STOCK PURCHASE AGREEMENT
By and Between
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
AND
CONNECTICUT INNOVATIONS, INCORPORATED
TABLE OF CONTENTS
SECTION 1. DEFINITIONS 1
SECTION 2. REPRESENTATIONS AND WARRANTIES 3
2.1 Registration Rights 3
2.2 Organization and Standing; Articles and Bylaws 3
2.3 Corporate Power 4
2.4 Subsidiaries 4
2.5 Capitalization 4
2.6 Authorization 5
2.7 Contracts 5
2.8 Financial Information 6
2.9 Absence of Undisclosed Liabilities 6
2.10 Absence of Certain Changes 7
2.11 Taxes 7
2.12 Transactions With Related Parties 7
2.13 Litigation 7
2.14 Consents 8
2.15 Title to Properties; Liens and Encumbrances 8
2.16 Leases 8
2.17 Franchises, Licenses, Trademarks, Patents and Other Rights 8
2.18 Issuance Taxes 10
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2.19 Offering 10
2.20 Compliance with Other Instruments 10
2.21 Employees 10
2.22 Business of the Company 11
2.23 Use of Proceeds 11
2.24 Applicability of, and Compliance With, Other Laws 11
2.25 Disclosure 12
2.26 Warranties and Representations at Closing 13
SECTION 3. REPRESENTATIONS AND WARRANTIES OF HOLDER 13
3.1 Experience 13
3.2 Investment 13
3.3 Rule 144 13
3.4 Access to Data 13
3.5 Accredited Investor 13
SECTION 4. REGISTRATION 14
4.1 Certain Definitions 14
4.2 Demand Registration Rights 14
4.3 Company Registration 17
4.4 Additional Registration Rights 18
4.5 Expenses of Registration 19
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4.6 Registration Procedures 19
4.7 Indemnification 19
4.8 Information by Holder 21
4.9 Rule 144 Reporting 21
SECTION 5. COVENANTS OF THE COMPANY 22
5.1 Basic Financial Information 22
5.2 Additional Information and Rights 23
5.3 Prompt Payment of Taxes, etc. 24
5.4 Maintenance of Properties and Leases 24
5.5 Insurance 24
5.6 Accounts and Records 25
5.7 Compliance with Requirements of Governmental Authorities 25
5.8 Maintenance of Corporate Existence, etc. 25
5.9 Availability of Stock for Conversion 26
5.10 Confidentiality and Non-Competition Agreements 26
5.11 Transactions with Affiliates 26
5.12 Compliance by Subsidiaries 26
5.13 Maintenance of Connecticut Presence 27
5.14 Connecticut Employment 27
5.15 Equal Opportunity 27
5.16 Certain Distributions/Payments 28
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5.17 No Conversion Rights 29
5.18 Constitution of Board of Directors 29
SECTION 6. CLOSING AND CONDITIONS TO CLOSING 29
6.1 Representations and Warranties Correct 29
6.2 Performance 30
6.3 Secretary's Certificate 30
6.4 Opinion of Company Counsel 30
6.5 Legal Investment 30
6.6 Qualifications 30
6.7 Proceedings and Documents 30
6.8 Officers' and Shareholders' Certificates 30
6.9 Stock Put and Call Agreement 30
6.10 Good Standing Certificates 31
6.11 Tax Matters 31
6.12 Commitment Fee 31
SECTION 7. MISCELLANEOUS. 31
7.1 Governing Law 31
7.2 Survival 31
7.3 Successors and Assigns 31
7.4 Entire Agreement; Amendment 31
7.5 Notices, etc. 31
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7.6 Delays or Omissions 32
7.7 Separability 32
7.8 Legal Fees and Expenses 32
7.9 Waiver 33
7.10 Titles and Subtitles 33
7.11 Counterparts 33
Schedules and Exhibits
Schedule I - Schedule of Exceptions/Disclosures
Schedule II - The Plan
Exhibit A - Secretary's Certificate
Exhibit B - Opinion of Counsel
Exhibit C - Officers' Agreement
Exhibit D - Shareholders' Agreement
Exhibit E - Stock Put and Call Agreement
7.7 Separability 32
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") dated as of December
11, 1995, between INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC. (the
"Company"), a corporation organized under the laws of the State of Connecticut,
and CONNECTICUT INNOVATIONS, INCORPORATED (the "Holder" or "Holders", which
terms shall include any and all assignees of Connecticut Innovations,
Incorporated, whether one or more).
WHEREAS, the Company has agreed to issue to the Holder shares (the
"Shares") of the Company's Class C Convertible Preferred Stock, $4,961.24 par
value per share ("Preferred Stock") which is convertible into shares of common
stock, without par value, of the Company ("Conversion Stock"), as set forth in
the Amended and Restated Certificate of Incorporation of the Company; and
WHEREAS, the Holder has agreed to purchase the Shares provided that
the Company makes certain representations, warranties and agreements, including
that the Holder shall have the right under certain circumstances to sell the
Shares, and any shares of Common Stock received upon conversion of the Shares,
in whole or in part, to the Company;
NOW THEREFORE, each of the parties hereto, in consideration of the
mutual covenants set forth herein, agrees as follows:
SECTION 1. DEFINITIONS. For all purposes of this Agreement, the following terms
shall have the meanings set forth below or in the Section of this Agreement
following such term.
Affiliate - shall mean a person (other than the Holder) (1) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, the Company, (2) which
beneficially owns or holds 5% or more of any class of the voting stock of the
Company or (3) 5% or more of the voting stock (or in the case of a person which
is not a corporation, 5% or more of the equity interest) of which is
beneficially owned or held by the Company or one of its subsidiaries. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a person, whether
through the ownership of voting securities, by contract or otherwise.
Amended Certificate - Section 2.1.
Change in Control - shall mean any transaction in which the Company
or any Permitted Successor sells all or substantially all its assets or
transfers or exclusively licenses its principal intellectual property to another
person or entity, or merges with or into another entity and the holders of
voting stock of the Company or the
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Permitted Successor prior to such event do not own and continue to own more than
50% of the voting stock of the surviving entity, or the holders of voting stock
of the Company or any Permitted Successor sell a controlling Interest to another
person or entity.
Closing - Section 6.1.
Closing Date - Section 6.1.
Common Stock - the Recitals to this Agreement.
Connecticut Presence - shall mean that the Company or any Permitted
Successor, as the case may be, together with its subsidiaries, (i) maintains its
principal place of business in the State of Connecticut, (ii) bases a majority
of its employees in the State of Connecticut, (iii) conducts a majority of its
operations (including manufacturing and production), directly or through
subcontractors, in the State of Connecticut, and (iv) maintains its principal
bank accounts in the State of Connecticut.
Conversion Shares - the Recitals to this Agreement.
Financing - Section 2.1.
Financing Documents - shall mean this Agreement, the Officers'
Agreement and all other documents and instruments executed by the Company as
part of the investment.
Intellectual Property - Section 2.17(c).
Investment - shall mean the amount of $640,000 invested by the Holder
in the Company.
Key Employees - shall mean those employees that are so identified in
the Schedule of Exceptions/Disclosures.
Listed Rights - Section 2.17(c).
Officers' Agreement - Section 2.1.
Preferred Stock - the Recitals to this Agreement.
Put and Call Agreement - Section 2.1.
Related Party - shall mean any officer, director, significant
employee or
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consultant of the Company or any holder of 5% or more of any class
of capital stock of the Company (other than the Holder) or any member of the
immediate family of any such officer, director, employee, consultant or
shareholder or any entity controlled by any such officer, director, employee,
consultant or shareholder or a member of the immediate family or any such
officer, director, employee, consultant or shareholder.
Securities - shall mean the Shares, the Holder's rights under the
Shares, and any shares of Common Stock received upon conversion of the Shares
(including in each case any securities received upon any stock dividend, stock
split or similar event).
Shareholders' Agreement - Section 2.1.
Shares - the Recitals to this Agreement.
Technology - Section 2.17(c).
SECTION 2. REPRESENTATIONS AND WARRANTIES. Except as expressly set forth (with
reference to a specific section of this Section 2) on Schedule I (the "Schedule
of Exceptions/Disclosures) the Company represents and warrants to the Holder as
follows:
2.1 Registration Rights. This Agreement between the Company and the
Holder; the Officers' Agreement by and between the Holder, the Company, and
Messrs. Charles Bakes, Lewis Bakes, Mark Spitzer and David Wells dated the date
of this Agreement (the "Officers' Agreement"); the Shareholders' Agreement by
and between the Holder, the Company and each of Portia K. Bakes, Sandra L.
