Exhibit 10.1
PREFERRED STOCK PURCHASE AGREEMENT
This preferred stock purchase agreement is dated May 12, 2000, and is
between TERACOMM RESEARCH, INC., a Delaware corporation ("TeraComm"), and
ATLANTIC TECHNOLOGY VENTURES, INC., a Delaware corporation ("Atlantic").
Atlantic wishes to purchase from TeraComm, and TeraComm wishes to issue
to Atlantic, shares of TeraComm's Series A preferred stock, par value $.001 per
share (the "TeraComm Preferred Stock").
TeraComm and Atlantic therefore agree as follows:
ARTICLE 1
AUTHORIZATION AND SALE OF SHARES
1.1 Authorization. TeraComm has duly authorized the sale and issuance
of 1,400 shares of TeraComm Preferred Stock. The TeraComm Preferred Stock has
the rights, restrictions, privileges, and preferences set forth in the Restated
Certificate of Incorporation of TeraComm attached hereto as Exhibit A (the
"Restated Certificate of Incorporation"). TeraComm has adopted and filed the
Restated Certificate of Incorporation with the Secretary of State of the State
of Delaware.
1.2 Sale of Shares. Subject to the terms of this agreement, TeraComm
hereby issues to Atlantic, and Atlantic hereby purchases from TeraComm, 1,400
shares of TeraComm Preferred Stock (the "Shares") for a purchase price (the
"Purchase Price") consisting of the following:
(1) $5,000,000 in cash, $250,000 of which Atlantic has already paid to
TeraComm, and the remaining $4,750,000 of which Atlantic shall pay to
TeraComm in immediately available funds in the amounts and on the dates
stated in Schedule 1.2(a) (each installment of the remaining
$4,750,000, a "Subsequent Payment");
(2) 200,000 shares of Atlantic common stock (the "Purchase Price Shares");
and
(3) a warrant for the purchase of a further 200,000 shares of Atlantic
common stock (the "Purchase Price Warrant").
(b) If Atlantic fails to timely make any Subsequent Payment, it
may not make any further Subsequent Payments and it will be deemed to have
surrendered to Teracomm a proportion of the Shares (with any fractional share
rounded up) equal to the proportion of the dollar value of the Purchase Price
that is represented by the missed Subsequent Payment and all other unpaid
Subsquent Payments. This surrender will be Teracomm's sole remedy for the
failure by Atlantic to timely make any Subsequent Payment. For purposes of this
Agreement, the dollar value of the Purchase Price is $6,795,000.
(c) If TeraComm is dissolved and liquidated before Atlantic has
made each Subsequent Payment it is required to make pursuant to Section 1.2(a),
the maximum Series A
Preferred Stock Liquidation Amount payable to Atlantic will be calculated by
multiplying the Preferred Stock Liquidation Amount that it would otherwise be
entitled to by a fraction, the numerator of which is $1,795,000 plus $250,000
plus the amount of each Subsequent Payment made by Atlantic, the denominator of
which is $6,795,000.
1.3 Dividend. TeraComm may not distribute to its common stockholders as
a dividend the Purchase Price Shares and the Purchase Price Warrant until such
time as all holders of TeraComm common stock have made to Atlantic customary
investment representations in a form reasonably acceptable to Atlantic. If by 30
days after the date of this agreement Atlantic has not received signed
investment representations from each holder of TeraComm common stock, TeraComm
may thereafter sell the Purchase Price Shares and issue the proceeds as a
dividend to holders of TeraComm common stock, on condition that the sale is
conducted in compliance with all applicable securities laws. Atlantic hereby
waives any right to receive any part of any dividend made by TeraComm as
contemplated in the Section 1.3.
ARTICLE 2
REPRESENTATIONS CONCERNING TERACOMM
TeraComm represents to Atlantic as follows, except as noted in the
TeraComm Disclosure Schedules delivered to Atlantic by TeraComm concurrently
with execution and delivery of this Agreement:
2.1 Organization and Good Standing. TeraComm is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with all necessary corporate power and authority to own or use its
assets and conduct its business as it is now being conducted. TeraComm is duly
qualified to do business as a foreign corporation in, and is in good standing
under the laws of, each state or other jurisdiction in which either the
ownership or use of its assets or the nature of the business conducted by it
requires that it be so qualified.
2.2 Authority. (a) TeraComm has full power and authority to execute and
deliver this agreement and the other Transaction Documents to which it is party
and to perform its obligations hereunder and thereunder. Execution and delivery
of this agreement and the other Transaction Documents to which it is party and
performance by TeraComm of its obligations hereunder and thereunder have been
duly authorized by the board of directors of stockholders of TeraComm and no
other corporate proceedings on the part of TeraComm are necessary with respect
thereto.
(b) This agreement and the other Transaction Documents to which
it is party constitute the valid and binding obligation of TeraComm, each
enforceable in accordance with its terms, except as enforceability is limited by
(1) any applicable bankruptcy, insolvency, reorganization, moratorium or similar
law affecting creditors' rights generally, or (2) general principles of equity,
whether considered in a proceeding in equity or at law.
2.3 Consents. TeraComm is not required to obtain the Consent of any
Person, including any party to any Contract to which TeraComm is a party, in
connection with execution and delivery of this agreement and the other
Transaction Documents to which it is party and performance of its obligations
hereunder and thereunder.
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2.4 No Violations. TeraComm's execution and delivery of this agreement
and the other Transaction Documents to which it is party and performance of its
obligations hereunder and thereunder do not do any of the following:
(1) violate any provision of the Restated Certificate of Incorporation or
the by-laws of TeraComm as currently in effect;
(2) conflict with, result in a breach of, constitute a default under (or an
event that, with notice or lapse of time or both, would constitute a
default under), accelerate the performance required by, result in the
creation of any Lien upon any of the properties or assets of TeraComm
under, or create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under, any Contract to which
TeraComm is a party or by which any properties or assets of TeraComm
are bound; or
(3) violate any Law or Order to which TeraComm is subject.
2.5 Capitalization. (a) The authorized capital stock of TeraComm
consists of 10,000 shares of common stock, par value $.001 per share ("TeraComm
Common Stock") and 10,000 shares of preferred stock, par value $.001, of which
1,400 shares have been designated shares of TeraComm Preferred Stock.
(b) As of the date of this agreement, (1) there are 2,600 shares
of TeraComm common stock issued and outstanding, (2) excluding the Shares, there
are no shares of TeraComm Preferred Stock issued and outstanding, (3) no shares
of TeraComm common stock or shares of TeraComm Preferred Stock are held in the
treasury of TeraComm, and (4) 1,400 shares of TeraComm common stock have been
reserved for issuance upon conversion of the Shares (those shares of common
stock, the "Conversion Shares").
(c) The Shares and all of the issued and outstanding shares of
TeraComm common stock have been duly authorized and are validly issued, fully
paid and nonassessable, and the Conversion Shares will, upon issuance in
compliance with the Restated Certificate of Incorporation, be duly authorized,
validly issued, fully paid, and nonassessable.
(d) Schedule 2.5(d) lists each stockholder of TeraComm and the
shares of TeraComm Common Stock held by them. Together those shares of TeraComm
Common Stock constitute all of the issued and outstanding shares of TeraComm
Common Stock.
(e) Except with respect to the conversion privileges of the
Shares, there are no options, warrants, or other Contracts to which TeraComm is
a party requiring, and there are no securities of TeraComm outstanding that upon
conversion or exchange would require, the issuance, sale or transfer of any
additional shares of capital stock or other equity securities of TeraComm or
other securities convertible into, exchangeable for or evidencing the right to
subscribe for or purchase shares of capital stock or other equity securities of
TeraComm. There exist no stockholder agreements, voting trusts, proxies, or
other Contracts with respect the sale, transfer, registration or voting of
shares of TeraComm capital stock, except for any entered into in connection with
the transactions contemplated by this agreement.
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2.6 Ownership Interests. TeraComm does not own, or have any Contract to
acquire, any equity securities or other direct or indirect ownership interest in
any other Person, except as provided in this agreement.
2.7 Financial Statements. TeraComm has previously delivered to Atlantic
(1) the unaudited balance sheet of TeraComm as of December 31, 1999 (the
"Balance Sheet"), and the related unaudited statements of income and cash flow
for TeraComm for the year then ended, and (3) the unaudited balance sheet of
TeraComm as of April 30, 2000 (the "Interim Balance Sheet"), and the related
unaudited statements of income and cash flow for Spectrum for the four months
then ended (the "Interim Financial Statements"). These financial statements have
been prepared in accordance with good accounting principles consistently applied
with past practice (except in each case as described in the notes thereto) and
on that basis present fairly, in all material respects, the financial position
and the results of operations and cash flow of TeraComm as of the respective
dates of and for the period referred to in these financial statements, subject,
in the case of the Interim Financial Statements, to normal year-end adjustments.
