EXHIBIT 10.2
CREDIT TECHNOLOGIES, INC.
Subordinated Note and Warrant Purchase Agreement
Dated as of August 29, 1994
CREDIT TECHNOLOGIES , INC.
Subordinated Note and Warrant Purchase Agreement
Dated as of August 29, 1994
INDEX
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Page
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ARTICLE I
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Purchase, Sale and Terms of Notes and Warrants
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1.01 The Notes........................................................ 1
1.02 The Warrants..................................................... 1
1.03 Purchase and Sale of Notes and Warrants.......................... 1
(a) The Closing................................................. 1
(b) Use of Proceeds............................................. 2
1.04 Payments and Endorsements........................................ 2
1.05 Redemptions...................................................... 3
(a) Required Redemptions........................................ 3
(b) Optional Redemptions With Premium........................... 3
(c) Notice of Redemptions; Pro rata Redemptions................. 3
1.06 Payment on Non-Business Days..................................... 3
1.07 Registration, etc................................................ 4
1.08 Transfer and Exchange of Notes................................... 4
1.09 Replacement of Notes............................................. 4
1.10 Subordination.................................................... 5
(a) Payment of Senior Debt...................................... 5
(b) No Payment on Notes Under Certain Conditions................ 6
(c) Payments Held in Trust...................................... 6
(d) Subrogation................................................. 6
(e) Scope of Section............................................ 7
(f) Survival of Rights.......................................... 7
(g) Amendment or Waiver......................................... 7
(h) Senior Debt Defined......................................... 8
1.11 Representations by the Purchasers; Legend........................ 8
(a) Representations by the Purchasers........................... 8
(b) Legend...................................................... 9
1.12 Disclosure of Information by MCRC................................ 9
ARTICLE II
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Conditions to Purchasers' Obligation
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2.01 Representations and Warranties.................................. 10
2.02 Documentation at Closing........................................ 10
2.03 Other Transactions.............................................. 11
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ARTICLE III
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Representations and Warranties
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3.01 Organization and Standing of the Company................................................................. 12
3.02 Corporate Action......................................................................................... 12
3.03 Governmental Approvals................................................................................... 12
3.04 Litigation............................................................................................... 13
3.05 Compliance with Other Instruments........................................................................ 13
3.06 Federal Reserve Regulations.............................................................................. 14
3.07 Title to Assets, Patents................................................................................. 14
3.08 Financial Information.................................................................................... 14
3.09 Taxes.................................................................................................... 15
3.10 ERISA.................................................................................................... 15
3.11 Transactions with Affiliates............................................................................. 15
3.12 Assumptions or Guaranties of Indebtedness of Other Persons............................................... 15
3.13 Investments in Other Persons............................................................................. 16
3.14 Equal Employment Opportunity............................................................................. 16
3.15 Status of Notes and Warrants as Qualified Investments.................................................... 16
3.16 Securities Act........................................................................................... 17
3.17 Disclosure............................................................................................... 17
3.18 No Brokers or Finders.................................................................................... 17
3.19 Other Agreements of Officers............................................................................. 17
3.20 Capitalization; Status of Capital Stock.................................................................. 18
3.21 Labor Relations.......................................................................................... 18
3.22 Insurance................................................................................................ 19
3.23 Key Man Insurance........................................................................................ 19
3.24 Books and Records........................................................................................ 19
3.25 Foreign Corrupt Practices Act............................................................................ 19
3.26 Registration Rights...................................................................................... 19
ARTICLE IV
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Covenants of the Company
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4.01 Affirmative Covenants of the Company Other Than Reporting Requirements................................... 19
(a) Punctual Payment.................................................................................... 19
(b) Payment of Taxes and Trade Debt..................................................................... 20
(c) Maintenance of Insurance............................................................................ 20
(d) Preservation of Corporate Existence................................................................. 20
(e) Compliance with Laws................................................................................ 20
(f) Visitation Rights................................................................................... 21
(g) Keeping of Records and Books of Account............................................................. 21
(h) Maintenance of Properties, etc...................................................................... 21
(i) Compliance with ERISA............................................................................... 21
(j) Maintenance of Debt to Equity Ratio................................................................. 21
(k) Interest Coverage................................................................................... 21
(l) Foreign Corrupt Practices Act....................................................................... 22
(m) Equal Employment Opportunity........................................................................ 22
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(n) Status of Notes and Warrants as Qualified Investments............................................... 22
(o) Key Man Life Insurance.............................................................................. 22
(p) Attendance at Board Meetings........................................................................ 23
(q) Compensation........................................................................................ 23
4.02 Negative Covenants of the Company........................................................................ 23
(a) Liens............................................................................................... 23
(b) Indebtedness........................................................................................ 24
(c) Lease Obligations................................................................................... 25
(d) Assumptions or Guaranties of Indebtedness of Other Persons.......................................... 25
(e) Mergers, Sale of Assets, etc........................................................................ 25
(f) Investments in Other Persons........................................................................ 26
(g) Distributions....................................................................................... 26
(h) Dealings with Affiliates............................................................................ 27
(i) Maintenance of Ownership of Subsidiaries............................................................ 27
(j) Change in Nature of Business........................................................................ 28
4.03 Reporting Requirements................................................................................... 28
4.04 Termination of Certain Covenants of the Company.......................................................... 30
ARTICLE V
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Events of Default
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5.01 Events of Default........................................................................................ 30
5.02 Annulment of Defaults.................................................................................... 32
ARTICLE VI
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Definitions and Accounting Terms
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6.01 Certain Defined Terms.................................................................................... 32
6.02 Accounting Terms......................................................................................... 35
ARTICLE VII
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Miscellaneous
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7.01 No Waiver; Cumulative Remedies........................................................................... 36
7.02 Amendments, Waivers and Consents......................................................................... 36
7.03 Addresses for Notices, etc............................................................................... 36
7.04 Costs, Expenses and Taxes................................................................................ 37
7.05 Binding Effect; Assignment............................................................................... 38
7.06 Survival of Representations and Warranties............................................................... 38
7.07 Prior Agreements......................................................................................... 38
7.08 Severability............................................................................................. 38
7.09 Governing Law............................................................................................ 38
7.10 Headings................................................................................................. 38
7.11 Sealed Instrument........................................................................................ 38
7.12 Counterparts............................................................................................. 38
7.13 Further Assurances....................................................................................... 38
7.14 Acknowledgment........................................................................................... 38
SCHEDULE
Schedule of Purchasers
EXHIBITS
1.01 Form of Subordinated Notes
1.02 Form of Common Stock Purchase Warrants
2.02(b) Matters to be Covered by Opinion Letter
2.03(a) Form of Amendment No.3 to Registration Rights Agreement
3.04 Schedule of Litigation
3.05 Schedule of Indebtedness
3.07 Schedule of Mortgages, Pledges, etc.
3.08 Financial Statements
3.11 Schedule of Transactions with Affiliates
3.13 Schedule of Investments in Other Persons
3.15 Certificate re "Qualified Investments"
3.20 Schedule of Capital Stock, Options and Other Rights
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CREDIT TECHNOLOGIES, INC.
281 Winter Street
Waltham, Massachusetts 02154
As of August 29, 1994
To the Persons Listed in the Schedule of
Purchasers Attached Hereto
Re: Subordinated Notes due 2001 and
Common Stock Purchase Warrants
Gentlemen:
Credit Technologies, Inc., a Delaware corporation (the "Company"), hereby
agrees with each person listed in the Schedule of Purchasers attached hereto
(individually a "Purchaser" and collectively the "Purchasers") as follows:
ARTICLE I
PURCHASE, SALE AND TERMS OF NOTES AND WARRANTS
1.01 The Notes. The Company has authorized the issuance and sale to the
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Purchasers, in the respective amounts set forth in the Schedule of Purchasers
attached hereto, of the Company's Subordinated Notes, due June 30, 2001, in the
original aggregate principal amount of $2,100,000. The Subordinated Notes shall
be substantially in the form set forth in Exhibit 1.01 hereto and are herein
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referred to individually as a "Note" and collectively as the "Notes", which
terms shall also include any notes delivered in exchange or replacement
therefor.
1.02 The Warrants. The Company has also authorized the issuance and sale
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to the Purchasers, in the respective amounts set forth in the Schedule of
Purchasers attached hereto, of the Company's Common Stock Purchase Warrants for
the purchase (subject to adjustment as provided therein) of an aggregate of
262,500 shares of the Company's Common Stock. The Common Stock Purchase
Warrants shall be substantially in the form set forth in Exhibit 1.02 hereto and
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are herein referred to individually as a "Warrant" and collectively as the
"Warrants", which terms shall also include any warrants delivered in exchange or
replacement therefor.
1.03 Purchase and Sale of Notes and Warrants.
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(a) The Closing. The Company agrees to issue and sell to the
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Purchasers, and, subject to and in reliance upon the representations,
warranties, terms and conditions of this Agreement, the Purchasers agree to
purchase, the Notes and the
Warrants set forth opposite their respective names in the Schedule of Purchasers
attached hereto for the aggregate purchase price set forth therein. Such
purchase and sale shall take place at a closing (the "Closing") to be held at
the office of Messrs. Testa, Hurwitz & Thibeault, Exchange Place, 53 State
Street, Boston, Massachusetts, on August 29, 1994 at 2:00 P.M., or on such other
date and at such time as may be mutually agreed upon. At the Closing, the
Company will issue and deliver to each Purchaser (i) one Note, payable to the
order of such Purchaser, in the principal amount of set forth opposite such
Purchaser's name in the Schedule of Purchasers attached hereto, and (ii) one
Warrant, registered in the name of such Purchaser, exercisable for that number
of shares of Common Stock which is set forth opposite such Purchaser's name in
the Schedule of Purchasers attached hereto, against delivery of a check or a
receipt of a wire transfer in payment of the purchase price for the Notes and
Warrants to be purchased by such Purchaser.
(b) Allocation of Purchase Price. The Company and the Purchasers,
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having adverse interests and as a result of arm's length bargaining, agree that
(i) none of the Purchasers or any of their partners has rendered or has agreed
to render any services to the Company in connection with this Agreement or the
issuance of the Notes and Warrants; (ii) the Warrants are not being issued as
compensation; and (iii) for the purpose, and within the meaning, of Section
1273(c)(2) of the Internal Revenue Code of 1986, as amended, the issue price of
the Warrants is $21,000 and the issue price of the Notes is $2,079,000. The
Company and the Purchasers acknowledge that this allocation is based on the
relative fair market values of the Notes and Warrants. The Company and the
Purchasers recognize that this Agreement determines the original issue discount
to be taken into account by the Company and the Purchaser for federal income tax
purposes on the Notes and they agree to adhere to this Agreement for such
purposes.
(c) Use of Proceeds. The Company agrees to use the full proceeds from
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the sale of the Notes and Warrants solely for working capital and agrees that
full proceeds from the sale of the Notes and Warrants will be utilized for
purposes which increase or maintain equal opportunity employment in the
Commonwealth of Massachusetts.
1.04 Payments and Endorsements. Payments of principal, interest and
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premium, if any, on the Notes, shall be made directly by check duly mailed or
delivered to each Purchaser at its address referred to in Section 7.03 hereof,
without any presentment or notation of payment, except that prior to any
transfer of any Note, the holder of record shall endorse on such Note a record
of the date to which interest has been paid and all payments made on account of
principal of such Note.
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1.05 Redemptions.
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(a) Required Redemptions. Beginning on and with September 30, 1997,
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and on the last day of December, March, June and September in each year
thereafter through and including June 30, 2001, the Company will redeem, without
premium, $131,250 in principal amount of the Notes, or such lesser amount as may
be then outstanding, together with all accrued and unpaid interest then due on
the amount so redeemed. On the stated or accelerated maturity of the Notes, the
Company will pay the principal amount of the Notes then outstanding together
with all accrued and unpaid interest then due thereon. No optional redemption
of less than all of the Notes shall affect the obligation of the Company to make
the redemptions required by this subsection.
(b) Optional Redemptions With Premium. Except as provided in
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subsection 1.05(a), the Company may at any time redeem the Notes in whole or in
part (in integral multiples of $10,000) together with interest due on the amount
so redeemed through the date of redemption, and a premium equal to the
percentage of the principal amount of the Notes redeemed under this subsection
applicable to the period in which such redemption is made, as follows:
Period
Starting - Ending Premium
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Date of Agreement - June 30, 1996 8%
July 1, 1996 - June 30, 1998 6%
July 1, 1998 - June 30, 2000 4%
July 1, 2000 and thereafter 2%
provided that no premium shall be due in connection with any surrender to the
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Company of any Notes in payment of all or part of the exercise price due upon
exercise of any Warrants.
(c) Notice of Redemptions; Pro rata Redemptions. Notice of any
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optional redemptions pursuant to Subsection 1.05(b) shall be given to all
registered holders of the Notes at least ten (10) business days prior to the
date of such redemption. Each redemption of Notes pursuant to subsections
1.05(a) or (b) shall be made so that the Notes then held by each holder shall be
redeemed in a principal amount which shall bear the same ratio to the total
principal amount of Notes being redeemed as the principal amount of Notes then
held by such holder bears to the aggregate principal amount of the Notes then
outstanding.
1.06 Payment on Non-Business Days. Whenever any payment to be made shall
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be due on a Saturday, Sunday or a public holiday under the laws of the
Commonwealth of Massachusetts, such payment may be made on the next succeeding
business day, and such
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extension of time shall in such case be included in the computation of payment
of interest due.
