates for Shares purchasable upon such exercise until the date of the
reopening of said transfer books.
85
IN WITNESS WHEREOF, Logical Design Solutions, Inc. has caused the signature
(or facsimile signature) of its President and Secretary to be printed herein and
its corporate seal (or facsimile) to be printed herein.
Attest: LOGICAL DESIGN SOLUTIONS, INC.
/s/ E. Xxxxx Xxxxxxxxx By: /s/ Xxxx Xxx Xxxxxx
--------------------------- ---------------------------
Secretary Xxxx Xxx Xxxxxx, President
86
FORM OF ELECTION TO PURCHASE
To be executed if the Holder desires to exercise the Warrant.
TO LOGICAL DESIGN SOLUTIONS, INC.:
The undersigned hereby irrevocably elects to exercise the Warrant evidenced
by this Warrant Certificate No. _________ to purchase _________ Shares of Common
Stock issuable upon the exercise of such Warrant and requests that certificates
for such Shares be issued in the name of:
--------------------------------------
Name
--------------------------------------
Address
--------------------------------------
Social Security Number
--------------------------------------
Date:_____________________ Signature (Signature must conform in all respects
to name of holder as specified on the face of this
Warrant Certificate)
If such number of Shares shall not be all the Shares with respect to which
this Warrant is exercisable, a new Warrant for the balance remaining of such
Shares will be registered in the name of and delivered to:
--------------------------------------
Name
--------------------------------------
Address
--------------------------------------
Social Security Number
--------------------------------------
Date:_____________________ Signature (Signature must conform in all respects
to name of holder as specified on the face of this
Warrant Certificate)
87
ASSIGNMENT
(To be executed only upon assignment of Warrant Certificates)
For value received, ______________ hereby sells, assigns and transfers unto
______________ the within Warrant Certificate, together with all right, title
and interest therein, and does hereby irrevocably constitute and appoint
______________ attorney, to transfer said Warrant Certificate on the books of
the within-named Company, with full power of substitution in the premises.
Dated:_____________________
____________________________________________
NOTE:
The above signature should correspond exactly
with the name on the face of this Warrant
Certificate.
88
WARRANT CERTIFICATE
THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1993 (THE "ACT") OR THE SECURITIES LAWS OF ANY
STATE. THIS SECURITY MAY NOT BE TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE OR
OTHERWISE UNLESS (i) A REGISTRATION STATEMENT FOR THIS SECURITY UNDER THE
ACT IS IN EFFECT OR (ii) THE CORPORATION HAS RECEIVED AN OPINION OF
COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY TO THE CORPORATION TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR THE
SECURITIES LAWS OF ANY STATE.
NO. W-3 March 19, 1997
TERMINABLE AFTER 5:00 P.M.
BOSTON TIME ON TERMINATION DATE,
AS DETERMINED IN ACCORDANCE WITH
WARRANT AGREEMENT DATED MARCH 19, 1997
LOGICAL DESIGN SOLUTIONS, INC.
Warrant Certificate
THIS CERTIFIES THAT for value received, Xxxx X. Xxxxxx, or its registered
assigns, is the owner of a Warrant which entitles it to purchase at any time
after 12:01 p.m. on March 20, 1997 and on or before 5:00 p.m. Boston Time on the
Expiration Date as provided in the Warrant Agreement (as hereinafter defined)
(the "Expiration Date"), Ten Thousand and 00/100 (10,000.00) fully paid and
nonassessable Shares of the Common Stock, no par value (the "Common Stock") of
Logical Design Solutions, Inc., a New Jersey corporation (the "Company"), at the
purchase price of $.01 per share (the "Exercise Price") upon presentation and
surrender of this Warrant Certificate with the Form of Election to Purchase
attached hereto duly executed. The number of Shares which may be purchased upon
exercise of the Warrant evidenced by this Warrant Certificate is the number as
of the date of the original issue of such Warrant, based on the Shares of Common
Stock of the Company as constituted at such date. As provided in the Warrant
Agreement, the number and kind of Shares which may be purchased upon the
exercise of the Warrant evidenced by this Warrant Certificate are, upon the
happening of certain events, subject to modification and adjustment.
This Warrant Certificate and the Warrant it represents are subject to, and
entitled to the benefits of, all of the terms, provisions and conditions of a
certain Warrant Agreement dated as of March 19, 1997 (the "Warrant Agreement")
between the Company and the original holder hereof, which Warrant Agreement is
hereby incorporated herein by reference and made a part hereof and to which
Warrant Agreement reference is hereby made for a full description of the rights,
limitation of rights, obligations, duties and immunities hereunder of the
Company and the holder of this Warrant Certificate. Copies of the Warrant
Agreement are on file at the principal office of the Company.
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No fractional Shares of Common Stock need be issued upon the exercise of
any Warrant evidenced hereby, but in lieu thereof a cash payment may be made, as
provided in the Warrant Agreement.
No holder of this Warrant Certificate shall be entitled to vote or receive
dividends or be deemed the holder of Common Stock or any other securities of the
Company which may at any time be issuable on the exercise hereof for any
purpose, nor shall anything contained in the Warrant Agreement or herein be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue of stock, reclassification of stock, change of par value or change of
stock to no par value, consolidation, merger, conveyance or otherwise), to
receive notice of meetings (except as provided in the Warrant Agreement), or to
receive dividends or subscription rights or otherwise, until the Warrant
evidenced by this Warrant Certificate shall have been exercised and the Common
Stock purchasable upon the exercise thereof shall have become deliverable as
provided in the Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Company's Common Stock are closed
for any purpose, the Company shall not be required to make delivery of
certificates for Shares purchasable upon such exercise until the date of the
reopening of said transfer books.
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IN WITNESS WHEREOF, Logical Design Solutions, Inc. has caused the signature
(or facsimile signature) of its President and Secretary to be printed herein and
its corporate seal (or facsimile) to be printed herein.
Attest: LOGICAL DESIGN SOLUTIONS, INC.
/s/ E. Xxxxx Xxxxxxxxx By: /s/ Xxxx Xxx Xxxxxx
------------------------------------------- ---------------------------
Secretary Xxxx Xxx Xxxxxx, President
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FORM OF ELECTION TO PURCHASE
To be executed if the Holder desires to exercise the Warrant.
TO LOGICAL DESIGN SOLUTIONS, INC.:
The undersigned hereby irrevocably elects to exercise the Warrant evidenced
by this Warrant Certificate No. _________ to purchase _________ Shares of Common
Stock issuable upon the exercise of such Warrant and requests that certificates
for such Shares be issued in the name of:
--------------------------------------
Name
--------------------------------------
Address
--------------------------------------
Social Security Number
--------------------------------------
Date:_____________________ Signature (Signature must conform in all respects
to name of holder as specified on the face of this
Warrant Certificate)
If such number of Shares shall not be all the Shares with respect to which
this Warrant is exercisable, a new Warrant for the balance remaining of such
Shares will be registered in the name of and delivered to:
--------------------------------------
Name
--------------------------------------
Address
--------------------------------------
Social Security Number
--------------------------------------
Date:_____________________ Signature (Signature must conform in all respects
to name of holder as specified on the face of this
Warrant Certificate)
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ASSIGNMENT
(To be executed only upon assignment of Warrant Certificates)
For value received, ______________ hereby sells, assigns and transfers unto
______________ the within Warrant Certificate, together with all right, title
and interest therein, and does hereby irrevocably constitute and appoint
______________ attorney, to transfer said Warrant Certificate on the books of
the within-named Company, with full power of substitution in the premises.
Dated:_________________________
____________________________________________
NOTE:
The above signature should correspond exactly
with the name on the face of this Warrant
Certificate.
93
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of ________ __, 1997, by and between
Logical Design Solutions, Inc., a New Jersey corporation (the "Company"), and
Logical Design Solutions international, Inc., a New Jersey corporation ("LDSI").
Section 19. The Merger.
a. The Merger. Upon the terms and subject to the conditions hereof, and
in accordance with the relevant provisions of Title 14A of the Business
Corporation Act of New Jersey (the "New Jersey Law"), LDSI shall be merged with
and into the Company (the "Merger") as soon as practicable following the
satisfaction or waiver, if permissible, of the terms and conditions set forth
herein and upon the filing of a Certificate of Merger with the office of the
Secretary of State of New Jersey pursuant to Section 1(b) below. Following the
Merger, the Company shall continue as the surviving corporation (the "Surviving
Corporation") and shall continue its corporate existence under the laws of the
State of New jersey, and the separate corporate existence of LDSI shall cease.
b. Effective Time. The Merger shall be consummated .by filing, pursuant
to Section 14A:10-4.1 of the New Jersey Law, with the office of the Secretary of
State of the State of New Jersey, a Certificate of Merger that sets forth the
elements required by Section 14A:10-4.1 of the New Jersey Law (the time of such
filing being the "Effective Time").
c. Effects of the Merger. The Merger shall have the effects set forth in
Section 14A;10-6 of the New Jersey Law.
d. Certificate of Incorporation and By-Laws. The Certificate of
Incorporation of the Company at the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation (until modified in accordance with
applicable law). The By-Laws of the Company at the Effective Time shall be the
By-Laws of the Surviving Corporation until modified in accordance with
applicable law.
e. Directors and Officers. The directors of the Company at the Effective
Time shall be the directors of the Surviving Corporation until their successors
are duly elected and qualified and the officers of the Company at the Effective
Time shall be the officers of the Surviving Corporation until replaced in
accordance with the By-Laws of the Surviving Corporation.
f. Conversion of Shares.
i. All shares of common stock, no par value per share, of LDSI issued
and outstanding immediately prior to the Effective Time (other than shares held
in the treasury of the Company or by any subsidiary of the Company) (such issued
and outstanding shares are hereinafter referred to as the "Shares") shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into the right to receive an aggregate of [100] shares
94
of common stock, no par value per share, of the Surviving Corporation to be
distributed to holders of Shares on a pro rata basis.
ii. Each share of common stock held in the treasury of LDSI
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be cancelled without any
payment therefor.
g. Conversion of Company Common Stock. Each share of common stock, no
par value per share, of the Company issued and outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and exchangeable for one share of
common stock of the Surviving Corporation.
h. Closing. Upon the terms and subject to the conditions hereof, a
closing (the "Closing") shall take place at (i) the offices of Xxxxx and Xxxx
llp, Xxx Xxxxx Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 at 10:00 a.m., New York
time, on ________ __, 1997, or (ii) such other place and/or time and/or on such
other date (but in no event later than __________, 1997) as the Company and LDSI
may agree (in case of either clause (i) or (ii), the "Closing Date").
Section 20. Conditions to Closing.
