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PRT GROUP INC.
SECURITIES PURCHASE AGREEMENT
SERIES A SENIOR PARTICIPATING CONVERTIBLE PREFERRED STOCK
AND
WARRANTS
dated as of April 13, 2000
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TABLE OF CONTENTS
Page
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ARTICLE I Purchase and Sale of Stock . . . . . . . . . . . . . . . 1
Section 1.1 Sale and Issuance of Preferred Stock and
Warrants . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Closing . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II Representations and Warranties of the Company . . . . . . 3
Section 2.1 Organization, Good Standing and Qualification . . . 3
Section 2.2 Capitalization and Voting Rights . . . . . . . . . 3
Section 2.3 Subsidiaries . . . . . . . . . . . . . . . . . . . 6
Section 2.4 Authorization . . . . . . . . . . . . . . . . . . . 6
Section 2.5 Valid Issuance of the Securities and Conversion
Shares . . . . . . . . . . . . . . . . . . . . . 7
Section 2.6 Governmental and Third Party Consents . . . . . . . 7
Section 2.7 Litigation; Compliance with Laws . . . . . . . . . 7
Section 2.8 Patents and Trademarks . . . . . . . . . . . . . . 8
Section 2.9 Proprietary Information of Third Parties . . . . . 9
Section 2.10 Compliance with Other Instruments . . . . . . . . . 10
Section 2.11 Interested Party Agreements . . . . . . . . . . . . 10
Section 2.12 Disclosure . . . . . . . . . . . . . . . . . . . . 10
Section 2.13 Title to Property and Assets; Leases . . . . . . . 11
Section 2.14 Changes . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.15 Employee Benefit Plans . . . . . . . . . . . . . . 14
Section 2.16 Tax Matters . . . . . . . . . . . . . . . . . . . . 14
Section 2.17 Insurance . . . . . . . . . . . . . . . . . . . . . 15
Section 2.18 Labor Agreements and Actions . . . . . . . . . . . 15
Section 2.19 Financial Statements; Filed SEC Documents . . . . . 16
Section 2.20 Absence of Undisclosed Liabilities . . . . . . . . 17
Section 2.21 Other Agreements . . . . . . . . . . . . . . . . . 17
Section 2.22 Loans and Advances . . . . . . . . . . . . . . . . 21
Section 2.23 Employees and Officers; Employee Matters . . . . . 21
Section 2.24 Potential Conflicts of Interest . . . . . . . . . . 22
Section 2.25 Environmental Protection . . . . . . . . . . . . . 22
Section 2.26 Foreign Corrupt Practices Act . . . . . . . . . . . 23
Section 2.27 Federal Reserve Regulations . . . . . . . . . . . . 23
Section 2.28 Offering of the Shares . . . . . . . . . . . . . . 23
Section 2.29 Returns . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.30 Related-Party Transactions . . . . . . . . . . . . 24
Section 2.31 Permits . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.32 Manufacturing and Marketing Rights . . . . . . . . 24
Section 2.33 Registration Rights . . . . . . . . . . . . . . . . 25
Section 2.34 Minute Books . . . . . . . . . . . . . . . . . . . 25
Section 2.35 Representations and Warranties . . . . . . . . . . 25
ARTICLE III Covenants of the Company . . . . . . . . . . . . . . . . 26
Section 3.1 Financial Statements, Reports, Etc. . . . . . . . . 26
Section 3.2 Properties, Business, Insurance . . . . . . . . . . 27
Section 3.3 Inspection, Consultation and Advice . . . . . . . . 27
Section 3.4 Restrictive Agreements Prohibited . . . . . . . . . 28
Section 3.5 Transactions with Affiliates . . . . . . . . . . . 28
Section 3.6 Expenses of Directors . . . . . . . . . . . . . . . 28
Section 3.7 Board of Directors Meetings . . . . . . . . . . . . 28
Section 3.8 By-laws . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.9 Performance of Contracts . . . . . . . . . . . . . 29
Section 3.10 Employment Agreements . . . . . . . . . . . . . . . 29
Section 3.11 Compliance with Laws . . . . . . . . . . . . . . . 29
Section 3.12 Keeping of Records and Books of Account . . . . . . 30
Section 3.13 Compensation and Audit Committees . . . . . . . . . 30
Section 3.14 Corporate Existence . . . . . . . . . . . . . . . . 30
Section 3.15 Number of Securities . . . . . . . . . . . . . . . 31
Section 3.16 Survival . . . . . . . . . . . . . . . . . . . . . 31
Section 3.17 Use of Proceeds . . . . . . . . . . . . . . . . . . 31
Section 3.18 Preemptive Rights . . . . . . . . . . . . . . . . . 31
Section 3.19 Reservation of Shares . . . . . . . . . . . . . . . 33
Section 3.20 Employee Stock Options . . . . . . . . . . . . . . 33
Section 3.21 Increase in Expenses . . . . . . . . . . . . . . . 34
Section 3.22 Use of Name and Management Responsibility . . . . . 34
Section 3.23 Board Size . . . . . . . . . . . . . . . . . . . . 34
Section 3.24 U.S. Real Property Holding Corporation . . . . . . 34
ARTICLE IV Representations, Warranties and Covenants of the
Investors . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 4.1 Authorization . . . . . . . . . . . . . . . . . . . 35
Section 4.2 Purchase Entirely for Own Account . . . . . . . . . 35
Section 4.3 Disclosure of Information . . . . . . . . . . . . . 35
Section 4.4 Restricted Securities . . . . . . . . . . . . . . . 35
Section 4.5 Limitations on Disposition . . . . . . . . . . . . 36
Section 4.6 Legends . . . . . . . . . . . . . . . . . . . . . . 36
Section 4.7 Accredited Investor . . . . . . . . . . . . . . . . 36
ARTICLE V Conditions of Each Investor's Obligations at Closing . . 37
Section 5.1 Representations and Warranties . . . . . . . . . . 37
Section 5.2 Compliance Certificate . . . . . . . . . . . . . . 37
Section 5.3 Proceedings and Documents . . . . . . . . . . . . . 37
Section 5.4 Opinion of Company Counsel . . . . . . . . . . . . 37
Section 5.5 Performance . . . . . . . . . . . . . . . . . . . . 37
Section 5.6 Purchase by Other Investors . . . . . . . . . . . . 38
Section 5.7 Supporting Documents . . . . . . . . . . . . . . . 38
Section 5.8 Certificate of Incorporation . . . . . . . . . . . 38
Section 5.9 Fees of Investors' Counsel . . . . . . . . . . . . 39
Section 5.10 Deliveries . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VI Conditions of the Company's Obligations at Closing . . . 39
ARTICLE VII Registration . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.1 Definitions . . . . . . . . . . . . . . . . . . . . 39
Section 7.2 Shelf Registration . . . . . . . . . . . . . . . . 40
Section 7.3 Obligations of the Company . . . . . . . . . . . . 43
Section 7.4 Indemnification . . . . . . . . . . . . . . . . . . 43
Section 7.5 Reports Under Exchange Act . . . . . . . . . . . . 46
Section 7.6 Assignment of Registration Rights . . . . . . . . . 47
Section 7.7 Limitations on Subsequent Registration Rights . . . 47
Section 7.8 Amendment of Registration Rights . . . . . . . . . 48
ARTICLE VIII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.1 Survival of Warranties . . . . . . . . . . . . . . 48
Section 8.2 Successors and Assigns . . . . . . . . . . . . . . 48
Section 8.3 Governing Law . . . . . . . . . . . . . . . . . . . 49
Section 8.4 Counterparts; Facsimile Counterparts . . . . . . . 49
Section 8.5 Titles and Subtitles . . . . . . . . . . . . . . . 49
Section 8.6 Notices . . . . . . . . . . . . . . . . . . . . . . 49
Section 8.7 Finder's Fee . . . . . . . . . . . . . . . . . . . 50
Section 8.8 Expenses . . . . . . . . . . . . . . . . . . . . . 50
Section 8.9 Amendments and Waivers . . . . . . . . . . . . . . 50
Section 8.10 Severability . . . . . . . . . . . . . . . . . . . 51
Section 8.11 Entire Agreement . . . . . . . . . . . . . . . . . 51