2.8 Books and Records. The books of account, minute books, stock record
books, and other records of TeraComm, all of which have been made available to
Atlantic, have been properly kept and contain no inaccuracies except for those
inaccuracies that are not reasonably likely to have a Material Adverse Effect on
TeraComm.
2.9 Real Property. TeraComm does not own any real property. Schedule
2.9 contains an accurate list of all leaseholds or other interests of TeraComm
in any real property.
2.10 Title to Properties; Liens. TeraComm has sufficient title to the
properties and assets (whether real, personal, or mixed, and whether tangible or
intangible) that it owns or purports to own, including all the properties and
assets reflected in the Interim Balance Sheet (except for personal property
disposed of in the Ordinary Course of Business since the date of the Interim
Balance Sheet), free and clear of all Liens except Permitted Liens. TeraComm has
a valid leasehold, license or other interest in all of the other assets, real or
personal, tangible or intangible, that it uses in the operation of its business,
free and clear of all Liens except Permitted Liens.
2.11 Condition and Sufficiency of Assets. The building, plant,
structures, and equipment of TeraComm are structurally sound, are in good
operating condition and repair, reasonable wear and tear excepted, and are
adequate for the uses to which they are being put, and the building, plant,
structures, and equipment of TeraComm is not in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material in
nature or cost.
2.12 Suppliers. Schedule 2.12 contains an accurate list of the name and
address of each supplier from which TeraComm purchased in excess of 5% of
TeraComm's purchases of goods or services since January 1, 1999, and since that
date none of these suppliers has terminated its relationship with or altered in
a manner detrimental to TeraComm its accommodations, sales, or services to
TeraComm or indicated its intention to do so for any reason.
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2.13 No Undisclosed Liabilities. TeraComm has no liabilities of the
type required to be reflected as liabilities on a balance sheet prepared in
accordance with GAAP except for liabilities or obligations reflected or reserved
against in the Balance Sheet or Interim Balance Sheet and current liabilities
incurred in the Ordinary Course of Business since the respective dates thereof,
and has no other liabilities or obligations of any nature (whether known or
unknown and whether absolute, accrued, contingent, or otherwise).
2.14 Taxes. (a) TeraComm has prior to issuance of the Shares been a
"small business corporation" and has maintained a valid election to be an "S"
corporation under Subchapter S of the Code, and the equivalent provisions of all
applicable state income tax statutes, since October 1995. TeraComm has filed on
a timely basis (including any extensions) with the appropriate Governmental
Bodies in the applicable jurisdictions either each Tax Return of TeraComm that
is due or a valid request for extension with respect to that Tax Return. All Tax
Returns filed by TeraComm are accurate and complete. TeraComm has paid fully on
a timely basis all Taxes due.
(b) There are no material claims or assessments pending against
TeraComm for any alleged deficiency in any Tax, there are no pending or to
TeraComm's Knowledge threatened audits or investigations for or relating to any
liability in respect of any Tax, and TeraComm has not been notified in writing
of any proposed Tax claims or assessments against TeraComm. There are no Liens
for any Taxes on the properties or assets of TeraComm except for statutory liens
for current Taxes not yet due and payable. TeraComm has not given or been
requested to give waivers or extensions (or is or would be subject to a waiver
or extension given by any other Person) of any statute of limitations relating
to the payment of Taxes of TeraComm or for which TeraComm may be liable.
TeraComm has no liability for the Taxes of any Person other than TeraComm.
TeraComm has not made any change in accounting methods, and has not received a
ruling from or signed an agreement with any Governmental Body, that is likely to
have a Material Adverse Effect on TeraComm. TeraComm has not, with regard to any
assets or property held, acquired or to be acquired by it, filed a consent to
the application of Section 341(f) of the Code, or agreed to have Section
341(f)(2) of the Code apply to any disposition of a "subsection (f) asset" (as
that term is defined in Section 341(f)(4) of the Code) owned by TeraComm.
(c) TeraComm is not a party to any agreement, arrangement or
contract providing for the allocation, indemnification or sharing of Taxes.
TeraComm is not a party to any agreement, contract or arrangement that could
result, separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
(d) TeraComm is not, nor has it been for the five-year period
preceding the date of this agreement, a U.S. real property holding corporation
as defined in Section 897(c)(2) of the Code.
2.15 Environmental Matters. (a) The operations of TeraComm are and have
always been in compliance with all applicable Environmental Laws.
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(b) Neither TeraComm nor any of its operations are subject to any
Order or Contract respecting (1) Environmental Laws, (2) Remedial Action, (3)
any Environmental Claim, or (4) the Release or threatened Release of any
Hazardous Material.
(c) None of the operations of TeraComm involves the generation,
transportation, treatment, storage or disposal of Hazardous Material.
2.16 Compliance With Laws; Permits. (a) TeraComm is, and at all times
since it was organized has been, in compliance with each Law that is or was
applicable to it or to the conduct or operation of its business or the ownership
or use of any of its properties or assets, except for noncompliance that
individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect on TeraComm.
(b) TeraComm has not received, at any time since January 1, 1997,
any written notice from any Governmental Body or any other Person regarding (A)
any alleged violation of any Law, or (B) any alleged obligation on the part of
TeraComm to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature under any Law.
(c) Schedule 2.16(c) contains an accurate list of each material
Permit held by TeraComm that relates to the business of, or to any of the
properties or assets owned or used by, TeraComm. Each Permit listed in Schedule
2.16(c) is valid and in full force and effect.
2.17 Proceedings; Orders. There are no Proceedings pending or, to
TeraComm's Knowledge, threatened against TeraComm or any properties or assets of
TeraComm, and there is no Order to which TeraComm, or any of the properties or
assets of TeraComm, is subject.
2.18 Absence of Certain Changes and Events. Since the date of the
Balance Sheet, TeraComm has conducted its business only in the Ordinary Course
of Business and there has not occurred any of the following:
(1) any change in TeraComm's authorized or issued capital stock; purchase,
redemption, retirement, or other acquisition by TeraComm of any shares
of capital stock of TeraComm; or declaration or payment of any dividend
or other distribution (whether in cash, stock, or property) in respect
of shares of capital stock of TeraComm;
(2) any amendment of the certificate of incorporation or by-laws of
TeraComm;
(3) any increase in the salary, bonus, or other compensation payable by
TeraComm to any director, officer, employee, consultant or independent
contractor, except for increases in the Ordinary Course of Business
consistent with TeraComm's past practice, or any entry into any
employment, consulting, incentive compensation, severance, or similar
Contract with any director, officer, employee, consultant or
independent contractor that is not terminable without liability on
notice of 30 days or less;
(4) any incurrence by TeraComm of indebtedness for borrowed money, any
assumption or guarantee by TeraComm of the debt of any other Person, or
any loan or advance by TeraComm to any Person other than in the
Ordinary Course of Business;
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(5) any damage to or destruction or loss of any asset or property of
TeraComm not fully covered by insurance that is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
TeraComm;
(6) any sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of, or any mortgage, pledge, or
imposition of any Lien except Permitted Liens on, any property or asset
that is material, individually or in the aggregate, to the business of
TeraComm;
(7) any cancellation or waiver of any material claims or rights without
adequate consideration or a reasonable business purpose;
(8) any merger or consolidation with, or purchase of a substantial equity
interest in or all or a substantial portion of the assets of, any
Person;
(9) any material revaluation by TeraComm of any of its assets, including
any writing-off of notes or accounts receivable other than in the
Ordinary Course of Business consistent with past practice;
(10) any material change in the accounting methods used by TeraComm;
(11) any change, event or other circumstance that taken individually or in
the aggregate has had or could reasonably be expected to have a
Material Adverse Effect on TeraComm, except for general changes in the
industry in which TeraComm operates or in the economy; or
(12) entry by TeraComm into any Contract to do any of the foregoing.
2.19 Contracts. (a) Schedule 2.19 contains a list of the following
Contracts to which TeraComm is party, other than those provided for in this
agreement:
(1) each Contract relating to indebtedness of TeraComm for borrowed money
(whether incurred, assumed, guaranteed or secured by any asset);
(2) each Contract relating to the lending of more than $1,000 in any one
instance or $5,000 in the aggregate by TeraComm to any Person,
including any Affiliate of TeraComm;
(3) each Contract (or group of related Contracts) for the lease of personal
property to or from any Person providing for lease payments in excess
of $1,000 in any one instance or $5,000 in the aggregate per annum;
(4) each Contract concerning a partnership or joint venture;
(5) each Contract (other than a Contract listed elsewhere in Schedule 2.19)
requiring that TeraComm maintain confidential any given information;
(6) each Contract in which TeraComm agrees not to compete in any line of
business, in any geographic area, or with any Person;
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(7) each collective bargaining agreement or other Contract with a labor
union or other representative of a group of employees;
(8) each Contract for the employment by TeraComm of any individual on a
full-time, part-time, consulting, independent contracting, leased
employee or other basis;
(9) each Contract providing for indemnification of or by TeraComm (other
than a Contract listed elsewhere in Schedule 2.19);
(10) each Contract in which TeraComm agrees to provide products or services
to any Person, or receive products or services from any Person, for
consideration other than cash;
(11) each other Contract with a TeraComm customer;
(12) each Contract granting TeraComm the right to use any Intellectual
Property Assets of another Person (excluding Contracts granting
TeraComm rights to off-the-shelf commercial software), or granting
another Person the right to use, or restricting TeraComm's right to
use, Intellectual Property Assets of TeraComm; and
(13) any other Contract (or group of related Contracts) that involve
consideration in excess of $5,000.