Bakes, Mark Spitzer and Anne Wells dated the date of this Agreement (the
"Shareholders' Agreement"); the put and call agreement by and between the Holder
and the Company dated the date of this Agreement (the "Put and Call Agreement");
and the Amended and Restated Certificate of Incorporation of the Company (the
"Amended Certificate") set forth all agreements or understandings regarding the
granting of registration rights to investors in the $640,000 Preferred Stock
purchased by the Holder (the "Financing"); without limiting the foregoing, there
are no other agreements or understandings.
2.2 Organization and Standing; Articles and Bylaws. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Connecticut. The Company has all requisite power to own the
properties owned by it and to conduct the business as it is being conducted by
it and as contemplated by the presentation material (the "Plan") prepared by the
Company, a true and correct copy of which is attached hereto as Schedule II. The
Company is duly qualified and registered to do business in and is in good
standing in every state
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in which the property owned by it and/or the nature of its activities requires
that it be so qualified and registered. The Company has furnished the Holder and
special counsel for the Holder with true, correct and complete copies of the
Company's Amended and Restated Certificate of Incorporation and Bylaws, and all
amendments thereto and including the Closing Date and copies of the minutes of
all Board of Directors, Committees of the Board, and shareholder meetings of the
Company for the most recent two years.
2.3 Corporate Power. The Company has all requisite corporate power
to enter into this Agreement and the Put and Call Agreement and will have on the
Closing Date all requisite corporate power to issue and deliver the Shares to
the Holder and to carry out and perform its obligations under the terms of this
Agreement and the Put and Call Agreement.
2.4 Subsidiaries. The Company has no subsidiaries and does not own
of record or beneficially any capital stock or equity interest or investment in
any other corporation, partnership, association or business entity, or if the
Company has any subsidiary or subsidiaries, each subsidiary is listed on the
Schedule of Exceptions/Disclosures and each of the representations and
warranties set forth in this Section 2 is also made by the Company with respect
to each such subsidiary as if such subsidiary were the "Company" and the
Schedule of Exceptions/Disclosures shall apply to each such subsidiary in the
same manner as if such subsidiary were the "Company".
2.5 Capitalization. The Schedule of Exceptions/Disclosures contains
a true and correct list of all securities of the Company (including the amounts
thereof) outstanding immediately prior to the Closing, and the holders of any
interest in such securities. Immediately prior to the Closing, the Company's
authorized capital stock will consist of (a) 100,000 shares of Common Stock,
without par value, of which 6,094 shares will be issued and outstanding on the
Closing Date, (b) 50 shares of Class A Preferred Stock, having a $25,000 par
value per share (the "Class A Preferred"), 18 shares of which will be issued and
outstanding on the Closing Date, and (c) 2,000 shares of Class B Preferred
Stock, having a $250 par value ("Class B Preferred"), of which 1500 shares will
be issued and outstanding on the Closing Date, and 129 shares of Class C
Convertible Preferred Stock having a $4,961.24 par value per share ("Class C
Convertible Preferred"), of which none will be issued and outstanding prior to
the Closing. Upon consummation of the Closing, all issued and outstanding shares
of capital stock of the Company will have been duly authorized and validly
issued, will be fully paid and nonassessable, will be owned of record and
beneficially by the shareholders and in the amounts set forth in the Schedule of
Exceptions/Disclosures and will have been offered, issued, sold and delivered by
the Company in compliance with applicable federal and state securities laws.
Except as set forth in the Schedule of Exceptions/Disclosures, there are no
outstanding preemptive or other preferential rights, conversion rights or other
rights, options,
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warrants or agreements granted or issued by or binding upon the
Company for the purchase or acquisition of any shares of its capital stock. No
holder of Common Stock has granted any option or other right to purchase from
such shareholder any interest in any share of Common Stock. The Company holds
312 shares of its common stock in its treasury, and no other shares of its
capital stock.
2.6 Authorization. All action on the part of the Company, its
directors and shareholders necessary for the authorization, execution, delivery
and performance by the Company of this Agreement, and the other Financing
Documents and for the consummation of the transactions contemplated herein and
therein, and for the authorization, issuance and delivery of the Shares and of
the Conversion Shares has been taken or will be taken prior to Closing. This
Agreement and the other Financing Documents are each a valid and binding
obligation of the Company, enforceable in accordance with their respective
terms. The execution and delivery by the Company of this Agreement and the other
Financing Documents and compliance herewith and therewith, and the issuance and
sale of the Shares and Conversion Shares will not with or without notice or the
passage of time or both result in any violation of and will not conflict with,
or result in a breach of any of the terms of, or constitute a default under any
provision of, any state or federal law to which the Company is subject, the
Amended Certificate or the Company's Bylaws, as amended, or any mortgage,
indenture, agreement, instrument, judgment, decree, order, rule or regulation or
other restriction to which the Company is a party or by which it or any of its
property is bound, or may be affected, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company pursuant to any such term or give to any other person or
entity the right to accelerate the time for performance of any obligation of the
Company. No shareholder has any preemptive rights or rights of first refusal by
reason of or in connection with the issuance of the Shares or the Conversion
Shares. The Conversion Shares have been duly and validly reserved by action of
the Board of Directors (and are in addition to any other shares reserved for any
other purpose) and are not subject to any preemptive rights or rights of first
refusal, and, upon such issuance, will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances.
2.7 Contracts.
(a) The Schedule of Exceptions/Disclosures sets forth a
true and correct list of the following material contracts,
obligations, commitments, agreements, plans and the like
("Contracts"), whether written or oral, and all administrative,
judicial and similar orders to which the Company is a party or by
which it or any of its properties are bound, or affected:
(i) any agreement evidencing rights to purchase
securities of the Company or any agreement among
shareholders of the Company;
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(ii) any loan or other agreement, note, indenture
or instrument relating to, or evidencing, indebtedness for
borrowed money, or mortgaging, pledging or granting or
creating a lien or security interest or other encumbrance
on any property of the Company or any agreement or
instrument evidencing any guaranty by the Company of
payment or performance by any other party;
(iii) any indenture, agreement or other document
(including private placement brochures) relating to the
future sale or repurchase of securities;
(iv) any agreement to register under the
Securities Act of 1933, as amended (the "Securities Act"),
any of the securities of the Company; and
(v) any agreement providing for disposition of
any line of business, assets or securities of the Company,
or any agreement with respect to the acquisition of any
line of business, assets or shares of any other business,
any agreement of merger or consolidation or letter of
intent with respect to any of the foregoing.
(b) A copy of each of the Contracts has been delivered to
the Holder, together with a summary of each oral agreement that
constitutes a Contract. The Company has complied with all material
provisions of each such Contract. No event has occurred and no
condition exists which with notice or the passage of time or both
would constitute a default under any such Contract. To the Company's
knowledge, no party to any such Contract has threatened to terminate
or has any intentions of terminating its obligations thereunder.
2.8 Financial Information. Copies of the Company's balance sheet
dated June 30, 1995 (the "Balance Sheet"), and the related statement of cash
flows for the quarter then ended (collectively the "Financial Statements") have
been delivered to the Holder and special counsel for the Holder, present fairly
the financial position of the Company as of such date, have been prepared in
accordance with Generally Accepted Accounting Principles, consistently applied,
and show all material liabilities, absolute or contingent, of the Company
required to be recorded thereon in accordance with Generally Accepted Accounting
Principles as of the date thereof, except that the Financial Statements do not
contain footnotes and are subject to year-end adjustment.
2.9 Absence of Undisclosed Liabilities. The Company does not have,
and does not know of, any liabilities (fixed or contingent, including without
limitation any tax liabilities due or to become due), which, either individually
or in the aggregate,
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are material and not disclosed on the Balance Sheet.