Section 8.12 Further Assurances . . . . . . . . . . . . . . . . 51
Section 8.13 Equitable Relief . . . . . . . . . . . . . . . . . 51
Section 8.14 Publicity . . . . . . . . . . . . . . . . . . . . . 51
Schedule 1.1 - Investors . . . . . . . . . . . . . . . . . . . . 54
Schedule 2.21 - Certain Agreements . . . . . . . . . . . . . . . . 55
Exhibit A - Form of Certificate of Amendment to the Certificate of
Incorporation
Exhibit B - Form of Warrant Certificate
Exhibit C - Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
Exhibit D - Form of Opinion of Richard Rosenfeld, General Counsel of the
Company
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made as
of the 13th day of April, 2000, by and among PRT Group Inc., a Delaware
corporation (the "Company"), and the investors listed on Schedule 1.1
hereto, each of which is herein referred to as an "Investor"; provided;
however, that any covenant or provision herein that is for the benefit of
any Tudor Entity (as hereinbelow defined) shall also be for the benefit of
each other Tudor Entity. Any reference herein to an "Investor" shall
further include all mutual funds or other pooled investment vehicles or
entities under the control or management of such Investor, or the general
partner or investment advisor thereof, or any affiliate of any of the
foregoing. In addition, for the purposes of this Agreement, the terms
"Tudor" or "Tudor Entity" shall mean Tudor Investment Corporation and its
Affiliates (including all mutual funds or other pooled investment vehicles
or entities under the control or management of Tudor Investment Corporation
or any of its affiliates, including without limitation any of the
following: Altar Rock Fund, L.P., Tudor Private Equity Fund, L.P., Tudor
Arbitrage Partners, L.P., Tudor BVI Futures, Ltd., Raptor Global Portfolio,
L.P., Raptor Global Portfolio, Ltd., Raptor Global Fund, L.P. and Raptor
Global Fund Ltd., or any funds or other investment vehicles or entities of
which any of the foregoing entities are Affiliates, or any Affiliate or
Affiliated Group of Tudor Investment Corporation and/or Tudor Global
Trading, Inc.) and members of its Affiliated Group, collectively.
THE PARTIES HEREBY AGREE AS FOLLOWS:
ARTICLE I
Purchase and Sale of Stock
Section 1.1 Sale and Issuance of Preferred Stock and Warrants.
(a) Subject to the terms and conditions of this Agreement
each Investor agrees, severally and not jointly, to purchase at the Closing
(as defined below) and the Company agrees to sell and issue to each such
Investor at the Closing, the number of shares (the "Shares"), of the
Company's Series A Senior Participating Convertible Preferred Stock, par
value $.001 per share (the "Series A Preferred Stock"), set forth opposite
such Investor's name on Schedule 1.1 hereto (subject to adjustment on the
occurrence of an Adjustment Event (as defined herein)). The rights,
privileges and preferences of the Series A Preferred Stock are as stated in
the Certificate of Designations attached hereto as Exhibit A (the
"Certificate of Amendment").
(b) Subject to the terms and conditions of this Agreement,
each Investor agrees, severally and not jointly, to purchase at the
Closing, and the Company agrees to sell and issue to each such Investor at
the Closing, a warrant (the "Warrant", and, collectively with the Shares,
the "Securities") to purchase the number of shares of the Company's common
stock, par value $.001 per share (the "Common Stock"), set forth opposite
such Investor's name on Schedule 1.1 hereto, at an initial exercise price
of $1.00 per share of Common Stock, subject to adjustment as set forth in
and pursuant to the terms of the Warrant. The form of Warrant is attached
hereto as Exhibit B.
(c) Each Investor agrees, severally and not jointly, to
pay, subject to the other terms hereof, an aggregate purchase price for all
Securities purchased hereunder by such Investor as set forth opposite such
Investor's name on Schedule 1.1 hereto (subject to adjustment on the
occurrence of an Adjustment Event), such consideration to be payable by
certified or bank cashier's check in immediately available funds or by wire
transfer payable to the order of the Company. The per share purchase price
for each Share shall be $1.00 per Share (as adjusted on the occurrence of
an Adjustment Event); no additional consideration shall be payable in
respect of the Warrants being purchased by the Investors pursuant to this
Agreement.
(d) As used herein, the term "Adjustment Event" means the
occurrence of any of the following with respect to any relevant Person
and/or any relevant class of its equity securities: a stock dividend,
stock split, exchange, combination or division of shares or other equity
interests, recapitalization, reclassification, merger, consolidation,
reorganization, or the like, and the term "Securities" as used in this
Agreement also includes any securities issued or issuable with respect to
the Shares, Conversion Shares, Warrants or other Securities upon the
occurrence of an Adjustment Event and any securities into which any of such
securities are converted or convertible, directly or indirectly, or for
which any of such securities are exchanged or exchangeable, directly or
indirectly, or which are issued in respect thereof upon exercise thereof.
The term "Transaction Documents" as used in this Agreement means this
Agreement, the Warrants, the Certificate of Amendment and the Certificate
of Incorporation.
Section 1.2 Closing. The closing of the purchase and sale of
the Securities shall be on a date by mutual agreement of the parties but,
without the consent of the Company, in no event later than April 14, 2000
and shall take place at the offices of Skadden, Arps, Slate, Meagher &
Flom, 919 Third Avenue, New York, New York 10022 (which time and place are
designated as the "Closing"). At the Closing, the Company shall deliver to
each Investor certificates representing the number of Securities such
Investor is purchasing as specified on Schedule 1.1 hereto.
ARTICLE II
Representations and Warranties of the Company
The Company, on behalf of itself and each of its Subsidiaries (as
hereinafter defined), hereby represents, warrants and covenants to each
Investor that on the date hereof and as of the date on which the Closing
shall occur:
Section 2.1 Organization, Good Standing and Qualification.
The Company and each Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and each has all requisite corporate power and authority
necessary to own and operate its properties and to carry on its business as
now conducted and as proposed to be conducted. The Company has the
corporate power and authority to execute, deliver and perform this
Agreement and the other Transaction Documents, to issue, sell and deliver
the Securities, and to issue and deliver the Common Stock issuable upon
conversion of the Shares and upon exercise of the Warrants (collectively,
the "Conversion Shares"). The Company and each Subsidiary is duly
qualified to transact business and is in good standing in each jurisdiction
in which the failure so to qualify would have a material adverse effect on
its business, affairs, financial condition, properties or prospects.
Section 2.2 Capitalization and Voting Rights. The authorized
capital of the Company consists, and will consist immediately prior to the
Closing, of:
(a) Preferred Stock. Ten million (10,000,000) shares of
Preferred Stock, par value $.001 per share (the "Preferred Stock"), of
undesignated preferred stock, none of which have been issued.