1.07 Registration, etc. The Company shall maintain at its principal office
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a register of the Notes and shall record therein the names and addresses of the
registered holders of the Notes, the address to which notices are to be sent and
the address to which payments are to be made as designated by the registered
holder if other than the address of the holder, and the particulars of all
transfers, exchanges and replacements of Notes. No transfer of a Note shall be
valid unless made on such register for the registered holder or his executors or
administrators or his or their duly appointed attorney, upon surrender therefor
for exchange as hereinafter provided, accompanied by an instrument in writing,
in form and execution reasonably satisfactory to the Company. Each Note issued
hereunder, whether originally or upon transfer, exchange or replacement of a
Note or Notes, shall be registered on the date of execution thereof by the
Company and shall be dated the date to which interest has been paid on such
Notes or Note. The registered holder of a Note shall be that Person in whose
name the Note has been so registered by the Company. A registered holder shall
be deemed the owner of a Note for all purposes of this Agreement and, subject to
the provisions hereof, shall be entitled to the principal, premium, if any, and
interest evidenced by such Note free from all equities or rights of setoff or
counterclaim between the Company and the transferor of such registered holder or
any previous registered holder of such Note.
1.08 Transfer and Exchange of Notes. Subject to compliance with federal
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and applicable state securities laws, the registered holder of any Note or Notes
may, prior to maturity or prepayment thereof, surrender such Note or Notes at
the principal office of the Company for transfer or exchange. within a
reasonable time after notice to the Company from a registered holder of its
intention to make such exchange and without expense (other than transfer taxes,
if any) to such registered holder, the Company shall issue in exchange therefor
another Note or Notes, in such denominations as requested by the registered
holder, for the same aggregate principal amount as the unpaid principal amount
of the Note or Notes so surrendered and having the same maturity and rate of
interest, containing the same provisions and subject to the same terms and
conditions as the Note or Notes so surrendered. Each new Note shall be made
payable to such Person or Persons, or registered assigns, as the registered
holder of such surrendered Note or Notes may designate, and such transfer or
exchange shall be made in such a manner that no gain or loss of principal or
interest shall result therefrom.
1.09 Replacement of Notes. Upon receipt of evidence satisfactory to the
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Company of the loss, theft, destruction or mutilation of any Note and, if
requested in the case of any such
4
loss, theft or destruction, upon delivery of an indemnity bond or other
agreement or security reasonably satisfactory to the Company, or, in the case of
any such mutilation, upon surrender and cancellation of such Note, the Company
will issue a new Note, of like tenor and amount and dated the date to which
interest has been paid, in lieu of such lost, stolen, destroyed or mutilated
Note; provided, however, if any Note of which Massachusetts Capital Resource
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Company, its nominee, or any of its partners is the registered holder is lost,
stolen or destroyed, the affidavit of the President, Treasurer or any Assistant
Treasurer of the registered holder setting forth the circumstances with respect
to such loss, theft or destruction shall be accepted as satisfactory evidence
thereof, and no indemnification bond or other security shall be required as a
condition to the execution and delivery by the Company of a new Note in
replacement of such lost, stolen or destroyed Note other than the registered
holder's written agreement to indemnify the Company.
1.10 Subordination. The Company, for itself, its successors and assigns,
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covenants and agrees, and each Purchaser and each successor holder of the Notes
by his or its acceptance thereof, likewise covenants and agrees, that
notwithstanding any other provision of this Agreement or the Notes, the payment
of the principal of and interest on each and all of the Notes shall be
subordinated in right of payment, to the extent and in the manner hereinafter
set forth, to the prior payment in full of all Senior Debt (as hereinafter
defined) at any time outstanding. The provisions of this Section 1.10 shall
constitute a continuing representation to all Persons who, in reliance upon such
provisions, become the holders of or continue to hold Senior Debt, and such
provisions are made for the benefit of the holders of Senior Debt, and such
holders are hereby made obligees hereunder the same as if their names were
written herein as such, and they or any of them may proceed to enforce such
provisions against the Company or against the holder of any Note without the
necessity of joining the Company as a party.
(a) Payment of Senior Debt. In the event of any insolvency or
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bankruptcy proceedings, or any receivership, liquidation, reorganization or
other similar proceedings 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 or distribution or marshaling of
its assets or any composition with creditors of the Company, whether or not
involving insolvency or bankruptcy, then and in any such event all Senior Debt
shall be paid in full before any payment or distribution of any character,
whether in cash, securities or other property, shall be made on account of the
Notes; and any such payment or distribution, except securities which are
subordinated and junior in right of payment to the payment of all Senior Debt
then outstanding in terms of substantially the same tenor as this Section 1.10,
which would,
5
but for the provisions hereof, be payable or deliverable in respect of the Notes
shall be paid or delivered directly to the holders of Senior Debt (or their duly
authorized representatives), in the proportions in which they hold the same,
until all Senior Debt shall have been paid in full, and every holder of the
Notes by becoming a holder thereof shall have designated and appointed the
holder or holders of Senior Debt (and their duly authorized representatives) as
his or its agents and attorney-in-fact to demand, sue for, collect and receive
such Senior Debt holder's ratable share of all such payments and distributions
and to file any necessary proof of claim therefor and to take all such other
action in the name of the holders of the Notes or otherwise, as such Senior Debt
holders (or their authorized representatives) may determine to be necessary or
appropriate for the enforcement of this Section 1.10. Each Purchaser and each
successor holder of the Notes by its or his acceptance thereof agrees to
execute, at the request of the Company, a separate agreement with any holder of
Senior Debt on the terms set forth in this Section 1.10, and to take all such
other action as such holder or such holder's representative may request in order
to enable such holder to enforce all claims upon or in respect of such holder's
ratable share of the Notes.
(b) No Payment on Notes Under Certain Conditions. In the event that
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any default occurs in the payment of the principal of or interest on any Senior
Debt (whether as a result of the acceleration thereof by the holders of such
Senior Debt or otherwise) and during the continuance of such default for a
period up to ninety (90) days and thereafter if judicial proceedings shall have
been instituted with respect to such defaulted payment, or (if a shorter period)
until such payment has been made or such default has been cured or waived in
writing by such holder of Senior Debt then and during the continuance of such
event no payment of principal or interest on the Notes shall be made by the
Company or accepted by any holder of the Notes who has received notice from the
Company or from a holder of Senior Debt of such events.
(c) Payments Held in Trust. In case any payment or distribution shall
----------------------
be paid or delivered to any holder of the Notes before all Senior Debt shall
have been paid in full, despite or in violation or contravention of the terms of
this subordination, such payment or distribution shall be held in trust for and
paid and delivered ratably to the holders of Senior Debt (or their duly
authorized representatives), until all Senior Debt shall have been paid in full.
(d) Subrogation. Subject to the payment in full of all Senior Debt
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and until the Notes shall be paid in full, the holders of the Notes shall be
subrogated to the rights of the holders of Senior Debt (to the extent of
payments or distributions previously made to such holders of Senior Debt
pursuant to the provisions of
6
subsections (a) and (c) of this Section 1.10) to receive payments or
distributions of assets of the Company applicable to the Senior Debt. No such
payments or distributions applicable to the Senior Debt shall, as between the
Company and its creditors, other than the holders of Senior Debt and the holders
of the Notes, be deemed to be a payment by the Company to or on account of the
Notes; and for the purposes of such subrogation, no payments or distributions to
the holders of Senior Debt to which the holders of the Notes would be entitled
except for the provisions of this Section 1.10 shall, as between the Company and
its creditors, other than the holders of Senior Debt and the holders of the
Notes, be deemed to be a payment by the Company to or on account of the Senior
Debt.
(e) Scope of Section. The provisions of this Section 1.10 are
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intended solely for the purpose of defining the relative rights of the holders
of the Notes, on the one hand, and the holders of the Senior Debt, on the other
hand. Nothing contained in this Section 1.10 or elsewhere in this Agreement or
the Notes is intended to or shall impair, as between the Company, its creditors
other than the holders of Senior Debt, and the holders of the Notes, the
obligation of the Company, which is unconditional and absolute, to pay to the
holders of the Notes the principal of and interest on the Notes as and when the
same shall become due and payable in accordance with the terms thereof, or to
affect the relative rights of the holders of the Notes and creditors of the
Company other than the holders of the Senior Debt, nor shall anything herein or
therein prevent the holder of any Note from accepting any payment with respect
to such Note or exercising all remedies otherwise permitted by applicable law
upon default under such Note, subject to the rights, if any, under this Section
1.10 of the holders of Senior Debt in respect of cash, property or securities of
the Company received by the holders of the Notes.
(f) Survival of Rights. The right of any present or future holder of
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Senior Debt to enforce subordination of the Notes pursuant to the provisions of
this Section 1.10 shall not at any time be prejudiced or impaired by any act or
failure to act on the part of the Company or any such holder of Senior Debt,
including, without limitation, any forbearance, waiver, consent, compromise,
amendment, extension, renewal, or taking or release of security of or in respect
of any Senior Debt or by noncompliance by the Company with the terms of such
subordination regardless of any knowledge thereof such holder may have or
otherwise be charged with.
(g) Amendment or Waiver. The provisions of this Section 1.10 may not
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be amended or waived in any manner which is detrimental to any Senior Debt
without the consent of the holders of all then existing Senior Debt.
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(h) Senior Debt Defined. The term "Senior Debt" shall mean (i) all
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Indebtedness of the Company for money borrowed from banks or other institutional
lenders, including any extension or renewals thereof, whether outstanding on the
date hereof or thereafter created or incurred, which is not by its terms
subordinate and junior to or on a parity with the Notes and which is permitted
hereby at the time it is created or incurred, and (ii) all guaranties by the
Company which are not by their terms subordinate and junior to or on a parity
with the Notes and which are permitted hereby at the time they are made, of
Indebtedness of any Subsidiary if such Indebtedness would have been Senior Debt
pursuant to the provisions of clause (i) of this sentence had it been
Indebtedness of the Company. In making any loans which are (or the guaranties
of which are) intended to be Senior Debt, the lenders or purchasers shall be
entitled to rely as to the fact that such Indebtedness or guaranty is permitted
hereby upon a certificate by the Company's chief financial officer purporting to
show such Indebtedness or guaranty will not result in the Company's failure to
comply with the provisions of Article IV hereof as of the date of the loan or
guarantee.
1.11 Representations by the Purchasers; Legend.
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(a) Representations by the Purchasers. Each Purchaser (whether such
---------------------------------
Purchaser is a natural person, partnership, trust or employee benefit plan)
severally represents and warrants to the Company that:
(i) it was not organized for the specific purpose of acquiring
the Notes or Warrants and that it, and each person who made this investment
decision for the Purchaser, if such Purchaser is a trust or an employee
benefit plan, is an "accredited investor" within the meaning of Rule 501
under the Securities Act and;
(ii) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of
development so as to be able to evaluate the risks and merits of its
investment in the Company and it is able financially to bear the risks
thereof, including complete loss of its investment;
(iii) it has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management and it has
had the opportunity to ask questions and receive answers from officers and
representatives of the Company concerning the terms and conditions of the
transactions contemplated by this Agreement and obtain any additional
information which the Company possesses or can acquire without unreasonable
effort or expense that is necessary to verify the accuracy of information
regarding the Company set forth herein or
8
otherwise delivered to such Purchaser in connection with its purchase of
Notes and Warrants;
(iv) the Notes and Warrants being purchased by it are being
acquired for its own account for the purpose of investment and not with a
view to or for sale in connection with any distribution thereof; and
(v) it understands that (1) the Notes and Warrants and the
shares of Common Stock issuable upon exercise of the Warrants have not been
registered under the Securities Act by reason of their issuance in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the
Securities Act, (2) the Notes and Warrants and, upon exercise thereof, the
shares of Common Stock issued upon exercise of the Warrants must be held
indefinitely unless a subsequent disposition thereof is registered under
the Securities Act or is exempt from such registration, (3) the Notes and
Warrants and the shares of Common Stock issued upon exercise of the
Warrants will bear a legend to such effect and (4) the Company will make a
notation on its transfer books to such effect.
(b) Legend. The Notes, the Warrants and any certificates for shares
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of Common Stock issued upon exercise of the Warrants shall bear the following
legend or a legend substantially similar thereto:
"The securities represented hereby have not been registered under the
Securities Act of 1933. These securities have been acquired for investment
and not with a view to distribution or resale and may not be sold,
mortgaged, pledged, hypothecated or otherwise transferred without an
effective registration statement for such securities under the Securities
Act of 1933, or an opinion of counsel reasonably satisfactory to the
Company that registration is not required under such Act."
The Company hereby agrees that Messrs. Testa, Hurwitz & Thibeault shall be
deemed to be counsel reasonably satisfactory to the Company.
1.12 Disclosure of Information by MCRC. The Company understands that
---------------------------------
Massachusetts Capital Resource Company ("MCRC") is a special purpose limited
partnership organized under Chapter 109 of the General Laws of the Commonwealth
of Massachusetts and Chapter 816 of the Acts and Resolves of 1977 of the
Commonwealth of Massachusetts (the "Capital Resource Company Act"), and as such,
in accordance with such provisions, MCRC, in order to obtain certain benefits
for itself and its partners, is required to file
9
certain reports and otherwise disclose information relating to the business,
financial affairs, and future prospects of the Company and its affiliates (as
defined in the aforesaid legislation) with the Clerk of the Senate and the Clerk
of the House of Representatives of the General Court of the Commonwealth of
Massachusetts, the Secretary of Manpower Affairs, the Commissioner of Insurance
and the Department of Revenue of the Commonwealth of Massachusetts, and that
such reports and other information may constitute "public records" within the
purview of Section 7 of Chapter 4 of the General Laws of the Commonwealth of
Massachusetts. In addition, information relating to the business, financial
affairs and future prospects of the Company and its affiliates must be disclosed
to others in order to obtain independent confirmation that financing on
substantially similar terms to financing provided pursuant to this Agreement was
not elsewhere available to the Company. The Company hereby authorizes MCRC to
disclose all such information relating to the business, financial affairs and
future prospects of the Company and its affiliates as has been or may in the
future be presented to MCRC to all such persons as MCRC in good faith deems
necessary or appropriate in order to fulfill its obligations under the Capital
Resource Company Act.