(b) TeraComm has permitted Atlantic to review a copy of each
Contract listed in Schedule 2.19.
(c) Each Contract to which TeraComm is a party identified or
required to be identified in Schedule 2.19 is in full force and effect and is
valid and enforceable in accordance with its terms, except as enforceability is
limited by (1) any applicable bankruptcy, insolvency, reorganization, moratorium
or similar law affecting creditors' rights generally, or (2) general principles
of equity, whether considered in a proceeding in equity or at law.
(d) TeraComm is not in default under any Contract to which it is
party, and to TeraComm's Knowledge no event or circumstance has occurred that
would, with notice or lapse of time or both, constitute an event of default
under any material Contract to which TeraComm is a party.
(e) To TeraComm's Knowledge, TeraComm is not party to any
unwritten contract.
2.20 ERISA and Employee Benefit Matters. (a) Neither TeraComm nor any
ERISA Affiliate maintains or has ever maintained, or has proposed or agreed to
create, any Employee Benefit Plan.
(b) For purposes of this agreement, "Employee Benefit Plan" means
any "employee benefit plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended, and any other plan, policy,
program, practice, arrangement or Contract providing benefits to any current or
former director, employee or independent contractor (or to any dependent or
beneficiary thereof) of TeraComm, any subsidiary of TeraComm or any
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ERISA Affiliate, which are now or have ever been maintain by TeraComm, any
subsidiary of TeraComm or any ERISA Affiliate or under which TeraComm, any
subsidiary of TeraComm or any ERISA Affiliate has any obligation or Liability,
including all incentive, bonus, deferred compensation, vacation, holiday,
medical, disability, stock appreciation rights, stock option, stock purchase or
other similar plans, policies, programs, practices, arrangements or Contracts.
(c) For purposes of this agreement, "ERISA Affiliate" means any
Person (whether or not incorporated) other than TeraComm that, together with
TeraComm, is or was a member of (1) a controlled group of corporations within
the meaning of Section 414(b) of the Code, (2) a group of trades or businesses
under common control within the meaning of Section 414(c) of the Code, or (3) an
affiliated service group within the meaning of Section 414(m) of the Code.
2.21 Employees. (a) Schedule 2.21 lists the following information for
each employee of TeraComm as of the date of this agreement, including each
employee on leave of absence or layoff status: (1) name; (2) job title; (3)
current annual base salary or annualized wages; (4) bonus compensation earned
during 1999 and 2000 (projected); and (5) vacation accrued and unused. TeraComm
pays no compensation to the members of its board of directors for acting as
such.
(b) To TeraComm's Knowledge, there exists no condition or state
of facts or circumstances relating to consummation of the transactions
contemplated by this agreement or the other Transaction Documents to which it is
party that could have a material adverse effect on TeraComm's relations with its
employees.
(c) TeraComm does not have any obligation to reinstate any former
officer or employee of TeraComm. TeraComm is not required to make payments of
any kind (including severance payments) to any former director, officer,
employee, agent or independent contractor of TeraComm. No officer or employee of
TeraComm has indicated his or her intention to resign.
(d) No current or former officer or employee of TeraComm is
currently receiving any benefits from TeraComm because he or she is disabled.
(e) All of the officers and employees of TeraComm are in good
standing under the terms and conditions of their employment, and to TeraComm's
Knowledge there exists no problem or difficulty with the employment of such
officer or employee.
(f) TeraComm has paid all wages, bonuses, commissions or other
compensation due and payable to each of its employees in accordance with its
customary practice.
(g) TeraComm is not and has not been a party to any collective
bargaining agreement. Since January 1, 1999, there has not been, and to
TeraComm's Knowledge there is not threatened, any application for certification
of a collective bargaining agent.
2.22 Deposit Accounts. Schedule 2.22 lists (1) the name of each
financial institution in which TeraComm has an account or safe deposit box, (2)
the name or names in which each
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account or box is held, (3) the type of account, and (4) the name of each Person
authorized to draw on or have access to each account or box.
2.23 Intellectual Property Rights. (a) TeraComm is the sole legal and
beneficial owner, free and clear of any Lien, of the entire interest in the
Intellectual Property Assets used in or necessary for the conduct of TeraComm's
business as currently conducted or as currently proposed to be conducted and
that interest are sufficient in all material respects for the conduct of
TeraComm's business as currently conducted or as currently proposed to be
conducted. Execution and delivery of this agreement and the other Transaction
Documents to which is party and consummation of the transactions contemplated
hereby and thereby will not constitute a material breach of any Contract
involving any of the Intellectual Property Assets of TeraComm and will not cause
the forfeiture or termination or give rise to a right of forfeiture or
termination of, or any obligation to pay any royalty, license or other fee with
respect to, any Intellectual Property Asset of TeraComm or impair in any
material respect TeraComm's rights to use, sell or license any Intellectual
Property Asset or portion thereof.
(b) Set forth in Schedule 2.23(b) is a complete and correct list
of the following:
(1) all patents and patent applications owned by TeraComm worldwide;
(2) all trademark and service mark registrations and all trademark and
service mark applications and all trade names owned by TeraComm
worldwide;
(3) all copyright registrations and copyright applications owned by
TeraComm worldwide; and
(4) all licenses owned by TeraComm in which TeraComm is (A) a licensor with
respect to any of the patents, trademarks, service marks, trade names
or copyrights listed in Schedule 2.23(b), or (B) a licensee of any
other person's patents, trade names, trademarks, service marks or
copyrights.
(c) TeraComm has made all necessary filings and recordations to
protect and maintain their respective interest in the patents, patent
applications, trademark and service mark registrations, trademark and service
mark applications, trade names, copyright registrations and copyright
applications and licenses set forth in Schedule 2.23(b)
(d) Each patent, patent application, trademark or service mark
registration, trademark or service mark application and copyright registration
or copyright application of TeraComm set forth in Schedule 2.23(b) is valid and
subsisting and has not been judged invalid, unregistrable or unenforceable, in
whole or in part, and is, to TeraComm's Knowledge. valid, registrable and
enforceable. Each license of TeraComm identified in Schedule 2.23(b) is valid
and subsisting and has not been adjudged invalid or unenforceable, in whole or
in part, and is, to TeraComm's Knowledge, enforceable. TeraComm has notified
Atlantic of all uses of any item of the Intellectual Property Assets of TeraComm
used in or necessary for the conduct of the business of TeraComm as presently
conducted or as presently proposed to be conducted that have become invalid or
unenforceable, including uses that were not supported by the good will of the
business connected with those Intellectual Property Assets. TeraComm has not
made a
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previous assignment, transfer or Lien, or a Contract constituting a present or
future assignment, transfer or Lien, of any Intellectual Property Asset used in
or necessary for the conduct of the business of TeraComm as presently conducted
or as presently proposed to be conducted. TeraComm has not granted any license,
release, covenant not to sue, or non-assertion assurance to any person with
respect to any part of the Intellectual Property Assets.
(e) No use of the Intellectual Property Assets of TeraComm used
in or necessary for the conduct of the business of TeraComm as presently
conducted or as presently proposed to be conducted, nor the manufacture,
marketing, license, sale or use of any product or service currently licensed or
sold by TeraComm or currently under development by TeraComm violates any license
agreement between TeraComm and any Person or to TeraComm's Knowledge infringes
any proprietary rights of any Person and there is no pending or, to TeraComm's
Knowledge, threatened claim or litigation contesting the validity, ownership or
right to use, sell, license or dispose of any such Intellectual Property Asset
or product nor, to TeraComm's Knowledge, is there any basis for any such claim,
nor has TeraComm received any notice asserting that any of such Intellectual
Property Assets or products, or the proposed use, sale, license or disposition
thereof, conflicts or will conflict with the rights of any other Person, nor, to
TeraComm's Knowledge, is there any basis for any such assertion.
(f) To TeraComm's Knowledge there is no unauthorized use,
infringement or misappropriation of any of the Intellectual Property Assets of
TeraComm used in or necessary for the conduct of the business of TeraComm as
presently conducted or as presently proposed to be conducted by any Person,
including any employee or former employee or consultant or former consultant of
TeraComm.