2.10 Absence of Certain Changes. Since the date of the Balance
Sheet, there has not been:
(a) any change in the condition, assets, liabilities,
prospects or business of the Company from that shown on the Balance
Sheet or other Financial Statements or as described in or
contemplated by the Plan which, either individually or in the
aggregate, has been or is reasonably likely to be materially adverse;
(b) any damage to, or destruction or loss of, any of the
properties or assets for the Company (whether or not covered by
insurance) materially adversely affecting the business or plans of
the Company or the Technology;
(c) any declaration, setting aside or payment of any
dividend or other distribution in respect of any of the Company's
capital stock, or any direct or indirect redemption, purchase or
other acquisition of any of such stock (or any warrant, option or
other right with respect to such stock) by the Company or any
repayment of Company debt held by any Related Party or by any
Affiliate;
(d) any organizational activity. collective bargaining
activity, labor disputes or labor trouble; or
(e) any event or condition of any character, which, either
individually or in the aggregate, materially adversely affects the
business, operations or plans of the Company.
2.11 Taxes. The Company has filed or will file within the time
prescribed by law (including extensions of time approved by any appropriate
taxing authority) materially complete and accurate tax returns and reports
required to be filed with the United States Internal Revenue Service or with the
State of Connecticut, and (except to the extent that the failure to file would
not have a material adverse effect on the condition or operations of the
Company) with all other jurisdictions where such filling is required by law; and
the Company has paid all taxes, interest, penalties, assessments or deficiencies
due in connection therewith.
2.12 Transactions With Related Parties. There is no loan, lease or
other continuing transactions between the Company and any Related Party or any
Affiliate.
2.13 Litigation. There is neither pending nor threatened any action,
suit, proceeding or claim, whether or not purportedly on behalf of the Company,
to which the Company or any Key Employee of the Company is or may be named as a
party
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or to which the Company's or any such person's property is or may be
subject. To the best of the Company's knowledge and belief, there is no basis
for any such action, suit, proceeding or claim, in which an unfavorable outcome,
ruling or finding in any such matter or for more than one of such matters, taken
together, might have a material adverse effect on the condition, financial or
otherwise, operations or prospects of the Company or on the Technology. The
Company has no knowledge of any unasserted claim, the assertion of which is
likely and which, if asserted, will seek damages, an injunction or other legal,
equitable, monetary or nonmonetary relief which if granted would have a material
adverse effect on the condition, financial or otherwise, operations or prospects
of the Company.
2.14 Consents. No consent, approval or authorization of, or
designation, declaration or filing with, any governmental authority on the part
of the Company, including qualification under applicable state securities laws
of the offer and sale of the Shares or of the issuance of the Conversion Shares
is required in connection with the valid execution and delivery of this
Agreement, or the other Financing Documents, the offer, sale or issuance of the
Shares, the issuance of the Conversion Shares or the consummation of any other
transaction contemplated on the Closing Date or by this Agreement.
2.15 Title to Properties; Liens and Encumbrances. Except as set
forth in the Schedule of Exceptions/Disclosures, the Company has good and
marketable title to all of its properties and assets, free from all mortgages,
pledges, liens, security interests, conditional sale agreements, encumbrances or
charges.
2.16 Leases. Set forth in the Schedule of Exceptions/Disclosures, is
a correct and complete list of all leases (including, with respect to each
lease, the material provisions of such lease, including the term, the amount of
rent called for and a description of the leased property) under which the
Company is a lessee other than leases of personal property requiring rental
payments of less than $10,000 per year. The Company enjoys peaceful and
undisturbed possession under all such leases, all of such leases are valid and
subsisting and none of them are in default in any respect, and no event has
occurred and no condition exists which with notice or the passage of time or
both would constitute such a default.
2.17 Franchises, Licenses, Trademarks, Patents and Other Rights.
(a) All (i) franchises, permits, licenses and other similar
authority, (ii) patents, patent applications, patent rights, service
marks, trademarks, trademark applications, trademark rights, trade
names, trade name rights and copyrights (whether registered or not),
and (iii) know-how, technology and trade secrets, which, in any case,
are owned, possessed or used by any Related Party or which any
Related Party has the right to own, possess or use, and which in any
way are or may be usable now or in the future for the conduct of
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the Company's business as now conducted or as planned to be conducted
have been duly and validly transferred in full to the Company. The
documents and instruments evidencing such transfer are listed in the
Schedule of Exceptions/Disclosures, and a copy thereof has been
delivered to special counsel for the Holder.
(b) The Company has all franchises, permits, licenses and
other similar authority, necessary for the conduct of its business as
now being conducted by it and believes it can obtain any similar
authority necessary for the conduct of its business as planned to be
conducted, and it is not in violation, nor will the transactions
contemplated by this Agreement cause a violation of the terms or
provisions of any such franchise, permit, license or other similar
authority.
(c) The Schedule of Exceptions/Disclosures lists all
patents, patent applications, patent rights, trademarks, trademark
applications, trademark rights, trade names, trade name rights,
service marks and copyrights (whether registered or not) owned or
possessed by the Company (collectively, the "Listed Rights"). The
Listed Rights constitute all the patents, patent applications, patent
rights, trademarks, trademark applications, trademark rights, trade
names, trade name rights, service marks and copyrights (whether
registered or not) necessary to the conduct of the Company's business
as now being conducted, and the Company believes that it can obtain
any such rights necessary for the conduct of its business as planned
to be conducted. The Company has and possesses the know-how,
technology and trade secrets not included in the Listed Rights (such
know-how, technology and trade secrets being collectively called the
"Intellectual Property") which it believes to be necessary (i) to
conduct the Company's business as now being conducted and (ii) with
additional know-how, technology and trade secrets which the Company
plans to develop, for the conduct of its business as planned to be
conducted. (The Listed Rights and the Intellectual Property
collectively constitute the "Technology".) There is neither pending,
nor, to the best of the Company's knowledge and belief, threatened,
any claim or litigation against the Company contesting the validity
or right to use any of the Listed Rights or any of the Intellectual
Property, nor is the Company aware of any basis therefor, and the
Company has received no notice of infringement upon or conflict with
any asserted right of others. To the best of the Company's knowledge
and belief, no person, corporation or other entity is infringing or
violating the Listed Rights or any of the Intellectual Property. The
Company does not have any obligation to compensate others for the use
of any Listed Right or any Intellectual Property, nor has the Company
granted any license or other right to use, in any manner, any of the
Listed Rights or Intellectual Property, whether or not requiring the
payment of royalties.
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2.18 Issuance Taxes. All taxes imposed by any state in connection
with the issuance, sale and delivery of the Shares shall have been fully paid,
and all laws imposing such taxes shall have been fully complied with, prior to
the Closing Date.
2.19 Offering. Within the past six (6) months, the Company has not,
either directly or through any agent, offered any of the Shares or any security
or securities similar to the Shares for sale to, or solicited any offers to buy
the Shares or any part thereof or any such similar security or securities from,
or otherwise approached or negotiated in respect thereof with, any party or
parties other than the Holder or institutional or other sophisticated investors,
each of which was offered all or a portion of the Shares at private sale for
investment. Subject in part to the truth and accuracy of the Holder's
representations set forth in this Agreement, the offer, sale and issuance of the
Shares and Conversion Shares to the Holder as contemplated by this Agreement are
exempt from the registration requirements of the Securities Act and all
applicable state securities laws, and neither the Company nor anyone acting on
its behalf will take any action hereafter that would cause the loss of such
exemption.
2.20 Compliance with Other Instruments. The Company is not in
violation of any term of its Certificate of incorporation or Bylaws, as amended.
Neither the Company nor any of its property is in violation of any term of any
mortgage, indenture, contract, agreement, instrument, judgment, decree, order,
statute, rule or regulation to which the Company or any of such property is
subject.
2.21 Employees.
(a) No employee of the Company and no Related Party is, or
is now expected to be, in violation of any term of any employment
contract, patent disclosure agreement, non-competition agreement, or
any other contract or agreement with any prior employer or any other
person, corporation, or other entity or any restrictive covenant in
such an agreement, or any obligation imposed by common law or
otherwise, relating to the right of any such employee or Related
Party to be employed by the Company or companies similarly situated
because of the nature of the business conducted or to be conducted by
the Company or companies similarly situated or relating to the use of
trade secrets or proprietary information of others, and the continued
employment of the Company's employees and/or Related Parties does not
subject the Company or the Holder to any liability for any such
violation.