(b) Common Stock. Fifty million (50,000,000) shares of
Common Stock, of which 18,355,005 shares are outstanding as of the date
hereof and were duly and validly issued, and are fully paid and non-
assessable, with no personal liability attaching to the ownership thereof.
An appropriate number of shares of Common Stock have been reserved for
issuance upon the (i) exercise of options issued, and issuable, pursuant to
the Company's 1996 Stock Incentive Plan, as amended (the "Option Plan"), a
copy of which has been filed with the Company's Filed SEC Documents (as
defined herein), (ii) conversion of the Series A Preferred Stock, and (iii)
exercise of the Warrants.
(c) Non Voting Common Stock. One million (1,000,000)
shares of Non-Voting Common Stock, par value $.001 per share (the "Non-
Voting Common Stock"), of which 46,500 shares are outstanding as of the
date hereof and were duly and validly issued, and are fully paid and non-
assessable, with no personal liability attaching to the ownership thereof.
(d) Options, Etc. As of the date hereof, options (the
"Options") to purchase 2,733,494 shares of Common Stock were outstanding
under the Option Plan. There are no other outstanding options, warrants,
convertible securities or other rights (contingent or otherwise) to
purchase or otherwise acquire equity securities of the Company or any
Subsidiary.
(e) Post-Closing Capitalization. Upon the Closing, the
Company will have issued and outstanding (i) 18,355,538 shares of Common
Stock, (ii) 46,500 shares of Non-Voting Common Stock, (iii) between
7,500,000 and 10,000,000 shares of Series A Preferred Stock, depending upon
the number of shares thereof purchased by the Investors hereunder, and
Warrants to purchase between 3,750,000 and 5,000,000 shares of Common
Stock, which number will be equal to the number of shares of Series A
Preferred Stock purchased hereunder multiplied by 1/2 (one-half), and (iv)
Options to purchase 2,733,494 shares of Common Stock, and no other
securities of the Company will be outstanding. The result of the
investments contemplated hereby would be an increase in the number of
shares of Common Stock outstanding (on a fully-diluted basis and assuming
the exercise of all outstanding Options and the Warrants, conversion of all
of the Series A Preferred Stock issued hereunder, and exercise of the
warrant being issued to Carter Capital under the Carter Capital Engagement
Letter (each as defined in Section 2.2(f) hereof)) from 18,355,005 to
32,730,435 if 7,500,000 shares of Series A Preferred Stock and Warrants to
purchase 3,750,000 shares of Common Stock are issued hereunder, or from
18,355,005 to 36,499,184 if 10,000,000 shares of Series A Preferred Stock
and Warrants to purchase 5,000,000 shares of Common Stock are issued
hereunder. Based on the foregoing, (i) if 7,500,000 shares of Series A
Preferred Stock and Warrants to purchase 3,750,000 shares of Common Stock
are issued hereunder, the Investors would collectively be issued Securities
hereunder representing approximately 34.4% of the fully-diluted number of
shares of Common Stock then outstanding, and (ii) if 10,000,000 shares of
Series A Preferred Stock and Warrants to purchase 5,000,000 shares of
Common Stock are issued hereunder, the Investors would collectively be
issued Securities hereunder representing approximately 41.1% of the fully-
diluted number of shares of Common Stock then outstanding.
(f) Rights, Powers, Etc. The designations, powers,
preferences, rights, qualifications, limitations and restrictions in
respect of each class and series of authorized capital stock of the Company
(i) as of the date hereof are as set forth in the Company's Amended and
Restated Certificate of Incorporation, a copy of which has been filed with
the Filed SEC Documents, and, (ii) at the Closing will be as set forth in
the Company's Amended and Restated Certificate of Incorporation and in the
Certificate of Amendment (collectively, the "Certificate of Incorporation")
and at the Closing all such designations, powers, preferences, rights,
qualifications, limitations and restrictions shall be valid, binding and
enforceable and in accordance with all applicable laws (subject, as to
enforcement, to the discretion of the courts in awarding equitable relief
and to applicable bankruptcy, reorganization, insolvency, moratorium and
similar laws affecting the rights of creditors generally). Except as
provided for in this Agreement, other than pursuant to the Nomination
Agreement, dated as of the June 30, 1999 (the "Mellinger Agreement"), by
and among Douglas Mellinger, Gregory Mellinger, Paul Mellinger, Jerome
Mellinger and Barbara Mellinger (hereinafter collectively referred to as
the "Mellingers") and the Company, a copy of which has been filed with the
Filed SEC Documents, the rights under which have been waived by the
Mellingers with respect to the issuance of the Securities hereunder, and
other than the Engagement Letter (the "Carter Capital Engagement Letter")
dated as of February 8, 2000, between the Company and Carter Capital
Corporation ("Carter Capital"), pursuant to which Carter Capital will be
issued a warrant to purchase (x) 167,279 shares of Common Stock if
7,500,000 shares of Series A Preferred Stock and Warrants to purchase
3,750,000 shares of Common Stock are issued hereunder, or (y) 188, 287
shares of Common Stock if 10,000,000 shares of Series A Preferred Stock and
Warrants to purchase 5,000,000 shares of Common Stock are issued hereunder,
(i) no subscription, warrant, option, convertible security or other right
(contingent or otherwise and including without limitation preemptive rights
or any other rights to acquire equity securities of the Company, whether
pursuant to any "anti-dilution" provision or otherwise) to purchase or
otherwise acquire equity securities of the Company is authorized or
outstanding (whether contractual or otherwise), (ii) there is no commitment
by the Company to issue shares, subscriptions, warrants, options,
convertible securities, or other such rights or to distribute to holders of
any of its equity securities, any evidence of indebtedness or asset, and
(iii) all of the outstanding shares of capital stock and other securities
of the Company have been offered, issued and sold in compliance with all
applicable preemptive rights of all persons and all applicable provisions
of the Securities Act (as such term is defined in Section 2.5(b), below).
(g) With respect to the Subsidiaries, all of the issued and
outstanding equity securities of each Subsidiary are owned by the Company,
and, other than the Company, (i) no person owns of record or beneficially
any share of capital stock of any Subsidiary, (ii) no subscription,
warrant, option, convertible security or other right (contingent or
otherwise) to purchase or otherwise acquire equity securities of the
Subsidiaries is authorized or outstanding, and (iii) there is no commitment
by the Company or any Subsidiary to issue shares, subscriptions, warrants,
options, convertible securities, or other such rights or to distribute to
holders of any of the equity securities, any evidence of indebtedness or
asset of any Subsidiary.
(h) Outstanding Agreements. Neither the Company nor the
Subsidiaries have any obligation (contingent or otherwise) to pay any
dividend or make any other distribution in respect of any of its capital
stock. Neither the Company nor any Subsidiary is a party to any, and, to
the Company's knowledge, there are no, voting trusts or agreements,
stockholders' agreements, pledge agreements, buy-sell agreements, rights of
first refusal or proxies relating to any securities of the Company or any
Subsidiary (whether or not the Company or any Subsidiary is a party
thereto) and (other than the Mellinger Agreement) neither the Company nor
any Subsidiary is a party to any such agreement. All of the outstanding
securities of the Company and each Subsidiary were issued in compliance
with all applicable federal and state securities laws. Except as set forth
in (i) the Certificate of Incorporation or the Certificate of Amendment,
(ii) the certificate of incorporation of each Subsidiary, or (iii) this
Agreement, neither the Company nor any Subsidiary has any obligation
(contingent or otherwise) to repurchase, redeem or otherwise acquire any
shares of its capital stock.