The respective obligations of each party hereto to effect the transactions
contemplated hereby are subject to the satisfaction or waiver as of the Closing
of the following conditions:
a. No statute, rule, regulation, executive order, decree, temporary
restraining order, preliminary or permanent injunction or other order shall have
been enacted, entered, promulgated, enforced or issued by any governmental
entity and no other legal restraint or prohibition preventing the Merger or any
of the other transactions contemplated by this Agreement shall be in effect.
b. No shareholder of LDSI shall have defaulted in its obligation to
deliver such holder's Shares pursuant to the Merger.
c. LDSI's Board of Directors shall have approved and authorized, at or
prior to the Closing, the distribution to the shareholder of record the right to
receive $1.7 million to be received from Xxxx Atlantic, relating to the
licensing of LDSI's "Teletrac" product, as a dividend.
d. Neither party hereto may rely on the failure of any condition set
forth in this Section 2 to be satisfied if such failure was caused by such
party's failure to act in good faith or to use its reasonable efforts to cause
the Closing to occur.
Section 21. Termination.
a. Anything contained herein to the contrary notwithstanding, this
Agreement may be terminated and the transactions contemplated hereby abandoned
at any time prior to the Closing Date:
i. by mutual written consent of either of the parties hereto;
95
ii. by either of the parties hereto, if the Closing does not occur on
or prior to ________ __, 1997;
iii. by either of the parties hereto, if the conditions set forth in
Section 2(c) above is not fulfilled by __________, 1997; or
iv. by either of the parties hereto if any of the conditions set forth
in Section 2 have become incapable of fulfillment, and shall not have been
waived by the other party hereto; provided, however, that the right to terminate
this Agreement pursuant to this Section 3(a)(iii) shall not be available to a
party hereto if it has failed to perform any of its obligations under this
Agreement and such failure results in such conditions becoming incapable of
fulfillment;
b. In the event of termination by either of the parties hereto pursuant
to this Section, written notice thereof setting forth the reasons therefore
shall forthwith be given to the other party and the transactions contemplated by
this Agreement shall be terminated, without further action by any party.
Section 22. Amendments. No amendment, modification or waiver in respect of
this Agreement shall be effective unless it shall be in writing and signed by
both of the parties hereto.
Section 23. Entire Agreement. This Agreement contains the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter. The parties hereto shall not be liable or bound to any other
party in any manner by any representations, warranties or covenants relating to
such subject matter except as specifically set forth herein.
Section 24. Severability. If any provisions of this Agreement (or any
portion thereof) or the application of any such provision (or any portion
thereof) to any person or circumstance shall be held invalid, illegal or
unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof (or the remaining portion thereof) or the application of such provision
to any other persons or circumstances.
Section 25. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New Jersey
applicable to agreements made and to be performed entirely within such State,
without regard to the conflicts of law principles of such State.
96
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
Logical Design Solutions, Inc.
By:________________________
Xxxx X. Xxxxxx
President
Logical Design Solutions International, Inc.
By:________________________
Xxxx X. Xxxxxx
President
97
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATION OF INCORPORATION OF
Logical Design Solutions, Inc.
To: The Secretary of State of the
State of New Jersey
Pursuant to the provisions of Section 14A:9-2(4) and Section 14A:9-4(3),
Corporations, General, of the New Jersey Statutes, the undersigned corporation
executes the following Certificate of Amendment to its Certificate of
Incorporation:
1. The name of the corporation is Logical Design Solutions, Inc.
2. The following amendments to the Certificate of Incorporation were
approved by the directors and thereafter duly adopted by the shareholders of the
corporation on the 13th day of March, 1997:
Resolved, that Article FOURTH of the Certificate of Incorporation be
amended to read as follows:
"FOURTH: The aggregate number of shares which this corporation shall
have authority to issue is 1,500,000 shares without par value."
and
Resolved that an Article SEVENTH shall be added to the Certificate of
Incorporation to read in its entirety as follows:
"SEVENTH: No director or officer of the corporation shall be
personally liable to the corporation or its shareholders for damage
for breach of any duty owed to the corporation or its shareholders,
except that this provision shall not relieve a director from liability
for any breach of duty based upon an act or omission (a) in breach of
such director's duty of loyalty to the corporation or its
shareholders, (b) not in good faith or involving a knowing violation
of law or (c) resulting in receipt by such director of an improper
personal benefit."
3. The number of shares entitled to vote upon the amendment was 200.
98
4. That in lieu of a meeting and vote of the shareholders and in
accordance with the provisions of Section 14A:5-6, the amendment was adopted by
the shareholders without a meeting pursuant to the written consents of the
shareholders and the number of shares represented by such consents is 200
shares.
Dated this 17th day of March, 1997.
Logical Design Solutions, Inc.
By: /s/ Xxxx X. Broosk
---------------------
Xxxx X. Xxxxxx
President
99
EXECUTION COPY
LOGICAL DESIGN SOLUTIONS, INC.
THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1993 (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE. THIS
SECURITY MAY NOT BE TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE OR OTHERWISE UNLESS
(i) A REGISTRATION STATEMENT FOR THIS SECURITY UNDER THE ACT IS IN EFFECT OR
(ii) THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL, WHICH OPINION IS
REASONABLY SATISFACTORY TO THE CORPORATION TO THE EFFECT THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE ACT OR THE SECURITIES LAWS OF ANY STATE.
9% Junior Subordinated Debenture
Due March 19, 2003
Morristown, New Jersey
No. J-1 March 18, 1997
FOR VALUE RECEIVED, Logical Design Solutions, Inc., a New Jersey
corporation (the "Company"), hereby, promises to pay to Xxxx Xxx Xxxxxx, or its
registered assigns, the sum of Six Hundred Ninety Five Thousand One Hundred
Twenty Two and 45/100 ($695,122.45) Dollars on March 19, 2003, together with
interest, computed on the basis of the actual number of days elapsed over a 360-
day year, on the unpaid principal balance hereof until paid in full at the rate
of nine percent (9%) per annum from the date hereof. Interest shall accrue and
compound annually and shall be paid upon each payment or prepayment of
principal.
Any interest not paid when due and payable shall thereafter be paid on
demand by the holder of this Junior Debenture (as defined below) together with a
late charge of two percent (2%) of the amount of interest payment due.
All payments of principal (including any prepayments or redemptions) and
interest hereunder shall be made by the Company in lawful money of the United
States of America in immediately available federal funds (or, at the request of
the holder of this Debenture, by certified or bank check or wire transfer) not
later than 2:00 p.m., Boston, Massachusetts, time, on the date each such payment
is due, by crediting an account in the United States as the holder of this
Junior Debenture may designate in writing to the Company before the scheduled
payment date.
This Junior Debenture is one of a duly authorized issue of Junior
Debentures designated as "9% Junior Subordinated Debentures due March 19, 2003"
(herein called the "Junior Debentures"), in the aggregate principal amount of
$1,114,289.50 and issued under a 9% Senior
100
Subordinated Debenture and Warrant Purchase Agreement, dated as of March 19,
1997 (herein called the "Agreement"), among the Company, certain of its
shareholders, Summit Ventures IV, L.P., Summit Investors III, L.P., Xxxx X.
Xxxxxx and Samedan, Inc., to which Agreement and all agreements supplemental
thereto reference is hereby made for a statement of the respective rights and
duties thereunder of the Company, and the holders of the Junior Debentures, and
the terms upon which the Debentures are, and are to be, delivered.
The principal of this Junior Debenture is subject to prepayment under
certain circumstances, together with accrued interest, all as more particularly
set forth in the Agreement. The Company agrees to make such payments of
principal and interest on the date and in the amount set forth in the Agreement.
Notwithstanding anything herein contained to the contrary, the indebtedness
evidenced by the Junior Debenture is, to the extent provided in the Agreement,
subordinate and subject in right of payment to the prior payment in full of all
Senior Debt (as defined in the Agreement), and this Junior Debenture is issued
subject to such provisions, and each holder of Junior Debentures, by accepting
the same, agrees to and shall be bound by such provisions and agrees to take
such action as may be necessary or appropriate to effectuate the subordination
as provided in the Agreement.
In case an Event of Default, as defined in the Agreement, shall have
occurred and be continuing uncured or unwaived, the principal of all of the
Junior Debentures may be in certain circumstances declared, and upon such
declaration shall become, immediately due and payable, in the manner, with the
effect and subject to the conditions provided in the Agreement.
No reference herein to the Agreement and no provisions of this Junior
Debenture or of the Agreement shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Junior Debenture at the times, places, and rates, and in the
coin or currency, herein prescribed.
Under certain circumstances as are more fully set forth in the Agreement,
this Junior Debenture is transferable by the registered owner hereof, in person
or by duly authorized attorney, on the books of the Company to be kept for that
purpose, upon surrender and cancellation of this Junior Debenture, upon
presentation of a duly executed written instrument of transfer satisfactory to
the Company and upon the transferee's written agreement to be bound by the
provisions of the Agreement, and thereupon a new Junior Debenture or Junior
Debentures, of the same aggregate principal amount and in authorized
denominations, will be issued to the transferee or transferees in exchange
therefor; and this Junior Debenture, with or without other Junior Debentures may
in like manner be exchanged for one or more new Junior Debentures of other
authorized denominations but of the same aggregate principal amount, all subject
to the terms and conditions set forth in the Agreement. Any such transfer or
exchange shall be without charge by the Company. Transfer tax or the like (if
any) shall be paid by the holder hereof or the transferee.
All terms used in this Junior Debenture which are not defined herein and
are defined in the Agreement shall have the meanings assigned to them in the
Agreement.
101
This Junior Debenture shall be deemed to be a contract made under the laws
of the Commonwealth of Massachusetts and shall for all purposes be construed in
accordance with the laws of said Commonwealth.
IN WITNESS WHEREOF, the Company has caused this Junior Debenture to be duly
executed as a sealed instrument.
LOGICAL DESIGN SOLUTIONS, INC.
By: /s/ Xxxx X. Xxxxxx
--------------------
Attest: /s/ E. Xxxxx Xxxxxxxxx Name: Xxxx Xxx Xxxxxx
------------------------- Title: President
161623-1
102
EXECUTION COPY
LOGICAL DESIGN SOLUTIONS, INC.
THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1993 (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE. THIS
SECURITY MAY NOT BE TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE OR OTHERWISE UNLESS
(i) A REGISTRATION STATEMENT FOR THIS SECURITY UNDER THE ACT IS IN EFFECT OR
(ii) THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL, WHICH OPINION IS
REASONABLY SATISFACTORY TO THE CORPORATION TO THE EFFECT THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE ACT OR THE SECURITIES LAWS OF ANY STATE.
9% Junior Subordinated Debenture
Due March 19, 2003
Morristown, New Jersey
No. J-2 March 18, 1997
FOR VALUE RECEIVED, Logical Design Solutions, Inc., a New Jersey
corporation (the "Company"), hereby, promises to pay to Xxxxxx Xxxxxx, or its
registered assigns, the sum of Forty Thousand Three Hundred Eighty Nine and
74/100 ($40,389.74) Dollars on March 19, 2003, together with interest, computed
on the basis of the actual number of days elapsed over a 360-day year, on the
unpaid principal balance hereof until paid in full at the rate of nine percent
(9%) per annum from the date hereof. Interest shall accrue and compound annually
and shall be paid upon each payment or prepayment of principal.