(b) Each of the Company's present or former employees who
has had access to proprietary information of the Company has executed
a confidentiality and nondisclosure agreement. To the best of the
Company's knowledge and belief, no employee or former employee of the
Company is, or is now expected to be, in violation of the terms of
the aforesaid agreement or
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of any other obligation relating to the use of confidential or
proprietary information of the Company. Each of such confidentiality
and non-disclosure agreements is in full force and effect.
(c) To the best of the Company's knowledge, no officer or
Key Employee of the Company has any present intent of terminating his
or her employment with the Company.
2.22 Business of the Company. The Company has no knowledge or belief
that (i) there is pending or threatened any claim or litigation against or
affecting the Company contesting its right to manufacture, sell or use any
product or service presently manufactured, sold or used or planned to be
manufactured, sold or used by the Company in connection with its operations,
(ii) there exists, or there is pending or planned, any statute, rule, law,
regulation, standard or code which would materially adversely affect the
condition, financial or otherwise, the operations or the prospects of the
Company, or (iii) there is any other fact which in the future may materially
adversely affect the Company's condition, financial or otherwise, operations or
prospects.
2.23 Use of Proceeds. The Company is a technology-based company
engaged in product innovation. The Company will use the proceeds of the offering
for product marketing, development and operating activities conducted in
Connecticut and for no other purposes. None of the transactions contemplated in
this Agreement (including, without limitation, the use of the proceeds from the
sale of the Shares) will violate or result in a violation of Section 7 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
regulations issued pursuant thereto, including, without limitation, Regulations
G, T and X of the Board of Governors of the Federal Reserve System, 12 C.F.R.,
Chapter 11. The Company does not own or intend to carry or purchase any "margin
security" within the meaning of said Regulation G, including margin securities
originally issued by it. None of the proceeds from the sale of the Shares will
be used to purchase or carry (or refinance any borrowing the proceeds of which
were used to purchase or carry) any "security" within the meaning of the
Exchange Act.
2.24 Applicability of, and Compliance With, Other Laws.
(a) The Company does not have or make contributions to any
pension plans, defined benefit plans or defined contribution plans
for its employees which are subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). With respect to such
plans, if any, listed on the Schedule of Exceptions/Disclosures, the
Company is in compliance with the applicable provisions of ERISA. The
Company has not incurred any unremedied accumulated funding
deficiency within the meaning of ERISA or any unsatisfied liability
to the Pension Benefit Guaranty Corporation
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established under ERISA in connection with any employee pension plan
established or maintained by the Company under the jurisdiction of
ERISA. No Reportable Event or Prohibited Transaction (as defined in
Section 4043 of ERISA) has occurred with respect to any plan
administered by the Company.
(b) The Company's employment practices and policies are in
full compliance with (i) all applicable laws of the United States and
each applicable jurisdiction relating to equal employment
opportunity, and any rules, regulations, administrative orders and
Executive Orders relating thereto; and (ii) the applicable terms,
relating to equal 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. The Company has not been the subject of
any charge of employment discrimination made against it by the United
States Equal Employment Opportunity Commission or any other
governmental unit, and is not presently subject to any formal or
informal proceedings before, or investigations by, such Commission or
governmental unit. To the Company's knowledge, neither the Company
nor any of its employees nor any Related Parties are presently under
investigation by any commission or governmental agency for purposes
of security clearance or otherwise.
(c) Neither the Company nor any property owned or occupied
by the Company is, nor to the Company's knowledge has been, in
violation of any Federal or State environmental law of any sort of in
violation of any applicable federal or state law relating to
occupational health or safety. The Schedule of Exceptions/Disclosures
contains a list of all environmental permits held by the Company.
2.25 Disclosure. Neither this Agreement, the Schedule of
Exceptions/Disclosures, the Balance Sheet, the Financial Statements, the Put and
Call Agreement, nor any other written statement furnished to the Holder or its
counsel in connection with the offer and sale of the Shares, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained therein or herein not misleading in the
light of the circumstances under which they were made. There is no fact which
the Company has not disclosed to the Holder in writing that materially adversely
affects or, so far as the Company can now foresee, will materially adversely
affect the properties, business, prospects, profits or condition (financial or
otherwise) of the Company or the ability of the Company to perform this
Agreement and the other Financing Documents. The forecasts, projections,
estimates and other forward-looking matters furnished to the Holder were
prepared on the basis of the Company's best estimates. The Company does not have
any reason to believe that any assumptions or statements of opinion contained in
such forecasts, projections, estimates or other forward-looking matters
furnished to the Holder were prepared on the basis of the
12
Company's best estimates. The Company does not have any reason to believe
that any assumptions or statements of opinion contained in such forecasts,
projections, estimates or other forward-looking matters are unreasonable or
false, and the Company believes that the Holder may reasonably rely thereon.
2.26 Warranties and Representations at Closing. All of the foregoing
warranties and representations are true, complete and correct as of the date
hereof and will be true, complete and correct at the Closing Date as if made at
the time thereof and with respect thereto.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF HOLDER. The Holder represents
and warrants to the Company as follows:
3.1 Experience. It is experienced in evaluating and investing in
companies such as the Company.
3.2 Investment. It is acquiring the Shares for investment for its
own account and not with the view to, or for resale in connection with, any
distribution thereof. It understands that the Shares have not been registered
under the Securities Act by reason of an exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of its investment intent as expressed herein.
3.3 Rule 144. It acknowledges that the Shares and the Conversion
Shares must be held indefinitely unless they are subsequently registered under
the Act or an exemption from such registration is available. It has been advised
or is aware of the provisions of Rule 144 promulgated under the Securities Act,
which permits limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions (which conditions cannot presently be,
and may never be, satisfied).
3.4 Access to Data. It has had an opportunity to ask questions of
and receive answers from, the Company's officers regarding the Company's
business, management and financial affairs with the Company's management, and it
has been furnished with copies of documents which it has requested.
3.5 Accredited Investor. It is an "accredited investor" within the
meaning of Regulation D promulgated under the Securities Act.
13
SECTION 4. REGISTRATION.
4.1 Certain Definitions. As used in this Section 4, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean the Conversion Shares into which
the Shares are convertible, less any Shares (or Conversion Shares into which
such Shares shall have been converted) theretofore sold to the public or in a
private placement.
The terms "register, registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
hereunder, and the effectiveness of such registration statement.
"Registration Expenses shall mean all expenses incurred by the
Company in compliance with Sections 4.2, 4.3 and 4.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which shall
be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, all fees and
disbursements of counsel for any Holder and any blue sky fees and expenses
excluded from the definition of "Registration Expenses."
"Holder" shall mean any holder of outstanding Shares or Registrable
Securities which (except for purposes of determining "Holders" under Section 4.7
hereof) have not been sold to the public.
"Other Shareholders" shall mean holders of securities of the Company
who are entitled by contract with the Company or who are permitted by the
Company to have securities included in a registration of the Company's
securities.
4.2 Demand Registration Rights. Immediately upon the registration
of any class of the Company's securities pursuant to the federal securities
laws, the Holder shall have the following demand registration rights:
(a) Request for Registration. If at any time the Company
shall receive from any Holder a written request that the Company
effect a
14
registration involving an underwriting with respect to all or a part
of the Registrable Securities, the Company will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its diligent
best efforts to effect such registration (including,
without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued
under the Securities Act) as may be so requested and as
would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are
specified in such request, together with all or such
portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a
written request given by such Holder or Holders within
thirty (30) days after receipt of such written notice from
the Company; provided that the Company shall not be
obligated to effect, or to take any action to effect, any
such registration pursuant to this Section 4.2;
(A) after the Company has effected two (2)
such registrations pursuant to this
Section 4.2(a) and such registrations
have been declared or ordered
effective and sales of such
Registrable Securities shall have
closed, provided, however, that any
such registration shall not be counted
as a registration for purposes of this
clause (A) if the securities of
directors, officers or Other
Shareholders, if any, included therein
comprise greater than fifty percent
(50%) of all securities included in
such registration; or
(B) prior to the date the Company becomes
subject to the reporting requirements
of the Exchange Act; or
(C) if the request for registration does
not request the registration of either
(i) 50% or more of the Registrable
Securities or (ii) Registrable
Securities with a proposed public
offering price of $5,000,000 or more;
or
(D) if, in the opinion of counsel for the
Company, which opinion shall be
reasonably satisfactory to the Holder,
the Holder has the right to sell the
Registrable Securities immediately
under Rule 144(k) of the Securities
Act.