Section 2.3 Subsidiaries. The Company owns directly or
indirectly all of the capital stock of PRT (Barbados) Ltd. ("PRT
Barbados"); PRT Solutions, SRL; PRT Solutions International, Ltd.; PRT
Europe Limited; Computer Management Resources, Inc.; PRT International
Ltd.; and PRT Mauritius Ltd. (collectively, the "Subsidiaries"). Other
than the Subsidiaries, neither the Company nor any Subsidiary presently
owns or controls, directly or indirectly, any interest in any other
corporation, association, or other business entity.
Section 2.4 Authorization. All corporate action on the part
of the Company and its shareholders, officers and directors necessary for
the authorization, execution and delivery of this Agreement and the other
Transaction Documents, the performance of all obligations of the Company
thereunder and the authorization, issuance, sale and delivery of the
Securities (including the Warrants) and reservation, issuance and delivery
of the Conversion Shares has been taken, and each of the Transaction
Documents constitutes a valid and legally binding obligation of the
Company, enforceable in accordance with its terms. The Company has
obtained any authorization, consent or approval or other action by, or made
any filing with any court or administrative body that is required under the
applicable state securities laws in connection with the issuance of the
Securities (including the Warrants) and the Conversion Shares.
Section 2.5 Valid Issuance of the Securities and Conversion
Shares.
(a) The Securities (including the Warrants), when issued,
sold and delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly issued, fully paid
and non-assessable with no personal liability attaching to the ownership
thereof, and will be free and clear of all liens, charges, restrictions,
claims and encumbrances imposed by or through the Company and, in reliance
upon the representations of the Investors in this Agreement, will be issued
in compliance with all applicable federal and state securities laws. The
Conversion Shares have been duly and validly reserved for issuance and,
upon issuance in accordance with the terms of the Certificate of
Incorporation or the Warrants, as applicable, shall be duly and validly
issued, fully paid and nonassessable, with no personal liability attaching
to the ownership thereof and will be free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the Company,
and shall be issued in compliance with all applicable federal and state
securities laws, as presently in effect.
(b) In reliance upon the representations of the Investors,
neither the offer, sale or delivery of the Securities or Warrants nor the
issuance and delivery of the Conversion Shares upon conversion of any of
the Securities in conformity with the terms of this Agreement and the other
Transaction Documents will violate the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder (collectively, the
"Securities Act").
Section 2.6 Governmental and Third Party Consents. As of the
Closing, no further permit, consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with,
any federal, state or local governmental authority or any third party on
the part of the Company or any Subsidiary will be required in connection
with the execution, delivery and performance by the Company of this
Agreement or any of the other Transaction Documents and the consummation of
the transactions contemplated hereby or thereby, other than the
registration of the Conversion Shares as contemplated by Article VII
hereof.
Section 2.7 Litigation; Compliance with Laws. There is no
action, suit, proceeding or investigation pending or currently threatened
against the Company or any Subsidiary which (i) questions the validity of
this Agreement or any of the other Transaction Documents or the right of
the Company to execute and deliver this Agreement or any of the other
Transaction Documents, or to consummate the transactions contemplated
hereby or thereby, or, (ii) might result, either individually or in the
aggregate, in any material adverse change in the assets, condition, affairs
or prospects of the Company or any Subsidiary, financial or otherwise, or
any change in the current equity ownership of the Company. The Company and
each Subsidiary is not in default under the material provisions of any law,
regulation or order, is not under any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality wherever located, and there are no (i) claims,
actions, suits or proceedings pending, or to its knowledge threatened
against or affecting the Company or any Subsidiary at law or in equity, or
before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality wherever
located, except as disclosed in the Filed SEC Documents; (ii) arbitration
proceedings relating to the Company or any Subsidiary pending under
collective bargaining agreements or otherwise; or (iii) governmental
inquiries pending or, to the Company's or any Subsidiary's knowledge,
threatened against or affecting the Company or any Subsidiary (including
without limitation any inquiry as to the qualification of the Company or
any Subsidiary to hold or receive any license or permit). The Company and
each Subsidiary have not taken any action which has resulted in, or is
reasonably likely to result in, the Company or any Subsidiary incurring any
liability which may be material to its business, prospects, financial
condition, operations, property or affairs, other than as reflected in the
Financial Statements (as defined in Section 2.19 hereof) of the Company at
December 31, 1999, copies of which have been provided to the Investors;
provided, that, if, the Common Stock fails to maintain a minimum bid price
of $1.00 per share on the Nasdaq Stock Market, the Common Stock could be
delisted from the Nasdaq Stock Market as a result of the Company failing to
meet the Nasdaq continuing listing requirements. There is no action or
suit by the Company or any Subsidiary pending or threatened against others.
Section 2.8 Patents and Trademarks. The Company and its
Subsidiaries have sufficient title and ownership of, or license rights to,
all patents, patent applications, trademarks, trademark applications,
service marks, service mark applications, trade names, copyrights, trade
secrets, information, proprietary rights and processes (collectively,
"Intellectual Property") necessary for their business as now conducted. No
claim is pending or, to the Company's or any Subsidiary's knowledge,
threatened to the effect that the use by the Company or any Subsidiary of
any Intellectual Property, or the operations of the Company or any
Subsidiary, infringe upon or conflict with the asserted rights of any other
person with respect to any Intellectual Property and neither the Company
nor any Subsidiary knows of any basis for any such claim. No claim is
pending or threatened to the effect that any Intellectual Property owned or
licensed by the Company or any Subsidiary, or otherwise necessary or used
in the business of the Company or any Subsidiary as presently conducted or
proposed to be conducted is invalid or unenforceable by the Company or any
Subsidiary and neither the Company nor any Subsidiary knows of any basis
for any such claim. The Company and each Subsidiary have used reasonable
efforts to maintain the confidentiality of all proprietary information
developed by and belonging to them which has not been patented. To the
Company's and each Subsidiary's knowledge, all scientific and technical
information developed by and belonging to the Company or any Subsidiary
which has not been patented has been kept confidential. All employees and
consultants of the Company involved in software development have executed
nondisclosure and confidentiality agreements with the Company; to the
extent that the Company has any rights therein, such agreements also
provide for the assignment to the Company of any and all rights that
employees of the Company might have with respect to technology, inventions,
developments, etc., developed in connection with such employees employment
with the Company, it being understood that nearly all engagement agreements
with Company customers contain "work for hire" clauses vesting all right,
title, interest and ownership of Intellectual Property developed for such
customer in such customer.
Section 2.9 Proprietary Information of Third Parties. To the
Company's and each Subsidiary's knowledge, no third party has claimed that
any person employed by or under the control of the Company or any
Subsidiary has (a) violated or may be violating any of the terms or
conditions of his employment, non-competition or non-disclosure agreement
with such third party, (b) disclosed or may be disclosing or utilized or
may be improperly utilizing any trade secret or proprietary information or
documentation of such third party or (c) interfered or may be interfering
in the employment relationship between such third party and any of its
present or former employees and no third party has requested information
from the Company or any Subsidiary which suggests that, or otherwise
indicated that, such a claim might be contemplated. To the Company's and
each Subsidiary's knowledge, none of the execution or delivery of this
Agreement or any of the other Transaction Documents, or the carrying on of
the business of the Company or any Subsidiary by any officer, director or
key employee of the Company and each Subsidiary, or the conduct or proposed
conduct of the business of the Company and each Subsidiary as previously
disclosed to the Investors, will conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any such person is obligated.