Any interest not paid when due and payable shall thereafter be paid on
demand by the holder of this Junior Debenture (as defined below) together with a
late charge of two percent (2%) of the amount of interest payment due.
All payments of principal (including any prepayments or redemptions) and
interest hereunder shall be made by the Company in lawful money of the United
States of America in immediately available federal funds (or, at the request of
the holder of this Debenture, by certified or bank check or wire transfer) not
later than 2:00 p.m., Boston, Massachusetts, time, on the date each such payment
is due, by crediting an account in the United States as the holder of this
Junior Debenture may designate in writing to the Company before the scheduled
payment date.
This Junior Debenture is one of a duly authorized issue of Junior
Debentures of the Company designated as its "9% Junior Subordinated Debentures
due March 19, 2003" (herein called the "Junior Debentures"), in the aggregate
principal amount of $1,114,289.50 and issued
103
under a 9% Senior Subordinated Debenture and Warrant Purchase Agreement, dated
as of March 19, 1997 (herein called the "Agreement"), among the Company, certain
of its shareholders, Summit Ventures IV, L.P., Summit Investors III, L.P., Xxxx
X. Xxxxxx and Samedan, Inc., to which Agreement and all agreements supplemental
thereto reference is hereby made for a statement of the respective rights and
duties thereunder of the Company, and the holders of the Junior Debentures, and
the terms upon which the Debentures are delivered.
The principal of this Junior Debenture is subject to prepayment under
certain circumstances together with accrued interest, all as more particularly
set forth in the Agreement. The Company agrees to make such payments of
principal and interest on the date and in the amount set forth in the Agreement.
Notwithstanding anything herein contained to the contrary, the indebtedness
evidenced by the Junior Debenture is, to the extent provided in the Agreement,
subordinate and subject in right of payment to the prior payment in full of all
Senior Debt (as defined in the Agreement), and this Junior Debenture is issued
subject to such provisions, and each holder of Junior Debentures, by accepting
the same, agrees to and shall be bound by such provisions and agrees to take
such action as may be necessary or appropriate to effectuate the subordination
as provided in the Agreement.
In case an Event of Default, as defined in the Agreement, shall have
occurred and be continuing uncured or unwaived, the principal of all of the
Junior Debentures may be in certain circumstances declared, and upon such
declaration shall become, immediately due and payable, in the manner, with the
effect and subject to the conditions provided in the Agreement.
No reference herein to the Agreement and no provisions of this Junior
Debenture or of the Agreement shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Junior Debenture at the times, places, and rates, and in the
coin or currency, herein prescribed.
Under certain circumstances more fully set forth in the Agreement, this
Junior Debenture is transferable by the registered owner hereof, in person or by
duly authorized attorney, on the books of the Company to be kept for that
purpose, upon surrender and cancellation of this Junior Debenture, upon
presentation of a duly executed written instrument of transfer satisfactory to
the Company and upon the transferee's written agreement to be bound by the
provisions of the Agreement, and thereupon a new Junior Debenture or Junior
Debentures, of the same aggregate principal amount and in authorized
denominations, will be issued to the transferee or transferees in exchange
therefor; and this Junior Debenture, with or without other Junior Debentures may
in like manner be exchanged for one or more new Junior Debentures of other
authorized denominations but of the same aggregate principal amount, all subject
to the terms and conditions set forth in the Agreement. Any such transfer or
exchange shall be without charge by the Company. Transfer taxes or the like (if
any) shall be paid by the holder hereof or the transferee.
All terms used in this Junior Debenture which are not defined herein and
are defined in the Agreement shall have the meanings assigned to them in the
Agreement.
104
This Junior Debenture shall be deemed to be a contract made under the laws
of the Commonwealth of Massachusetts and shall for all purposes be construed in
accordance with the laws of said Commonwealth.
IN WITNESS WHEREOF, the Company has caused this Junior Debenture to be duly
executed as a sealed instrument.
LOGICAL DESIGN SOLUTIONS, INC.
By: /s/ Xxxx X. Xxxxxx
---------------------
Attest: /s/ E. Xxxxx Xxxxxxxxx Name: Xxxx Xxx Xxxxxx
------------------------- Title: President
161627-1
105
EXECUTION COPY
LOGICAL DESIGN SOLUTIONS INTERNATIONAL, INC.
THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1993 (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE. THIS
SECURITY MAY NOT BE TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE OR OTHERWISE UNLESS
(i) A REGISTRATION STATEMENT FOR THIS SECURITY UNDER THE ACT IS IN EFFECT OR
(ii) THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL, WHICH OPINION IS
REASONABLY SATISFACTORY TO THE CORPORATION TO THE EFFECT THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE ACT OR THE SECURITIES LAWS OF ANY STATE.
9% Junior Subordinated Debenture
Due March 19, 2003
Morristown, New Jersey
No. LDSI S-1 March 18, 1997
FOR VALUE RECEIVED, Logical Design Solutions International, Inc., a New
Jersey corporation (the "Company"), hereby, promises to pay to Xxxx Xxx Xxxxxx,
or its registered assigns, the sum of Three Hundred Seventy-Eight Thousand,
Seven Hundred Seventy-Seven and 33/100 Dollars ($378,777.33) on March 19, 2003,
together with interest, computed on the basis of the actual number of days
elapsed over a 360-day year, on the unpaid principal balance hereof until paid
in full at the rate of nine percent (9%) per annum from the date hereof.
Interest shall accrue and compound annually and shall be paid upon each payment
or prepayment of principal.
Any interest not paid when due and payable shall thereafter be paid on
demand by the holder of this Junior Debenture (as defined below) together with a
late charge of two percent (2%) of the amount of interest payment due.
All payments of principal (including any prepayments or redemptions) and
interest hereunder shall be made by the Company in lawful money of the United
States of America in immediately available federal funds (or, at the request of
the holder of this Debenture, by certified or bank check or wire transfer) not
later than 2:00 p.m., Boston, Massachusetts, time, on the date each such payment
is due, by crediting an account in the United States as the holder of this
Junior Debenture may designate in writing to the Company before the scheduled
payment date.
This Junior Debenture is one of a duly authorized issue of Junior
Debentures of the Company designated as its "9% Junior Subordinated Debentures
due March 19, 2003" (herein called the "Junior Debentures"), in the aggregate
principal amount of $1,114,289.50 and issued
106
under a 9% Senior Subordinated Debenture and Warrant Purchase Agreement, dated
as of March 19, 1997 (herein called the "Agreement"), among the Company, certain
of its shareholders, Summit Ventures IV, L.P., Summit Investors III, L.P., Xxxx
X. Xxxxxx and Samedan, Inc., to which Agreement and all agreements supplemental
thereto reference is hereby made for a statement of the respective rights and
duties thereunder of the Company, and the holders of the Junior Debentures, and
the terms upon which the Debentures are delivered.
The principal of this Junior Debenture is subject to prepayment under
certain circumstances together with accrued interest, all as more particularly
set forth in the Agreement. The Company agrees to make such payments of
principal and interest on the date and in the amount set forth in the Agreement.
Notwithstanding anything herein contained to the contrary, the indebtedness
evidenced by the Junior Debenture is, to the extent provided in the Agreement,
subordinate and subject in right of payment to the prior payment in full of all
Senior Debt (as defined in the Agreement), and this Junior Debenture is issued
subject to such provisions, and each holder of Junior Debentures, by accepting
the same, agrees to and shall be bound by such provisions and agrees to take
such action as may be necessary or appropriate to effectuate the subordination
as provided in the Agreement.
In case an Event of Default, as defined in the Agreement, shall have
occurred and be continuing uncured or unwaived, the principal of all of the
Junior Debentures may be in certain circumstances declared, and upon such
declaration shall become, immediately due and payable, in the manner, with the
effect and subject to the conditions provided in the Agreement.
No reference herein to the Agreement and no provisions of this Junior
Debenture or of the Agreement shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Junior Debenture at the times, places, and rates, and in the
coin or currency, herein prescribed.
Under certain circumstances more fully set forth in the Agreement, this
Junior Debenture is transferable by the registered owner hereof, in person or by
duly authorized attorney, on the books of the Company to be kept for that
purpose, upon surrender and cancellation of this Junior Debenture, upon
presentation of a duly executed written instrument of transfer satisfactory to
the Company and upon the transferee's written agreement to be bound by the
provisions of the Agreement, and thereupon a new Junior Debenture or Junior
Debentures, of the same aggregate principal amount and in authorized
denominations, will be issued to the transferee or transferees in exchange
therefor; and this Junior Debenture, with or without other Junior Debentures may
in like manner be exchanged for one or more new Junior Debentures of other
authorized denominations but of the same aggregate principal amount, all subject
to the terms and conditions set forth in the Agreement. Any such transfer or
exchange shall be without charge by the Company. Transfer taxes or the like (if
any) shall be paid by the holder hereof or the transferee.
All terms used in this Junior Debenture which are not defined herein and
are defined in the Agreement shall have the meanings assigned to them in the
Agreement.
107
This Junior Debenture shall be deemed to be a contract made under the laws
of the Commonwealth of Massachusetts and shall for all purposes be construed in
accordance with the laws of said Commonwealth.
IN WITNESS WHEREOF, the Company has caused this Junior Debenture to be duly
executed as a sealed instrument.
LOGICAL DESIGN SOLUTIONS
INTERNATIONAL, INC.
By: /s/ Xxxx Xxx Xxxxxx
----------------------
Attest: /s/ E. Xxxxx Xxxxxxxxx Name: Xxxx Xxx Xxxxxx
------------------------- Title: President
108
Summit Ventures IV, L.P.
Subordinated Debt Fund, L.P.
000 Xxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Summit Investors III, L.P.
000 Xxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Xxxx X. Xxxxxx
Samedan, Inc.
00 Xxxxxxxx Xxxxx
Xxxxxxx, XX 00000
March 19, 1997
Ladies/Gentlemen:
We have acted as special counsel to Logical Design Solutions, Inc., a New
Jersey corporation ("LDS"), in connection with (i) the 9% Senior Subordinated
Debenture and Warrant Purchase Agreement, dated as of March 19, 1997 (the
"Agreement"), by and among LDS, Xxxx X. Xxxxxx ("Xxxxxx"), Xxxxxx Xxxxxx
("Xxxxxx", and collectively with Xxxxxx, the "Principal Shareholders"), Summit
Ventures IV, L.P. ("Summit IV"), Summit Investors III, L.P. ("Summit III,),
Samedan, Inc. ("Samedan") and Xxxx X. Xxxxxx ("Xxxxxx", and collectively with
Samedan, Summit III and Summit IV, the "Purchasers"), (ii) the Warrant
Agreement, dated as of March 19, 1997, by and among LDS and the Purchasers (not
including Samedan) (the "Warrant Agreement"), (iii) the Redemption Agreement,
dated as of March 19, 1997, by and among LDS and the Purchasers (not including
Samedan), (iv) the Registration Rights Agreement, dated as of March 19, 1997, by
and among LDS and the Purchasers (not including Samedan) and (v) the
Shareholders Agreement, dated as of March 19, 1997, by and among LDS, the
Purchasers (not including Samedan) and the Principal Shareholders. The documents
set forth in clauses (ii) through (v) above are sometimes collectively referred
to herein as the "Related Agreements". Unless otherwise defined herein or unless
the context otherwise requires, the capitalized terms used herein have the
meanings ascribed to them in the Agreement.