15
Subject to the foregoing clauses (A), (B), (C) and (D), the
Company shall file a registration statement covering the
Registrable Securities so requested to be registered as
soon as practicable after receipt of the request or
requests of the Holder. The registration statement filed
pursuant to the request of the Holder may, subject to the
provisions of Section 4.2(b) below, include other
securities of the Company which are held by officers or
directors of the Company or which are held by parties who,
by virtue of agreements with the Company, are entitled to
include their securities in any such registration.
(b) Underwriting. If the Holder intends to distribute the
Registrable Securities covered by its request by means of an
underwriting, it shall so advise the Company as a part of its request
made pursuant to this Section 4.2 and the Company shall include such
information in the written notice referred to in Section 4.2(a)(i)
above. The right of any Holder to registration pursuant to this
Section 4.2 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent provided herein.
If officers or directors of the Company holding other
securities of the Company shall request inclusion in any registration
pursuant to this Section 4.2, or if holders of securities of the
Company who are entitled, by contract with the Company, to have
securities included in such registration (the "Other Shareholders")
request such inclusion, the Holder shall, on behalf of all Holders,
offer to include the securities of such officers, directors and Other
Shareholders in the underwriting and may condition such offer on
their acceptance of all applicable provisions of this Section 4. The
Company shall (together with all Holders, officers, directors and
Other Shareholders proposing to distribute their securities through
such underwriting) enter into an underwriting agreement in customary
form with the representative of the underwriter or underwriters
selected for such underwriting by the Holder and reasonably
acceptable to the Company.
Notwithstanding any other provision of this Section 4.2, if
the representative of the underwriter or underwriters advises the
Holder in writing that marketing factors make it advisable to impose
a limitation on the number of shares to be underwritten, the
securities of the Company (other than Registrable Securities) held by
officers or directors of the Company and by Other Shareholders shall
be excluded from such registration to the extent so required by such
limitation and if a limitation of the number of shares is still
required, the Holder shall so advise all Holders of Registrable
Securities whose securities would otherwise be underwritten pursuant
hereto, and the number
16
of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all such
Holders, directors, officers and Other Shareholders in proportion, as
nearly as practicable, to the respective amounts of Registrable
Securities held by such persons at the time of filing the
registration statement. No Registrable Securities or any other
securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such
registration.
If any Holder of Registrable Securities, officer, director
or Other Shareholder above disapproves of the terms of the
underwriting, such party may elect to withdraw therefrom by written
notice to the Company, the underwriter and the Holder. The securities
so withdrawn shall also be withdrawn from registration.
If the underwriter has not limited the number of
Registrable Securities or other securities to be underwritten, the
Company may include its securities for its own account in such
registration if the underwriter so agrees and if the number of
Registrable Securities and other securities which would otherwise
have been included in such registration and underwriting will not
thereby be limited.
4.3 Company Registration.
(a) Notice of Registration. If the Company shall determine
to register any of its securities either for its own account or the
account of a security holder or holders, other than a registration
relating solely to employee benefit plans, or a registration relating
solely to a Commission Rule 145 transaction, or a registration on any
registration form which does not permit secondary sales, the Company
will:
(i) promptly give to each Holder written notice
thereof (which shall include a list of the jurisdictions in
which the Company intends to attempt to qualify such
securities under the applicable blue sky or other. state
securities laws); and
(ii) include in such registration (and any
related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, all
the Registrable Securities specified in a written request
or requests, made by any Holder within fifteen (15) days
after receipt of the written notice from the Company
described in clause (i) above, subject to any limitations
on the number of shares as set forth in Section 4.3(b)
below.
(b) Underwriting. If the registration of which the Company
gives
17
notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as part of the
written notice given pursuant to Section 4.3(a)(i). In such event,
the right of any Holder to registration pursuant to Section 4.3 shall
be conditioned upon such Holder's participation in such underwriting
and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together
with the Company, directors and officers and the Other Shareholders
distributing their securities through such underwriting) enter into
an underwriting agreement in customary form with the underwriter or
underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 4.3, if
the underwriter determines that marketing factors require a
limitation on the number of shares to be underwritten, the
underwriter may (subject to the allocation priority set forth below)
exclude from such registration and underwriting some or all of the
Registrable Securities which would otherwise be underwritten pursuant
hereto. The Company shall so advise all holders of securities
requesting registration, and the number of shares of securities that
are entitled to be included in the registration and underwriting
shall be allocated in the following manner. The number of shares that
may be included in the registration and underwriting on behalf of
such Holders, directors and officers and Other Shareholders shall be
allocated among such Holders, directors and officers and Other
Shareholders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities and other securities
which they had requested to be included in such registration at the
time of filing the registration statement.
If any Holder of Registrable Securities or any officer,
director or Other Shareholder disapproves of the terms of any such
underwriting, it, he or she may elect to withdraw therefrom by
written notice to the Company and the underwriter. Any Registrable
Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
4.4 Additional Registration Rights. In the event that the Company
grants registration rights, including demand registration rights, to any other
holder of securities of the Company, the Company will promptly give to the
Holder written notice thereof and, if in the opinion of the Holder such
registration rights are more favorable than the registration rights provided
under this Agreement, the Holder shall so notify the Company within thirty (30)
days of receipt of the foregoing notice from the Company, whereupon such
registration rights shall automatically be deemed to be incorporated in this
Agreement.
18
4.5 Expenses of Registration. The Company shall bear all
Registration Expenses incurred in connection with any registration,
qualification and compliance by the Company pursuant to Sections 4.2, 4.3 and
4.4 hereof. All Selling Expenses shall be borne by the holders of the securities
so registered pro rata on the basis of the number of their shares so registered.
4.6 Registration Procedures. In the case of each registration
effected by the Company pursuant to this Section 4, the Company will keep each
Holder advised in writing as to the initiation of each registration and as to
the completion thereof. The Company will, at its expense:
(a) keep such registration effective for a period of one
hundred twenty (120) days or until the Holder or Holders have
completed the distribution described in the registration statement
relating thereto, whichever first occurs;
(b) furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably
request; and
(c) use its best efforts to register or qualify the
Registrable Securities under the securities laws or blue-sky laws of
such jurisdictions as any Holder may request; provided, however, that
the Company shall not be obligated to register or qualify such
Registrable Securities in any particular jurisdiction in which the
Company would be required to execute a general consent to service of
process in order to effect such registration, qualification or
compliance, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act or
applicable rules or regulations thereunder.
4.7 Indemnification.
(a) The Company, with respect to each registration,
qualification and compliance effected pursuant to this Section 4,
will indemnify and hold harmless each Holder, each of its officers,
directors, partners, and agents, and each party controlling such
Holder, and each underwriter, if any, and each party who controls any
underwriter, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained
in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to
any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the
Securities Act or any rule or regulation thereunder applicable to the
Company
19
and relating to action or inaction required by the Company in
connection with any such registration, qualification or compliance,
and will reimburse each such Holder, each of its officers, directors,
partners, and agents, and each party controlling such Holder, each
such underwriter and each party who controls any such underwriter,
for any legal and any other expenses incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case
to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based
solely upon written information furnished to the Company by such
Holder or underwriter, as the case may be, and stated to be
specifically for use in any prospectus, offering circular or other
document (including any related registration statement, notification
of the like) incident to any such registration, qualification or
compliance.
(b) Each Holder and Other Shareholder will, if Registrable
Securities held by it, him or her are included in the securities as
to which such registration, qualification or compliance is being
effected, indemnify and hold harmless the Company, each of its
directors and officers and each underwriter, if any, of the Company's
securities covered by such a registration statement, each party who
controls the Company or such underwriter, each other such Holder and
Other Shareholder and each of their respective officers, directors,
partners, and agents, and each party controlling such Holder or Other
Shareholder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse the
Company and such Holders, Other Shareholders, directors, officers,
partners, agents, parties, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus,
offering circular or other document solely in reliance upon and in
conformity with written information furnished to the Company by such
Holder or Other Shareholder and stated to be specifically for use in
any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to
any such registration, qualification or compliance; provided,
however, that the obligations of such Holders and Other Shareholders
hereunder shall be limited to an amount equal to the proceeds to each
such Holder or Other Shareholder of securities sold as contemplated
herein.