(g) There are no royalties, honoraria, fees or other fixed or
contingent amounts or payments payable by TeraComm to any Person with respect to
any Intellectual Property Assets used in or necessary for the conduct of the
business of TeraComm as presently conducted or as presently proposed to be
conducted.
(h) TeraComm has taken reasonable and practicable steps designed
to safeguard and maintain the secrecy and confidentiality of, and the
proprietary rights in, the Intellectual Property Assets used in or necessary for
the conduct of the business of TeraComm as presently conducted or as presently
proposed to be conducted. All officers, employees and consultants and other
independent contractors of or to TeraComm having access to or developing any
Intellectual Property Assets used in or necessary for the conduct of the
business of TeraComm as presently conducted or as presently proposed to be
conducted have executed and delivered an agreement regarding the protection of
proprietary information and the license or assignment to TeraComm, as the case
may be, of all proprietary rights arising from the services performed by such
Persons, and such proprietary rights are licensed or assigned to TeraComm, as
the case may be, or are works-made-for-hire, and TeraComm, as the case may be,
is the author and owner of all such rights under the Copyright Act of 1976, as
amended, or similar foreign laws or by assignment. No current or prior officer,
employee or consultant or other independent contractor of or to TeraComm, as the
case may be, (1) claims or has a right to claim an ownership interest in any
Intellectual Property Assets used in or necessary for the conduct of the
business of TeraComm as presently conducted or as presently proposed to be
conducted as a result of having been involved in the development or licensing of
any such property while
11
employed by or consulting or otherwise providing services to TeraComm, as the
case may be, or otherwise, or (2) to TeraComm's Knowledge, owns any Intellectual
Property Assets directly or indirectly competitive with those of TeraComm.
2.24 Conduct of Business; Use of Name. The business carried on by
TeraComm has been conducted directly by TeraComm, and not through any Affiliate
or through any other Person. TeraComm owns and has the exclusive right, title
and interest in and to the name "TeraComm Research, Inc." for corporate law
purposes in the State of Delaware, and to TeraComm's Knowledge no other Person
has the right to use that name or any confusing variation on that name in the
U.S. in connection with the operation of any business similar or related to the
business conducted by TeraComm.
2.25 Insurance. Schedule 2.25 lists all insurance policies held by or
on behalf of TeraComm, and the premiums under and expiration dates of those
policies. Each of those policies is in full force and effect and, to TeraComm's
Knowledge, is valid and enforceable in accordance with its terms. TeraComm is
not in default under any such policy nor has TeraComm failed to give any notice
or present any claim under any such policy in due and timely fashion, and to
TeraComm's Knowledge there exist no grounds for the insurer's canceling or
avoiding any of those policies or increasing the premiums of those policies, or
for reducing the coverage provided by those policies.
2.26 Brokers Or Finders. Neither TeraComm nor any of its stockholders
or any of its or their agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this agreement.
2.27 Affiliate Transactions. Schedule 2.27 lists any Contract between
TeraComm and any of its stockholders or any director, officer, employee or any
other Affiliate of TeraComm or any of its stockholders.
2.28 Disclosure. No representation made by TeraComm in this agreement
is inaccurate in any material respect or omits to state a material fact
necessary to make the statements made in this agreement, in light of the
circumstances under which they were made, not misleading.
ARTICLE 3
REPRESENTATIONS OF ATLANTIC
Atlantic represent to TeraComm as follows:
3.1 Organization and Good Standing. Atlantic is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware, with all necessary corporate power and authority to own or use its
properties and assets and conduct its business as it is now being conducted.
3.2 Authority. (a) Atlantic has all requisite corporate power and
authority to execute and deliver this agreement and the other Transaction
Documents to which it is party and to perform its obligations hereunder and
thereunder. Execution and delivery of this agreement and
12
the other Transaction Documents to which it is party and performance by Atlantic
of its obligations hereunder and thereunder have been duly authorized by the
board of directors of Atlantic, and no other corporate proceedings Atlantic are
necessary with respect thereto.
(b) This agreement constitutes the valid and binding obligation
of Atlantic, enforceable in accordance with its terms, except as enforceability
is limited by (1) any applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer, or similar law affecting creditors' rights
generally, or (2) general principles of equity, whether considered in a
proceeding in equity or at law.
3.3 Consents. Atlantic is not required to obtain the Consent of any
Person, including the Consent of any party to any Contract to which Atlantic is
a party, in connection with execution and delivery of this agreement and
performance of its obligations under this agreement.
3.4 No Violations. Execution and delivery by Atlantic of this agreement
and the other Transaction Documents to which it is party and performance of its
obligations hereunder and thereunder do not (1) violate any provision of its
articles of incorporation or by-laws as currently in effect, (2) conflict with,
result in a breach of, constitute a default under (or an event that, with notice
or lapse of time or both, would constitute a default under), accelerate the
performance required by, result in the creation of any Lien upon any of its
properties or assets under, or create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under, any Contract to which
it is a party or by which any of its properties or assets are bound, or (3)
violate any Law or Order currently in effect to which it is subject.
3.5 Capitalization. (a) The authorized capital stock of Atlantic
consists of 80,000,000 shares of Atlantic Common Stock and 50,000,000 shares of
preferred stock, par value $0.01 per share ("Atlantic Preferred Stock").
(b) As of March 31, 2000, (1) there were 5,302,37 shares of
Atlantic Common Stock issued and outstanding, (2) there were _________ shares of
Atlantic Preferred Stock issued and outstanding, and (3) no shares of Atlantic
Common Stock were held in the treasury of Atlantic.
(c) All of the issued and outstanding shares of Atlantic Common
Stock have been duly authorized and are validly issued, fully paid, and
nonassessable, and all shares of Atlantic Common Stock that have been reserved
for issuance will, upon issuance in compliance with the terms of the instruments
pursuant to which they are to be issued, be duly authorized, validly issued,
fully paid, and nonassessable.
(d) When issued in accordance with the terms of this agreement,
the Purchase Price Shares will be duly authorized, validly issued, fully paid,
and non-assessable.
(e) Except as set forth in Atlantic's Annual Report on Form
10-KSB filed with the SEC on March 30, 2000, other than the Purchase Price
Warrant there are no options, warrants, or other Contracts to which Atlantic is
a party relating to the issuance, sale, or transfer of any equity securities or
other securities of Atlantic.
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3.6 Filings With the SEC. (a) Since January 1, 1999, Atlantic has filed
with the SEC all reports, proxy statements, forms, and other documents that has
been required by law to file with the SEC (those documents, the "Atlantic SEC
Documents"). As of the date they were each filed, giving effect to any
amendments, (1) the Atlantic SEC Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as applicable,
in effect on the date of filing and (2) the Atlantic SEC Documents do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(b) Each of the Atlantic financial statements (including the
related notes) included in the Atlantic SEC Documents have been prepared in
accordance with GAAP consistently applied with past practice and on that basis
present fairly, in all material respects, the financial position and the results
of operations, changes in stockholders' equity, and cash flows of Atlantic as of
the respective dates of and for the periods referred to in these financial
statements.
3.7 Investment Representations. (a) Atlantic is acquiring the Shares
for its own account, not as a nominee or agent, and not with a view to
distributing any of the Shares or the Conversion Shares in violation of the
securities laws.
(b) Atlantic understands that investment in the Shares is
speculative and involves a high degree of risk. Atlantic is knowledgeable in
business and financial matters and is capable of evaluating the merits and risks
of an investment in Holdings.
(c) Atlantic understands that neither the Shares nor the
Conversion Shares have been registered under the Securities Act and may not be
sold or otherwise disposed of except pursuant to an effective registration
statement filed under the Securities Act or pursuant to an exemption from the
Securities Act. Atlantic acknowledges that TeraComm is under no obligation to
register the Shares or the Conversion Shares under the Securities Act on behalf
of Atlantic, except as provided in the Registration Rights Agreement.
(d) Atlantic acknowledges that TeraComm may place a legend on the
any stock certificates representing any Shares or Conversion Shares stating that
the Shares or Conversion Shares, as the case may be, represented by that
certificate have not been registered under the Securities Act and therefore
cannot be offered, sold or transferred unless they are registered under the
Securities Act or an exemption from such registration is available.
(e) Atlantic has been afforded the opportunity to ask
representatives of TeraComm such questions concerning TeraComm's operations as
Atlantic has deemed necessary, and Atlantic has received all documents and
information relating to its investment in the Shares requested by or on behalf
Atlantic.
3.8 Proceedings. There are no Proceedings pending or, to Atlantic's
Knowledge, threatened in writing against Atlantic that question the validity of
this agreement or any of the other Transaction Documents to which it is party or
any action taken or to be taken in connection with the transactions contemplated
by this agreement or any of the other Transaction Documents to which it is
party.