This opinion is being furnished pursuant to Section 7.5 of the Agreement.
We have examined such documents and have reviewed such questions of law and
made such other inquiries as we have deemed necessary or appropriate for the
purpose of rendering this opinion.
109
In rendering this opinion, we have relied, as to matters of fact, upon the
representations and warranties of the parties set forth in the Agreement and the
Related Agreements and upon certificates of such persons and governmental
authorities. Our opinion set forth in paragraph 1 in regard to the good standing
of LDS and Logical Design Solutions International, Inc. ("LDSI") is based solely
on certificates of good standing issued by the Secretary of State of the State
of New Jersey, dated March 11, 1997. Additionally, without any independent
investigation or verification, we have assumed (i) the genuineness of the
signatures of all persons signing any documents, (ii) the authority of all
persons signing any documents, other than officers of LDS signing in their
capacity as such, (iii) that each party to the Agreement and the Related
Agreements (other than LDS) which is not an individual, has been duly organized
and is validly existing under the laws of the jurisdiction of its organization
and has full power and authority, corporate and otherwise, to execute, deliver
and perform under the Agreement and the Related Agreements, (iv) that each party
to the Agreement and the Related Agreements that is an individual is fully
competent and has the requisite capacity to enter into the Agreement and the
Related Agreements and is generally subject to the jurisdiction of the courts of
the United States, (v) the execution, delivery and performance of the Agreement
and the Related Agreements by each of the parties thereto (other than LDS) has
been duly authorized by all requisite action on the part of such other parties
and such documents have been duly executed and delivered by such other parties
and each such document is the legal, valid and binding obligation of each such
other party thereto, (vi) the authority of all governmental entities, (vii) the
truth and accuracy of all matters of fact set forth in all certificates
furnished to us, and (viii) the authenticity of all documents submitted to us as
originals and the conformity to original documents of all documents submitted to
us as certified, conformed or photostatic copies, and the authenticity of all
such latter documents.
Based upon the foregoing, and subject to the limitations, qualifications
and assumptions set forth herein, we are of the opinion that:
1. Each of LDS and LDSI is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has all requisite corporate power and authority to own its properties and to
carry on its business as presently conducted. Each of LDS and LDSI is qualified
as a corporation in good standing in each jurisdiction in which it owns or
leases real property or maintains employees, the Company having advised us that
is does not own or lease real property nor maintain employees outside of New
Jersey.
2. LDS has all necessary corporate power and has taken all necessary
corporate action required for the due authorization, execution, delivery and
performance by LDS of the Agreement and the Related Agreements and the
consummation of the transactions as contemplated therein, and for the
authorization, issuance and delivery of the 9% Senior Subordinated Debentures
due March 20, 2002 (the "Debentures") and the Warrants. The issuance of the
Debentures, the Warrants and, upon exercise of the Warrants pursuant to the
terms of the Warrant Agreement and upon payment of the exercise price therefor,
the shares underlying the Warrants (the "Warrant Shares") does not require any
further corporate action and is not subject to any statutory preemptive rights
or, except as set forth in the Agreement and the Related Agreements, right of
first refusal or similar right. The Agreement and the Related Agreements will be
valid and binding obligations of LDS enforceable in accordance with their
respective
110
terms, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws relating to or
affecting the enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
3. No consent, approval, license or authorization of, or designation,
declaration or filing with, any court or governmental authority is required on
the part of LDS in connection with the execution, delivery and performance by
LDS of the Agreement and the Related Agreements, or in connection with the
issuance of the Debentures, the Warrants and, upon exercise of the Warrants
pursuant to the terms of the Warrant Agreement and upon payment of the exercise
price therefor, the Warrant Shares except for (i) those which have already been
granted and (ii) those which may be required under state securities or "blue
sky" laws.
4. The authorized capital stock of LDS consists of 1,500,000 shares of
Common Stock, of which 785,000 shares are validly issued and outstanding and
held of record by the persons set forth on Schedule 2.4 attached to the
Agreement. All issued and outstanding shares of capital stock of LDS are, and,
when issued in accordance with the terms of the Agreement and upon proper
exercise and payment therefor, all Warrant Shares will be, duly and validly
authorized, validly issued and fully paid and nonassessable and free from any
restrictions on transfer, except for restrictions imposed by federal or state
securities or "blue sky" laws, and except for those imposed pursuant to the
Agreement or the Related Agreements.
5. Neither the execution, delivery or performance of the Agreement and the
Related Agreements, nor the consummation of the transactions contemplated
therein, nor the offer, issuance, sale or delivery of the Debentures and the
Warrants, with or without the giving of notice, the passage of time or both,
will violate, or result in any breach of, or constitute a default under, or
result in the imposition of any encumbrance upon any asset of LDS pursuant to
any provision of its charter or by-laws, or any statute, rule or regulation, or
any contract, lease or other agreement of which we have knowledge.
6. LDS and LDSI each has all requisite corporate power and authority to
enter into the agreement and plan of merger to be entered into by LDS and LDSI
in connection with the proposed merger ("Merger Agreement") of LDSI with and
into LDS (with LDS the surviving corporation). All corporate acts and other
proceedings required to be taken by LDS and LDSI to authorize the execution of
the Merger Agreement have been duly taken.
We are not expressing any opinion with respect to any laws other than the
laws of the State of New York and the federal laws of the United States of
America.
This opinion is being furnished solely for your benefit and may not be
relied on by any other party without the express written consent of this firm.
Very truly yours,
/s/ Xxxxx & Wood LLP
-----------------------
Xxxxx & Xxxx LLP
111
REDEMPTION AGREEMENT
--------------------
This Redemption Agreement (this "Agreement") is dated as of the 19th day of
March, 1997 by and among Logical Design Solutions, Inc., a New Jersey
corporation (the "Company"), and the persons set forth on Schedule 1.1 (each an
"Investor" and collectively the "Investors").
Pursuant to the terms of a 9% Senior Subordinated Debenture and Warrant
Purchase Agreement of even date (the "Purchase Agreement"), the Investors have
acquired warrants (the "Warrants") to purchase an aggregate of 215,000 shares of
the common stock, no par value per share, of the Company. Capitalized terms used
herein and not otherwise defined in this Agreement shall have the meanings
assigned to them in the Purchase Agreement.
In consideration of the execution and deliver, of the Purchase Agreement
and the agreements set forth below, the parties agree with each other as
follows:
Section 26. Option to Sell Warrants to Company.
Upon the first to occur of: (i) the liquidation, dissolution or
winding up of the Company; (ii) the sale of all or substantially all of the
Company's assets; (iii) the merger or consolidation of the Company with any
Person, or the transfer of ownership of any voting shares of the Company to any
Person as a consequence of which transaction described in this clause (iii)
those Persons who held all of the voting shares of the Company immediately prior
to such transfer do not hold a majority of the voting shares of the Company
after the consummation of such transfer (a "Control Sale") (the items described
in clauses (i) - (iii) referred to herein collectively as a "Liquidity Event"),
or (iv) March 19, 2003, the Investors may require the Company to redeem the
Warrants then held by them on the terms set forth herein; provided, however,
that if such request is made pursuant to clause (iv), then the Warrants as to
which redemption has been requested shall be redeemed one-half on March 19,
2003, and one-half on March 19, 2004. The Company shall use its best efforts to
give the Investors not less than 30 day's advance written notice of any proposed
Liquidity Event, and, in the event that a Liquidity Event shall not occur on or
before January 15, 2003, the Company shall give Investors notice on such date
that the Investors may elect to request redemption of Warrants on March 19,
2003. Following receipt of such notice, any Investor or Investors holding an
aggregate of not less than twenty percent (20%) of the total Shares held by the
Investors may notify the Company that it or they intend to offer to the Company
any or all of the Warrants then held by them for purchase by the Company. The
Company shall promptly give notice of such intention to all other Investors who
own Shares, and any Investor may, within ten (10) days of such notice, give the
Company notice that it intends to offer to the Company any or all of the
Warrants then held by it. The Company shall repurchase all Warrants so offered
under this Agreement as set forth below. The option to sell Warrants pursuant to
this Section 1 shall be referred to as the "Option."
Section 27. Price.
a. The price to be paid by the Company for the Warrants to be sold under
the Option shall be the fair market value of the Warrant Shares issuable upon
exercise thereof, as of
112
the date of such proposed repurchase. In the case of redemption requested in
connection with a Liquidity Event, fair market value of Warrant Shares shall be
the price payable to holders of shares of Common Stock in connection with such
Liquidity Event. In the case of a redemption requested pursuant to clause (iv)
of Section 1, fair market value shall be as agreed upon in good faith by the
Company and the Representative (who shall be a Person selected by the Investors
owning a majority of the Warrants to be redeemed hereunder and who shall be
hereinafter referred to as the "Representative"), taking into account, in
valuing such Warrants, all relevant facts and circumstances; provided, however,
that there shall be no discount to reflect the fact that the Warrants are
illiquid or represent a minority interest in the Company. If no such agreement
is reached within thirty (30) days after notice is given to the Company of the
Investors' exercise of the Option under clause (iv), the fair market value shall
be determined by appraisal as set forth below.
b. All appraisals shall be undertaken by two appraisers, one selected by
the Board of Directors of the Company and one selected by the Representative. No
Director who is affiliated with an Investor shall vote on the selection of the
appraiser chosen by the Company. The fair market value shall be the fair market
value arrived at by those appraisers within thirty (30) days following the
appointment of the last appraiser to be appointed. In the event that the two
appraisers agree in good faith on such fair market value within such a period of
time, such agreed value shall be used for these purposes. If the appraisers
cannot agree but their valuations are within 10% of each other, the fair market
value shall be the mean of the two valuations. If the appraisers cannot agree
and the differences in the valuations are greater than 10%, the appraisers shall
select a third appraiser who will calculate fair market value independently,
and, except as provided in the next sentence, the fair market value of the
Warrants shall be the average of the two fair market values arrived at by the
appraisers who are closest in amount. If one appraiser's valuation is the mean
of the other two valuations, such mean valuation shall be the fair market value.
In the event that the two original appraisers cannot agree upon a third
appraiser within ten (10) days following the end of the thirty (30) day period
referred to above, then the third appraiser shall be appointed by the American
Arbitration Association in Boston, Massachusetts. The expenses of the appraiser
chosen by the Company will be borne by it, the expenses of the appraiser chosen
by the Investors will be borne by them, pro rata based on the number of Warrants
being redeemed, and the expenses of the third appraiser will be borne 50% by the
Company and 50% by the Investors, pro rata based on the number of Warrants being
redeemed; provided, however that in the event any Investor previously offering
his Warrants for repurchase shall notify the Company of its election not to sell
any or all of its Warrants, such Investor will be obligated to pay a portion of
the expenses of the third appraiser otherwise payable by the Company equal to a
fraction, the numerator of which is the number of Warrants such Investor
originally elected to be redeemed and the denominator of which is the total
number of Warrants the Investors requested to be redeemed.