20
(c) Each party entitled to indemnification under this
Section 4.7 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of any
claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense
at such party's expense (unless the Indemnified Party shall have been
advised by counsel that actual or potential differing interests or
defenses exist or may exist between the Indemnifying Party and the
Indemnified Party, in which case such expense shall be paid by the
Indemnifying Party), and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Section 4. No
Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant
or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified
Party shall provide such information as may be reasonably requested
by an Indemnifying Party in order to enable such Indemnifying Party
to defend a claim as to which indemnity is sought.
4.8 Information by Holder. Each Holder of Registrable Securities,
and each Other Shareholder holding securities included in any registration,
shall furnish to the Company such information regarding such Holder or Other
Shareholder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 4.
4.9 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may permit the sale of
the Registrable Securities to the public without registration, the Company
agrees to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities
Act, at all times from and after ninety (90) days following the
effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general
public;
(b) File with the Commission in a timely manner all reports
and
21
other documents required of the Company under the Securities Act
and the Securities Exchange Act of 1934, as amended (the "Exchange
Act") at any time after it has become subject to such reporting
requirements; and
(c) So long as the Holder owns any Registrable Securities,
furnish to the Holder forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of
Rule 144 (at any time from and after ninety (90) days following the
effective date of the first registration statement in connection with
an offering of its Securities to the general public), and of the
Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and
documents so filed as the Holder may reasonably request in availing
itself of any rule or regulation of the Commission allowing the
Holder to sell any such securities without registration.
SECTION 5. COVENANTS OF THE COMPANY. The Company covenants and agrees as
follows for so long as the Holder owns the Shares or any Conversion shares.
5.1 Basic Financial Information. The Company will furnish the
following reports to the Holder:
(a) As soon as practicable after the end of each fiscal
year of the Company, and in any event within one hundred twenty (120)
days thereafter, a consolidated (and consolidating) balance sheet of
the Company and its subsidiaries, if any, as at the end of such
fiscal year, and consolidated (and consolidating) statements of
income and cash flow of the Company and its subsidiaries, if any, for
such year, prepared in accordance with generally accepted accounting
principles consistently applied and setting forth in each case in
comparative form the figures of the previous fiscal year, all in
reasonable detail and reviewed (without scope limitations imposed by
the Company) by independent public accountants of recognized standing
selected by the Company and satisfactory to the Holder;
(b) As soon as practicable after the end of each quarterly
accounting period in each fiscal year of the Company, and in any
event within thirty (30) days thereafter, a consolidated (and
consolidating) balance sheet of the Company and its subsidiaries, if
any, as of the end of each such quarterly period, and consolidated
(and consolidating) statements of income and cash flow of the Company
and its subsidiaries, if any, for such period and for the current
fiscal year to date, prepared in accordance with generally accepted
accounting principles consistently applied and setting forth in
comparative form the figures for the corresponding periods of the
previous fiscal year,
22
subject to changes resulting from year-end audit adjustments, and
setting forth any events which could reasonably be expected to have
an adverse effect upon the Company's finances or the results of its
operations, all in reasonable detail and certified by the principal
financial or accounting officer of the Company;
(c) From the date the Company becomes subject to the
reporting requirements of the Exchange Act, and in lieu of the
financial information required pursuant to Sections 5.1(a) and (b),
but within the time periods required for the furnishing thereof,
copies of its reports filed on Form 10-K, Form 10-Q, Form 8-K, or any
substantially equivalent or successor form or forms that the Company
is required to file;
(d) Each set of financial statements delivered to the
Holder pursuant to Section 5.1 will be accompanied by a certificate
of the President or a Vice President and the Treasurer or an
Assistant Treasurer of the Company setting forth:
(i) Covenant Compliance - any information
required in order to establish whether the Company was in
compliance with the requirements of this Section 5 during
the period covered by the income statement then being
furnished; and
(ii) Event of Default - that the signers have
reviewed the relevant terms of this Agreement and the other
Financing Documents and have made, or caused to be made,
under their supervision, a review of the transactions and
conditions of the Company and its subsidiaries, if any,
from the beginning of the accounting period covered by the
income statements being delivered therewith to the date of
the certificate and that such review has not disclosed the
existence during such period of any condition or event
which constitutes a breach or default under this Agreement
or any of the other Financing Documents or give the Holder
the right to redeem the Shares under the Certificate or, if
any such condition or event existed or exists, specifying
the nature and period of existence thereof and what action
the Company has taken or proposes to take with respect
thereto.
5.22 Additional Information and Rights. The Company will:
(a) Permit the Holder (or its designated representative) to
visit and inspect any of the properties of the Company, including its
books of account, and to discuss its affairs, finances and accounts
with the Company's officers and its independent public accountants,
all at such reasonable times and as often as any such party may
reasonably request;
23
(b) Deliver to the Holder the reports and data described
below:
(i) As soon as available, information and data on
any material adverse changes in or any event or condition
which materially adversely affects the business, operations
or plans of the Company;
(ii) Immediately upon becoming aware of any
condition or event which constitutes a breach of this
Agreement, written notice specifying the nature and period
of existence thereof and what action the Company is taking
or proposes to take with respect thereto; and
(iii) With reasonable promptness, such other
information and data with respect to the Company and its
subsidiaries as the Holder may from time to time reasonably
request;
(c) Not hold any meetings of its Directors on fewer than
five (5) days' written notice and will permit the Holder to send a
representative (without voting rights) to each meeting of the Board
of Directors of the Company; the Holder may also send a
representative (without voting rights) to each meeting of the
Executive Committee of Directors at which action is to be taken upon
other than routine corporate or business matters, and will give the
Holder reasonable notice thereof. The Company shall give the Holder
notice of each such meeting in the form and manner such notice is
given to the Company's directors. The Company will not permit its
directors or shareholders to conduct any material business by written
consent without giving at least five (5) days' written notice to the
Holder, which notice shall contain an exact copy of the consent
resolution proposed to be adopted.
5.3 Prompt Payment of Taxes, etc. The Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company or any subsidiary.
5.4 Maintenance of Properties and Leases. The Company will keep its
properties in good repair, working order and condition, and from time to time
make all needful and proper, or legally required, repairs, renewals,
replacements, additions and improvements thereto; and the Company and its
subsidiaries, if any, will at all times comply with each provision of all leases
to which any of them is a party or under which any of them occupies, or has
possession of, any property.
24
5.5 Insurance. The Company will keep its assets and those of its
subsidiaries which are of an insurable character insured by financially sound
and reputable insurers, which are licensed to provide such insurance in the
State of Connecticut, against loss or damage by fire, extended coverage and
explosion in amounts sufficient to prevent the Company or any subsidiary from
becoming a co-insurer and not in any event less than the replacement value of
the property insured. The Company will maintain, with financially sound and
reputable insurers, which are licensed to provide such insurance in the State of
Connecticut, insurance against other hazards and risks and liability to persons
and property to the extent and in the manner customary for companies in similar
businesses similarly situated. All such policies of insurance shall be
occurrence policies with "tail coverage" so-called respecting all prior "claims
made" policies, all in a form satisfactory to the Holder. The Company shall give
immediate written notice to insurers of loss or damage to the property and shall
promptly file proof of loss with insurers.
5.6 Accounts and Records. The Company will keep true records and
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.
5.7 Compliance with Requirements of Governmental Authorities. The
Company shall duly observe and conform to all requirements of governmental
authorities relating to the conduct of its business or to its property or
assets. Without limiting the generality of the foregoing, the Company will:
(a) Comply with all minimum funding requirements applicable
to any pension plans, employee benefit plans or employee contribution
plans which are subject to ERISA or to the Internal Revenue Code of
1986, as amended (the "Code"), and comply in all other respects with
the provisions of ERISA and the provisions of the Code applicable to
such plans; and
(b) Comply with all applicable laws of the United States
and of each 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 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; and keep all records required to be kept,
and 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.
(c) So conduct its business that neither the Company nor
any property owned or occupied by the Company is in violation of any
Federal or
25
State Environmental Law of any sort or in violation of any applicable
federal or state law relating to occupational health or safety.