ARTICLE II
CONDITIONS TO PURCHASERS' OBLIGATION
The obligation of the Purchasers to purchase and pay for the Notes and
Warrants at the Closing is subject to the following conditions:
2.01 Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company set forth in Article III hereof shall be true on the
date of the Closing.
2.02 Documentation at Closing. The Purchasers shall have received prior to
------------------------
or at the Closing all of the following, each in form and substance satisfactory
to the Purchasers and their special counsel:
(a) A certified copy of all charter documents of the Company; a
certified copy of the resolutions of the Board of Directors and, to the extent
required, the stockholders of the Company evidencing approval of this Agreement,
the Notes, the Warrants, the Registration Rights Amendment (as hereinafter
defined) and other matters contemplated hereby; a certified copy of the By-laws
of the Company; and certified copies of all documents evidencing other necessary
corporate or other action and governmental approvals, if any, with respect to
this Agreement, the Notes, the Warrants and the Registration Rights Amendment.
10
(b) A favorable opinion of Messrs. Foley, Hoag & Eliot, counsel for
the Company, as to matters set forth in Exhibit 2.02(b), and as to such other
---------------
matters as the Purchasers, or their special counsel, may reasonably request.
(c) A certificate of the Secretary or an Assistant Secretary of the
Company which shall certify the names of the officers of the Company, authorized
to sign this Agreement, the Notes, the Warrants, the Registration Rights
Amendment and the other documents or certificates to be delivered pursuant to
this Agreement by the Company, or any of its officers, together with the true
signatures of such officers. The Purchasers may conclusively rely on such
certificates until it shall receive a further certificate of the Secretary or an
Assistant Secretary of the Company cancelling or amending the prior certificate
and submitting the signatures of the officers named in such further certificate.
(d) A certificate from a duly authorized officer of the Company
stating that: (i) the representations and warranties of the Company contained in
Article III hereof and otherwise made by the Company in writing in connection
with the transactions contemplated hereby are true and correct; (ii) the
transactions described in Section 2.03 have been consummated; and (iii) no
condition or event has occurred or is continuing or will result from execution
and delivery of this Agreement, the Notes, the Warrants or the Registration
Rights Amendment which constitute an Event of Default or would constitute an
Event of Default but for the requirement that notice be given or time elapse or
both.
(e) A certificate, in the form attached as Exhibit 3.15 hereto, shall
------------
have been executed and delivered to MCRC by a duly authorized officer of the
Company.
(f) Payment for the costs, expenses, taxes and filing fees identified
in Section 7.04 as to which the Purchasers give the Company notice prior to the
Closing.
2.03 Other Transactions. Prior to or simultaneous with the Closing:
------------------
(a) That certain Registration Rights Agreement, dated February 11,
1991 and as amended to date, shall have been amended (the "Registration Rights
Amendment") so as to provide that the Warrants and the shares of Common Stock
issued and issuable upon exercise of the Warrants shall be entitled to all of
the rights, benefits and obligations of said Registration Rights Agreement, said
Registration Rights Amendment to be substantially in the form of Exhibit 2.03(a)
---------------
hereto (said Registration Rights Agreement as so amended being herein referred
to as the "Registration Rights Agreement").
11
(b) All rights of first refusal, including, without limitation, those
contained in Section 5.02 of that certain Series C Convertible Preferred Stock
Purchase Agreement, dated June 4, 1993, shall have been duly waived with respect
to the issuance of the Notes, the Warrants and the shares of Common Stock issued
or issuable upon exercise of the Warrants.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants as follows:
3.01 Organization and Standing of the Company. The Company is a duly
----------------------------------------
organized and validly existing corporation in good standing under the laws of
the jurisdiction in which it was organized and has all requisite corporate power
and authority for the ownership and operation of its properties and for the
carrying on of its business as now conducted and as now proposed to be
conducted. The Company is duly licensed or qualified and in good standing as a
foreign corporation authorized to do business in all jurisdictions wherein the
character of the property owned or leased, or the nature of the activities
conducted, by it makes such licensing or qualification necessary and where the
failure to be so licensed or qualified would have a material adverse effect on
the Company. The Company has no Subsidiaries.
3.02 Corporate Action. The Company has all necessary corporate power and
----------------
has taken all corporate action required to make all the provisions of this
Agreement, the Notes, the Warrants, the Registration Rights Amendment and any
other agreements and instruments executed in connection herewith and therewith
the valid and enforceable obligations they purport to be. Sufficient shares of
authorized but unissued Common Stock of the Company have been reserved by
appropriate corporate action in connection with the prospective exercise of the
Warrants (assuming no adjustment in the number of shares of Common Stock
purchasable thereunder). Neither the issuance of the Notes or Warrants, nor the
issuance of shares of Common Stock upon the exercise of the Warrants, is subject
to preemptive or other similar statutory or contractual rights and will not
conflict with any provisions of any agreement or instrument to which the Company
is a party or by which it is bound.
3.03 Governmental Approvals. Subject to the accuracy of the
----------------------
representations and warranties of the Purchasers set forth in Section 1.11, and
other than exemptions available under federal and applicable state securities
laws and filings pursuant to federal and applicable state securities laws (all
of which filings have been made by the Company, other than those which are
required to be made after the Closing and which will be duly made on a timely
basis), including, with respect to the Registration Rights
12
Agreement, the registration of shares covered thereby with the Securities and
Exchange Commission, no authorization, consent, approval, license, exemption of
or filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, is or will be
necessary for, or in connection with, the offer, issuance, sale, execution or
delivery by the Company of, or for the performance by it of its obligations
under, this Agreement, the Notes, the Warrants or the Registration Rights
Amendment.
3.04 Litigation. Except as is set forth in Exhibit 3.04, there is no
---------- ------------
litigation or governmental proceeding or investigation pending or, to the best
of the knowledge of the Company, threatened against the Company affecting any of
its properties or assets, or against any officer, key employee or principal
stockholder of the Company where such litigation, proceeding or investigation,
either individually or in the aggregate, would have a material adverse effect on
the Company, nor, to the best of the knowledge of the Company, has there
occurred any event or does there exist any condition on the basis of which any
litigation, proceeding or investigation might properly be instituted. Neither
the Company, nor, to the best of the knowledge of the Company, any officer or
key employee of the Company, or principal stockholder of the Company, is in
default with respect to any order, writ, injunction, decree, ruling or decision
of any court, commission, board or other government agency affecting the
Company. There are no actions or proceedings pending or threatened (or any
basis therefor known to the Company) which might result, either in any case or
in the aggregate, in any material adverse change in the business, operations,
affairs or condition of the Company or in any of its properties or assets, or
which might call into question the validity of this Agreement, the Notes, the
Warrants, the Registration Rights Agreement or any action taken or to be taken
pursuant hereto or thereto.
3.05 Compliance with Other Instruments. The Company is in compliance in
---------------------------------
all respects with the terms and provisions of this Agreement and of its charter
and by-laws and in all material respects with the terms and provisions of the
mortgages, indentures, leases, agreements and other instruments and of all
judgments, decrees, governmental orders, statutes, rules and regulations by
which it is bound or to which its properties or assets are subject, the failure
to comply with which would have a material adverse effect on the Company.
Neither the execution and delivery of this Agreement, the Notes, the Warrants or
the Registration Rights Amendment, nor the consummation of any transactions
contemplated hereby or thereby has constituted or resulted in or will constitute
or result in a default or violation of any term or provision in any of the
foregoing documents or instruments. A schedule of Indebtedness of the Company
(including lease obligations required to be capitalized in accordance with
13
applicable Statements of Financial Accounting Standards) is attached as Exhibit
-------
3.05.
- ----
3.06 Federal Reserve Regulations. The Company is not engaged in the
---------------------------
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of the Notes or Warrants
will be used to purchase or carry any margin security or to extend credit to
others for the purpose of purchasing or carrying any margin security or in any
other manner which would involve a violation of any of the regulations of the
Board of Governors of the Federal Reserve System.
3.07 Title to Assets, Patents. Except as is set forth in Exhibit 3.07, the
------------------------ ------------
Company has good and clear record and marketable title in fee to such of its
fixed assets as are real property, and good and merchantable title to, or the
valid right or license to use, all of its other assets, now carried on its books
including those reflected in the most recent balance sheet of the Company which
forms a part of Exhibit 3.08 attached hereto, or acquired since the date of such
------------
balance sheet (except personal property disposed of since said date in the
ordinary course of business) free of any mortgages, pledges, charges, liens,
security interests or other similar encumbrances. The Company enjoys peaceful
and undisturbed possession under all leases under which it is operating, and all
said leases are valid and subsisting and in full force and effect. The Company
owns or has a valid right to use the patents, patent rights, licenses, permits,
trade secrets, trademarks, trademark rights, trade names or trade name rights or
franchises, copyrights, inventions and intellectual property rights being used
to conduct its business as now operated and as now proposed to be operated; and
the conduct of its business as now operated and as now proposed to be operated
does not and will not conflict with valid patents, patent rights, licenses,
permits, trade secrets, trademarks, trademark rights, trade names or trade name
rights or franchises, copyrights, inventions and intellectual property rights of
others. The Company has no obligation to compensate any Person for the use of
any such patents or such rights nor has the Company granted to any Person any
license or other rights to use in any manner any of such patents or such rights
of the Company, other than in the ordinary course of business or as set forth in
Exhibit 3.07.
- ------------
3.08 Financial Information. The financial statements of the Company
---------------------
attached as Exhibit 3.08 present fairly the financial position of the Company as
------------
at the dates thereof and its results of operations for the periods covered
thereby and have been prepared in accordance with generally accepted accounting
principles consistently applied. The financial statements so attached are: (1)
for the two years ended September 30, 1992 and September 30, 1993, certified by
Deloitte & Touche and (ii) for the eight-month
14
period ended May 31, 1994, being unaudited and subject to year-end adjustments
consisting of normal recurring items which will not be material in the aggregate
(except that such unaudited financial statements may not contain footnotes
required by generally accepted accounting principles). The Company has no
liability contingent or otherwise not disclosed in the aforesaid financial
statements or in the notes thereto that could, together with all such other
liabilities, materially affect the financial condition of the Company, nor does
the Company have any reasonable grounds to know of any such liability. Since
the date of said certified financial statements, (i) there has been no adverse
change in the business, assets or condition, financial or otherwise, operations
or prospects, of the Company; (ii) neither the business, condition, operations
or prospects of the Company nor any of its properties or assets has been
adversely affected as a result of any legislative or regulatory change (other
than those affecting businesses generally), any revocation or change in any
franchise, license or right to do business, or any other event or occurrence,
whether or not insured against; and (iii) the Company has not entered into any
material transaction or made any distribution on its capital stock.
3.09 Taxes. The Company has accurately prepared and timely filed all
-----
federal, state and other tax returns required by law to be filed by it, and all
taxes shown to be due and all additional assessments have been paid or provision
made therefor. The Company knows of no additional assessments or adjustments
pending or threatened against the Company for any period, nor of any basis for
any such assessment or adjustment.
3.10 ERISA. No employee benefit plan established or maintained, or to
-----
which contributions have been made, by the Company, which is subject to part 3
of Subtitle B of Title I of The Employee Retirement Income Security Act of 1974,
as amended ("ERISA") had an accumulated funding deficiency (as such term is
defined in Section 302 of ERISA) as of the last day of the most recent fiscal
year of such plan ended prior to the date hereof, and no material liability to
the Pension Benefit Guaranty Corporation has been incurred with respect to any
such plan by the Company.
3.11 Transactions with Affiliates. Except as is set forth in Exhibit 3.11,
---------------------------- ------------
there are no loans, leases, royalty agreements or other continuing transactions
between the Company and any Person owning five percent (5%) or more of any class
of capital stock of the Company or other entity controlled by such stockholder
or a member of such stockholder's family.
3.12 Assumptions or Guaranties of Indebtedness of Other Persons. The
----------------------------------------------------------
Company has not assumed, guaranteed, endorsed or otherwise become directly or
contingently liable on (including, without limitation, liability by way of
agreement, contingent or
15
otherwise, to purchase, to provide funds for payment, to supply funds to or
otherwise invest in the debtor or otherwise to assure the creditor against loss)
any Indebtedness of any other Person.
3.13 Investments in Other Persons. Except as set forth in Exhibit 3.3, the
---------------------------- -----------
Company has not made any loan or advance to any Person which is outstanding on
the date of this Agreement, nor is the Company obligated or committed to make
any such loan or advance, nor does the Company own any capital stock or assets
comprising the business of, obligations of, or any interest in, any Person.
3.14 Equal Employment Opportunity. The Company has reviewed its employment
----------------------------
practices and policies and, to the best of its knowledge, the Company is in full
compliance with (a) all applicable laws of the United States, of the
Commonwealth of Massachusetts and of each other applicable jurisdiction,
relating to equal employment opportunity (including, without limitation, Title
VII of the Civil Rights Act of 1964, as amended (42 U.S.C. (S)20OOe-17), the Age
Discrimination in Employment Act of 1967, as amended (29 U.S.C. (S)(S)621-634),
the Equal Pay Act of 1963 (29 U.S.C. (S)206(d)), and any rules, regulations and
administrative orders and Executive Orders relating thereto; Mass. Gen. Laws.
c. 151B, Mass. Gen. Laws c. 149 (S)24A et seq. and (S)105A et seq., and any
rules or regulations relating thereto; and (b) the applicable terms, relating to
equal employment opportunity, of any contract, agreement or grant the Company
has with, from, or relating (by way of subcontract or otherwise) to any other
contract, agreement or grant of, any federal or state governmental unit
("Government Contract"), including, without limitation, any terms required
pursuant to Federal Executive Order No. 11246 and Massachusetts Executive Order
No. 74 (both as amended). To the best of the Company's knowledge, it has kept
all records required to be kept, and has filed all reports, affirmative action
plans and forms (including, without limitation and where applicable, Form EEO-1)
required to be filed pursuant to any such applicable law or the terms of any
such Government Contract. The Company has not been subject to any adverse final
determination or order, with respect to any charge of employment discrimination
made against it, by the United States Equal Employment Opportunity Commission,
the Massachusetts Commission Against Discrimination or any other governmental
unit (including, without limitation, any such governmental unit with which it
has a Government Contract), and the Company is not presently, to the best of its
knowledge, subject to any formal proceedings before, or investigations by, such
commissions or governmental units.