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3.9 Brokers or Finders. Atlantic and its officers and agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this agreement.
ARTICLE 4
CERTAIN OBLIGATIONS OF TERACOMM
4.1 Duration of Obligations. Unless they terminate earlier pursuant to
the terms of this Article 4, TeraComm will no longer have any obligations under
this Article 4 upon occurrence of the following:
(1) termination of the Stockholders Agreement;
(2) any transaction or series or combination of transactions whereby all or
substantially all of TeraComm's assets are acquired by a Person that is
not an Affiliate of TeraComm, or by a group of such Persons; and
(3) any merger, consolidation or reorganization of TeraComm with any Person
that is not an Affiliate of TeraComm, or a group of such Persons, other
than a merger, consolidation or reorganization that results in the
voting securities of TeraComm outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of another Person) at least 50% of the
combined voting power of the surviving Person;
4.2 Accounts and Reports. Until Atlantic owns less than 20% of the
capital stock of TeraComm (on a fully-diluted basis), TeraComm shall furnish to
Atlantic, and to each assignee of Atlantic, the following reports:
(1) as soon as available and in any event within 90 days after the end of
each fiscal year, consolidated and consolidating financial statements
of TeraComm, including a consolidated balance sheet as at the end of
such fiscal year and consolidated statements of income and
stockholders' equity and of cash flows for such fiscal year, together
with all notes thereto, prepared in reasonable detail and in accordance
with GAAP together with an opinion thereon by a nationally-recognized
firm of independent certified public accountants selected by TeraComm's
board of directors;
(2) as soon as available, and in any event within 30 days after the end of
each quarterly accounting period, financial statements of TeraComm,
including a balance sheet as at the end of that quarterly accounting
period and statements of income and stockholders' equity and cash flows
for that quarterly accounting period and for the period from the
beginning of such fiscal year to the end of that quarterly accounting
period, prepared in reasonable detail and certified by the chief
financial officer of Holding to have been prepared in accordance with
GAAP (subject to normal year end adjustments and except for the
omission of footnote disclosure), and incorporating a comparison
between the actual figures for that quarterly accounting period, the
comparable figures for the prior year and the comparable figures
included in the final annual forecast referenced in
15
Section 4.2(3) for that quarterly accounting period, with an
explanation of any material differences between them;
(3) (A) as soon as available and in any event no later than the end of each
fiscal year, a provisional annual forecast, and (B) as soon as
available and in any event no later than 60 days after the end of each
fiscal year, a final annual forecast, including budgeted quarterly
balance sheets, cash flow and income and loss projections, a
consolidated capital and operating expense budget and a business plan
for TeraComm in respect of the following fiscal year, all itemized in
reasonable detail including the assumptions on which the forecast was
based and, promptly after preparation, any revisions to any of the
foregoing;
(4) promptly upon receipt thereof (and in no event later than 5 business
days after receipt thereof), copies of all final audit reports,
"management letters" and other communications and reports submitted to
TeraComm by independent certified public accountants in connection with
each interim, annual, or special audit of the books of TeraComm made by
those accountants;
(5) promptly upon request, a copy of all financial statements, reports,
press releases, notices, proxy statements and other documents sent by
TeraComm to its stockholders generally or released to the public and
copies of all regular and periodic reports, if any, filed by TeraComm
with the SEC or any securities exchange; and
(6) prompt notice of (A) any action, suit, proceeding or investigation at
law or in equity or by or before any governmental instrumentality or
agency which, if adversely determined, would materially impair the
right of TeraComm to carry on their business as then conducted or would
have a Material Adverse Effect on TeraComm or (B) of any other event on
condition that has resulted in or could reasonably be expected to
result in a Material Adverse Effect on TeraComm.
4.3 Information and Inspection. Until Atlantic owns less than 20% of
the capital stock of TeraComm (on a fully-diluted basis), TeraComm shall furnish
to Atlantic from time to time with reasonable promptness, upon request, full
information regarding the business and operations of TeraComm and, at all
reasonable times and as often as Atlantic reasonably requests, permit any
authorized representative designated by it to visit and inspect any of the
properties of TeraComm or any of their Subsidiaries, including its books (and to
make extracts therefrom), and to discuss with its officers its business and
operations.
4.4 Payment of Taxes. TeraComm shall pay and discharge all Taxes
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 that, if unpaid, might become a Lien upon any of its properties, except
that TeraComm is not required to pay any such Tax that it is contesting in good
faith and by proper proceedings if all reserves required under GAAP and
reasonably determined to be adequate by TeraComm's board of directors have been
set aside on its books with respect thereto.
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4.5 Corporate Existence. TeraComm shall at all times preserve and keep
in full force and effect its corporate existence and rights and franchises
material to its business, and shall qualify to do business as a foreign
corporation in any jurisdiction where the failure to do so could reasonably be
expected to have a Material Adverse Effect on TeraComm.
4.6 Compliance with Laws. TeraComm shall use commercially reasonable
efforts to comply in all material respects with ERISA and all Environmental
Laws, and shall comply in all material respects with all other Laws applicable
to the conduct of its business and the ownership of its property, except that
TeraComm is not required to comply with any Law any time it is contesting its
obligation to do so in good faith by appropriate Proceedings promptly initiated
and diligently conducted, and if it has set aside on its books all reserves with
respect thereto required by GAAP and reasonably determined to be adequate by
TeraComm's board of directors.
4.7 Insurance; Insurance Coverage Maintenance. TeraComm shall use
commercially reasonable efforts to maintain with financially sound and reputable
insurers insurance with respect to its properties and businesses against Losses
of the kinds customarily insured against by Persons of established reputation
engaged in the same or a similar business and similarly situated, in such
amounts and by such methods as are customary for such Persons and reasonably
deemed adequate by TeraComm.
4.8 Regular Meetings of Directors. TeraComm shall take such action as
is required to cause its board of directors to meet not less often than
quarterly. TeraComm shall promptly pay all reasonable out-of-pocket expenses,
including travel and lodging expenses, incurred by directors in connection with
meetings of TeraComm's board of directors.
4.9 Restrictive Agreements Prohibited. TeraComm shall not become a
party to or bound by any agreement that by its express terms restricts
performance by TeraComm of its obligations under this agreement, the other
Transaction Documents to which it is party or the Restated Certificate of
Incorporation.
4.10 By-Laws. TeraComm shall use their best efforts to cause its
by-laws to provide at all times that any two directors have the right to call a
meeting of the board of directors or stockholders. TeraComm shall use its best
efforts to maintain at all times provisions in its Restated Certificate of
Incorporation and by-laws indemnifying its directors against liability to
TeraComm and its stockholders to the maximum extent permitted under Law.
4.11 Directors' and Officers' Liability Insurance. TeraComm shall use
its best efforts to secure and maintain on commercially reasonable terms
directors' and officers' liability insurance providing for appropriate coverage,
taking to account the directors' and officers' liability insurance coverage
maintained by companies comparable to TeraComm.
4.12 Publicity. Except as may be required by law, TeraComm shall not
use the name of, or make reference to, Atlantic or any of its Affiliates in any
press release or in any public or private manner without Atlantic's prior
consent (which may be given, made conditional or withheld in Atlantic's sole
discretion).
4.13 Super-Majority Requirements. Until the earlier of (1) Atlantic
owning less than 20% of the capital stock of TeraComm (on a fully-diluted
basis), and (2) the second anniversary
17
of the date of this agreement, without the prior written consent of the holders
of a majority the Shares and Conversion Shares considered together TeraComm
shall not do any of the following or enter into a Contract to do any of the
following:
(1) engage in any merger or consolidation with or into any other entity, or
sell, lease or otherwise dispose of all or substantially all or any
significant portion of its assets (collectively, a "Sale Transaction"),
for a period of 18 months from the Closing (the "Lock-Up Period");
(2) engage in any Sale Transaction after the Lock-Up Period, unless
Atlantic's pro rata share of the proceeds from that Sale Transaction is
promptly distributed to it in cash;
(3) redeem, purchase, or otherwise acquire (or pay into or set aside for a
sinking fund for such purpose) any shares of its capital stock, except
for the repurchase of shares of its capital stock from employees,
officers, directors, consultants or other persons performing services
for TeraComm pursuant to agreements under which the issuing corporation
has the option to repurchase such shares at cost or at cost upon the
occurrence of certain events, such as the termination of employment, on
condition that the aggregate amount so paid to repurchase shares of
capital stock during any period of twelve consecutive months shall not
exceed $50,000;
(4) declare or pay any dividends (whether in cash, shares of stock or
otherwise) on, or make any other distribution in respect of its capital
stock;
(5) take any action (A) that would alter the powers, preferences or rights
of the Shares or (B) to create any new class or series of stock having
a preference over or being on a parity with the Shares with respect to
dividends, redemption, voting, liquidation or otherwise;
(6) engage in any transaction, pay any fee or other remuneration, or enter
into, amend, modify or otherwise alter any Contract with any of its
directors, officers or stockholders or any Affiliate, other than as
required by the Transaction Documents to which it is party;
(7) amend the Restated Certificate of Incorporation or its by-laws;
(8) organize any Subsidiaries;
(9) engage in any business other than development of high-speed fiber optic
communications technologies and other lines of business related thereto
or move or attempt to move substantially all of its assets outside of
the United States of America; or
(10) agree to do any of the foregoing.