To the Company's and each Subsidiary's knowledge, no person employed by or
under the control of the Company or any Subsidiary has, in connection with
such person's performance of any employment or other services rendered to
the Company or any Subsidiary, employed any trade secret or any information
or documentation proprietary to any former employer, and to the Company's
and each Subsidiary's knowledge, no person employed by or under the control
of the Company or any Subsidiary has, in connection with such person's
performance of any employment or other services rendered to the Company or
any Subsidiary, violated any confidentiality obligation which such person
may have owed to any third party.
Section 2.10 Compliance with Other Instruments. The Company
and each Subsidiary are not in violation or default of any provisions of
(i) its certificate of incorporation or by-laws or other organizational or
charter documents or (ii) any instrument, judgment, order, writ, decree,
contract or other agreement to which it is a party or by which it is bound
which violation or default, in the case of clause (ii), above, only, would
either individually or in the aggregate have a material adverse effect on
the condition, financial or otherwise, or operation of the Company and its
Subsidiaries taken as a whole, and neither the Company nor any Subsidiary
has received notice alleging any material violation thereof. The
execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby, including but not limited to the
issuance, sale and delivery of the Securities (including the Warrants) or
the Conversion Shares, will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument, judgment,
order, writ, decree, contract or other agreement or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company or any Subsidiary or the suspension, revocation, impairment,
forfeiture, or nonrenewal of any permit, license, authorization or approval
applicable to the Company or any Subsidiary, except (i) for pledges or
liens which either individually or in the aggregate are not material to the
Company and its Subsidiaries taken as a whole, or (ii) a violation or
conflict with any permit, license, authorization or approval which would
not have a material adverse effect on the condition, financial or
otherwise, or operation of the Company and its Subsidiaries taken as a
whole. The Securities (including the Warrants) and Conversion Shares are
not subject to any preemptive rights.
Section 2.11 Interested Party Agreements. Except for the
Mellinger Agreement and the related separation agreements with Douglas
Mellinger and Greg Mellinger filed with the Securities and Exchange
Commission (the "SEC") along with the Mellinger Agreement, and except as
otherwise disclosed in the Filed SEC Documents, there are no agreements,
understandings or proposed transactions between the Company or any
Subsidiary and any of their stockholders, officers, directors, affiliates,
or any affiliate thereof.
Section 2.12 Disclosure. Neither this Agreement nor any of the
other Transaction Documents, nor any schedule or exhibit to this Agreement
or any of the other Transaction Documents, taken together as a whole,
contains an untrue statement of a material fact or omits a material fact
necessary, in light of the circumstances under which they were made, to
make the statements contained herein or therein not untrue or misleading;
provided, that the Company has not made, and will not make, any statement
regarding the tax consequences of an investment in the Securities or the
Conversion Shares, and the Investors hereby acknowledge that no such
statement has been or will be made and such Investors have not relied upon
any disclosure (or non-disclosure) by the Company regarding such tax
consequences in making their decision to invest in the Shares or the
Conversion Shares. None of the statements, documents, certificates or
other items prepared or supplied by the Company with respect to the
transactions contemplated hereby contains an untrue statement of a material
fact or omits a material fact necessary to make the statements contained
therein not untrue or misleading. There is no fact which the Company has
not disclosed to the Investors or their counsel of which the Company is
aware which materially and adversely affects or could reasonably be
expected to materially and adversely affect the business, prospects,
financial condition, operations, property or affairs of the Company or any
of its Subsidiaries.
Section 2.13 Title to Property and Assets; Leases. Other than
those security interests of Bank of America Commercial Finance ("Bank of
America"), as successor in interest to NationsCredit Commercial Corporation
("Nations Credit"), pursuant to the Loan and Security Agreement and related
agreements with NationsCredit (the "Credit Facility"), copies of which have
been made available to the Investors, the Company and each Subsidiary owns
its property and assets free and clear of all mortgages, liens and
encumbrances, except such encumbrances and liens which arise in the
ordinary course of business and do not materially impair the Company's or
such Subsidiary's ownership, or use of such property or assets or the
Company's or such Subsidiary's ability to obtain financing by using such
property as collateral. To the Company's and each Subsidiary's knowledge,
there are no condemnation, environmental, zoning or other land use
regulation proceedings, either instituted or planned to be instituted,
which would adversely affect the use or operation of the Company's or any
Subsidiary's properties and assets for their respective intended uses and
purposes, or the value of such properties, and the Company and each
Subsidiary has not received notice of any special assessment proceedings
which would affect such properties and assets. With respect to the
property and assets it leases, the Company and each Subsidiary is in
compliance with such leases and, to the Company's and each Subsidiary's
knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances. The Company's and each Subsidiary's possession of such
property has not been disturbed and, to the Company's and each Subsidiary's
knowledge, no claim has been asserted against the Company or any Subsidiary
adverse to its rights in such leasehold interests. Each lease or agreement
to which the Company or any Subsidiary is a party under which it is a
lessee of any property, real or personal, is a valid and subsisting
agreement of the Company or such Subsidiary, duly authorized and entered
into by the Company or such Subsidiary, without any material default of the
Company or any Subsidiary thereunder and, to the Company's and each
Subsidiary's knowledge, without any default thereunder of any other party
thereto. No event has occurred and is continuing which, with due notice or
lapse of time or both, would constitute a default or event of default by
the Company or any Subsidiary under any such lease or agreement or, to the
Company's or any Subsidiary's knowledge, by any other party thereto.
Section 2.14 Changes. Except as previously disclosed to and
agreed upon by the Investors, from December 31, 1999 until the date hereof,
there has not been, and from the date hereof until the Closing, there will
not be:
(a) any adverse change in the assets, liabilities,
financial condition or operating results of the Company and each
Subsidiary, except changes in the ordinary course of business which have
not been, individually or in the aggregate, materially adverse, including
the expenditure of funds for research and development and otherwise in
connection with the Company's and each Subsidiary's operations;
(b) any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the
Company and each Subsidiary (as such business is presently conducted and as
it is proposed to be conducted);
(c) any waiver or compromise by the Company or any
Subsidiary of a valuable right or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or any Subsidiary,
except in the ordinary course of business and which is not material to the
assets, properties, financial condition, operating results, prospects or
business of the Company;
(e) any change or amendment to a contract or arrangement by
which the Company, any Subsidiary or any of their assets or properties are
bound or subject which has a material effect on the Company and its
Subsidiaries taken as a whole, except as set forth in this Agreement;
(f) any changes in the identity of, or material information
regarding, any of the Company's or its Subsidiaries' officers or directors
or any material increases in the compensation, including the grant of
options to purchase a material number of shares of Common Stock, of any of
the Company's or any Subsidiaries' employees, officers or directors;
(g) any incurrence, assumption or guarantee by the Company
or any Subsidiary of any material obligation for borrowed money, except for
borrowings under the Credit Facility and current liabilities incurred in
the ordinary course of business;
(h) other than in connection with the Credit Facility, any
mortgage, pledge, lien, charge or other encumbrance placed on or incurred
with respect to any of the Company's or any Subsidiary's properties or
assets;
(i) to the Company's knowledge, any other event or
condition of any character which can reasonably be expected to materially
and adversely affect the assets, properties, financial condition, operating
results, prospects or business of the Company and its Subsidiaries taken as
a whole;
(j) any declaration or payment of any dividend or other
distribution of the assets of the Company or any Subsidiary or any direct
or indirect redemption or other acquisition of any equity security of the
Company or any Subsidiary;
(k) except as contemplated hereby, any change in the
authorized capital of the Company or any Subsidiary;
(l) a sale, assignment or transfer by the Company or any
Subsidiary of any of its tangible assets except in the ordinary course of
business;
(m) a sale, assignment, transfer or grant of any exclusive
license with respect to any of the Company's or any Subsidiary's
Intellectual Property;
(n) any material change in the manner of business or
operations of the Company or any Subsidiary;
(o) any transaction with respect to the Company or any
Subsidiary except in the ordinary course of business or as otherwise
contemplated hereby;
(p) any resignation or termination of employment of any
executive officer or key employee of the Company or any Subsidiary;
(q) receipt of notice that there has been a loss of, or
material order cancellation by, any major customer of the Company or any
Subsidiary;
(r) any loan or guarantee made by the Company or any
Subsidiary to or for the benefit of its employees, officers, directors or
stockholders, or any members of their immediate families, other than travel
advances and other advances made in the ordinary course of its business;
(s) any commitment (contingent or otherwise) to do any of
the foregoing; or
(t) any material adverse change, or, to the best of the
Company's and each Subsidiary's knowledge, the existence of any fact that
would indicate a material adverse change is likely to occur, in the
arrangements between PRT Barbados and the government of Barbados.