5.8 Maintenance of Corporate Existence, etc. The Company shall
maintain in full force and effect its corporate existence, rights, government
approvals and franchises and all licenses and all Listed Rights and other rights
to use patents, processes, licenses, trademarks, trade names or copyrights owned
or possessed by it. The Company will not transfer, assign or license any of its
Listed Rights, know-how, technology, trade secrets or Intellectual Property now
owned or hereafter acquired by it without the written consent of the Holder,
which consent the Holder may withhold in its discretion.
5.9 Availability of Stock for Conversion. The Company will, from
time to time, in accordance with the laws of the State of Connecticut, increase
the authorized number of shares of the class of Stock into which the Shares are
convertible if at any time the number of shares remaining unissued and available
for issuance shall be insufficient to permit conversion in full of the Shares
(or the unconverted portion thereof).
5.10 Confidentiality and Non-Competition Agreements.
(a) The Company will require (i) all officers, department
heads and those performing similar functions, (ii) all employees who
make or have made a material contribution to the Technology or its
marketing or management, and (iii) all other employees who otherwise
might be deemed by the Company to be Key Employees to execute a
non-competition agreement, and all employees, officers and
consultants of the Company to execute a proprietary information and
non-disclosure agreement, in favor of the Company, all in form and
substance satisfactory to the Board of Directors of the Company, in
each case as a condition precedent to the employment of such
individuals and to induce the Holder to enter into this Agreement.
(b) The Company will cause all technological developments,
inventions, discoveries or improvements made by employees of the
Company and its subsidiaries to be fully documented in engineering
notebooks in accordance with the best prevailing industrial
professional standards, and where possible and appropriate, cause all
employees to file and prosecute United States and foreign patent
applications relating to and protecting such developments.
5.11 Transactions with Affiliates. The Company will not enter into
any transaction, including, without limitation, the purchase, sale or exchange
of property or the rendering of any service, with any Affiliate except in the
ordinary course of and pursuant to the reasonable requirements of the Company's
business and upon
26
fair and reasonable terms no less favorable to the Company than would obtain in
a comparable arm's-length transaction with a person not an Affiliate.
5.12 Compliance by Subsidiaries. The Company will cause any
subsidiary which it may now have and/or which it may organize or acquire in the
future to comply fully with all terms and provisions of Section 5 to the same
extent as if such subsidiary or subsidiaries were the "Company" herein.
5.13 Maintenance of Connecticut Presence. The Company shall not
relocate (as that term is defined in Section 32-5a of the Connecticut General
Statutes) outside of the State of Connecticut and shall maintain a "Connecticut
Presence" so long as the Holder owns any Shares or Conversion Shares. A
Connecticut Presence shall mean, (a) maintaining the Company's principal place
of business (including its executive offices and officers) in the State of
Connecticut; (b) basing a majority of its employees and those of its
subsidiaries in the State of Connecticut; (c) conducting a majority of its
operations and those of its subsidiaries, including manufacturing activities
conducted directly or through subcontractors and vendors, in the State of
Connecticut; and (d) maintaining the Company's and each subsidiary's principal
bank accounts in the State of Connecticut.
5.14 Connecticut Employment.
(a) The Company shall create jobs in the State of
Connecticut and shall use its best efforts to employ residents of
Connecticut in these jobs.
(b) If the Company is located in an enterprise zone
designated pursuant to Section 32-70 of the Connecticut General
Statutes, the Company shall not relocate (as that term is defined in
Section 32-5a of the Connecticut General Statutes) within the State
of Connecticut without first obtaining the express written consent of
the Holder, which consent will not be unreasonably withheld. If the
Company relocates within the State of Connecticut, it will offer
employment at its new location to its employees from the original
location if such employment is available.
(c) The Company shall furnish to the Holder copies of the
quarterly reports filed by the Company and any of its subsidiaries
with the Connecticut Department of Labor and upon request, employment
records and such other personnel records to the extent permitted by
law as the Holder may reasonably request to verify the creation or
retention of Connecticut employment.
(d) The Company hereby authorizes the Holder to examine,
and will at any time at the request of the Holder provide Holder with
such additional authorization satisfactory to the Connecticut
Department of Labor as may be
27
necessary to enable the Holder to examine all records of such
Department relating to the Company and/or any of its subsidiaries.
5.15 Equal Opportunity. The Company agrees and warrants that it is
an equal opportunity employer and that it does not discriminate. The Company
further agrees and warrants that:
(a) The Company will not discriminate or permit
discrimination against any employee or applicant for employment
because of sex, sexual orientation, race, color, religious creed,
age, marital status, mental retardation, physical disability,
national origin, or ancestry. Such action shall include, but not be
limited to, the following: Employment upgrading, demotion or
transfer; recruitment advertising; lay-off or termination; rates of
pay or other forms of compensation; and selection for training,
including apprenticeship.
(b) The Company will take affirmative action to insure that
applicants with job-related qualifications are employed.
(c) The Company will, in its solicitations for employees,
state that it is an "affirmative action-equal opportunity employer."
(d) The Company will provide each labor union or
representative of workers with which the Company has a collective
bargaining agreement or other contract or understanding and each
vendor with which the Company has a contract or understanding, a
notice to be provided by the Commission of Human Rights and
Opportunities (the "CHRO") and to post copies of the notice in
conspicuous places available to employees and applicants for
employment.
(e) The Company will cooperate with the Holder, the State
of Connecticut and/or any of its agencies and the CHRO to insure that
the purpose of this equal opportunity clause is being carried out.
(f) The Company will comply with all relevant regulations
and orders issued by the CHRO, to provide the CHRO with such
information as it may request, and to permit the CHRO access to
pertinent books, records, and accounts concerning the contractor's
employment practices and procedures.
(g) The Company will comply with all of the requirements
set out by Section 4a-60 of the Connecticut General Statutes, as it
may be amended.
(h) The Company will post a clearly visible notice of its
acceptance of the foregoing equal employment opportunity provisions
at its place of business.
28
5.16 Certain Distributions/Payments. The Company will not and will
not permit any subsidiary (except a 100% subsidiary) to make any direct or
indirect redemption, purchase or other acquisition of any of the Company's
capital stock (or any warrant, option or other right with respect to such stock)
except in any case stock, warrants, options or other rights owned by the Holder
or purchased from employees of the Company.
5.17 No Conversion Rights. The Company shall not issue any shares of
stock in the Company that have conversion rights without obtaining the written
consent in advance of a majority of the Holders.
5.18 Constitution of Board of Directors. Not later than March 15,
1996, the Company will expand its Board of Directors (the "Board") to include
two additional members and will maintain two such additional members on its
Board, each of whom shall be an individual having no financial relationship with
the Company or any of Charles Bakes, Lewis Bakes, Bessie Spitzer, Mark Spitzer
or David Wells (collectively, the "Founders"), other than stock ownership or
rights to acquire equity ownership in the Company, and who, in the reasonable
judgment of the Founders, are knowledgeable about the Company's industry or
technology, or both.
SECTION 6. CLOSING AND CONDITIONS TO CLOSING. The closing (the "Closing") of the
purchase and sale of the Shares shall be held at such date (the "Closing Date")
that the Company fulfills the conditions of closing set forth in this Section 6.
The Company has, or before the Closing will have, authorized the issuance and
sale of the Shares. Subject to the terms and conditions of this Agreement and in
reliance upon the representations, warranties and agreements contained herein,
the Company will issue and sell the Shares to the Holder, and the Holder will
purchase the Shares from the Company at the Closing, for the aggregate price of
$640,000. The place of the Closing, including the place of delivery to the
Holder by the Company of the Shares and the place of payment to the Company by
the Holder of the purchase price for the Shares, shall be at the offices of
Pullman & Comley, LLC, 850 Main Street, Bridgeport, Connecticut 06604, or such
other place as shall have been agreed to by the Company and the Holder. At the
Closing, the Holder shall pay the Company the purchase price by cash, check or
wire transfer, and the Company shall deliver the Holder a certificate
representing the Shares, registered in the Holder's name (or in such name or
names as Holder shall request before the Closing). Notwithstanding any other
provisions of this Agreement, if the conditions to the Closing set forth in this
Section 6 are not satisfied on or before January 1, 1996, the Holder may in its
absolute discretion at any time thereafter terminate its obligations under this
Agreement and have not further responsibilities hereunder. The obligation of the
Holder to purchase the Shares to be purchased by it at the Closing is subject to
the fulfillment to its satisfaction on or prior to the Closing Date of each of
the following conditions:
29
6.1 Representations and Warranties Correct. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct
when made, and shall be true and correct in all respects at the Closing as if
made at and as of the Closing and with respect thereto, after giving effect to
the sale and issuance of the Shares at the Closing.