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ARTICLE 5
SURVIVAL; INDEMNIFICATION
5.1 Survival of Representations. All representations contained in the
Transaction Documents survive for 24 months following the date of this
agreement, except that the representations made by TeraComm in Section 2.14 will
survive until the applicable statute of limitations has expired.
5.2 Indemnification of Atlantic. TeraComm hereby indemnifies Atlantic
and each officer, director, employee, agent, stockholder and Affiliate of
Atlantic from and against, and shall pay or reimburse each of them for, any and
all claims, losses, fines, costs, damages or other liabilities, including
without limitation reasonable out-of-pocket expenses and reasonable attorneys'
and accountants' fees (collectively, "Losses"), arising out of breach by
TeraComm of any of its obligations under any Transaction Document to which it is
party or any inaccuracy in any representation by TeraComm in any of the
Transaction Documents to which it is party.
5.3 Indemnification of TeraComm. Atlantic hereby indemnifies TeraComm
and each officer, director, employee, agent, stockholder and Affiliate of
TeraComm from and against, and shall pay or reimburse each of them for, any and
all Losses arising out of breach by Atlantic of any of its obligations under any
Transaction Document to which it is party or any inaccuracy in any
representation by Atlantic in any of the Transaction Documents to which it is
party.
5.4 Indemnification Procedures. (a) In order to be entitled to
indemnification under this Article 5 in connection with a claim made by any
Person against any Person entitled to indemnification pursuant to this Article 5
(an "Indemnified Party"; any such claim, a "Third Party Claim"), that
Indemnified Party must do the following:
(1) notify the Person or Persons obligated to indemnify it (the
"Indemnifying Party") in writing, and in reasonable detail, of that
Third Party Claim promptly but in any event within 10 business days
after receipt of notice of that Third Party Claim, except that any
failure to give any such notification will only affect the Indemnifying
Party's obligation to indemnify the Indemnified Party if the
Indemnifying Party has been prejudiced as a result of that failure; and
(2) deliver to the Indemnifying Party promptly but in any event within 10
business days after the Indemnified Party receives them a copy of all
notices and documents (including court papers) delivered to that
Indemnified Party relating to that Third Party Claim.
(b) No Indemnified Party will be entitled to indemnification
under this Article 5 in connection with any Third Party Claim that it notifies
the Indemnifying Party of more than two years after the date of this agreement.
(c) In the event of a Third Party Claim against one or more
Indemnified Parties, the Indemnifying Party will be entitled to participate in
the defense of that Third Party Claim and, if they so choose, to assume at their
expense the defense of that Third Party Claim with counsel selected by the
Indemnifying Party and reasonably satisfactory to the Indemnified Party. If the
Indemnifying Party so elects to assume the defense of a Third Party Claim, the
Indemnifying Party will not be liable to the Indemnified Party for any legal
expenses
19
subsequently incurred by the Indemnified Party in connection with the defense of
that Third Party Claim, except that if, under applicable standards of
professional conduct, there exists a conflict on any significant issue between
the Indemnified Party and the Indemnifying Party in connection with that Third
Party Claim, the Indemnifying Party shall pay the reasonable fees and expenses
of one additional counsel to act with respect to that issue to the extent
necessary to resolve that conflict. If the Indemnifying Party assumes defense of
any Third Party Claim, the Indemnified Party will be entitled to participate in
the defense of that Third Party Claim and to employ counsel, at its own expense,
separate from counsel employed by the Indemnifying Party, it being understood
that the Indemnifying Party will be entitled to control that defense. The
Indemnifying Party will be liable for the fees and expenses of counsel employed
by the Indemnified Party for any period during which the Indemnifying Party did
not assume the defense of any Third Party Claim (other than during any period in
which the Indemnified Party failed to give notice of the Third Party Claim as
provided above and a reasonable period after such notice). If the Indemnifying
Party chooses to defend or prosecute a Third Party Claim, all the parties shall
cooperate in the defense or prosecution of that Third Party Claim, including by
retaining and providing to the Indemnifying Party records and information
reasonably relevant to that Third Party Claim, and making employees available on
a reasonably convenient basis. If the Indemnifying Party chooses to defend or
prosecute any Third Party Claim, the Indemnified Party will agree to any
settlement, compromise or discharge of that Third Party Claim that the
Indemnifying Party recommends and that by its terms obligates the Indemnifying
Party to pay the full amount of liability in connection with that Third Party
Claim, except that the Indemnifying Party may not without the Indemnified
Party's prior written consent agree to entry of any judgment or enter into any
settlement that provides for injunctive or other nonmonetary relief affecting
the Indemnified Party or that does not include as an unconditional term that
each claimant or plaintiff give to the Indemnified Party a release from all
liability with respect to that Third Party Claim. Whether or not the
Indemnifying Party has assumed the defense of a Third Party Claim, the
Indemnified Party shall not admit any liability with respect to, or settle,
compromise or discharge, that Third Party Claim without the Indemnifying Party's
prior written consent.
(d) In order for one or more Indemnified Parties to be entitled
to any indemnification under this agreement in respect of a claim that does not
involve a Third Party Claim (a "Claim"), the Indemnified Party must reasonably
promptly notify the Indemnifying Party of that Claim, and describe in reasonable
detail the basis for that Claim, except that any failure to give any such
notification will only affect the Indemnifying Party's obligation to indemnify
the Indemnified Party if the Indemnifying Party has been prejudiced as a result
of that failure. No Indemnified Party will be entitled to indemnification under
this Article 5 in connection with any Claim if it notifies the Indemnifying
Party of that Claim more than two years after the date of this agreement. If the
Indemnifying Party does not dispute that the Indemnified Party is entitled to
indemnification with respect to that Claim by notice to the Indemnified Party
prior to the expiration of a 30-calendar-day period following receipt by the
Indemnifying Party of notice from the Indemnified Party of that Claim, that
Claim will be conclusively deemed a liability of the Indemnifying Party and the
Indemnifying Party shall pay the amount of that liability to the Indemnified
Party on demand or, in the case of any notice in which the amount of the Claim
(or any portion thereof) is estimated, on such later date as the amount of the
Claim (or any portion thereof) becomes finally determined. If the Indemnifying
Party has timely disputed their liability with respect to the Claim, the
Indemnifying Party and the
20
Indemnified Party shall proceed in good faith to negotiate a resolution of the
Claim and, if the Claim is not resolved through negotiations, the Indemnified
Party may pursue such remedies as may be available to enforce their rights to
indemnification under this agreement.
5.5 Limitation on Indemnification. (a) Each Indemnifying Party's
exclusive remedy with respect to any claims of that Indemnifying Party under
this Agreement will be pursuant to the indemnification provisions of this
Article 5.
(b) Neither Indemnifying Party will be liable for any obligations
under this Article 5 until the aggregate of any amounts it is required to pay to
any Indemnified Party under this Article 5 (the "Aggregate Indemnification
Amount") exceeds $50,000, after which it will be obligated to pay the total
Aggregate Indemnification Amount.
(c) Once the Aggregate Indemnification Amount of either
Indemnifying Party exceeds $6,795,000, that Indemnifying Party will not be
required to pay any Indemnified Party any additional amounts pursuant to this
Article 5.
ARTICLE 6
DELIVERIES
6.1 Deliveries to Atlantic. The obligation of Atlantic to purchase the
Shares is subject to each of the following being delivered to Atlantic
concurrently with execution and deliver of this agreement:
(1) a fully-executed copy of a stockholders agreement between Atlantic and
all holders of shares TeraComm Common Stock in the form attached as
Exhibit B (the "Stockholders Agreement");
(2) a fully-executed copy of a registration rights agreement between
Atlantic and TeraComm with respect to the Shares in the form attached
as Exhibit C (the "Atlantic Registration Rights Agreement");
(3) a fully-executed copy of a registration rights agreement between
Atlantic and TeraComm with respect to the Purchase Price Shares and the
shares of Atlantic common stock underlying the Purchase Price Warrant
in the form attached as Exhibit D (the "TeraComm Registration Rights
Agreement");
(4) a stock certificate representing the Initial Shares;
(5) an officer's certificate of TeraComm certifying as to the following:
(A) the accuracy of (i) resolutions or similar documents evidencing
that TeraComm's board of directors has approved the Transaction
Documents and the transactions contemplated thereby, and (ii)
the Amended and Restated Certificate of Incorporation and
TeraComm's by-laws, a copy of each of which documents is
attached thereto; and
21
(B) the incumbency and specimen signature of each authorized officer
of TeraComm signing a Transaction Document;
(6) an investment representation letter by each holder of TeraComm common
stock in the form attached as Exhibit E; and
(7) a fully-executed copy of an employment agreement between TeraComm and
each of Kenneth A. Puzey and Thomas Ferrence in the form attached as
Exhibit F-1 and Exhibit F-2 (the "Employment Agreements").