3.15 Status of Notes and Warrants as Qualified Investments. The Company
-----------------------------------------------------
has duly authorized the execution and delivery to MCRC on behalf of the Company
of the certificate attached as Exhibit 3.15 hereto, setting forth such
------------
statements, information and related data as are necessary to permit MCRC to
determine and
16
demonstrate that the Notes and Warrants issued pursuant to this Agreement will
constitute "qualified investments" within the meaning of that term as set forth
in the Capital Resource Company Act and that the full proceeds of the Notes and
Warrants will be used for purposes which will materially increase or maintain
equal opportunity employment in the Commonwealth of Massachusetts. All such
statements, information and related data presented in such certificate as are
not based on estimates and projections of future events are true and correct as
of the date of such certificate and all such statements, information and related
data based upon estimates or projections of future events have been carefully
considered and prepared on behalf of the Company.
3.16 Securities Act. Neither the Company nor anyone acting on its behalf
--------------
has offered any of the Notes, Warrants or similar securities, or solicited any
offers to purchase or made any attempt by preliminary conversation or
negotiations to dispose of the Notes, Warrants or similar securities, to any
Person other than the Purchasers or the institutions described in Exhibit 3.15.
------------
Neither the Company nor anyone acting on its behalf has offered or will offer to
sell the Notes, Warrants or similar securities to, or solicit offers with
respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any Person, so as to bring the issuance and
sale of the Notes and Warrants under the registration provisions of the
Securities Act.
3.17 Disclosure. Neither this Agreement, the financial statements
----------
incorporated herein as Exhibit 3.08, the Certificate set forth as Exhibit 3.15
------------ ------------
hereof, nor any other agreement, document, certificate or written statement
furnished to the Purchasers or their special counsel by or on behalf of the
Company in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading;
provided, however, that any estimates or projections of future events contained
in any business plan of the Company provided to any Purchaser represent only the
reasonable expectations and beliefs of the Company as of the date of such
business plan.
3.18 No Brokers or Finders. No Person has or will have, as a result of the
---------------------
transactions contemplated by this Agreement, any right, interest or valid claim
against or upon the Company for any commission, fee or other compensation as a
finder or broker because of any act or omission by the Company or any agent of
the Company.
3.19 Other Agreements of Officers. To the best of the knowledge of the
----------------------------
Company, no officer or key employee of the Company is a party to or bound by any
agreement, contract or commitment, or subject to any restrictions, particularly
but without limitation in connection with any previous employment of
17
any such person, which materially and adversely affects, or in the future may
(so far as the Company can reasonably foresee) materially and adversely affect,
the business or operations of the Company or the right of any such person to
participate in the affairs of the Company. To the best of the knowledge of the
Company, no officer or key employee has any present intention of terminating his
employment with the Company and the Company has no present intention of
terminating any such agreement.
3.20 Capitalization; Status of Capital Stock. The Company has a total
---------------------------------------
authorized capitalization consisting of: (i) 7,000,000 shares of Common Stock,
of which 3,249,115 shares are issued and outstanding; (ii) 630,516 shares of
Series A Convertible Preferred Stock, $.01 par value per share, all of which
shares are issued and outstanding; (iii) 620,000 shares of Series B Convertible
Preferred Stock, $.01 par value per share, all of which shares are issued and
outstanding; and (iv) 225,000 shares of Series C Convertible Preferred Stock,
$.01 par value per share, of which 200,789 shares are issued and outstanding. A
complete list of the outstanding capital stock of the Company and the names in
which such capital stock is registered is set forth in Exhibit 3.20 hereto. All
------------
the outstanding shares of capital stock of the Company have been duly
authorized, are validly issued and are fully paid and nonassessable. The shares
of Common Stock issuable upon exercise of the Warrants, when so issued, will be
duly authorized, validly issued and fully paid and nonassessable. Except as
otherwise indicated on Exhibit 3.20, there are no options, warrants or rights to
------------
purchase shares of capital stock or other securities of the Company authorized,
issued or outstanding, nor is the Company obligated in any other manner to issue
shares of its capital stock or other securities. Except as is set forth in
Exhibit 3.20, there are no restrictions on the transfer of shares of capital
- ------------
stock of the Company other than those imposed by relevant state and federal
securities laws. Except as is set forth in Exhibit 3.20, no holder of any
------------
security of the Company is entitled to preemptive or similar statutory or
contractual rights, either arising pursuant to any agreement or instrument to
which the Company is a party, or which are otherwise binding upon the Company.
Neither the issuance of the Notes or the Warrants nor the shares of Common Stock
issued upon exercise of the Warrants will result in an adjustment under the
antidilution or exercise rights of any holders of any outstanding shares of
capital stock options, warrants or other rights to acquire any securities of the
Company. The offer and sale of all shares of capital stock and other securities
of the Company issued before the Closing complied with or were exempt from all
federal and state securities laws.
3.21 Labor Relations. To the best of the knowledge of the Company, no
---------------
labor union or any representative thereof has made any attempt to organize or
represent employees of the Company. There are no unfair labor practice charges,
pending trials with respect to unfair labor practice charges, pending material
grievance
18
proceedings or adverse decisions of a Trial Examiner of the National Labor
Relations Board against the Company. Furthermore, to the best of the knowledge
of the Company, relations with employees of the Company are good.
3.22 Insurance. The Company carries insurance covering its properties and
---------
business adequate and customary for the type and scope of the properties and
business, but in any event in amounts sufficient to prevent the Company from
becoming a co-insurer.
3.23 Key Man Insurance. The Company carries life insurance policies from
-----------------
financially sound and reputable insurance companies on the lives of each of
Pamela D.A. Reeve and Michael A. Perfit, in the face amount of $1,000,000 each,
with the proceeds thereof being payable to the Company.
3.24 Books and Records. The books of account, ledgers, order books,
-----------------
records and documents of the Company accurately reflect all material information
relating to the business of the Company, the nature, acquisition, maintenance,
location and collection of the assets of the Company, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company.
3.25 Foreign Corrupt Practices Act. The Company has reviewed its practices
-----------------------------
and policies and to the best of its knowledge and belief it is not engaged, nor
has any officer, director, employee or agent of the Company engaged, in any act
or practice which would constitute a violation of the Foreign Corrupt Practices
Act of 1977, or any rules or regulations promulgated thereunder.
3.26 Registration Rights. Other than pursuant to the Registration Rights
-------------------
Agreement, no Person has demand or other rights to cause the Company to file any
registration statement under the Securities Act relating to any securities of
the Company or any right to participate in any such registration statement.
ARTICLE IV
COVENANTS OF THE COMPANY
4.01 Affirmative Covenants of the Company Other Than Reporting
---------------------------------------------------------
Requirements. Without limiting any other covenants and provisions hereof, the
- ------------
Company covenants and agrees that, as long as any of the Notes or Warrants are
outstanding, it will perform and observe the following covenants and provisions
and will cause each Subsidiary to perform and observe such of the following
covenants and provisions as are applicable to such Subsidiary:
(a) Punctual Payment. Pay the principal of, premium, if any, and
----------------
interest on each of the Notes at the times and place and in the manner provided
in the Notes and herein.
19
(b) Payment of Taxes and Trade Debt. Pay and discharge, and cause
-------------------------------
each Subsidiary to pay and discharge, all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or business, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims which, if unpaid, might become a lien or charge
upon any properties of the Company or any Subsidiary, provided that neither the
Company nor the Subsidiary shall be required to pay any such tax, assessment,
charge, levy or claim which is being contested in good faith and by appropriate
proceedings if the Company or Subsidiary concerned shall have set aside on its
books adequate reserves with respect thereto. Pay and cause each Subsidiary to
pay, when due, or in conformity with customary trade terms, all lease
obligations, all trade debt, and all other Indebtedness incident to the
operations of the Company or its Subsidiaries, except such as are being
contested in good faith and by appropriate proceedings if the Company or
Subsidiary concerned shall have set aside on its books adequate reserves with
respect thereto.
(c) Maintenance of Insurance. Maintain, and cause each Subsidiary to
------------------------
maintain, insurance with responsible and reputable insurance companies or
associations in such amounts and covering such risks as is usually carried by
companies engaged in similar businesses and owning similar properties in the
same general areas in which the Company or such Subsidiary operates, but in any
event in amounts sufficient to prevent the Company or such Subsidiary from
becoming a co-insurer.
(d) Preservation of Corporate Existence. Preserve and maintain, and
-----------------------------------
cause each Subsidiary to preserve and maintain, its corporate existence, rights,
franchises and privileges in the jurisdiction of its incorporation, and qualify
and remain qualified, and cause each Subsidiary to qualify and remain qualified,
as a foreign corporation in each jurisdiction in which such qualification is
necessary or desirable in view of its business and operations or the ownership
of its properties; provided, however, that nothing herein contained shall
-------- -------
prevent any merger, consolidation or transfer of assets permitted by subsection
4.02(e). Preserve and maintain, and cause each Subsidiary to preserve and
maintain, all licenses and other rights to use patents, processes, licenses,
trademarks, trade names, inventions, intellectual property rights or copyrights
owned or possessed by it and necessary to the conduct of its business.
(e) Compliance with Laws. Comply, and cause each Subsidiary to
--------------------
comply, with all applicable laws, rules, regulations and orders of any
governmental authority, noncompliance with which could materially adversely
affect its business or condition, financial or other.
20
(f) Visitation Rights. From time to time during normal business hours
-----------------
and upon reasonable notice, permit any Purchaser or any agents or
representatives thereof, to examine and make copies of and extracts from the
records and books of account of, and visit and inspect the properties of, the
Company and any Subsidiary, and to discuss the affairs, finances and accounts of
the Company and any Subsidiary with any of their officers or directors and
independent accountants.
(g) Keeping of Records and Books of Account. Keep, and cause each
---------------------------------------
Subsidiary to keep, adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting principles
consistently applied, reflecting all financial transactions of the Company and
such Subsidiary, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
(h) Maintenance of Properties, etc. Maintain and preserve, and cause
------------------------------
each Subsidiary to maintain and preserve, all of its properties, necessary or
useful in the proper conduct of its business, in good repair, working order and
condition, ordinary wear and tear excepted and except that the Company and any
Subsidiary may dispose of obsolete or worn out equipment and may replace
equipment with other similar equipment.
(i) Compliance with ERISA. Comply, and cause each Subsidiary to
---------------------
comply, with all minimum funding requirements applicable to any pension or other
employee benefit or employee contribution plans which are subject to ERISA or to
the Internal Revenue Code of 1986, as amended (the "Code"), and comply, and
cause each Subsidiary to 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 Subsidiary
will permit any event or condition to exist which could permit any such plan to
be terminated under circumstances which would cause the lien provided for in
Section 4068 of ERISA to attach to the assets of the Company or any Subsidiary.
(j) Maintenance of Debt to Equity Ratio. Maintain a ratio of
-----------------------------------
Consolidated Indebtedness, less Indebtedness represented by the Notes, to
Consolidated Net Worth, plus Indebtedness represented by the Notes, of not more
than 2.0 to 1.0, such ratio to be measured at the end of each fiscal quarter of
the Company.
(k) Interest Coverage. Maintain a ratio of Consolidated Net Earnings
-----------------
Available for Interest Charges to Interest Charges of not less than 2.0 to 1.0,
such ratio to be measured at the end of each fiscal quarter of the Company as an
average of the four most recent fiscal quarters of the Company.
21
(l) Foreign Corrupt Practices Act. Comply, and cause each Subsidiary
-----------------------------
to comply, and cause each officer, director, employee and agent of the Company
and each Subsidiary to comply, at all times with the prohibitions on certain
acts and practices set forth in the Foreign Corrupt Practices Act Of 1977, and
any rules or regulations promulgated thereunder.
(m) Equal Employment Opportunity. Comply, and cause each Subsidiary
----------------------------
to comply, with all applicable laws of the United States, the Commonwealth of
Massachusetts, and of each other applicable jurisdiction relating to equal
employment opportunity, any rules, regulations, administrative orders and
Executive Orders relating thereto and the applicable terms, relating to equal
employment opportunity, of any Government Contract; and keep, and cause each
Subsidiary to file, all reports, affirmative action plans and forms required to
be filed, pursuant to any such applicable law or the terms of any such
Government Contract; provided, however, the Company or any Subsidiary shall not
-------- -------
be considered to have failed to comply with the foregoing during any period that
any matter relating to the Company's or such Subsidiary's employment practices
is being contested by the Company or such Subsidiary in appropriate proceedings,
or thereafter, if the Company or such Subsidiary complies with any final
determination issued in such proceedings.
(n) Status of Notes and Warrants as Qualified Investments. In the
-----------------------------------------------------
event that any of the statements, information and related data provided by or on
behalf of the Company or any Subsidiary and relied upon by MCRC in determining
that the Notes and Warrants constitute "qualified investments" within the
meaning of that term in the Capital Resource Company Act shall be put in issue
in any formal or informal proceedings initiated or conducted by or on behalf of
the Commonwealth of Massachusetts, the Company shall, upon reasonable notice and
at its expense, provide, and, cause each Subsidiary to provide, such additional
information, witnesses and related data as may be reasonably necessary or
appropriate to support the representations and warranties set forth in Article
III.