Section 2.15 Employee Benefit Plans. Except for the Company's
Option Plan and 401(k) plan, the Company does not have any Employee Benefit
Plan as defined in the Employee Retirement Income Security Act of 1974, as
amended, other than those providing for health and medical benefits.
Section 2.16 Tax Matters. (a) (i) the Company and each
Subsidiary has filed or has had filed on its behalf in a timely manner
(within any applicable extension periods) all Tax Returns (as defined
herein) required to be filed with respect to Taxes (as defined herein) of
the Company and each Subsidiary, and (ii) all Taxes with respect to the
Company and each Subsidiary which are due and payable or on any assessment
received by the Company or a Subsidiary, as the case may be, and all other
Taxes due and payable by the Company and each Subsidiary on or before the
Closing have been paid in full or have been adequately provided for by the
Company and each Subsidiary, respectively. The Tax Returns filed by the
Company and each Subsidiary are, to the Company's and each Subsidiary's
knowledge, true and correct in all material respects. The Company and each
Subsidiary have never waived any statute of limitations on the assessment
or collection of any tax or governmental charge. Neither the Company nor
any of its present or former stockholders has ever filed an election
pursuant to Section 1362 of the Internal Revenue Code of 1986, as amended
(the "Code"), that the Company be taxed as an S corporation. The federal
income tax returns of the Company have never been audited, with the
exception of the tax returns for the taxable year of 1995 which were
audited by the Internal Revenue Service; such audit was completed in 1999.
The tax returns of each Subsidiary have never been subject to audit by any
taxing authority.
(b) For purposes of this Agreement, (i) "Taxes" shall mean
all taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, sales, use, ad valorem, goods and
services, capital, transfer, franchise, profits, license, withholding,
payroll, employment, employee health, excise, estimated, severance, stamp,
occupation, property or other taxes, customs duties, fees, assessments or
charges of any kind whatsoever, together with any interest and any
penalties, additions to tax or additional amounts imposed by any taxing
authority and (ii) "Tax Return" shall mean any report, return, document,
declaration or other information or filing required to be supplied to any
taxing authority or jurisdiction with respect to Taxes.
Section 2.17 Insurance. Schedule 2.17 hereto lists the
material policies of theft, fire, liability, worker's compensation, life,
property and casualty, directors' and officers', medical malpractice, and
other insurance owned or held by the Company. Such policies of insurance
are maintained with, to the knowledge of the Company, financially sound and
reputable insurance companies, funds, or underwriters, are of the kinds and
cover such risks, and are in such amounts and with such deductibles and
exclusions, as are consistent with prudent business practice in light of
the Company's business. All such policies are in full force and effect,
are sufficient for compliance in all respects by the Company with all
requirements of law and of all agreements to which it is a party, and will
not terminate or lapse or otherwise be affected in any way by reason of the
transactions contemplated hereby.
Section 2.18 Labor Agreements and Actions. The Company and
each Subsidiary is not bound by or subject to (and none of their assets or
properties is bound by or subject to) any written or oral, express or
implied, contract, commitment or arrangement with any labor union, and no
labor union has requested or, to the knowledge of the Company and each
Subsidiary, has sought to represent any of the employees, representatives
or agents of the Company or any Subsidiary. There is no strike or other
labor dispute involving the Company or any Subsidiary pending, or to the
Company's or any Subsidiary's knowledge, threatened, that has had or would
reasonably be expected to have a material adverse effect on the business
affairs, financial condition, properties or prospects of the Company and
its Subsidiaries taken as a whole, nor is the Company or any Subsidiary
aware of any labor organization activity involving its employees. Except
as otherwise disclosed to and agreed upon by the Investors, the Company and
each Subsidiary are not aware that any officer or key employee, or that any
group of key employees, intends to terminate their employment with the
Company or any Subsidiary, nor does the Company or any Subsidiary have a
present intention to terminate the employment of any of the foregoing. The
employment of each officer and employee of the Company and each Subsidiary
is terminable at the will of the Company or the Subsidiary, except as
provided in the Employment Agreements (as defined in Section 2.23 hereof).
The Company and each Subsidiary has complied in all material respects with
all applicable state and federal equal employment opportunity and other
laws related to employment.
Section 2.19 Financial Statements; Filed SEC Documents. (a)
The Company has furnished to the Investors the (i) audited consolidated
balance sheet of the Company as at December 31, 1999, the related audited
statements of operations, stockholders' equity and cash flows of the
Company for the period from January 1, 1999 through December 31, 1999, and
the related audited statements of income, stockholders' equity and cash
flows of the Company for the year ended December 31, 1999, and (ii)
unaudited consolidated balance sheet of the Company as at January 31 and
February 29, 2000, the related unaudited statements of operations,
stockholders' equity and cash flows of the Company for the period from
January 1, 2000 through February 29, 2000, and the related unaudited
statements of income, stockholders' equity and cash flows of the Company
for the months ended January 31 and February 29, 2000 (collectively, the
"Financial Statements"). All such Financial Statements have been prepared
in accordance with generally accepted accounting principles consistently
applied (except that such unaudited financial statements do not contain all
of the required footnotes) and fairly present the financial position of the
Company and its Subsidiaries as of such dates, and the results of their
operations and cash flows for the periods indicated therein. As the
Investors have been made aware, the Company's independent public auditors
have completed their audit of the Financial Statements as at and for the
year ending December 31, 1999, but will not render their final opinion as
to the Financial Statements until the investments contemplated hereby have
been made. The Investors have been made aware of all material aspects of
the discussions of the Company and its independent auditors with respect to
the foregoing.
(b) The Company has filed all required reports, schedules,
forms, statements and other documents with the SEC as and when any such
documents were required to be filed (such reports, schedules, forms,
statements and other documents, and the exhibits thereto, being hereinafter
referred to as the "Filed SEC Documents") and no Filed SEC Documents were
filed after the filing deadline therefor or otherwise in an untimely
manner. As of their respective dates, the Filed SEC Documents complied in
all material respects with the requirements of the Securities Act, or the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "Exchange Act"), as applicable, and the rules
and regulations of the SEC promulgated thereunder applicable to such Filed
SEC Documents, and none of the Filed SEC Documents as of such dates,
contained any untrue statements of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The consolidated financial statements of Company
included in the Filed SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the
case of unaudited consolidated quarterly statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may otherwise be indicated in the notes thereto) and fairly
present the consolidated financial position of Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of unaudited quarterly statements, to normal year-end audit adjustments).