6.2 Deliveries to TeraComm. The obligation of TeraComm to issue the
Shares to Atlantic is subject to each of the following being delivered to
TeraComm concurrently with execution and deliver of this agreement:
(1) a fully-executed copy of the Stockholders Agreement;
(2) a fully-executed copy of the Atlantic Registration Rights Agreement;
(3) a fully-executed copy of the TeraComm Registration Rights Agreement;
(4) an officer's certificate of Atlantic certifying as to the following:
(A) the accuracy of resolutions or similar documents evidencing that
Atlantic's board of directors has approved the Transaction
Documents and the transactions contemplated thereby, a copy of
which documents is attached thereto; and
(B) the incumbency and specimen signature of each authorized officer
of Atlantic signing a Transaction Document;
(5) a fully-executed copy of each Employment Agreement;
(6) a stock certificate representing the Purchase Price Shares; and
(7) the Warrant.
ARTICLE 7
DEFINITIONS
When used in this agreement, the following terms have the following
meanings:
"Affiliate" means, with respect to any given Person, (1) any other
Person at the time directly or indirectly controlling, controlled by or under
common control with that Person, (2) any other Person of which that Person at
the time owns or has the right to acquire, directly or indirectly, 10% or more
on a consolidated basis of any class of the capital stock or other ownership
interest, (3) any other Person which at the time owns or has the right to
acquire, directly or indirectly, 10% or more of any class of the capital stock
or other ownership interest of that Person, or (4) any director, officer or
employee of that Person.
22
"Atlantic's Knowledge" means the actual knowledge after due inquiry of
A. Joseph Rudick and Frederic P. Zotos.
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting securities, by contract or otherwise.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor law, and regulations issued by the IRS pursuant thereto.
"Consent" means any approval, consent, ratification, filing,
declaration, registration, waiver, or other authorization (including any
Permit).
"Contract" means any oral or written agreement, contract, obligation,
promise, arrangement, or undertaking that is legally binding.
"Environmental Claim" means any notice of violation, action, claim,
demand, abatement or other order by any Governmental Body or any other Person
for personal injury (including sickness, disease or death), tangible or
intangible property damage, damage to the environment, nuisance, pollution,
contamination or other adverse effects an the environment, or for fines,
penalties or restrictions resulting from or based upon the following:
(1) the existence, or the continuation of the existence, of a Release
(including, without limitation, sudden or non-sudden accidental or
non-accidental Releases) of, or exposure to, any Hazardous Material in,
into or onto the environment (including, without limitation, the air,
soil, surface water or groundwater) at, in, by, from or related to any
property owned, operated or leased by TeraComm or any activities or
operations thereof;
(2) the transportation, storage, treatment or disposal of Hazardous
Materials in connection with any property owned, operated or leased by
the seller or its operations or facilities; or
(3) the violation, or alleged violation, of any Environmental Law or Order
of any Governmental Body relating to environmental matters connected
with any property owned, leased or operated by TeraComm.
"Environmental Law" means any Law relating to the environment, natural
resources, or public or employee health and safety, and includes the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C.ss.9601 et seq., the Hazardous Materials Transportation Act, 49
U.S.C.ss.1801 et seq., the Resource Conservation and Recovery Act, 42
U.S.C.ss.6901 et seq., the Clean Water Act, 33 U.S.C.ss.1251 et seq., the Clean
Air Act, 33 U.S.C.ss.2601 et seq., the Toxic Substances Control Act, 15
U.S.C.ss.2601 et seq., the Oil Pollution Act of 1990, 33 U.S.C.ss.2701 et seq.,
and the Occupational Safety and Health Act, 29 U.S.C.ss.651 et seq.
"ERISA" means the Employee Retirement Income Security Act of 1974 or
any successor law, and regulations and rules issued pursuant thereto.
23
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor law, and any rules or regulations issued pursuant thereto.
"GAAP" means generally accepted United States accounting principles.
"Governmental Body" means any (1) nation, state, county, city, town,
village, district, or other jurisdiction of any nature, (2) federal, state,
local, municipal, foreign, or other government, (3) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal,
including an arbitral tribunal), (4) multi-national organization or body, or (5)
body exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police, regulatory, or taxing authority or power of any
nature.
"Hazardous Material" means any substance, material or waste which is
regulated under Environmental Law, including, without limitation, any material,
substance or waste that is defined as a "hazardous waste," "hazardous material,"
or "hazardous substance" under any provision of Environmental Law.
"Intellectual Property Assets" means with respect to any Person the
worldwide industrial and intellectual property rights of that Person, including
without limitation patents, patent applications, patent rights, trademarks,
trademark applications, trademark rights, service marks, service mark
applications, service mark rights, copyrights, copyright applications, trade
names, unfair competition rights, franchises, licenses, know-how, trade secrets,
moral rights, rights of publicity, customer lists, proprietary information,
technologies, processes and formulae, all source and object code, algorithm,
architecture, structure, display screens, layouts, inventions, development
tools, and all documentation and media constituting, describing or relating to
the above, including, without limitation, manuals, memoranda and records in any
format, whether hard copy or machine-readable only.
"IRS" means the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"Law" means any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Lien" means any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"Material Adverse Effect" means, with respect to any Person, a material
adverse effect on the business, assets, properties, results of operations, or
condition (financial or otherwise) of that Person.
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court, arbitral
tribunal, administrative agency, or other Governmental Body.
24
"Ordinary Course of Business" means, with respect to an action taken by
a Person, that that action is (1) consistent with the past practices of that
Person and taken in the ordinary course of the normal day-to-day operations of
that Person, and (2) is not required to be authorized by the board of directors
of that Person (or by any Person or group of Persons exercising similar
authority).
"Permit" means any approval, consent, license, permit, waiver, or other
authorization issued, granted, given, or otherwise made available by or under
the authority of any Governmental Body or pursuant to any Law.
"Permitted Lien" means (1) any Lien for taxes that are not yet due, or
(2) any carrier's, warehouseman's, mechanic's, materialman's, repairman's,
landlord's, lessor's or similar statutory Lien incidental to the ordinary course
of business.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, Governmental
Body or other entity.
"Proceeding" means any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Body.
"Release" means any release, spill, emission, leaking, pumping,
pouring, dumping, emptying, injection, deposit, disposal, discharge, dispersal,
leaching, or migration on or into the indoor or outdoor environment or into or
out of any property.
"Remedial Action" means all actions, including, without limitation, any
capital expenditures, required by any Governmental Body to (1) clean up, remove,
treat, or in any other way address any Hazardous Material or other substance,
(2) prevent the Release or threat of Release, or minimize the further Release of
any Hazardous Material or other substance so it does not migrate or endanger or
threaten to endanger public health or welfare or the indoor or outdoor
environment, (3) perform pre-remedial studies and investigations or
post-remedial monitoring, or (4) bring facilities on any property owned,
operated or leased by TeraComm and the facilities located and operations
conducted thereon into compliance with all Environmental Laws.
"Representative" means with respect to a particular Person, any
director, officer, employee, agent, consultant, advisor, or other representative
of that Person, including legal counsel, accountants, and financial advisors.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor law, and rules or regulations issued pursuant thereto.
"Taxes" means all taxes, duties, assessments or governmental charges,
including income, gross receipts, windfall profits, value added, severance,
property, production, sales, use, license, excise, franchise, employment,
withholding or similar taxes, together with any interest, additions
25
or penalties with respect thereto and any interest in respect of such additions
or penalties, imposed by any Governmental Body having the power to tax.
"Tax Return" means any return (including any information return),
report, statement, schedule, notice, form, or other document or information
filed with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection,
or payment of any Tax or in connection with the administration, implementation,
or enforcement of or compliance with any Law relating to any Tax.
"TeraComm's Knowledge" means the actual knowledge after due inquiry of
Kenneth A. Puzey and Thomas G. Ference.
"Transaction Documents" means this agreement, the Registration Rights
Agreement, the Stockholders Agreement, the Warrant, the Employment Agreements
and the other documents to be executed and delivered by the parties as
contemplated under this agreement.
ARTICLE 8
MISCELLANEOUS
8.1 Governing Law. This agreement is governed by the laws of the State
of New York, without giving effect to principles of conflict of laws.