(o) Key Man Life Insurance. Maintain, with financially sound and
----------------------
reputable insurance companies, term life insurance on the lives of each of
Pamela D.A. Reeve and Michael A. Perfit, in the amount of at least $1,000,000
each, which proceeds shall be payable to the order of the Company. The Company
will not cause or permit any assignment of the proceeds of said policies, and
will not borrow against such policies. The Company will add one designee of the
Purchasers as a notice party to each such policy, and will request that the
issuer of such policy provide such designee with ten (10) days' notice before
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.
22
(p) Attendance at Board Meetings. The Company shall permit any
----------------------------
Purchaser or its designee to have one observer attend each meeting of its Board
of Directors and each meeting of any committee thereof. The Company shall send
to each Purchaser and such designee the notice of the time and place of such
meeting in the same manner and at the same time as it shall send such notice to
its directors or committee members, as the case may be. The Company shall also
provide to each Purchaser copies of all notices, reports, minutes and consents
at the time and in the manner as they are provided to the Board of Directors or
committee.
(q) Compensation. The Company shall pay to its management or
------------
management of any Subsidiary compensation at a rate of compensation which is not
in excess of that commonly paid to management in companies of similar size, of
similar maturity and in similar businesses and all management compensation and
all policies relating thereto shall be approved in advance by a majority of the
members of that Company's Board of Directors.
4.02 Negative Covenants of the Company. Without limiting any other
---------------------------------
covenants and provisions hereof, the Company covenants and agrees that, as long
as any of the Notes or Warrants are outstanding, it will comply with and observe
the following covenants and provisions, and will cause each Subsidiary to comply
with and observe such of the following covenants and provisions as are
applicable to such Subsidiary, and will not:
(a) Liens. Create, incur, assume or suffer to exist, or permit any
-----
Subsidiary to create, incur, assume or suffer to exist, any mortgage, deed of
trust, pledge, lien, security interest or other charge or encumbrance (including
the lien or retained security title of a conditional vendor) of any nature, upon
or with respect to any of its properties, now owned or hereinafter acquired, or
assign or otherwise convey any right to receive income, except that the
foregoing restrictions shall not apply to mortgages, deeds of trust, pledges,
liens, security interests or other charges or encumbrances:
(i) for taxes, assessments or governmental charges or levies
on property of the Company or any Subsidiary if the same shall not at the
time be delinquent or thereafter can be paid without penalty, or are being
contested in good faith and by appropriate proceedings;
(ii) imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary course of
business;
(iii) arising out of pledges or deposits under workmen's
compensation laws, unemployment insurance, old age
23
pensions, or other social security or retirement benefits, or similar
legislation;
(iv) securing the performance of bids, tenders, contracts
(other than for the repayment of borrowed money), statutory obligations and
surety bonds;
(v) in the nature of zoning restrictions, easements and rights
or restrictions of record on the use of real property which do not
materially detract from its value or impair its use;
(vi) arising by operation of law in favor of the owner or
sublessor of leased premises and confined to the property rented or arising
out of any lease agreement relating to fixtures located on the premises so
leased;
(vii) arising from any litigation or proceeding which is being
contested in good faith by appropriate proceedings, provided, however, that
no execution or levy has been made;
(viii) described in Exhibit 3.07 which secure the Indebtedness
------------
set forth in Exhibit 3.05, provided that no such lien is extended to cover
------------
other or different property of the Company or any Subsidiary;
(ix) arising out of a capitalized lease or out of a purchase
money mortgage or security interest on personal property to secure the
purchase price of such property (or to secure Indebtedness incurred solely
for the purpose of financing the acquisition of any such property),
provided that such capitalized lease or purchase money mortgage or security
interest does not extend to any other or different property of the Company
or any Subsidiary; and
(x) granted to secure any Senior Debt.
(b) Indebtedness. Create, incur, assume or suffer to exist, or
------------
permit any Subsidiary to create, incur, assume or suffer to exist, any liability
with respect to Indebtedness except for:
(i) the Notes;
(ii) Indebtedness for money borrowed, provided that such
Indebtedness for money borrowed does not result in the Company's failure to
comply with all of the provisions of Article IV hereof;
(iii) Current Liabilities, other than for borrowed money, which
are incurred in the ordinary course of business;
24
(iv) Indebtedness with respect to lease obligations, provided
that such lease obligations do not violate subsection 4.02(c);
(v) the existing Indebtedness set forth in Exhibit 3.05; and
------------
(vi) Indebtedness referred to in subsection 4.02(a)(ix).
(c) Lease Obligations. Create, incur, assume or suffer to exist, or
-----------------
permit any Subsidiary to create, incur, assume or suffer to exist, any
obligations as lessee for the rental or hire of real or personal property in
connection with any sale and leaseback transaction.
(d) Assumptions or Guaranties of Indebtedness of Other Persons.
----------------------------------------------------------
Assume, guarantee, endorse or otherwise become directly or contingently liable
on, or permit any Subsidiary to assume, guarantee, endorse or otherwise become
directly or contingently liable on (including, without limitation, liability by
way of agreement, contingent or otherwise, to purchase, to provide funds for
payment, to supply funds to or otherwise invest in the debtor or otherwise to
assure the creditor against loss) any Indebtedness of any other Person, except
for guaranties by endorsement of negotiable instruments for deposit or
collection in the ordinary course of business.
(e) Mergers, Sale of Assets, etc. Merge or consolidate with, 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) a material
portion 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 (which terms shall not
prohibit the grant of a security interest permitted by Section 4.02(a) of this
Agreement), to, any Person, or permit any Subsidiary to do any of the foregoing,
except for sales or other dispositions of assets in the ordinary course of
business and except that (1) any Subsidiary may merge into or consolidate with
or transfer assets to any other Subsidiary, (2) any Subsidiary may merge into or
transfer assets to the Company, and (3) the Company may merge any Person into it
or otherwise acquire such Person as long as the Company is the surviving entity,
such merger or acquisition does not result in the violation of any of the
provisions of this Agreement and no such violation exists at the time of such
merger or acquisition, and, provided that such merger or acquisition does not
result in the issuance (in one or more transactions) of shares of the voting
stock of the Company representing in the aggregate more than twenty percent
(20%) of the total outstanding voting stock of the
25
Company, on a fully diluted basis, immediately following the issuance thereof.
(f) Investments in Other Persons. Make or permit any Subsidiary to
----------------------------
make, any loan (which term shall not be deemed to include any operating account
maintained at any bank organized in the United States) or advance to any person,
or purchase, otherwise acquire, or permit any Subsidiary to purchase or
otherwise acquire, the capital stock, assets comprising the business of,
obligations of, or any interest in, any Person, 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 capital, surplus and undivided
profits of at least $100,000,000 and whose parent holding company, if any,
has long-term debt rated Aal or higher, and whose commercial paper (if
rated) is rated Prime 1, by Moody's Investors Service, Inc. or Silicon
Valley Bank;
(iii) loans or advances from a Subsidiary to the Company;
(iv) investments by the Company or a Subsidiary in the highest-
rated commercial paper having a maturity of not more than one year from the
date of acquisition;
(v) investments by the Company or a Subsidiary in money market
instruments or money market fund shares; provided that such instruments
are, or such fund's investments consist principally in, the types of
investments described in clauses (i), (ii) or (iv) of this subsection
4.02(f); and
(vi) loans, advances and investments in any Subsidiary;
provided that the aggregate amount of all such loans, advances and
investments made in any fiscal year does not exceed $100,000.
(g) Distributions. 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 stockholders as such, or make any distribution of
assets to its stockholders as such, or permit any Subsidiary to do any of the
26
foregoing (such transactions being hereinafter referred to as "Distributions"),
except that the Subsidiaries may declare and make payment of cash and stock
- ------
dividends, return capital and make distributions of assets to the Company;
provided, however, that nothing herein contained shall prevent the Company from:
- -------- -------
(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,
(ii) redeeming any stock of a deceased stockholder out of
insurance held by the Company on that stockholder's life,
(iii) paying dividends with respect to shares of its Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock or Series
C Convertible Preferred Stock, as authorized on the date hereof, at the
time and pursuant to the terms and conditions of the Company's Certificate
of Incorporation as in effect as of the date hereof, or
(iv) repurchasing shares of Common Stock owned by an employee
or former employee, which shares are subject to an agreement under which
the Company has the right to repurchase the same; provided, however, that
the purchase price shall not exceed the purchase price paid to the Company
for the purchase of such shares of Common Stock,
if in the case of any such transaction there does not exist at the time of such
Distribution an Event of Default or an event which, but for the requirement that
notice be given or time elapse or both, would constitute an Event of Default and
provided that such Distribution can be made in compliance with the other terms
of this Agreement.
(h) Dealings with Affiliates. Except as is set forth in Exhibit
------------------------ -------
3.11, enter or permit ny Subsidiary to enter into any transaction with any
- ----
holder of 5% or more of any class of capital stock of the Company, or any member
of their families or any corporation or other entity in which any one or more of
such stockholders or members of their immediate families directly or indirectly
holds five percent (5%) or more of any class of capital stock except in the
ordinary course of business and on terms not less favorable to the Company or
the Subsidiary than it would obtain in a transaction between unrelated parties.
(i) Maintenance of Ownership of Subsidiaries. Sell or otherwise
----------------------------------------
dispose of any shares of capital stock of any Subsidiary, except to the Company
or another Subsidiary, or permit any Subsidiary to issue, sell or otherwise
dispose of any shares of its capital stock or the capital stock of any
Subsidiary,
27
except to the Company or another Subsidiary, provided, however, that nothing
-------- -------
herein contained shall prevent any merger, consolidation or transfer of assets
permitted by subsection 4.02(e).
(j) Change in Nature of Business. Make, or permit any Subsidiary to
----------------------------
make, any material change in the nature of its business as carried on at the
date hereof.
4.03 Reporting Requirements. The Company will furnish to each registered
----------------------
holder of any Note, any Warrant or any Common Stock issued upon exercise of any
Warrant:
(a) as soon as possible and in any event within five (5) days after
the occurrence of each Event of Default or each event which, with the giving of
notice or lapse of time or both, would constitute an Event of Default, the
statement of the chief financial officer of the Company setting forth details of
such Event of Default or event and the action which the Company proposes to take
with respect thereto;
(b) as soon as available and in any event within thirty (30) days
after the end of each month in each fiscal year of the Company (other than the
last month in each fiscal year and the last month in each fiscal quarter),
consolidated and consolidating balance sheets of the Company and its
Subsidiaries as of the end of such month and consolidated and consolidating
statements of income and retained earnings and of changes in financial position
of the Company and its Subsidiaries 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 (except for the statement of changes in financial position) in
comparative form the corresponding figures for the corresponding period of the
preceding fiscal year, all in reasonable detail and duly certified (subject to
year-end audit adjustments) by the chief financial officer of the Company as
having been prepared in accordance with generally accepted accounting principles
consistently applied (except that such unaudited financial statements need not
contain footnotes required by generally accepted accounting principles);
(c) as soon as available and in any event within forty five (45) days
after the end of each of the first three quarters of each fiscal year of the
Company, consolidated and consolidating balance sheets of the Company and its
Subsidiaries as of the end of such quarter and consolidated and consolidating
statements of income and retained earnings and of changes in financial position
of the Company and its Subsidiaries for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, setting forth in
each case (except for the statement of changes in financial position) in
comparative form the corresponding figures for the corresponding period of the
preceding fiscal year, all in reasonable detail and duly certified
28
(subject to year-end audit adjustments) by the chief financial officer of the
Company as having been prepared in accordance with generally accepted accounting
principles consistently applied (except that such unaudited financial statements
need not contain footnotes required by generally accepted accounting
principles);
(d) as soon as available and in any event within ninety (90) days
after the end of each fiscal year of the Company, a copy of the annual audit
report for such year for the Company and its Subsidiaries, including therein
consolidated and consolidating balance sheets of the Company and its
Subsidiaries as of the end of such fiscal year and consolidated and
consolidating statements of income and retained earnings and of changes in
financial position of the Company and its Subsidiaries for such fiscal year,
setting forth in each case in comparative form the corresponding figures for the
preceding fiscal year, all duly certified by independent public accountants of
recognized standing acceptable to the Purchasers;
(e) at the time of delivery of each monthly, quarterly and annual
statement, a certificate, executed by the chief financial officer in the case of
monthly and quarterly statements and the Company's independent public
accountants in the case of annual statements, stating that such officer or
accountants, as the case may be, has caused this Agreement, the Notes, and the
Warrants to be reviewed and has no knowledge of any default by the Company or
any Subsidiary in the performance or observance of any of the provisions of this
Agreement, the Notes or the Warrants or, if such officer or accountant has such
knowledge, specifying such default and the nature thereof. Each such
certificate shall set forth computations in reasonable detail demonstrating
compliance with the provisions of subsections 4.01(j) and (k) and subsections
4.02(b) and (c);
(f) promptly upon receipt thereof, any written report submitted to
the Company by independent public accountants in connection with an annual or
interim audit of the books of the Company and its Subsidiaries made by such
accountants;
(g) prior to the start of each fiscal year, consolidated capital and
operating expense budgets, cash flow projections and income and loss projections
for the Company and its Subsidiaries in respect of such fiscal year, all
itemized in reasonable detail and prepared on a monthly basis, and, promptly
after preparation, any revisions to any of the foregoing;
(h) promptly after the commencement thereof, notice of 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 of the type described in Section 3.04; and
29
(i) promptly after sending, making available, or filing the same,
such reports and financial statements as the Company or any Subsidiary shall
send or make available to the stockholders of the Company or the Securities and
Exchange Commission and, except as prohibited by law, such other information
respecting the business, properties or the condition or operations, financial or
otherwise, of the Company or any of its Subsidiaries as any Purchaser may from
time to time reasonably request.