6.2 Performance. All covenants, agreements and conditions contained
in this Agreement to be performed or complied with by the Company on or prior to
the Closing Date shall have been so performed or complied with in all respects.
6.3 Secretary's Certificate. The Holder shall have received a
certificate from the Secretary of the Company, substantially in the form of
Exhibit A to this Agreement, dated the Closing Date, with respect to the matters
therein set forth.
6.4 Opinion of Company Counsel. The Holder shall have received from
Kleban & Samor, P.C., counsel to the Company, an opinion addressed to it, dated
the Closing Date, to the effect and in substantially the form set forth in
Exhibit B hereto.
6.5 Legal Investment. At the time of the Closing, the purchase of
the Shares to be purchased by the Holder hereunder and of the Conversion Shares
shall be legally permitted by all laws and regulations to which it and the
Company are subject.
6.6 Qualifications. All authorizations, approvals, consents or
permits of any governmental authority, regulatory body or third party that are
required in connection with the lawful issuance and sale of the Shares pursuant
to this Agreement, the conversion of the Shares or the issuance of the
Conversion Shares upon such conversion shall have been duly obtained and shall
be effective on and as of the Closing Date, including, if necessary, permits
from applicable state securities authorities, qualifying the offer and sale of
the Shares.
6.7 Proceedings and Documents. All corporate and other proceedings
taken by the Company in connection with the transactions contemplated hereby and
all documents and instruments incident to such transactions shall be
satisfactory in substance and form to the Holder and special counsel for the
Holder.
6.8 Officers' and Shareholders' Certificates. The Holder shall have
received the Officers' Agreement, executed by certain designated officers of the
Company, to the effect and substantially in the form set forth in Exhibit C to
this Agreement, and the Shareholders' Agreement, executed by certain designated
Shareholders of the Company, to the effect and substantially in the form set
forth in Exhibit D to this Agreement.
30
6.9 Stock Put and Call Agreement. The Holder shall have received the
Stock Put and Call Agreement executed and delivered by the Company to the effect
and substantially in the form set forth in Exhibit E to this Agreement.
6.10 Good Standing Certificates. The Company shall have delivered to
the Holder a certificate of recent date from the Secretary of State of the State
of Connecticut with respect to the Company's due incorporation, good standing,
legal corporate existence, due authorization to conduct business and the payment
of all franchise taxes, and, certificates from the Secretary of State in each
jurisdiction in which the Company or any subsidiary is required to be qualified
to do business with respect to the Company's or such subsidiary's good standing
and due authorization to conduct business therein and payment of all
qualification fees.
6.11 Tax Matters. The Company shall have delivered to the Holder tax
clearance letters to Connecticut Department of Revenue Services with respect to
the corporation business and sales and use tax respecting the Company and each
subsidiary.
6.12 Commitment Fee. The Company shall have paid to the Holder a
commitment fee of $6,400, which will be non-refundable if the Company does not
satisfy all of its conditions precedent to the Closing set forth in this Section
6 and the Closing does not occur.
SECTION 7. MISCELLANEOUS.
7.1 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Connecticut.
7.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive the Closing and any investigation made by
the Holder.
7.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
7.4 Entire Agreement; Amendment. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subject hereof. Except as otherwise expressly provided herein, neither this
Agreement nor any term hereof may be amended, waive, discharged or terminated,
except by a written instrument signed by the Company and the Holder.
7.5 Notices, etc.
(a) All notices and other communications required or
permitted
31
hereunder shall be in writing and shall be mailed by
first-class, registered or certified mail, postage prepaid, or
delivered either by hand or by messenger, or sent via telex,
telecopier, computer mail or other electronic mean, addressed (a) if
to the Holder, at 40 Cold Spring Road, Rocky Mill, Connecticut 06067,
Attention: Executive Director, or at such other address as the Holder
shall have furnished to the Company in writing, or (b) if to the
Company, at 969 High Ridge Road, Suite 205, Stamford, Connecticut
06905, or at such other address as the Company shall have furnished
to the Holder and each such other holder in writing.
(b) Any notice or other communications so addressed and
mailed, postage prepaid, by registered or certified mail (in each
case, with return receipt requested) shall be deemed to be given when
so mailed. Any notice so addressed and otherwise delivered shall be
deemed to be given when actually received by the addressee.
7.6 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to the Holder upon any breach or default of the Company
under this Agreement or any other documents delivered pursuant to this Agreement
shall impair any such right, power or remedy of the Holder, nor shall it be
construed to be a waiver of any such breach or default, or any acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of the Holder of any
breach or default under this Agreement, or any waiver on the part of the Holder
of any provisions or conditions of this Agreement must be made in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement or any of such other documents or by
law or otherwise afforded to the holder, shall be cumulative and not
alternative.
7.7 Separability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
7.8 Legal Fees and Expenses.
(a) The Company will pay the reasonable legal fees and
out-of-pocket expenses of special counsel to the Holder with respect
to this Agreement and the transactions contemplated hereby, whether
or not the Investment closes. The Company shall also pay the
reasonable legal fees and the fees of experts and consultants engaged
by the Holder incurred with respect to the enforcement of any of the
Financing Documents and/or with respect to responding to any request
made by the Company for the consent of
32
the Holders to any action that the Company wishes to take that is
either barred under terms of any Financing Documents or requires the
consent of the Holder therefor.
7.9 Waiver. THE COMPANY ACKNOWLEDGES THAT THE TRANSACTION OF WHICH
THIS AGREEMENT IS A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED
UNDER CONNECTICUT GENERAL STATUTES SECTION 52-278a TO 52-278g INCLUSIVE, OR BY
ANY OTHER APPLICABLE LAW, STATE OR FEDERAL, HEREBY WAIVES ITS RIGHTS TO NOTICE
AND HEARING WITH RESPECT TO ANY PREJUDGEMENT REMEDY WHICH THE HOLDER, AND/OR
THE SUCCESSORS OR ASSIGNS OF THE HOLDER MAY DESIRE TO USE.
7.10 Titles and Subtitles. The titles of the section and subsections
of this Agreement are for convenience or reference only and are not to be
considered in construing this Agreement.
7.11 Counterparts. This Agreement may be executed in counterparts,
each of which when so executed and delivered shall constitute a complete and
original instrument but all of which together shall constitute one and the same
agreement, and it shall not be necessary when making proof of this Agreement or
any counterpart thereof to account for any other counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on their behalf as of the date written above.
INTERNATIONAL
TELECOMMUNICATION DATA
SYSTEMS, INC.
By: /s/ Lewis D. Bakes
---------------------------------
Title: VP
------------------------------
CONNECTICUT INNOVATIONS,
INCORPORATED
By: /s/ Victor R. Budnick
---------------------------------
Title: President & Executive Director
------------------------------
33
INTERNATIONAL TELECOMMUNICATION
DATA SYSTEMS, INC.
AMENDMENT TO STOCK PURCHASE AGREEMENT
Connecticut Innovations, Incorporated ("CII") and ITDS hereby amend the
Class C Preferred Stock Purchase Agreement (the "Stock Purchase Agreement")
by and between ITDS (Connecticut) and CII dated December 11, 1995, by (i)
deleting Section 5.8 effective as of the date hereof, (ii) deleting Sections
5.13, 5.14, 5.16, 5.17 and 5.18 effective upon the closing of an initial
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
common stock of ITDS (the "Offering") and the repayment of indebtedness of ITDS
to CII pursuant to a Promissory Note dated December 1994 in the original
principal amount of $389,472 and a Promissory Note dated June 1995 in the
original principal amount of $1,485,000 and (iii) deleting the definition of
"Registrable Securities" in Section 4.1 and replacing it with the following:
"Registrable Securities" shall mean any shares of Common Stock of the Company
issuable upon exercise of warrants held by the Holder on September 27, 1996 and
the Conversion Shares into which the Shares are convertible, less any Shares (or
Conversion Shares into which such Shares shall have been converted) theretofore
sold to the public or in a private placement.