8.2 Jurisdiction; Service of Process. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, any of the
Transaction Documents may be brought against any of the parties in the courts of
the State of New York, County of New York, or, if it has or can acquire
jurisdiction, in the United States District Court for the Southern District of
New York, and each of the parties consents to the jurisdiction of those courts
(and of the appropriate appellate courts) in any such action or proceeding and
waives any objection to venue laid therein. Process in any such action or
proceeding may be served by sending or delivering a copy of the process to the
party to be served at the address and in the manner provided for the giving of
notices in Section 8.3. Nothing in this Section 8.2, however, affects the right
of any party to serve legal process in any other manner permitted by law.
8.3 Notices. Every notice or other communication required or
contemplated by this agreement must be in writing and sent by one of the
following methods: (1) personal delivery, in which case delivery is deemed to
occur the day of delivery; (2) certified or registered mail, postage prepaid,
return receipt requested, in which case delivery is deemed to occur the day it
is officially recorded by the U.S. Postal Service as delivered to the intended
recipient; or (3) next-day delivery to a U.S. address by recognized overnight
delivery service such as Federal Express, in which case delivery is deemed to
occur upon receipt. In each case, a notice or other communication sent to a
party must be directed to the address for that party set forth below, or to
another address designated by that party by written notice:
26
If to Atlantic, to:
Atlantic Technology Ventures, Inc.
150 Broadway
Suite 1009
New York, NY 10038
Attention: Frederic P. Zotos, President
with a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
Attention: Ezra G. Levin, Esq.
If to TeraComm, to:
TeraComm Research, Inc.
74 Ethan Allen Drive
Suite 103
South Burlington, VT 05403
Attention: Kenneth A. Puzey, President
with a copy to:
Ireland, Stapleton, Pryor & Pascoe, P.C.
1675 Broadway
Suite 2600
Denver, CO 80202
Attention: Jack Lewis, Esq.
8.4 Severability. If any provision of this agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this agreement will remain in full force and effect. Any provision of this
agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
8.5 Public Announcements. The parties shall cooperate with respect to
any public statement regarding the transactions contemplated by this agreement
or any of the other Transaction Documents.
8.6 Amendment. This agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
8.7 Entire Agreement. This agreement and the other Transaction
Documents, together with all exhibits and schedules hereto and thereto,
constitute the entire agreement among the parties pertaining to the subject
matter hereof and thereof supersede all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the parties.
27
8.8 Counterparts. This agreement may be executed in several
counterparts, each of which is an original and all of which together constitute
one and the same instrument.
8.9 No Third-Party Rights. Nothing expressed or referred to in this
agreement gives any Person other than the parties to this agreement any legal or
equitable right, remedy, or claim under or with respect to this agreement or any
provision of this agreement, and this agreement and all of its provisions are
for the sole and exclusive benefit of the parties to this agreement and their
successors and assigns.
8.10 Best Efforts. Upon the terms and subject to the conditions of this
agreement, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this agreement or
any of the other Transaction Documents as promptly as practicable.
The undersigned are executing this agreement on the date stated in the
introductory clause.
ATLANTIC TECHNOLOGY VENTURES, INC.
By:________________________________
A. Joseph Rudick
Chief Executive Officer
TERACOMM RESEARCH, INC.
By:________________________________
Kenneth A. Puzey
President
28
================================================================================
PREFERRED STOCK PURCHASE AGREEMENT
dated May __, 2000,
between
TERACOMM RESEARCH, INC.
and
ATLANTIC TECHNOLOGY VENTURES, INC.
================================================================================
29
TABLE OF CONTENTS
Page
----
ARTICLE 1 AUTHORIZATION AND SALE OF SHARES..................................1
1.1 Authorization..............................................1
1.2 Sale of Shares.............................................1
1.3 Dividend...................................................2
ARTICLE 2 representations concerning TeraComm...............................2
2.1 Organization and Good Standing.............................2
2.2 Authority..................................................2
2.3 Consents...................................................2
2.4 No Violations..............................................3
2.5 Capitalization.............................................3
2.6 Ownership Interests........................................4
2.7 Financial Statements.......................................4
2.8 Books and Records..........................................4
2.9 Real Property..............................................4
2.10 Title to Properties; Liens.................................4
2.11 Condition and Sufficiency of Assets........................4
2.12 Suppliers..................................................4
2.13 No Undisclosed Liabilities.................................5
2.14 Taxes......................................................5
2.15 Environmental Matters......................................6
2.16 Compliance With Laws; Permits..............................6
2.17 Proceedings; Orders........................................6
2.18 Absence of Certain Changes and Events......................6
2.19 Contracts..................................................7
2.20 ERISA and Employee Benefit Matters.........................8
2.21 Employees..................................................9
2.22 Deposit Accounts..........................................10
2.23 Intellectual Property Rights..............................10
2.24 Conduct of Business; Use of Name..........................12
2.25 Insurance.................................................12
2.26 Brokers Or Finders........................................12
2.27 Affiliate Transactions....................................12
2.28 Disclosure................................................12
ARTICLE 3 representations of Atlantic......................................12
3.1 Organization and Good Standing............................12
3.2 Authority.................................................13
3.3 Consents..................................................13
3.4 No Violations.............................................13
3.5 Capitalization............................................13
3.6 Filings With the SEC......................................14
3.7 Investment Representations................................14
3.8 Proceedings...............................................15
i
TABLE OF CONTENTS
Page
----
3.9 Brokers or Finders........................................15
ARTICLE 4 certain obligations of teracomm..................................15
4.1 Duration of Obligations...................................15
4.2 Accounts and Reports......................................15
4.3 Information and Inspection................................16
4.4 Payment of Taxes..........................................16
4.5 Corporate Existence.......................................17
4.6 Compliance with Laws......................................17
4.7 Insurance; Insurance Coverage Maintenance.................17
4.8 Regular Meetings of Directors.............................17
4.9 Restrictive Agreements Prohibited.........................17
4.10 By-Laws...................................................17
4.11 Directors' and Officers' Liability Insurance..............17
4.12 Publicity.................................................17
4.13 Super-Majority Requirements...............................18
ARTICLE 5 SURVIVAL; INDEMNIFICATION........................................19
5.1 Survival of Representations...............................19
5.2 Indemnification of Atlantic...............................19
5.3 Indemnification of TeraComm...............................19
5.4 Indemnification Procedures................................19
5.5 Limitation on Indemnification.............................21
ARTICLE 6 deliveries.......................................................21
6.1 Deliveries to Atlantic....................................21
6.2 Deliveries to TeraComm....................................22
ARTICLE 7 DEFINITIONS......................................................22
ARTICLE 8 MISCELLANEOUS....................................................26
8.1 Governing Law.............................................26
8.2 Jurisdiction; Service of Process..........................26
8.3 Notices...................................................26
8.4 Severability..............................................27
8.5 Public Announcements......................................27
8.6 Amendment.................................................27
8.7 Entire Agreement..........................................28
8.8 Counterparts..............................................28
8.9 No Third-Party Rights.....................................28
8.10 Best Efforts..............................................28
ii
INDEX OF DEFINED TERMS
Affiliate..........................................22 Lock-Up Period.....................................18
Aggregate Indemnification Amount...................21 Losses.............................................19
Atlantic............................................1 Material Adverse Effect............................24
Atlantic Preferred Stock...........................13 Order..............................................25
Atlantic Registration Rights Agreement.............21 Ordinary Course of Business........................25
Atlantic SEC Documents.............................14 Permit.............................................25
Atlantic's Knowledge...............................23 Permitted Lien.....................................25
Balance Sheet.......................................4 Person.............................................25
Claim..............................................20 Proceeding.........................................25
Code...............................................23 Purchase Price......................................1
Consent............................................23 Purchase Price Shares...............................1
Contract...........................................23 Purchase Price Warrant..............................1
control............................................23 Release............................................25
Conversion Shares...................................3 Remedial Action....................................25
Employee Benefit Plan...............................8 Representative.....................................25
Employment Agreements..............................22 Restated Certificate of Incorporation...............1
Environmental Claim................................23 Sale Transaction...................................18
Environmental Law..................................23 SEC................................................25
ERISA..............................................24 Securities Act.....................................26
ERISA Affiliate.....................................9 Shares..............................................1
Exchange Act.......................................24 Stockholders Agreement.............................21
GAAP...............................................24 Subsequent Payment..................................1
Governmental Body..................................24 Tax Return.........................................26
Hazardous Material.................................24 Taxes..............................................26
Indemnified Party..................................19 TeraComm............................................1
Indemnifying Party.................................19 TeraComm Common Stock...............................3
Intellectual Property Assets.......................24 TeraComm Preferred Stock............................1
Interim Balance Sheet...............................4 TeraComm Registration Rights Agreement.............21
Interim Financial Statements........................4 TeraComm's Knowledge...............................26
IRS................................................24 Third Party Claim..................................19
Law................................................24 Transaction Documents..............................26
Lien...............................................24