Section 28. Payment.
a. Within fifteen (15) days following the determination of fair market
value, as provided above, the Company shall purchase the Warrants tendered to it
at the price established
113
by this Agreement (the "Redemption Price"), and the Investors shall deliver to
the Company, upon receipt of payment therefor, the certificates for the Warrants
duly endorsed by them for transfer.
b. Payment shall be made by check or wire transfer of funds to such bank
account as each Investor shall direct.
Section 29. Termination of Option. The obligations of the Company to
purchase the Warrants as provided in this Agreement shall terminate immediately
prior to the consummation of a Liquidity Event.
Section 30. Notices. All notices or other communications required or
permitted to be delivered hereunder shall be in writing signed by the party
giving the notice and sent by telecopier, express delivery service, or regular
or certified mail to the address specified in the Purchase Agreement.
Section 31. Entire Agreement. This Agreement and the agreements referred to
herein constitute the entire agreement of the parties with respect to the
matters contemplated herein. This Agreement and such other agreements supersede
any and all prior understandings as to the subject matter of this Agreement.
Section 32. Amendments, Waivers and Consents. Any provision in this
Agreement to the contrary notwithstanding, changes in or additions to this
Agreement may be made, and compliance with any covenant or provision herein set
forth may be omitted or waived, if the Company shall obtain consent thereto in
writing from Persons holding an aggregate of at least a majority of the Warrants
owned by the Investors.
Section 33. Binding Effect; Assignment. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of the respective
parties hereto.
Section 34. General. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. In this Agreement the singular includes the
plural, the plural the singular, the masculine gender includes the neuter,
masculine and feminine genders. This Agreement shall be governed by and
construed under the laws of The Commonwealth of Massachusetts.
Section 35. Severability. If any provision of this Agreement shall be found
by any court of competent jurisdiction to be invalid or unenforceable, the
parties hereby waive such provision to the extent that it is found to be invalid
or unenforceable. Such provision shall, to the maximum extent allowable by law,
be modified by such court so that it becomes enforceable, and, as modified,
shall be enforced as any other provision hereof, with all the other provisions
hereof continuing in full force and effect.
114
Section 36. Counterparts. This Agreement may be executed in counterparts,
all of which together shall constitute one and the same instrument.
******
115
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as an instrument under SEAL as of the date for first above written.
LOGICAL DESIGN SOLUTIONS, INC.
By: /s/ Xxxx Xxx Xxxxxx
------------------------------------
Name: Xxxx Xxx Xxxxxx
Title: President
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.,
its General Partner
By: Stamps, Xxxxxxx & Co. IV,
its General Partner
By: /s/ Xxxxx Xxxxx
------------------------------------
General Partner
SUMMIT INVESTORS, L.P.
By: /s/ Xxxxx Xxxxx
------------------------------------
Authorized Signatory
/s/ Xxxx X. Xxxxxx
---------------------
Xxxx X. Xxxxxx
116
SCHEDULE 1.1
------------
Investors
---------
Name and Address
----------------
Summit Ventures IV, L.P.
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000-0000
Attn: Xxxxx X. Xxxxx
Summit Investors III, L.P.
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000-0000
Attn: Xxxxx X. Xxxxx
Xxxx X. Xxxxxx
00 Xxxxxxxx Xxxxx
Xxxxxxx, XX 00000
117
EXECUTION COPY
SHAREHOLDERS AGREEMENT
AGREEMENT, made as of the 19th day of March, 1997, by and among Logical
Design Solutions, Inc., a New Jersey corporation (the "Company"), Xxxx Xxx
Xxxxxx, Xxxxxx Xxxxxx (individually, a "Management Shareholder" and
collectively, the "Management Shareholders"), and Summit Ventures IV, L.P.
"Summit Investors III, L.P. and Xxxx X. Xxxxxx (individually an "Investor" and
collectively, the "Investors" and, together with the Management Shareholders,
the "Shareholders").
WHEREAS, the Investors are acquiring 9% Senior Subordinated Debentures and
Warrants (the "Warrants") to purchase an aggregate of 215,000 shares of common
stock, no par value per share, of the Company (the "Common Stock"), pursuant to
the terms of a 9% Senior Subordinated Debenture and Warrant Purchase Agreement
dated as of the date hereof among the Company, the Investors and certain
shareholders of the Company (the "Purchase Agreement");
WHEREAS, it is a condition to the obligations of the parties under the
Purchase Agreement that this Agreement be executed by the parties hereto, and
the parties are willing to execute this Agreement and to be bound by the
provisions hereof.
NOW, THEREFORE, in consideration of the foregoing, the agreements set forth
below, and the parties' desire to provide for continuity of ownership of the
Company to further the interests of the Company and its present and future
shareholders, the parties hereby agree with each other as follows:
Section 37. Definition of Shares. As used in this Agreement, "Shares" shall
mean and include all shares of the Common Stock and other equity securities of
the Company now owned or hereafter acquired by a Shareholder, including, without
limitation, the shares of Common Stock issuable upon exercise of the Warrants.
Other terms used as defined terms herein and not otherwise defined shall have
the meanings set forth in the Purchase Agreement.
Prohibited Transfers. No Management Shareholder shall sell, assign,
transfer, pledge, hypothecate, mortgage, encumber or dispose of all or any of
his or her Shares except in compliance with the terms of this Agreement.
Notwithstanding anything to the contrary contained in this Agreement, (a) a
Management Shareholder may transfer without the necessity of prior approval all
or any of his or her Shares by way of gift to his or her spouse, to any of his
or her lineal descendants or ancestors, or to any trust for the benefit of any
one or more of the Shareholder, his or her spouse, or his or her lineal
descendants or ancestors, and (b) a Shareholder may transfer all or any of his
or her Shares by will or the laws of descent and distribution; provided that any
such transferee under clause (a) or (b) of this Section 2 (referred to herein as
"Permitted Transferees") shall agree in writing with the Company and the other
Shareholders, as a condition to such transfer, to be bound by all of the
provisions of this Agreement to the same extent as if such transferee were the
Management Shareholder transferring such Shares.
118
Right of First Refusal on Dispositions.
--------------------------------------
a. If at any time a Management Shareholder (a "Selling Management
Shareholder") desires to sell or otherwise transfer all or any part of his or
her Shares pursuant to a bona fide offer from a third party (the "Proposed
Transferee"), the Selling Management Shareholder shall submit a written offer
(the "Offer") by delivering the Offer to the Company and the non-selling
Shareholders (the "Other Shareholders") to sell such Shares (the "Offered
Shares") to the Company and the Other Shareholders on terms and conditions,
including price, not less favorable than those on which the Selling Management
Shareholder proposes to sell such Offered Shares to the Proposed Transferee. The
Offer shall disclose the identity of the Proposed Transferee, the number of
Offered Shares proposed to be sold, the total number of Shares owned by the
Selling Management Shareholder, the terms and conditions, including price, of
the proposed sale, and any other material facts relating to the proposed sale.
The Offer shall further state (i) that the Company and the Other Shareholders
may acquire, in accordance with the provisions of this Agreement, any of the
Offered Shares for the price and upon the other terms and conditions set forth
therein and (ii), if all such Offered Shares are not purchased by the Company
and the Other Shareholders, the Other Shareholders who have not purchased any
such Offered Shares pursuant to this Section 3 may exercise their rights
provided pursuant to Section 4 hereof.
b. The Company shall have the first right to purchase the Offered
Shares. If the Company desires to purchase all or any part of the Offered
Shares, it shall communicate in writing its election to purchase any of the
Offered Shares to the Selling Management Shareholder and the Other Shareholders,
which communication shall state the number of Offered Shares that the Company
desires to purchase and the number of Offered Shares, if any, remaining for
purchase by the Other Shareholders pursuant to Section (c) below, and shall be
given within 20 days of the date the Offer was made.
c. If the Company does not elect to purchase all of the Offered Shares
within the time period specified above, each Other Shareholder shall have the
right to purchase that number of remaining Offered Shares as shall be equal to
the number of such remaining Offered Shares multiplied by a percentage equal to
two times the percentage of Shares (calculated on a fully diluted basis) owned
by such Other Shareholder (or issuable to such Other Shareholder upon exercise
of Warrants owned by such Other Shareholder). The percentage of Shares owned on
a fully diluted basis by any Other Shareholder shall be calculated as if all
options and Warrants which are then exercisable have been exercised in full. The
amount of such Offered Shares that each Other Shareholder is entitled to
purchase under this Section 3(c) shall be referred to as its "Pro Rata
Fraction."
d. Those Other Shareholders who desire to purchase all or any part of
the remaining Offered Shares shall communicate in writing their election to
purchase to the Selling Management Shareholder, which communication shall state
the number of remaining Offered Shares said Other Shareholders desire to
purchase and shall be provided to the Selling Management Shareholder within 30
days of the date the Offer was made. Such communication, together with the
communication of the Company specified above, shall, when taken in conjunction
with the Offer, be deemed to constitute a valid, legally binding and enforceable
agreement for the sale and purchase of such Offered Shares. Sales of such
Offered Shares to be
119
sold to the Company, the Other Shareholders pursuant to this Section 3 shall be
made at the offices of the Company within 60 days following the date the Offer
was made.
e. To the extent the Company and the Other Shareholders do not purchase
all the Offered Shares, then all, but not fewer than all, of the remaining
Offered Shares may be sold by the Selling Management Shareholder at any time
within 120 days after the date the Offer was made, subject to the provisions of
Section 4. Any such sale shall be to the Proposed Transferee, at not less than
the price and upon other terms and conditions, if any, not more favorable to the
Proposed Transferee than those specified in the Offer. If the Offered Shares are
not sold within such 120-day period, they shall continue to be subject to the
requirements of a prior offer pursuant to this Section 3, and may not be
transferred except in compliance with the provisions of this Section 3. If
Offered Shares are sold pursuant to this Section 3 to any purchaser who is not a
party to this Agreement, the purchaser of such Offered Shares shall execute a
counterpart of this Agreement as a precondition of the purchase of such Offered
Shares and any Offered Shares sold to such purchaser shall continue to be
subject to the provisions of this Agreement.
f. In the event a Management Shareholder is required to transfer Shares
pursuant to a court order, decree or judgment, or pursuant to a settlement of a
court proceeding such transfer shall be deemed to be a sale for purposes of this
Section 3, and shall entitle the Company and the Other Shareholders to exercise
their right of first refusal with respect to such transfer. In any event, the
Management Shareholder who is required to make such transfer shall provide an
Offer as herein provided. The price at which the Shares may be purchased
pursuant to such Offer shall be the price as set by the court which issued such
order, decree or judgment, or the price as set by the parties to such
settlement. If a price is not determined by such court, or by the parties to
such settlement, then the price shall be determined pursuant to an appraisal
conducted in accordance with the provisions of Section 2 of the Redemption
Agreement, with one appraiser chosen by the Management Shareholder who is making
such transfer, and the other appraiser chosen by the Company.