4.04 Termination of Certain Covenants of the Company. The covenants set
-----------------------------------------------
forth in subsections 4.01(a), (j) and (k) and in subsections 4.02(a), (b) and
(c) shall terminate and be of no further force or effect when the Notes have
been redeemed in their entirety. All other covenants set forth in Sections
4.01, 4.02 and 4.03 shall terminate and be of no further force or effect upon
the later of (i) such time as the Notes have been redeemed in their entirety and
the Warrants have expired and/or been exercised in their entirety and (ii) when
the Company shall be subject to the reporting requirements of the Securities
Exchange Act of 1934, or any similar federal statute.
ARTICLE V
EVENTS OF DEFAULT
5.01 Events of Default. If any of the following events ("Events of
-----------------
Default") shall occur and be continuing:
(a) The Company shall fail to pay any installment of principal of or
interest or premium on any of the Notes when due; or
(b) The Company shall default in the performance of any covenant
contained in subsections 4.01(j) or (k) or shall default for ten (10) days in
the performance of any covenant contained in Section 4.02; or
(c) Any representation or warranty made by the Company or any
Subsidiary in this Agreement or by the Company or any Subsidiary (or any
officers of the Company or any Subsidiary) in any certificate, instrument or
written statement contemplated by or made or delivered pursuant to or in
connection with this Agreement, shall prove to have been incorrect when made in
any material respect; or
(d) The Company or any Subsidiary shall fail to perform or observe
any other term, covenant or agreement contained in this Agreement, the Notes,
the Warrants or the Registration Rights Agreement on its part to be performed or
observed and any such failure remains unremedied for ten (10) business days
after written notice thereof shall have been given to the Company by any
registered holder of the Notes; or
30
(e) The Company or any Subsidiary shall fail to pay any Indebtedness
for borrowed money (other than as evidenced by the Notes) owing by the Company
or such Subsidiary (as the case may be), or any interest or premium thereon,
when due (or, if permitted by the terms of the relevant document, within any
applicable grace period), whether such Indebtedness shall become due by
scheduled maturity, by required prepayment, by acceleration, by demand or
otherwise, or shall fail to perform any term, covenant or agreement on its part
to be performed under any agreement or instrument (other than this Agreement or
the Notes) evidencing or securing or relating to any Indebtedness owing by the
Company or any Subsidiary, as the case may be, when required to be performed
(or, if permitted by the terms of the relevant document, within any applicable
grace period), if the effect of such failure to pay or perform is to accelerate,
or to permit the holder or holders of such Indebtedness, or the trustee or
trustees under any such agreement or instrument to accelerate, the maturity of
such Indebtedness, unless such failure to pay or perform shall be waived by the
holder or holders of such Indebtedness or such trustee or trustees, or, if
permitted by the applicable documents, cured by the Company or Subsidiary; or
(f) The Company or any Subsidiary shall be involved in financial
difficulties as evidenced (i) by its admitting in writing its inability to pay
its debts generally as they become due; (ii) by its commencement of a voluntary
case under Title 11 of the United States Code as from time to time in effect, or
by its authorizing, by appropriate proceedings of its Board of Directors or
other governing body, the commencement of such a voluntary case; (iii) by its
filing an answer or other pleading admitting or failing to deny the material
allegations of a petition filed against it commencing an involuntary case under
said Title 11, or seeking, consenting to or acquiescing in the relief therein
provided, or by its failing to controvert timely the material allegations of any
such petition; (iv) by the entry of an order for relief in any involuntary case
commenced under said Title 11; (v) by its seeking relief as a debtor under any
applicable law, other than said Title 11, of any jurisdiction relating to the
liquidation or reorganization of debtors or to the modification or alteration of
the rights of creditors, or by its consenting to or acquiescing in such relief;
(vi) by the entry of an order by a court of competent jurisdiction (a) finding
it to be bankrupt or insolvent, (b) ordering or approving its liquidation,
reorganization or any modification or alteration of the rights of its creditors,
or (c) assuming custody of, or appointing a receiver or other custodian for, all
or a substantial part of its property; or (vii) by its making an assignment for
the benefit of, or entering into a composition with, its creditors, or
appointing or consenting to the appointment of a receiver or other custodian for
all or a substantial part of its property; or
31
(g) Any judgment, writ, warrant of attachment or execution or similar
process shall be issued or levied against a substantial part of the property of
the Company or any Subsidiary and such judgment, writ, or similar process shall
not be released, vacated or fully bonded within sixty (60) days after its issue
or levy;
then, and in any such event, any Purchaser or any other holder of the Notes may,
by notice to the Company, declare the entire unpaid principal amount of the
Notes, all interest accrued and unpaid thereon and all other amounts payable
under this Agreement to be forthwith due and payable, whereupon the Notes, all
such accrued interest and all such amounts shall become and be forthwith due and
payable (unless there shall have occurred an Event of Default under subsection
5.01(f) in which case all such amounts shall automatically become due and
payable), without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Company.
5.02 Annulment of Defaults. Section 5.01 is subject to the condition that,
---------------------
if at any time after the principal of any of the Notes shall have become due and
payable, and before any judgment or decree for the payment of the moneys so due,
or any thereof, shall have been entered, all arrears of interest upon all the
Notes and all other sums payable under the Notes and under this Agreement
(except the principal of the Notes which by such declaration shall have become
payable) shall have been duly paid, and every other Event of Default shall have
been made good or cured, then and in every such case the holders of seventy-five
percent (75%) or more in principal amount of all Notes then outstanding may, by
written instrument filed with the Company, rescind and annul such declaration
and its consequences; but no such rescission or annulment shall extend to or
affect any subsequent default or Event of Default or impair any right consequent
thereon.
ARTICLE VI
DEFINITIONS AND ACCOUNTING TERMS
6.01 Certain Defined Terms. 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):
"Agreement" means this Subordinated Note and Warrant Purchase Agreement as
from time to time amended and in effect between the parties.
"Capital Resource Company Act" shall have the meaning assigned to that term
in Section 1.12.
32
"Code" shall have the meaning assigned to that term in Section 4.01(i).
"Company" means and shall include Credit Technologies, Inc. and its
successors and assigns.
"Common Stock" includes the Company's Common Stock, $.01 par value per
share, as authorized on the date of this Agreement and any other securities into
which or for which such Common Stock may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or otherwise.
"Consolidated" and "consolidating" when used with reference to any term
defined herein mean that term as applied to the accounts of the Company and its
Subsidiaries consolidated in accordance with generally accepted accounting
principles.
"Consolidated Net Earnings Available for Interest Charges" means, for any
period, Consolidated Net Income for such period plus (a) interest paid or
accrued by the Company and its Subsidiaries with respect to all Indebtedness for
such period and (b) income and excess profit taxes for such period and all other
taxes for such period which are imposed on or measured by income after deduction
of interest charges.
"Consolidated Net Income" means, for any period, the net income (or net
deficit) of the Company and its Subsidiaries for such period, after all
expenses, taxes and other proper charges, determined in accordance with
generally accepted accounting principles eliminating (i) all intercompany items,
(ii) all earnings attributable to equity interests in Persons that are not
Subsidiaries unless actually received by the Company or its Subsidiaries, (iii)
all income arising from the forgiveness, adjustment or negotiated settlement of
any Indebtedness, and (iv) any increase or decrease of income arising from any
change in the method of accounting for any item from that employed in the
preparation of the financial statements attached hereto as Exhibit 3.08.
------------
"Consolidated Net Worth" means, at any dates, the sum of (a) the par value
of all of the stock of the Company issued and outstanding, (b) the amount of any
additional paid-in-capital and (c)
(i) the positive retained earnings, if any, of the Company and
its Subsidiaries, or
(ii) less, the amount of any deficit in the retained earnings of
the Company and its Subsidiaries
as the same appears on a consolidated balance sheet of the Company and its
Subsidiaries prepared in accordance with generally
33
accepted accounting principles consistently applied as of such date, after
eliminating all intercompany items and all amounts properly attributable to (1)
any write-up in the book value of any asset resulting from a revaluation thereof
after the date of this Agreement; (2) the amount of any intangible assets
including patents, trademarks, unamortized debt discount and expense, goodwill,
covenants and agreements and the excess of the purchase price paid for assets or
stock acquired over the value assigned thereto on the books of the Company or of
the Subsidiary which shall have acquired the same; (3) earnings attributable to
any other Person unless actually received by the Company or its Subsidiaries;
and (4) changes in the method of accounting.
"Current Liabilities" means all liabilities of any corporation which would,
in accordance with generally accepted accounting principles consistently
applied, be classified as current liabilities of a corporation conducting a
business the same as or similar to that of such corporation, including, without
limitation, all rental payments due under leases required to be capitalized in
accordance with applicable Statements of Financial Accounting Standards and
fixed prepayments of, and sinking fund payments with respect to, Indebtedness
(including Indebtedness evidenced by the Notes), which payments are required to
be made within one year from the date of determination.
"Distribution" shall have the meaning assigned to that term in Section
4.02(g).
"ERISA" shall have the meaning assigned to that term in Section 3.10.
"Events of Default" shall have the meaning assigned to that term in Section
5.01.
"Government Contract" shall have the meaning assigned to that in Section
3.14.
"Indebtedness" means all obligations, contingent and otherwise, which
should, in accordance with generally accepted accounting principles consistently
applied, be classified upon the obligor's balance sheet as liabilities, but in
any event including, without limitation, liabilities secured by any mortgage on
property owned or acquired subject to such mortgage, whether or not the
liability secured thereby shall have been assumed, and also including, without
limitation, (i) all guaranties, endorsements and other contingent obligations,
in respect of Indebtedness of others, whether or not the same are or should be
so reflected in said balance sheet, except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business and (ii) the present value of any lease payments due
under leases required to be capitalized in accordance with applicable Statements
of
34
Financial Accounting Standards, determined in accordance with applicable
Statements of Financial Accounting Standards.
"Interest Charges" means the interest expense of the Company and its
Subsidiaries on Indebtedness (including the current portion thereof).
"MCRC" shall have the meaning assigned to that term in Section 1.12.
"Notes" shall have the meaning assigned to that term in Section 1.01.
"Person" means an individual, corporation, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Purchaser" or "Purchasers" means and shall include not only the Purchasers
listed in the Schedule of Purchasers attached hereto but also any other holder
or holders of any of the Notes or Warrants.
"Registration Rights Agreement" shall have the meaning assigned to that
term in Section 2.03(a).
"Registration Rights Amendment" shall have the meaning assigned to that
term in Section 2.03(a).
"Securities Act" means the Securities Act of 1933 or any similar Federal
statute, and the rules and regulations of the Securities and Exchange Commission
(or of any other Federal agency then administering the Securities Act)
thereunder, all as the same shall be in effect at the time.
"Senior Debt" shall have the meaning assigned to that term in Section
1.10(h).
"Subsidiary" or "Subsidiaries" means any corporation or trust of which the
Company and/or any of its other Subsidiaries (as herein defined) directly or
indirectly owns more than fifty percent (50%) outstanding stock having ordinary
voting power to elect a majority of the Board of Directors of such corporation
or trust.
"Warrants" shall have the meaning assigned to that term in Section 1.02.
6.02 Accounting Terms. All accounting terms not specifically defined
----------------
herein shall be construed in accordance with generally accepted accounting
principles consistent with those applied in preparation of the financial
statements attached hereto as Exhibit 3.08, and all financial data submitted
------------
pursuant to this Agreement
35
and all financial tests to be calculated in accordance with this Agreement shall
be prepared and calculated in accordance with such principles.
ARTICLE VII
MISCELLANEOUS
7.01 No Waiver; Cumulative Remedies. No failure or delay on the part of
------------------------------
the Purchasers, or any other holder of the Notes or Warrants in exercising any
right, power or remedy hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy hereunder. The remedies herein provided are cumulative and not exclusive
of any remedies provided by law.
7.02 Amendments, Waivers and Consents. Any provision in this Agreement,
--------------------------------
the Notes or the Warrants to the contrary notwithstanding, changes in or
additions to this Agreement may be made, and compliance with any covenant or
provision herein or therein set forth may be omitted or waived, if the Company
(i) shall, in the case of the Notes, obtain consent thereto in writing from the
holder or holders of at least seventy-five percent (75%) in principal amount of
all Notes then outstanding, and (ii) shall, in the case of the Warrants, obtain
the consent thereto in writing from the holder or holders of at least seventy-
five percent (75%) of the Common Stock issued and issuable upon exercise of the
Warrants; provided that no such consent shall be effective to reduce or to
--------
postpone the date fixed for the payment of the principal (including any required
redemption) or interest payable on any Note, without the consent of the holder
thereof, or to reduce the percentage of the Notes and Warrants the consent of
the holders of which is required under this Section. Any waiver or consent may
be given subject to satisfaction of conditions stated therein and any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. Written notice of any waiver or consent effected under
this subsection shall promptly be delivered by the Company to any holders who
did not execute the same.
7.03 Addresses for Notices, etc. All notices, requests, demands and other
--------------------------
communications provided for hereunder shall be in writing (including telegraphic
communication) and mailed, telegraphed, sent by facsimile or delivered to the
applicable party at the addresses indicated below:
36
If to the Company:
Credit Technologies, Inc.
281 Winter Street
Waltham, Massachusetts 02154
Attention: President
with a copy to:
John D. Patterson, Jr., Esq.
Foley, Hoag & Eliot
One Post Office Square
Boston, Massachusetts 02109
If to any Purchaser:
At such Purchaser's address as listed in
the Schedule of Purchasers attached hereto
If to any other holder of the Notes or Warrants: at such holder's address
for notice as set forth in the register maintained by the Company, or, as to
each of the foregoing, at such other address as shall be designated by such
Person in a written notice to the other party complying as to delivery with the
terms of this Section. All such notices, requests, demands and other
communications shall, when mailed, sent by facsimile or telegraphed,
respectively, be effective five (5) days from when deposited in the mails or
delivered to the telegraph company, respectively, addressed as aforesaid.