Section 2.20 Absence of Undisclosed Liabilities. The Company
does not have any material liabilities or obligations (whether accrued,
absolute, contingent, unliquidated or otherwise, whether due or to become
due) which are not reflected in this Agreement, the Filed SEC Documents or
the Financial Statements. Except as disclosed in the Financial Statements
or the Filed SEC Documents, the Company and each Subsidiary is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation. The Company and each Subsidiary maintain and will continue to
maintain a system of accounting established and administered in accordance
with generally accepted accounting principles.
Section 2.21 Other Agreements. Neither the Company nor any
Subsidiary is a party to or otherwise bound by any written or oral:
(a) service, distributor, dealer, manufacturer's
representative or sales agency agreement which is not terminable on less
than ninety (90) days' notice without cost or other liability to the
Company or any Subsidiary, as applicable, except for those agreements that
involve less than (x) $100,000 as to any revenue-producing staff
augmentation and/or project agreements entered into by the Company in the
ordinary course, or (y) $50,000 as to any such agreement not described by
clause (x) of this Section 2.21(a);
(b) agreement which entitles any customer to a rebate or
right of set-off, to return any product to the Company or any Subsidiary
after acceptance thereof or to delay the acceptance thereof, except for
those agreements which individually or in the aggregate do not have and are
not reasonably expected to have a material adverse effect on the business,
affairs, financial condition, properties or prospects of the Company and
its Subsidiaries taken as a whole;
(c) agreement with any labor union (and, to the knowledge
of the Company and each Subsidiary, no organizational effort is being made
with respect to any of its employees);
(d) agreement containing any provision permitting any party
other than the Company or any Subsidiary to renegotiate the price or other
terms, or containing any payback or other similar provision, upon the
occurrence of a failure by the Company or any Subsidiary to meet its
obligations under the agreement when due or the occurrence of any other
event, except for those agreements which individually or in the aggregate
do not have and are not reasonably expected to have a material adverse
effect on the business, affairs, financial condition, properties or
prospects of the Company and its Subsidiaries taken as a whole;
(e) agreement for the future purchase of fixed assets or
for the future purchase of materials, supplies or equipment, except for
those agreements that involve less than (x) $100,000 as to any revenue-
producing staff augmentation and/or project agreements entered into by the
Company in the ordinary course, or (y) $50,000 as to any such agreement not
described by clause (x) of this Section 2.21(e);
(f) except as previously disclosed to and approved by the
Investors, agreement for the employment of any officer, employee or other
person (whether of a legally binding nature or in the nature of informal
understandings) on a full-time or consulting basis which is not terminable
on notice without cost or other liability to the Company, except normal
severance arrangements and accrued vacation pay;
(g) except as disclosed in Section 2.15 hereof, bonus,
pension, profit-sharing, retirement, hospitalization, insurance, stock
purchase, stock option or other plan, agreement or understanding pursuant
to which benefits are provided to any employee of the Company or any
Subsidiary (other than group insurance plans applicable to employees
generally);
(h) except for the Credit Facility, agreement relating to
the borrowing of money or to the mortgaging or pledging of, or otherwise
placing a lien or security interest on, any asset of the Company or any
Subsidiary;
(i) except in connection with the Credit Facility, guaranty
of any obligation for borrowed money or otherwise;
(j) agreement, or group of related agreements with the same
party or any group of affiliated parties, under which the Company or any
Subsidiary has advanced or agreed to advance money or has agreed to lease
any property as lessee or lessor, except for those leases involving less
than $50,000 individually or $250,000 in the aggregate;
(k) except in the ordinary course of business, assignment,
license, indemnification or other agreement with respect to any form of
intangible property;
(l) except as previously disclosed to and approved by the
Investors, and other than as contemplated by this Agreement, agreement
under which it has granted any person any registration rights;
(m) agreement under which it has limited or restricted its
right to compete with any person in any respect, except for certain
restrictive covenants in contracts with customers which prevent the Company
from providing services to the competitors of such customers (for
confidentiality reasons), and which restrictions do not materially
adversely affect the Company and its Subsidiaries, taken as a whole;
(n) except as previously disclosed to and approved by the
Investors, other agreement or group of related agreements with the same
party involving more than $50,000 or continuing over a period of more than
one year from the date or dates thereof (including renewals or extensions
optional with another party), which agreement or group of agreements is not
terminable by the Company or any Subsidiary, as applicable, without penalty
upon notice of thirty (30) days or less, but excluding any agreement or
group of agreements with a customer of the Company for the sale, lease or
rental of the Company's products or services if such agreement or group of
agreements was entered into by the Company or any Subsidiary in the
ordinary course of business;
(o) except as disclosed in the Filed SEC Documents, other
agreement, instrument, commitment, plan or arrangement, a copy of which
would be required to be filed with the SEC pursuant to the Securities Act
or Exchange Act;
(p) agreement for the purchase, sale, lease, or license by
or from it of services, products, or assets, requiring total payments by or
to it in excess of $50,000 in any instance, entered into other than in the
ordinary course of business;
(q) other than as set forth on Schedule 2.21 hereto, the
agreements set forth in Section 2.33 hereof and this Agreement, agreement
or other commitment pursuant to which it has agreed to indemnify or hold
harmless any other person;
(r) other than as set forth on Schedule 2.21 hereto,
(i) employment agreement, (ii) consulting agreement, or (iii) agreement
providing for severance payments or other additional rights or benefits
(whether or not optional) in the event of the sale or other change in
control of it;
(s) other than the Mellinger Agreement, agreement with any
current or former Affiliate, stockholder, officer, director, employee, or
consultant of the Company, or with any person in which any such Affiliate
has an interest;
(t) agreement imposing non-competition or exclusive dealing
obligations on it, other than any agreement entered into in the ordinary
course of business with any Company customer that prohibits the Company
from providing similar services to such customer's competitors; or
(u) agreement the performance of which is reasonably likely
to result in a loss to it.
Except for the contracts, agreements and other arrangements
listed in Schedule 2.21 and contracts, agreements, or other arrangements
that have been fully performed and with respect to which the Company has no
further obligations or liabilities, the Company is not a party to or
otherwise bound by (i) any agreement, instrument, or commitment that may
materially affect its ability to consummate the transactions contemplated
hereby or by the other Transaction Documents, or (ii) any other material
agreement, instrument, or commitment; including without limitation any of
the types of agreements set forth in clauses (a) through (u), above, of
this Section 2.21. The Company has delivered or caused to be delivered to
the Purchasers correct and complete copies (or written summaries of the
material terms of oral agreements or understandings) of each agreement,
instrument, and commitment listed in Schedule 2.21, each as amended to
date. Each such agreement, instrument, and commitment is a valid, binding
and enforceable obligation of the Company and, to the Company's knowledge,
of the other party or parties thereto, and is in full force and effect.