Right of Participation in Sales.
-------------------------------
g. If at any time following compliance with the provisions of Section 3
(if applicable), any Selling Management Shareholder desires to transfer all or
any part of the Shares owned by him or it to any third party (not including the
Company), then each Other Shareholder (other than those who have elected to
purchase Shares pursuant to Section 3) shall have the right to sell to the third
party, as a condition to such sale by the Selling Management Shareholder, at the
same price per share and on the same terms and conditions as involved in such
sale by the Selling Management Shareholder, a pro rata portion of the amount of
Shares proposed to be sold to the third party; provided, however, that such
right shall not apply to any sale or transfer by a Management Shareholder to the
Company. The "pro rata portion" of Shares which the Other Shareholder shall be
entitled to sell to the third party shall be that number of Shares as shall
equal the number of Shares proposed to be sold to the third party multiplied by
a fraction, the numerator of which is the aggregate of all shares of Common
Stock which are then held by the Other Shareholder wishing to participate in the
sale or issuable upon exercise of Warrants held by such Other Shareholder, and
the denominator of which is the aggregate of all shares of Common Stock which
are then held by all Other Shareholders wishing to participate in any sale
120
under this Section 4 or issuable upon exercise of Warrants held by such Other
Shareholders, including the Selling Management Shareholder.
h. If the Selling Management Shareholder wishes to make a sale to a
third party which is subject to this Section 4, the Selling Management
Shareholder shall, after complying with the provisions of Section 3, give to
each Other Shareholder notice of such proposed sale, and stating that all Shares
were not purchased pursuant to the Offer as discussed in Section 3. Such notice
shall be given at least 20 days prior to the date of the proposed sale to the
third party. Each Other Shareholder wishing to so participate in any sale under
this Section 4 shall notify the selling Management Shareholder in writing of
such intention within 15 days after such Other Shareholder's receipt of the
notice described in the preceding sentence.
i. The Selling Management Shareholder and each participating Other
Shareholder shall sell to the third party all, or at the option of the third
party, any part of the Shares proposed to be sold by them at not less than the
price and upon other terms and conditions, if any, not more favorable to the
third party than those in the notice provided by the Selling Management
Shareholder under subparagraph (b) above; provided, however, that any purchase
of less than all of such Shares by the third party shall be made from the
Selling Management Shareholder and each participating Other Shareholder pro rata
based upon the relative number of the Shares that the Selling Management
Shareholder and each participating Other Shareholder is otherwise entitled to
sell pursuant to Section 4(a).
j. If any Shares are sold pursuant to this Section 4 to any purchaser
who is not a party to this Agreement, the purchaser of such Shares shall execute
a counterpart of this Agreement as a precondition to the purchase of such Shares
and such Shares shall continue to be subject to the provisions of this
Agreement.
Election of Directors.
---------------------
k. During the term of this Agreement, at each annual meeting of the
shareholders of the Company, and at each special meeting of the shareholders of
the Company called for the purpose of electing directors of the Company, and at
any time at which shareholders of the Company shall have the right to, or shall,
vote for directors of the Company, then, and in each event, the Shareholders
shall vote all Shares owned by them for the election of a Board of Directors
consisting of not more than seven directors, designated in the manner designated
below (subject to adjustment in accordance with the provisions of subparagraph
(b) of this Section 5):
i. two directors shall be designated by Summit Ventures IV, L.P. (so
long as it and its affiliates shall own or have the right to acquire at least
331/3% of the Shares which it owns or has the right to acquire on the date
hereof), one of which designees shall initially be Xxxxx X. Xxxxx, with the
second such designee to be named by Summit Ventures IV, L.P. at such time as it
deems appropriate;
ii. one director shall be Xxxx Xxx Xxxxxx, (so long as she and her
permitted transferees described in Section 2 shall continue to hold at least
331/3% of the shares of Common Stock owned by her on the date hereof), who shall
serve as chair; and
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iii. four directors shall be designated by holders of a majority of
the shares of Common Stock outstanding on a fully diluted basis.
l. Notwithstanding the provisions of subparagraph (a) of this Section 5,
if there shall occur an Event of Default under the Purchase Agreement, then upon
the date of occurrence of such Event of Default, and upon the first day of each
successive two fiscal quarter period following the occurrence of such Event of
Default (commencing with the first day of the second full fiscal quarter after
such Event of Default), the number of Directors designated by Summit Ventures
IV, L.P., designated pursuant to Section 5(a)(i) shall be increased by one
additional Director, and the total number of Directors set forth in Section 5(a)
shall be increased accordingly. Once the number of Directors designated pursuant
to Section 5(a)(i) and the size of the Board of Directors have been increased
pursuant to this Section 5(b), they shall not thereafter be reduced upon waiver
of such Event of Default; provided, however, that with respect to any Event of
Default resulting from a breach of Section 4.10 of the Purchase Agreement, if
subsequent to such Event of Default the Company achieves Consolidated Net Income
Before Taxes of at least $ 1.00 during any twelve (12 month) period commencing
with the last day of the second fiscal quarter ending subsequent to the
occurrence of such Event of Default, then on one occasion such Event of Default
shall be considered cured and the number of Directors which can be designated by
Summit Ventures IV, L.P. shall be reduced (and such additional designated
Director or Directors shall resign) to the original number set forth in Section
5(a) hereof.
Insurance. The Company shall at all times maintain for the benefit of its
officers and directors liability insurance in scope and amount, and from an
insurer, reasonably acceptable to the Investors; provided, however, that the
Company shall not be obligated to maintain such insurance if in the good faith
judgment of its Board of Directors such insurance is not available at a
reasonable cost.
Section 38. Compensation Committee. There shall be established at all times
during the term of this Agreement a Compensation Committee of the Board of
Directors (the "Compensation Committee"), one member of which shall be such one
of the directors designated pursuant to Section 5(a)(i) as shall be specified by
Summit Ventures IV, L.P. The Compensation Committee will determine the
compensation of all senior employees and consultants of the Company (including
salary, bonus, equity participation and benefits) consistent with compensation
of companies similar to the Company; provided that no member of the Compensation
Committee may vote on his or her own compensation. The compensation of senior
employees and consultants shall be reviewed by the Compensation Committee on an
annual basis, and the decision by a majority of the members of the Compensation
Committee will control the Committee's actions. Within thirty (30) days after
the date hereof the Compensation Committee shall adopt a statement of policy
concerning compensation of senior employees, which statement shall be reasonably
acceptable to a majority of the committee members, including the director
designated pursuant to Section 5(a)(i). Any decision of the Committee involving
the grant of options (including the pricing and other terms thereof, and prior
to the adoption of the statement of policy referenced in the preceding sentence,
any increase in compensation paid to a member of senior management, such
majority must include a director designated pursuant to Section 5(a)(i);
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Section 39. Term. This Agreement shall terminate on the earlier to occur of
(a) immediately prior to consummation of the first Qualified Public Offering,
(b) the tenth anniversary of the date of this Agreement or (c) all Warrants have
been redeemed by the Company pursuant to Paragraph 1 of the Redemption
Agreement.
Section 40. Preemptive Rights. a.The Company hereby grants to each Investor
so long as it shall own, of record or beneficially, or have the right to acquire
from the Company, any shares of Common Stock, the right to purchase all or part
of its pro rata share of New Securities (as defined in subparagraph (b)) which
the Company, from time to time, proposes to sell and issue. A Shareholder's pro
rata share, for purposes of this preemptive right, is the ratio of the number of
shares of Common Stock which such Shareholder owns or has the right to acquire
from the Company to the total number of shares of Common Stock then outstanding
(giving effect to the exercise of all Warrants then outstanding). The
Shareholders shall have a right of over-allotment pursuant to this Section 9
such that to the extent a Shareholder does not exercise its preemptive right in
full hereunder, such additional shares of New Securities which such Shareholder
did not purchase may be purchased by the other Shareholders in proportion to the
total number of shares of Common Stock which each such other Shareholder owns or
has the right to acquire from the Company compared to the total number of shares
of Common Stock which all such other Investors own or have the right to acquire
from the Company.
b. "New Securities" shall mean any capital stock of the Company, whether
now authorized or not, and rights, options or warrants to purchase capital
stock, and securities of any type whatsoever that are, or may become,
convertible into or exchangeable for capital stock, issued on or after the date
hereof; provided that the term "New Securities" does not include (i) Common
Stock issued as a stock dividend to holders of Common Stock or upon any stock
split, subdivision or combination of shares of Common Stock, (ii) the aggregate
number of shares of Common Stock issuable upon exercise of options permitted
under the Purchase Agreement, (iii) the Warrant Shares, (iv) Common Stock issued
in connection with a Qualified Public Offering, and (v) Common Stock issued in
connection with an acquisition, merger or other transaction which has been
approved by vote of the Board of Directors, including the affirmative vote of
any director designated pursuant to Section 5(a)(i) and (vi) capital stock and
rights, options or warrants to purchase and securities of any type whatsoever
which are convertible into or exchangeable for capital stock which are
outstanding on the date hereof.
c. In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Shareholder written notice of its intention,
describing the type of New Securities and the price and the terms upon which the
Company proposes to issue the same. Each Shareholder shall have 10 business days
from the date of receipt of any such notice to agree to purchase up to the
Shareholder's pro rata share of such New Securities (any over-allotment amount
pursuant to the operation of subparagraph (a) hereof) for the price and upon the
terms specified in the notice by giving written notice to the Company and
stating therein the quantity of New Securities to be purchased.
d. In the event any Shareholder fails to exercise in full its preemptive
right (after giving effect to the over-allotment provision of subparagraph (a)
hereof), the Company shall have 90 days thereafter to sell the New Securities
with respect to which the Shareholder's option was not exercised, at a price and
upon terms no more favorable to the purchasers thereof than
123
specified in the Company's notice. To the extent the Company does not sell all
the New Securities without first again offering such securities to the
Shareholders in the manner provided above.
e. The rights granted to the Shareholders under this Section 9 shall
expire immediately prior to, and shall not apply in connection with, the
consummation of the first Qualified Public Offering.
Section 41. Specific Enforcement. Each Shareholder expressly agrees that
the Other Shareholders and the Company may be irreparably damaged if this
Agreement is not specifically enforced. Upon a breach or threatened breach of
the terms, covenants and/or conditions of this Agreement by any Shareholder, the
Other Shareholders and the Company shall, in addition to all other remedies,
each be entitled to apply for a temporary or permanent injunction, and/or a
decree for specific performance, in accordance with the provisions hereof.