7.04 Costs, Expenses and Taxes. The Company agrees to pay on demand all
-------------------------
reasonable costs and expenses of the Purchasers in connection with the
preparation, execution and delivery of this Agreement, the Notes, the Warrants,
the Registration Rights Amendment and other instruments and documents to be
delivered hereunder, including the reasonable fees and out-of-pocket expenses of
Messrs. Testa, Hurwitz & Thibeault, special counsel for the Purchasers, with
respect thereto, as well as the reasonable fees and out-of-pocket expenses of
legal counsel, independent public accountants and other outside experts
reasonably retained by the Purchasers in connection with the amendment or
enforcement of this Agreement, the Notes, the Warrants, the Registration Rights
Agreement and other instruments and documents to be delivered hereunder or
thereunder. In addition, the Company shall pay any and all stamp and other
taxes payable or determined to be payable in connection with the execution and
delivery of this Agreement, the Notes, the Warrants and the other instruments
and documents to be delivered hereunder or thereunder and agrees to save the
Purchasers harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes and filing
fees.
37
7.05 Binding Effect; Assignment. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the Company and the Purchasers and their respective
successors and assigns, except that the Company shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Purchasers.
7.06 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made in this Agreement, the Notes, the Warrants or any other
instrument or document delivered in connection herewith or therewith, shall
survive the execution and delivery hereof or thereof and the making of the
loans.
7.07 Prior Agreements. This Agreement constitutes the entire agreement
----------------
between the parties and supersedes any prior understandings or agreements
concerning the subject matter hereof.
7.08 Severability. The invalidity or unenforceability of any provision
------------
hereof shall in no way affect the validity or enforceability of any other
provision.
7.09 Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the Commonwealth of Massachusetts.
7.10 Headings. Article, Section and subsection headings in this Agreement
--------
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
7.11 Sealed Instrument. This Agreement is executed as an instrument under
-----------------
seal.
7.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and each of the parties hereto may execute this Agreement by signing
any such counterpart.
7.13 Further Assurances. From and after the date of this Agreement, upon
------------------
the request of any Purchaser, the Company and each Subsidiary shall execute and
deliver such instruments, documents and other writings as may be necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement, the Notes and the Warrants.
7.14 Acknowledgment. The Company and each Purchaser hereby acknowledge that
--------------
the Purchasers, other than MCRC, would not have provided to the Company the
financing being provided hereunder on the terms agreed to herein had not MCRC
agreed to participate for the amount and on the terms agreed to herein.
38
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
CREDIT TECHNOLOGIES, INC.
By /s/ Pamela D.A. Reeve
--------------------------------------
Pamela D.A. Reeve, President
MASSACHUSETTS CAPITAL RESOURCE COMPANY
By /s/ Joan C. McArdle
--------------------------------------
Joan C. McArdle, Vice President
D. QUINN MILLS, AS CUSTODIAN FOR
SHIRLEY E. MILLS UNDER THE
MASSACHUSETTS UNIFORM TRANSFERS TO
MINORS ACT
By /s/ D. Quinn Mills
--------------------------------------
D. Quinn Mills, Custodian
39
CREDIT TECHNOLOGIES, INC.
Schedule of Purchasers
----------------------
Number of Total
Principal Shares of Aggregate
Name and Amount Common Stock Purchase
Address of Purchaser Of Notes Under Warrant Price
- -------------------- ---------- ------------- ----------
Massachusetts Capital $2,000,000 250,000 $2,000,000
Resource Company*
420 Boylston Street
Boston, MA 02116
D. Quinn Mills, As 100,000 12,500 100,000
Custodian for
Shirley E. Mills
Under the Massachusetts
Uniform Transfers to
Minors Act
7 Central Street
Winchester, MA 01893
---------- ------- ----------
TOTAL $2,100,000 262,500 $2,100,000
---------- ------- ----------
______________
*Payments to MCRC should be made to:
Massachusetts Capital Resource Company
P.O. Box 3707
Boston, Massachusetts 02241
40
The securities represented hereby have not been registered under the
Securities Act of 1933. These securities have been acquired for investment and
not with a view to distribution or resale, and may not be sold, mortgaged,
pledged, hypothecated or otherwise transferred without an effective registration
statement for such securities under the Securities Act of 1933, or an opinion of
counsel reasonably satisfactory to the Company that registration is not required
under such act.
This instrument is subject to a certain Subordination Agreement, dated as
of August 29, 1994, by and among the holder, Silicon Valley Bank and certain
other parties.
CREDIT TECHNOLOGIES, INC.
SUBORDINATED NOTE DUE 2001
$ [ ] August 29, 1994
For value received, Credit Technologies, Inc., a Delaware corporation (the
"Company"), hereby promises to pay to [ name ] or registered assigns
(hereinafter referred to as the "Payee"), on or before June 30, 2001, the
principal sum of [ amount ] Dollars ($ [ amt ]) or such part thereof as then
remains unpaid, to pay interest from the date hereof on the whole amount of said
principal sum remaining from time to time unpaid at the rate of eight percent
(8%) per annum, such interest to be payable quarterly on the last day of March,
June, September and December in each year, the first such payment to be due and
payable on September 30, 1994, until the whole amount of the principal hereof
remaining unpaid shall become due and payable, and to pay interest at the rate
of fourteen percent (14%) (so far as the same may be legally enforceable) on all
overdue principal (including any overdue required redemption), premium and
interest. Principal, premium, if any, and interest shall be payable in lawful
money of the United States of America, in immediately available funds, at the
principal office of the Payee or at such other place as the legal holder may
designate from time to time in writing to the Company. Interest shall be
computed on the basis of a 360-day year and a 30-day month.
This Note is issued pursuant to and is entitled to the benefits of a
certain Subordinated Note and Warrant Purchase Agreement, dated as of August 29,
1994, between the Company and the Persons listed on the Schedule of Purchasers
attached thereto (as the same may be amended from time to time, hereinafter
referred to as the "Agreement"), and each holder of this Note, by his acceptance
hereof, agrees to be bound by the provisions of the Agreement, including,
without
45
limitation, that (i) this Note is subject to prepayment, in whole or in part, as
specified in said Agreement, (ii) the principal of and interest on this Note is
subordinated to Senior Debt, as defined in the Agreement and (iii) in case of an
Event of Default, as defined in the Agreement, the principal of this Note may
become or may be declared due and payable in the manner and with the effect
provided in the Agreement.
As further provided in the Agreement, upon surrender of this Note for
transfer or exchange, a new Note or new Notes of the same tenor dated the date
to which interest has been paid on the surrender Note and in an aggregate
principal amount equal to the unpaid principal amount of the Note so surrendered
will be issued to, and registered in the name of, the transferee or transferees.
The Company may treat the person in whose name this Note is registered as the
owner hereof for the purpose of receiving payment and for all other purposes.
In case any payment herein provided for shall not be paid when due, the
Company promises to pay all cost of collection, including all reasonable
attorney's fees.
This Note shall be governed by, and construed in accordance with, the laws
of the Commonwealth of Massachusetts and shall have the effect of a sealed
instrument.
The Company and all endorsers and guarantors of this Note hereby waive
presentment, demand, notice of nonpayment, protest and all other demands and
notices in connection with the delivery, acceptance, performance or enforcement
of this Note.
CREDIT TECHNOLOGIES, INC.
By___________________________________
Pamela D.A. Reeve, President
Attest:
By:__________________________
Title:_______________________
46
The securities represented hereby have not been registered under the
Securities Act of 1933. These securities have been acquired for investment and
not with a view to distribution or resale, and may not be sold, mortgaged,
pledged, hypothecated or otherwise transferred without an effective registration
statement for such securities under the Securities Act of 1933, or an opinion of
counsel reasonably satisfactory to the Company that registration is not required
under such act.
No. W-<n> Right to Purchase <shs> Shares
of Common Stock of Credit
Technologies, Inc.
CREDIT TECHNOLOGIES, INC.
Common Stock Purchase Warrant
CREDIT TECHNOLOGIES, INC., a Delaware corporation (the "Company"), hereby
certifies that, for value received [NAME], or assigns, is entitled, subject to
the terms set forth below, to purchase from the Company at any time or from time
to time before 5:00 P.M., Boston time, on June 30, 2001, or such later time as
may be specified in Section 17 hereof, <shs> fully paid and nonassessable shares
of Common Stock, $.01 par value, of the Company, at a purchase price per share
of $4.00 (such purchase price per share as adjusted from time to time as herein
provided is referred to herein as the "Purchase Price"). The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein.
This Warrant is one of the Common Stock Purchase Warrants (the "Warrants")
evidencing the right to purchase shares of Common Stock of the Company, issued
pursuant to a certain Subordinated Note and Warrant Purchase Agreement (the
"Agreement"), dated as of August 29, 1994, between the Company and the Persons
listed in the Schedule of Purchasers attached thereto, a copy of which is on
file at the principal office of the Company and the holder of this Warrant shall
be entitled to all of the benefits of the Agreement, as provided therein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include Credit Technologies, Inc. and any
corporation which shall succeed or assume the obligations of the Company
hereunder.
47
(b) The term "Common Stock" includes the Company's Common Stock, $.01
par value per share, as authorized on the date of the Agreement and any other
securities into which or for which such Common Stock may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holders of the Warrants at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrants, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to section 5 or otherwise.
1. Exercise of Warrant.
-------------------
1.1. Full Exercise. This Warrant may be exercised in full by the
-------------
holder hereof by surrender of this Warrant, with the form of subscription at the
end hereof duly executed by such holder, to the Company at its principal office,
accompanied by payment, in cash or by certified or official bank check payable
to the order of the Company, in the amount obtained by multiplying the number of
shares of Common Stock for which this Warrant is then exercisable by the
Purchase Price then in effect.
1.2. Partial Exercise. This Warrant may be exercised in part by
----------------
surrender of this Warrant in the manner and at the place provided in subsection
1.1 except that the amount payable by the holder on such partial exercise shall
be the amount obtained by multiplying (a) the number of shares of Common Stock
designated by the holder in the subscription at the end hereof by (b) the
Purchase Price then in effect. On any such partial exercise the Company at its
expense will forthwith issue and deliver to or upon the order of the holder
hereof a new Warrant or Warrants of like tenor, in the name of the holder hereof
or as such holder (upon payment by such holder of any applicable transfer taxes)
may request, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock for which such Warrant or Warrants may still be
exercised.
1.3. Payment by Notes Surrender. Notwithstanding the payment
--------------------------
provisions of subsections 1.1 and 1.2, all or part of the payment due upon
exercise of this Warrant in full or in part may be made by the surrender by such
holder to the Company of any of the Company's Notes issued pursuant to the
Agreement and such Notes so surrendered shall be credited against such payment
in an amount equal to the principal amount thereof plus premium (if any) and
accrued interest to the date of surrender.
48
1.4 Net Issue Election. The holder hereof may elect to receive,
------------------
without the payment by such holder of any additional consideration, shares equal
to the value of this Warrant or any portion hereof by the surrender of this
Warrant or such portion to the Company, with the form of subscription at the end
hereof duly executed by such holder, at the office of the Company. Thereupon,
the Company shall issue to such holder such number of fully paid and
nonassessable shares of Common Stock as is computed using the following formula:
X = Y (A-B)
-------
A
where X = the number of shares to be issued to such holder pursuant to this
subsection 1.4.
Y = the number of shares covered by this Warrant in respect of which the
net issue election is made pursuant to this subsection 1.4.
A = the fair market value of one share of Common Stock, as determined in
good faith by the Board of Directors of the Company, as at the time the net
issue election is made pursuant to this subsection 1.4.
B = the Purchase Price in effect under this Warrant at the time the net
issue election is made pursuant to this subsection 1.4.
The Board of Directors of the Company shall promptly respond in writing to an
inquiry by the holder hereof as to the fair market value of one share of Common
Stock.
1.5. Company Acknowledgment. The Company will, at the time of the
----------------------
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
---------------------------
company shall have been appointed as trustee for the holders of the Warrants
pursuant to subsection 4.2, such bank or trust company shall have all the powers
and duties of a warrant agent appointed pursuant to section 12 and shall accept,
in its own name for the account of the Company or such successor person as may
be entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
section 1.
49
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
-------------------------------------------------
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable shares of Common
Stock (or Other Securities) to which such holder shall be entitled on such
exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
current market value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to section 1 or otherwise.
3. Adjustment for Dividends in Other Stock, Property, etc.;
--------------------------------------------------------
Reclassification, etc. In case at any time or from time to time, the holders of
- ---------------------
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of shareholders eligible to receive)
shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property
(other than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are provided
for in subsection 5.4), then and in each such case the holder of this Warrant,
on the exercise hereof as provided in section 1, shall be entitled to receive
the amount of stock and other securities and property (including cash in the
cases referred to in subdivisions (b) and (c) of this section 3) which such
holder would hold on the date of such exercise if on the date hereof he had been
the holder of record of the number of shares of Common Stock called for on the
face of this Warrant and had thereafter, during the period from the date hereof
to and including the date of such exercise, retained such shares and all such
other or additional stock and other securities and property (including cash in
the cases referred to in subdivisions (b) and (c) of this section 3) receivable
by him as aforesaid during such period, giving effect to all adjustments called
for during such period by sections 4 and 5.
50
4. Adjustment for Reorganization, Consolidation, Merger, etc.
---------------------------------------------------------
4.1. In case at any time or from time to time, the Company shall (a)
effect a reorganization, (b) consolidate with or merge into any other person, or
(c) transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, the holder of this Warrant, on the exercise
hereof as provided in section 1 at any time after the consummation of such
reorganization, consolidation or merger or the effective date of such
dissolution, as the case may be, shall receive, in lieu of the Common Stock (or
Other Securities) issuable on such exercise prior to such consummation or such
effective date, the stock and other securities and property (including cash) to
which such holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such holder had so
exercised this Warrant, immediately prior thereto, all subject to further
adjustment thereafter as provided in sections 3 and 5.