Section 42. Legend. Each certificate evidencing any of the Shares now owned
or hereafter acquired by the Shareholders shall bear in addition to any other
legends required by other agreements or by law a legend substantially as
follows:
"Any sale, assignment, transfer or other disposition of the shares
represented by this certificate is restricted by, and subject to, the terms
and provisions of a certain Shareholders' Agreement dated as of March 19,
1997. A copy of said Agreement is on file with the Secretary of the
Corporation."
Section 43. Notices. Notices given hereunder shall be deemed to have been
duly given on the date of personal delivery or on the date of postmark if mailed
by certified or registered mail, return receipt requested, to the party being
notified at his or its address specified on Schedule I hereto or such other
address as the addressee may subsequently notify the other parties of in
writing.
Section 44. Entire Agreement and Amendments. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof and
neither this Agreement nor any provision hereof may be waived, modified, amended
or terminated except by a written agreement signed by the parties hereto;
provided, however, that Investors owning at least a majority of the Shares owned
by all Investors may effect any such waiver, modification, amendment or
termination on behalf of all of the Investors and Management Shareholders owning
at least a majority of the Shares owned by all Management Shareholders may
effect any such waiver, modification, amendment or termination on behalf of all
of the Management Shareholders. Each of the Shareholders represents that he or
it is not a party to any other agreement which would prevent him or it from
performing his or its obligations hereunder. No waiver of any breach or default
hereunder shall be considered valid unless in writing, and no such waiver shall
be deemed a waiver of any subsequent breach or default of the same or similar
nature.
Section 45. Governing Law; Successors and Assigns. This Agreement shall be
governed by the internal laws of the State of New Jersey without giving effect
to the conflicts of laws
124
principles thereof and, except as otherwise provided herein, shall be binding
upon the heirs, personal representatives, executors, administrators, successors
and assigns of the parties. Notwithstanding the foregoing, in the event an
Investor transfers Shares to an unaffiliated Person, such transferee shall have
no rights under this Agreement, other than those granted under Section 9 of this
Agreement, and shall not be bound by any of the provisions of this Agreement.
Section 46. Severability. If any provision of this Agreement shall be held
to be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
Section 47. Captions. Captions are for convenience only and are not deemed
to be part of this Agreement.
Section 48. 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.
125
IN WITNESS WHEREOF, this Agreement has been executed as an instrument under
SEAL as of the date and year first above written.
MANAGEMENT SHAREHOLDERS: COMPANY:
/s/ Xxxx Xxx Xxxxxx LOGICAL DESIGN SOLUTIONS, INC.
---------------------------------- By: /s/ Xxxx Xxx Xxxxxx
Xxxx Xxx Xxxxxx ---------------------------
Name: Xxxx Xxx Xxxxxx
Title: President
/s/ Xxxxxx Xxxxxx INVESTORS:
----------------------------------
Xxxxxx Xxxxxx
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.,
its General Partner
By: Stamps Xxxxxxx & Co. IV,
its General Partner
By: /s/ Xxxxx Xxxxx
---------------------------
General Partner
SUMMIT INVESTORS III, L.P.
By: /s/ Xxxxx Xxxxx
---------------------------
Authorized Signatory
/s/ Xxxx X. Xxxxxx
-------------------------------
Xxxx X. Xxxxxx
126
SCHEDULE 1
----------
Company
-------
Logical Design Solutions, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Attn: President
Management Shareholders
-----------------------
Xxxx Xxx Xxxxxx
c/o Logical Design Solutions, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Xxxxxx Xxxxxx
c/o Logical Design Solutions, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Investors
---------
Summit Investors III, L.P.
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000-0000
Attn: Xxxxx X. Xxxxx
Summit Ventures IV, L.P.
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000-0000
Attn: Xxxxx X. Xxxxx
Xxxx X. Xxxxxx
00 Xxxxxxxx Xxxxx
Xxxxxxx, XX 00000
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REGISTRATION RIGHTS AGREEMENT
AGREEMENT, made as of the 19th day of March, 1997, by and among LOGICAL
DESIGN SOLUTIONS, INC., a New Jersey corporation (the "Company"), and those
persons set forth on Schedule I as Investors (each an "Investor" and
collectively the "Investors").
WHEREAS, the Investors are acquiring warrants ("Warrants") to acquire an
aggregate of 215,000 Shares of Common Stock, no par value per share, of the
Company (the "Common Stock"), pursuant to the terms of a 9% Senior Subordinated
Debenture and Warrant Purchase Agreement dated as of the date hereof among the
Company, the Investors and certain shareholders of the Company (the "Purchase
Agreement"); and
WHEREAS, it is a condition to the obligations of the Investors under the
Purchase Agreement that this Agreement be executed by the parties hereto in
order to provide the Investors with certain registration rights with respect to
the shares of Common Stock issuable upon exercise of the Warrants being acquired
by the Investors under the Purchase Agreement or otherwise acquired by the
Investors, and the parties are willing to execute this Agreement and to be bound
by the provisions hereof,
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
Section 49. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Act" means the Securities Act of 1933, as amended, or any successor
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
"Commission" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Holder" means the person who is then the record owner of Registrable
Securities which have not been sold to the public.
"Initiating Holders" means any Investors and their assignees who in the
aggregate are holders of at least twenty-five percent (25%) of the outstanding
Registrable Securities held by the Investors and their assignees.
"Registrable Securities" means all shares of Common Stock now owned or
hereafter acquired by any Investor.
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The term "register" means to register under the Act and applicable state
securities laws for the purpose of effecting a public sale of securities.
"Registration Expenses" means all expenses incurred by the Company in
compliance with Sections 2, 3 or 5 hereof, including, without limitation, all
registration and filing fees, printing expenses, transfer taxes, fees and
disbursements of counsel for the Company, blue-sky fees and expenses, fees of
transfer agents and registrars, reasonable fees and disbursements of one counsel
for all the selling Holders, and the expense of any special audits incident to
or required by any such registration.
"Selling Expenses" means all underwriting discounts and selling commissions
applicable to the sale of Registrable Securities.
Section 50. Requested Registrations
a. If at any time after December 31, 1997 the Company shall receive from
one or more Initiating Holders a written request that the Company effect the
registration of Registrable Securities representing at least twenty-five percent
(25%) of the Registrable Securities held by or issuable to all the Investors (or
any lesser percentage if the reasonably anticipated aggregate price to the
public of the Registrable Securities to be included in such registration would
exceed $ 10,000,000), in connection with a firm commitment underwriting, the
Company will:
i. promptly give written notice of the proposed registration to all
other Holders; and
ii. as soon as practicable, use all commercially reasonable efforts to
effect such registration as may be so requested and as would permit or
facilitate the sale and distribution of such portion of such Registrable
Securities as are specified in such request, together with such portion of the
Registrable Securities of any Holder or Holders joining in such request as are
specified in a written request given within thirty days after receipt of such
written notice from the Company. If the underwriter managing the offering
advises the Holders who have requested inclusion of their Registrable Securities
in such registration that marketing considerations require a limitation on the
number of shares offered, such limitation shall be imposed, subject to the
immediately following sentence, pro rata among such Holders who requested
inclusion of Registrable Securities in such registration according to the number
of Registrable Securities then held by such Holders. Neither the Company nor any
other shareholder may include shares in a registration effected under this
Section 2(a) without the consent of the Initiating Holders holding a majority of
the Registrable Securities sought to be included in such registration by the
Initiating Holders if the inclusion of shares by the Company or the other
shareholders would limit the number of Registrable Securities sought to be
included by the Initiating Holders or reduce the offering price thereof. The
Investors may initiate two registrations pursuant to this Section 2(a). No
registration initiated by the Initiating Holders hereunder shall count as a
registration under this Section 2(a) unless and until it shall have been
declared effective (an "Effective Registration") and the Initiating Holders
shall have sold all of the Registrable Securities included in such registration.
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b. The underwriter of any underwriting requested under this Section 2
shall be selected by the Company; provided that such underwriter must be
reasonably acceptable to the Holders of a majority of the Registrable Securities
included therein.
Section 51. "Piggy Back" Registrations.
a. If the Company shall determine to register any of its securities,
either for its own account or the account of a security holder or holders
exercising their registration rights (subject to the provisions of Section 2),
other than a registration relating solely to employee benefit plans or a
registration on any registration form which does not permit secondary sales or
does not include substantially the same information as would be required to be
included in a registration statement covering the sale of Registrable Securities
or pursuant to Form S-4, the Company will:
i. Promptly give to each Holder of Registrable Securities written
notice thereof (which shall include the number of shares the Company or other
security holder proposes to register and, if known, the name of the proposed
underwriter); and
ii. Use its best efforts to include in such registration all the
Registrable Securities specified in a written request or requests, made by any
Holder within twenty (20) days after the date of delivery of the written notice
from the Company described in clause (i) above. If the underwriter advises the
Company that marketing considerations require a limitation on the number of
shares offered pursuant to any registration statement, then the Company may
offer all of the securities it proposes to register for its own account and such
limitation on any remaining securities that may, in the opinion of the
underwriter, be sold will be imposed: (a) first, so as to exclude all
Registrable Securities of Holders other than the Investors and their assignees;
and (b) thereafter, pro rata among the Holders who requested inclusion of
Registrable Securities in such registration according to the number of
Registrable Securities then held by such Holders.
b. The Company shall select the underwriter for an offering made
pursuant to this Section 3, but shall not be required to register under the
Exchange Act prior to such date.
Section 52. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Xxxxxxx 0, 0 xx 0 xxxxx xx paid by the Company. All Selling Expenses incurred in
connection with any such registration, qualification or compliance shall be
borne by the holders of the securities registered, pro rata on the basis of the
number of their shares so registered.
Section 53. Registration on Form S-3. The Company shall use its best
efforts to qualify for registration on Form S-3 or any comparable or successor
form; and to that end the Company shall register (whether or not required by law
to do so) the Common Stock under the Exchange Act in accordance with the
provisions of the Exchange Act following the effective date of the first
registration of any securities of the Company on Form S- I or any comparable or
successor form, but shall not be required to register under the Exchange Act
prior to such date. After the Company has qualified for the use of Form S-3, in
addition to the rights contained in the
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foregoing provisions of this Agreement, the Holders of Registrable Securities
shall have the right to request registrations on Form S-3 (such requests shall
be in writing and shall state the number of shares of Registrable Securities to
be disposed of and the intended methods of disposition of such shares by such
Holder or Holders); provided that the Company shall not be obligated to effect
any such registration pursuant to this Section 5 more than once in any twelve
month period, and in no event shall the Company be required to register shares
with an aggregate market value of less than $5,000,000.
Section 54. Registration Procedures. In the case of each registration
effected by the Company pursuant to this Agreement, the Company will keep each
Holder of Registrable Securities included in such registration advised in
writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will do the following for the benefit of
such Holders:
a. Keep such registration effective for a period of 120 days or until
the Holder or Holders have completed the distribution described in the
registration statement relating thereto, whichever first occurs, and amend or
supplement such registration statement and the prospectus contained therein from
time to time to the extent necessary to comply with the Act and applicable state
securities laws;
b. Use its best efforts to register or qualify the Registrable
Securities covered by such registration under the applicable securities or "blue
sky" laws of such jurisdictions as the selling shareholders may reasonably
request; provided, that the Company shall not be obligated to qualify to do
business in any jurisdiction where it is not then so qualified or otherwise
required to be so qualified or to take any action which would subject it to the
service of process in suits other than those arising out of such registration;
c. Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request;
d. In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 2 hereof, the Company will
enter into any underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and is entered into by the Holder and provided
further that, if the underwriter so requests, the underwriting agreement will
contain customary contribution provisions on the part of the Company;
e. To the extent then permitted under applicable professional guidelines
and standards, use its best efforts to obtain a comfort letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by comfort letters and an opinion from
the Company's counsel in customary form and covering such matters of the type
customarily covered in a public issuance of securities, in each case addressed
to the Holders, and provide copies thereof to the Holders; and
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f. Permit the counsel to the selling shareholders whose expenses are
being paid pursuant to Section 4 hereof to inspect and copy such corporate
documents as he may reasonably request.
Section 55. Indemnification.
a. The Company will, and hereby does, indemnify each Holder, each of its
officers, directors and partners, and each person controlling such Holder within
the meaning of the Act, with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, and each underwriter,
if any, and each person who controls such underwriter within the meaning of the
Act, against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any final prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any material violation by the Company of the Act or
the Exchange Act or securities act of any state or any rule or regulation
thereunder applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification or
compliance, and will reimburse each such Holder, each of its officers, directors
and partners, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating and defending any
such claim, loss, damage, liability or action, whether or not resulting in any
liability, provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement (or alleged untrue statement) or omission (or
alleged omission) based upon written information furnished to the Company by
such Holder or underwriter and stated to be specifically for use therein.
b. Each Holder will, if Registrable Securities held by him are included
in the securities as to which such registration, qualification or compliance is
being effected, indemnify the Company, each of its directors and officers and
each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of the Act and the rules and regulations thereunder, each
other such Holder and each of their officers, directors and partners, and each
person controlling such Holder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, each person controlling the Company,
each underwriter and each person who controls any such underwriter, each Holder
and each person controlling such Holder, and their respective directors,
officers, partners, persons, underwriters and control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage,
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liability or action, whether or not resulting in liability, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder
and stated to be specifically for use therein; provided, however, that the
obligations of each Holder hereunder shall be limited to an amount equal to the
net proceeds received by such Holder upon sale of his securities.
c. Each party entitled to indemnification under this Section 7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, but the
failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations under this Section 7 (except and to the
extent the Indemnifying Party has been prejudiced as a consequence thereof). The
Indemnifying Party will be entitled to participate in, and to the extent that it
may elect by written notice delivered to the Indemnified Party promptly after
receiving the aforesaid notice from such Indemnified Party, at its expense to
assume, the defense of any such claim or any litigation resulting therefrom,
with counsel reasonably satisfactory to such Indemnified Party, provided that
the Indemnified Party may participate in such defense at its expense,
notwithstanding the assumption of such defense by the Indemnifying Party, and
provided, further, that if the defendants in any such action shall include both
the Indemnified Party and the Indemnifying Party and the Indemnified Party shall
have reasonably concluded that there may be legal defenses available to it
and/or other Indemnified Parties which are different from or additional to those
available to the Indemnifying Party, the Indemnified Party or Parties shall have
the right to select separate counsel to assert such legal defenses and to
otherwise participate in the defense of such action on behalf of such
Indemnified Party or Parties and the fees and expenses of such counsel shall be
paid by the Indemnifying Party. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. Each Indemnified Party shall (i) furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom and
(ii) shall reasonably assist the Indemnifying Party in any such defense,
provided that the Indemnified Party shall not be required to expend its funds in
connection with such assistance.
d. No Holder shall be required to participate in a registration pursuant
to which it would be required to execute an underwriting agreement in connection
with a registration effected under Section 2 or 3 which imposes indemnification
or contribution obligations on such Holder more onerous than those imposed
hereunder; provided, however, that the Company shall not be deemed to breach the
provisions of Section 2 or 3 if a Holder is not permitted to participate in a
registration on account of his refusal to execute an underwriting agreement on
the basis of this subsection (d).
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Section 56. Information by Holder Each Holder of Registrable Securities
included in any registration shall furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder as the
Company may reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this Agreement or otherwise required by applicable state or federal securities
laws.
Section 57. Limitations on Registration Rights. From and after the date of
this Agreement, the Company shall not, without the prior written consent of the
Investors, enter into any agreement with any holder or prospective holder of any
securities of the Company which would give any such holder or prospective holder
the right to require the Company, upon any registration of any of its
securities, to include, among the securities which the Company is then
registering, securities owned by such holder, unless under the terms of such
agreement, such holder or prospective holder may include such securities in any
such registration only to the extent that the inclusion of its securities will
not limit the number of Registrable Securities sought to be included by the
Holders of Registrable Securities.
Section 58. Exception to Registration. The Company shall not be required to
effect a registration under this Agreement if (i) in the written opinion of
counsel for the Company, which counsel and the opinion so rendered shall be
reasonably acceptable to the Holders of Registrable Securities, such Holders may
sell without registration under the Act all Registrable Securities for which
they requested registration under the provisions of the Act and in the manner
and in the quantity in which the Registrable Securities were proposed to be
sold, or (ii) the Company shall have obtained from the Commission a "no-action"
letter to that effect; provided that this Section 10 shall not apply to sales
made under Rule 144(k) or any successor rule promulgated by the Commission until
after the effective date of the Company's initial registration of shares under
the Act or (iii) if the Company determines in its good faith judgment that the
use of any prospectus would require the disclosure of material information that
the Company has a bona fide business purpose for preserving as confidential or
the disclosure of which would impede the Company's ability to consummate a
transaction, and that the Company is not otherwise required by applicable
securities laws or regulations to disclose, upon written notice of such
determination by the Company, the rights of the Holders to offer, sell or
distribute any Registrable Securities or to require the Company to take action
with respect to the registration or sale of any Registrable Securities pursuant
to this Agreement shall be suspended until the date upon which the Company
notifies the Holders in writing (the "Suspension Termination Notice") that
suspension of such rights for the grounds set forth in this paragraph is no
longer necessary, and the Company agrees to give such notice as promptly as
practicable following the date that such suspension of rights is no longer
necessary (but in any event any such suspension shall be effective for a period
not in excess of 60 consecutive days and for no more than 180 days in any
calendar year). If the Company shall give any such notice, the time periods set
forth in Section 2 above shall be extended by the number of days during which
the period from and including the date of the giving of such notice of
suspension to and including the date the Company delivers the Suspension
Termination Notice. Notwithstanding the foregoing, in no event shall the
provisions of this Section 10 be construed to preclude a Holder of Registrable
Securities from exercising
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rights under Section 3 for a period of three years after the effective date of
the Company's initial registration of shares under the Act.
The Initiating Investors each agree not to offer, sell, contract to sell or
otherwise dispose of any Registrable Securities, or any securities convertible
into or exchangeable or excisable for such securities during any period when,
and to the same extent that, any officers of the Company are restricted in
connection with an offering of securities by the Company. The Company shall give
reasonable advance notice to each such Initiating Investor of such offering.
Section 59. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may permit the
sale of restricted securities (as that term is used in Rule 144 under the Act)
to the public without registration, the Company agrees to:
a. make and keep public information available as those terms are
understood and defined in Rule 144 under the Act, at all times from and after
ninety days following the effective date of the first registration under the Act
filed by the Company for an offering of its securities to the general public;
b. use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Act and the
Exchange Act at any time after it has become subject to such reporting
requirements; and
c. so long as an Investor owns any restricted securities, furnish to the
Investor forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time from and
after ninety days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Act and Exchange Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so filed
by the Company as an Investor may reasonably request in availing itself of any
rule or regulation of the Commission allowing an Investor to sell any such
securities without registration.
Section 60. Listing Application. If shares of any class of stock of the
Company shall be listed on a national securities exchange, the Company shall, at
its expense, include in its listing application all of the shares of the listed
class then owned by any Investor.
Section 61. Damages. The Company recognizes and agrees that the Holder of
Registrable Securities shall not have an adequate remedy if the Company fails to
comply with the provisions of this Agreement, and that damages will not be
readily ascertainable, and the Company expressly agrees that in the event of
such failure any Holder of Registrable Securities shall be entitled to seek
specific performance of the Company's obligations hereunder and that the Company
will not oppose an application seeking such specific performance.
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Section 62. Representations and Warranties of the Company. The Company
represents and warrants to the Investors as follows:
a. The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
violate any provision of law, any order of any court or other agency of
government by which the Company or any of its properties or assets is bound, the
Articles of Incorporation or By-laws of the Company or any provision of any
indenture, agreement or other instrument to which the Company or any or its
properties or assets is bound, conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company.
b. This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
Section 63. Miscellaneous.
a. All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto (including without
limitation transferees of any Registrable Securities), whether so expressed or
not.
b. All notices, requests, consents and other communications hereunder
shall be in writing and shall be mailed by certified or registered mail, return
receipt requested, postage prepaid, or telecopied or sent by other facsimile
method addressed as follows:
If to the Company or any Investor, at the address of such party set
forth on Schedule I hereto or the most recent address as is shown on the
stock records of the Company; and
If to any subsequent Holder of Registrable Securities, to it at such
address as may have been furnished to the Company in writing by such
Holder; or, in any case, at such other address or addresses as shall have
been furnished in writing to the Company (in the case of a Holder of
Registrable Securities) or to the Holders of Registrable Securities (in the
case of the Company) in accordance with the provisions of this paragraph.
c. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
d. This Agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company, the Investors
and the holders of at least a majority of the then outstanding Registrable
Securities.
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e. 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.
f. If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
* * * * * * * * *
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
excited as an instrument under SEAL as of the date for first above written.
LOGICAL DESIGN SOLUTIONS, INC.
By: /s/ Xxxx Xxx Xxxxxx
----------------------
Name: Xxxx Xxx Xxxxxx
Title: President
SUMMIT VENTURES IV, L.P.,
By: Summit Partners IV, L.P.,
its General Partner
By: Stamps, Xxxxxxx & Co. IV,
Its General Partner
By: /s/ Xxxxx Xxxxx
------------------
General Partner
SUMMIT INVESTORS, III, L.P.
By: /s/ Xxxxx Xxxxx
------------------
Authorized Signatory
/s/ Xxxx X. Xxxxxx
---------------------
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SCHEDULE I
----------
Company
-------
Logical Design Solutions, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attn: President
Investors
---------
Name and Address
----------------
Summit Ventures IV, L.P.
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000-0000
Attn: Xxxxx X. Xxxxx
Summit Investors III, L.P.
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000-0000
Attn: Xxxxx X. Xxxxx
Xxxx X. Xxxxxx
00 Xxxxxxxx Xxxxx
Xxxxxxx, XX 00000
139