4.2. Dissolution. In the event of any dissolution of the Company
-----------
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrants after the effective date
of such dissolution pursuant to this section 4 to a bank or trust company having
its principal office in Boston, Massachusetts, as trustee for the holder or
holders of the Warrants.
4.3. Continuation of Terms. Upon any reorganization, consolidation,
---------------------
merger or transfer (and any dissolution following any transfer) referred to in
this section 4, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in section 6.
5. Adjustment for Issue or Sale of Common Stock at Less Than the Purchase
----------------------------------------------------------------------
Price in Effect.
- ---------------
5.1. General. If the Company shall at any time or from time to time,
-------
issue any additional shares of Common Stock (other than shares of Common Stock
excepted from the provisions of this section 5 by subsections 5.4 or 5.5)
without consideration or for a net consideration per share less than the
Purchase Price in effect immediately prior to such issuance,
51
then, and in each such case: (a) the Purchase Price shall be lowered to an
amount determined by multiplying such Purchase Price then in effect by a
fraction:
(1) the numerator of which shall be (a) the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock, plus (b) the number of shares of Common Stock which the
net aggregate consideration, if any, received by the Company for the total
number of such additional shares of Common Stock so issued would purchase at the
Purchase Price in effect immediately prior to such issuance, and
(2) the denominator of which shall be (a) the number of shares of
Common stock outstanding immediately prior to the issuance of such additional
shares of Common Stock plus (b) the number of such additional shares of Common
Stock so issued;
and
(b) the holder of this Warrant shall thereafter, on the exercise hereof as
provided in section 1, be entitled to receive the number of shares of Common
stock determined by multiplying the number of shares of Common Stock which would
otherwise (but for the provisions of this subsection 5.1) be issuable on such
exercise by the fraction of which (i) the numerator is the Purchase Price which
would otherwise (but for the provisions of this subsection 5.1) be in effect,
and (ii) the denominator is the Purchase Price in effect on the date of such
exercise.
5.2. Definitions, etc. For purposes of this section 5 and of section
----------------
7:
The issuance of any warrants, options or other subscription or
purchase rights with respect to shares of Common Stock and the issuance of any
securities convertible into or exchangeable for shares of Common Stock (or the
issuance of any warrants, options or any rights with respect to such convertible
or exchangeable securities) shall be deemed an issuance at such time of such
Common Stock if the Net Consideration Per Share which may be received by the
Company for such Common Stock (as hereinafter determined) shall be less than the
Purchase Price at the time of such issuance and, except as hereinafter provided,
an adjustment in the Purchase Price and the number of shares of Common Stock
issuable upon exercise of this Warrant shall be made upon each such issuance in
the manner provided in subsection 5.1. Any obligation, agreement or undertaking
to issue warrants, options, or other subscription or purchase rights at any time
in the future shall be deemed to be an issuance at the time such obligation,
agreement or undertaking is made or arises. No adjustment of the Purchase Price
and the number of shares of Common Stock issuable upon exercise of this Warrant
shall be made under subsection 5.1 upon the issuance of any shares of Common
Stock which are issued pursuant to
52
the exercise of any warrants, options or other subscription or purchase rights
or pursuant to the exercise of any conversion or exchange rights in any
convertible securities if any adjustment shall previously have been made upon
the issuance of any such warrants, options or other rights or upon the issuance
of any convertible securities (or upon the issuance of any warrants, options or
any rights therefor) as above provided. Any adjustment of the Purchase Price and
the number of shares of Common Stock issuable upon exercise of this Warrant with
respect to this subsection 5.2 which relates to warrants, options or other
subscription or purchase rights with respect to shares of Common Stock shall be
disregarded if, as, and when all of such warrants, options or other subscription
or purchase rights expire or are cancelled without being exercised, so that the
Purchase Price effective immediately upon such cancellation or expiration shall
be equal to the Purchase Price in effect at the time of the issuance of the
expired or cancelled warrants, options or other subscriptions or purchase
rights, with such additional adjustments as would have been made to that
Purchase Price had the expired or cancelled warrants, options or other
subscriptions or purchase rights not been issued. For purposes of this
subsection 5.2, the "Net Consideration Per Share" which may be received by the
Company shall be determined as follows:
(A) The "Net Consideration Per Share" shall mean the amount equal to
the total amount of consideration, if any, received by the Company for the
issuance of such warrants, options, subscriptions, or other purchase rights or
convertible or exchangeable securities, plus the minimum amount of
consideration, if any, payable to the Company upon exercise or conversion
thereof, divided by the aggregate number of shares of Common Stock that would be
issued if all such warrants, options, subscriptions, or other purchase rights or
convertible or exchangeable securities were exercised, exchanged or converted.
(B) The "Net Consideration Per Share" which may be received by the
Company shall be determined in each instance as of the date of issuance of
warrants, options, subscriptions or other purchase rights, or convertible or
exchangeable securities without giving effect to any possible future price
adjustments or rate adjustments which may be applicable with respect to such
warrants, options, subscriptions or other purchase rights or convertible
securities.
For purposes of this section 5, if a part or all of the consideration
received by the Company in connection with the issuance of shares of the Common
Stock or the issuance of any of the securities described in this section 5,
consists of property other than cash, such consideration shall be deemed to have
the same value as shall be determined in good faith by the Board of Directors of
the Company.
This subsection 5.2 shall not apply under any of the circumstances
described in
53
subsections 5.4 or 5.5.
5.3. Dilution in Case of Other Securities. In case any Other
------------------------------------
Securities shall be issued or sold, or shall become subject to issue upon the
conversion or exchange of any stock (or Other Securities) of the Company (or any
other issuer of Other Securities or any other person referred to in section 4)
or to subscription, purchase or other acquisition pursuant to any rights or
options granted by the Company (or such other issuer or person), for a
consideration per share such as to dilute the purchase rights evidenced by this
Warrant, the computations, adjustments and readjustments provided for this
section 5 with respect to the Purchase Price and the number of shares of Common
Stock issuable upon exercise of this Warrant shall be made as nearly as possible
in the manner so provided and applied to determine the amount of Other
Securities from time to time receivable on the exercise of the Warrants, so as
to protect the holders of the Warrants against the effect of such dilution.
5.4. Extraordinary Events. In the event that the Company shall (i)
--------------------
issue additional shares of the Common Stock as a dividend or other distribution
on outstanding Common Stock, (ii) subdivide its outstanding shares of Common
Stock, or (iii) combine its outstanding shares of the Common Stock into a
smaller number of shares of the Common Stock, then, in each such event, the
Purchase Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the then Purchase Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event, and the product so
obtained shall thereafter be the Purchase Price then in effect. The Purchase
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein in this subsection 5.4. The
holder of this Warrant shall thereafter, on the exercise hereof as provided in
section 1, be entitled to receive that number of shares of Common Stock
determined by multiplying the number of shares of Common Stock which would
otherwise (but for the provisions of this subsection 5.4) be issuable on such
exercise by a fraction of which (i) the numerator is the Purchase Price which
would otherwise (but for the provisions of this subsection 5.4) be in effect,
and (ii) the denominator is the Purchase Price in effect on the date of such
exercise.
5.5. Certain Issues of Common Stock Excepted. Anything herein to the
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contrary notwithstanding, the Company shall not be required to make any
adjustment of the Purchase Price or the number of shares for which this Warrant
is exercisable in the case of (i) the issuance of up to an aggregate of 900,000
shares (appropriately adjusted to reflect the occurrence of any event described
in subparagraph 5.4) of Common Stock or options thereof to directors, officers,
employees or consultants of the Company in connection with their service to the
Company or their employment by the Company or (ii) the conversation of shares of
the
Company's Series A Convertible Preferred Stock, Series B Convertible Preferred
Stock and Series C Convertible Preferred Stock as authorized on the date hereof.
Any shares of Common Stock issued pursuant to this subparagraph 5.5 which are
hereinafter repurchased by the Company at a purchase price per share no greater
than the price per share paid to the Company upon the issuance of such shares
shall again be available for issuance pursuant to this subparagraph 5.5.
6. No Dilution or Impairment. The Company will not, by amendment of its
-------------------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Warrants, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holders of the
Warrants against dilution or other impairment. Without limiting the generality
of the foregoing, the Company (a) will not increase the par value of any shares
of stock receivable on the exercise of the Warrants above the amount payable
therefor on such exercise, (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of stock on the exercise of all Warrants from time to
time outstanding, (c) will not issue any capital stock of any class which is
preferred as to dividends or as to the distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding up, unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value in
respect of participation in dividends and in any such distribution of assets,
and (d) will not transfer all or substantially all of its properties and assets
to any other person (corporate or otherwise), or consolidate with or merge into
any other person or permit any such person to consolidate with or merge into the
Company (if the Company is not the surviving person), unless such other person
shall expressly assume in writing and will be bound by all the terms of the
Warrants.
7. Certificate as to Adjustments. In each case of any adjustment or
-----------------------------
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer to compute such adjustment or readjustment in accordance
with the terms of the Warrants and prepare a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of
Common Stock (or Other Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and (c) the Purchase Price and the
number of shares of Common Stock to be received upon exercise of this Warrant,
in effect immediately prior to such issue or sale and as adjusted and readjusted
as
provided in this Warrant. The Company will forthwith mail a copy of each such
certificate to each holder of a Warrant, and will, on the written request at any
time of any holder of a Warrant, furnish to such holder a like certificate
setting forth the Purchase Price at the time in effect and showing how it was
calculated.
8. Notices of Record Date, etc. In the event of
---------------------------
(a) any taking by the Company of a record of the holders of any
class or securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, or
(d) any proposed issue or grant by the Company to all or
substantially all of its stockholders of any right or option to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities,
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up, and (iii) the amount and
character of any rights or options with respect to any shares of any stock of
any class or other securities proposed to be issued or granted by the Company to
all or substantially all of its stockholders, the date of such proposed issue or
grant and the persons or class of persons to whom such proposed issue or grant
is to be offered or made. Such notice shall be mailed at least 20 days prior to
the date specified in such notice on which any such action is to be taken.
9. Reservation of Stock, etc., Issuable on Exercise of Warrants. The
------------------------------------------------------------
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of the Warrants, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of the Warrants.
10. Exchange of Warrants. Subject to compliance with federal and
--------------------
applicable state securities laws, on surrender for exchange of any Warrant,
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or on the order of the holder thereof a new Warrant or Warrants of
like tenor, in the name of such holder or as such holder (on payment by such
holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
11. Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant,
on delivery of an indemnity agreement or security reasonably satisfactory in
form and amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of such Warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
12. Warrant Agent. The Company may, by written notice to each holder of a
-------------
Warrant, appoint an agent having an office in either Boston, Massachusetts or
New York, New York for the purpose of issuing Common Stock (or Other Securities)
on the exercise of the Warrants pursuant to section 1, exchanging Warrants
pursuant to section 10, and replacing Warrants pursuant to section 11, or any of
the foregoing, and thereafter any such issuance, exchange or replacement, as the
case may be, shall be made at such office by such agent.
13. Remedies. The Company stipulates that the remedies at law of the
--------
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
14. Negotiability, etc. This Warrant is issued upon the following terms,
------------------
to all of which each holder or owner hereof by the taking hereof consents and
agrees:
(a) subject to compliance with federal and applicable state
securities laws, title to this Warrant may be transferred by endorsement (by the
holder hereof executing the
form of assignment at the end hereof) and delivery in the same manner as in the
case of a negotiable instrument transferable by endorsement and delivery;
(b) subject to compliance with federal and applicable state
securities laws, any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is empowered to
transfer absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces all
of his equities or rights in this Warrant in favor of each such bona fide
purchaser, and each such bona fide purchaser shall acquire absolute title hereto
and to all rights represented hereby; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the contrary.
15. Notices, etc. All notices and other communications from the Company
------------
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
16. Miscellaneous. This Warrant and any term hereof may be changed,
-------------
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the Commonwealth of Massachusetts. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. This Warrant is being executed as an instrument
under seal. The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any other provision. The holder
of this Warrant shall have no rights as a stockholder with respect to shares
subject to this Warrant until such holder has exercised this Warrant for such
shares.
17. Expiration; Automatic Exercise. The right to exercise this Warrant
------------------------------
shall expire at 5:00 P.M., Boston time, on the later of (i) June 30, 2001 or
(ii) at such time as all principal and interest on the Notes (as defined in the
Agreement) is paid in full. Notwithstanding the foregoing, this Warrant shall
automatically be deemed to be exercised in full pursuant to the provisions of
subsection 1.4 hereof, without any further action on behalf of the holder
hereof, immediately prior to the time this Warrant would otherwise expire
pursuant to the preceding sentence.
Dated: August 29, 1994 CREDIT TECHNOLOGIES, INC.
By___________________________________
(Corporate Seal) Pamela D.A. Reeve, President
Attest:
By ________________________________
Its
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO CREDIT TECHNOLOGIES, INC.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, ........ shares
of Common Stock of CREDIT TECHNOLOGIES, INC. and herewith makes payment of
$........ therefor, and requests that the certificates for such shares be issued
in the name of, and delivered to ............, whose address is................
Dated: ...............................
(Signature must conform to name
of holder as specified on the
face of the Warrant)
...............................
(Address)
____________________
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto .................. the right represented by the within Warrant to purchase
............. shares of Common Stock of CREDIT TECHNOLOGIES, INC. to which the
within Warrant relates, and appoints .......................... Attorney to
transfer such right on the books of CREDIT TECHNOLOGIES, INC. with full power of
substitution in the premises.
Dated: ___________________________________
(Signature must conform to name
of holder as specified on the
face of the Warrant)
___________________________________
(Address)
Signed in the presence of:
___________________________________