The Company is not nor, to the Company's knowledge, is any other party
thereto, (nor is the Company considered by any other party thereto to be)
in breach of, default under or noncompliance with any term of any such
agreement, instrument, or commitment (nor is there any basis for any of the
foregoing), except for any breaches or noncompliances that singly or in the
aggregate would not have a material adverse effect on the business affairs,
financial condition, properties or prospects of the Company and its
Subsidiaries taken as a whole. No claim, change order, request for
equitable adjustment, or request for contract price or schedule adjustment,
between the Company and any supplier or customer, relating to any
agreement, instrument, or commitment listed in Schedule 2.21 is pending or,
to the Company's knowledge, threatened, nor is there any basis for any of
the foregoing. Other than under the Credit Agreement, pursuant to which
Bank of America has consented to the transactions contemplated hereby, and
other than the employment agreements described therein, no agreement,
instrument, or commitment listed in Schedule 2.21 includes or incorporates
any provision, the effect of which may be to enlarge or accelerate any of
the obligations of the Company or to give additional rights to any other
party thereto (other than certain preemptive rights of the Mellingers under
the Mellinger Agreement, which rights have been waived with respect to the
transactions contemplated hereby), or will terminate, lapse, or in any
other way be affected, by reason of the transactions contemplated by this
Agreement.
With respect to the foregoing, disclosure to or approval by an
"Investor" shall mean a disclosure to and approval by the representatives
of the Investors who serve as directors of the Company. To the Company's
and each Subsidiary's knowledge, each party other than the Company or any
Subsidiary to all such agreements has in all material respects performed
the obligations required to be performed by such party to date. The
Company and each Subsidiary have no knowledge of any breach or anticipated
breach by any other party to any of material agreement, instrument,
commitment, plan or arrangement.
Section 2.22 Loans and Advances. The Company and each
Subsidiary does not have any outstanding loans or advances to any person
and is not obligated to make any such loans or advances, except, in each
case, for advances to employees of the Company or any Subsidiary in respect
of reimbursable business expenses anticipated to be incurred by them in
connection with their performance of services for the Company or any
Subsidiary.
Section 2.23 Employees and Officers; Employee Matters. Each of
the executive officers and each key employee of the Company and each
Subsidiary (the "Key Personnel") has executed an employment agreement
(collectively, the "Employment Agreements"), and such agreements are in
full force and effect. Each of the Key Personnel have agreed in their
respective Employment Agreement, to, among other things, dedicate
substantially their full working schedule to the Company or the respective
Subsidiary employing such person, as applicable, and not to pursue outside
business activities during the Company's or any Subsidiary's business
hours, consistent with the Company's or such Subsidiary's personnel
policies, as they exist on the date hereof, until such person shall no
longer be employed by the Company or such Subsidiary. No executive officer
or key employee of the Company or any Subsidiary has advised the Company or
any Subsidiary (orally or in writing) that he or she intends to terminate
employment with the Company or such Subsidiary.
The Company and each Subsidiary has complied in all material
respects with all applicable laws relating to the employment of labor,
including provisions relating to wages, hours, equal opportunity,
collective bargaining and the payment of Social Security and other taxes,
and with the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Neither the Company, any Subsidiary nor any entity required to
be aggregated with the Company under Sections 414(b), (c), (m) or (n) of
the Code sponsors, maintains, has any obligation to contribute to, has any
liability under, or is otherwise a party to, any Benefit Plan. For
purposes of this Agreement, "Benefit Plan" shall mean any plan, fund,
program, policy, arrangement or contract, whether formal or informal, which
is in the nature of (i) an employee pension benefit plan (as defined in
Section 3(2) of ERISA) or (ii) an employee welfare benefit plan (as defined
in Section 3(1) of ERISA).
Section 2.24 Potential Conflicts of Interest. Neither the
Company nor, to the knowledge of the Company, any of its officers,
directors, or employees, (i) owns, directly or indirectly, any interest
(excepting passive holdings for investment purposes of not more than 1% of
the securities of any publicly held and traded company) in, or is an
officer, director, employee, or consultant of, any person that is a
competitor, lessor, lessee, customer, or supplier of the Company;
(ii) owns, directly or indirectly, any interest in any tangible or
intangible property used in or necessary to the business of the Company; or
(iii) has any cause of action or other claim whatsoever against the
Company, or owes any amount to the Company, except for claims in the
ordinary course of business, such as for accrued vacation pay, accrued
benefits under employee benefit plans, and similar matters and agreements
or under any employment agreements.
Section 2.25 Environmental Protection. The Company and each
Subsidiary has not caused or allowed, or contracted with any party for, the
generation, use, transportation, treatment, storage or disposal of any
Hazardous Substances (as defined below) in connection with the operation of
its business or otherwise. The Company and each Subsidiary, the operation
of their business, and, to the knowledge of the Company and each Subsidiary
any real property that the Company or any Subsidiary leases or otherwise
occupies or uses (the "Premises") are in compliance with all applicable
Environmental Laws (as defined below) and orders or directives of any
governmental authorities having jurisdiction under such Environmental Laws,
including, without limitation, any Environmental Laws or orders or
directives with respect to any cleanup or remediation of any release or
threat of release of Hazardous Substances. The Company and each Subsidiary
has not received any citation, directive, letter or other communication,
written or oral, or any notice of any proceeding, claim or lawsuit, from
any person arising out of the ownership or occupation of the Premises, or
the conduct of its operations, and the Company and each Subsidiary is not
aware of any basis therefor. The Company and each Subsidiary has obtained
and is maintaining in full force and effect all necessary permits, licenses
and approvals required by all Environmental Laws applicable to the Premises
and the business operations conducted thereon (including operations
conducted by tenants on the Premises), and is in compliance with all such
permits, licenses and approvals. The Company and each Subsidiary has not
caused or allowed a release, or a threat of release, of any Hazardous
Substance unto, at or near the Premises, and, to the Company's and each
Subsidiary's knowledge, neither the Premises nor any property at or near
the Premises has ever been subject to a release, or a threat of release, of
any Hazardous Substance. For the purposes of this Agreement, the term
"Environmental Laws" shall mean any federal, state, local or foreign law,
ordinance or regulation pertaining to the protection of human health or the
environment, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Sections 9601, et seq.,
the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections
11001, et seq. and the Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6901, et seq. For purposes of this Agreement, the term "Hazardous
Substances" shall include oil and petroleum products, asbestos,
polychlorinated biphenyls, urea formaldehyde and any other materials
classified as hazardous or toxic under any Environmental Laws.
Section 2.26 Foreign Corrupt Practices Act. The Company and
each Subsidiary has not taken any action which would cause it to be in
violation of the Foreign Corrupt Practices Act of 1977, as amended, or any
rules and regulations thereunder. To the Company's and each Subsidiary's
knowledge, there is not now, and there has never been, any employment by
the Company or any Subsidiary of, or beneficial ownership in the Company or
any Subsidiary by, any governmental or political official in any country in
the world.
Section 2.27 Federal Reserve Regulations. The Company is not
engaged in the business of extending credit for the purpose of purchasing
or carrying margin securities (within the meaning of Regulation G of the
Board of Governors of the Federal Reserve System), and no part of the
proceeds of the Shares 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.
Section 2.28 Offering of the Shares. Neither the Company nor
any Subsidiary has authorized, paid, hired or employed any person or entity
to act as agent, broker, dealer or otherwise in connection with the
offering or sale of the Shares, Conversion Shares, Warrants or any other
Securities. Except as otherwise disclosed to and approved by the Investors,
neither the Company nor any Subsidiary has offered the Shares, Conversion
Shares, Warrants or any other Securities or any such similar security for
sale to, or solicited any offer to buy the Shares, Conversion Shares,
Warrants or any other Securities or any such similar security from, or
otherwise approached or negotiated with respect thereto with, any person or
persons, and none of the Company, any Subsidiary or any person authorized
to act on their behalf has taken or will take any other action (including,
without limitation, any offer, issuance or sale of any security of the
Company) under circumstances which might require the integration of the
sale of such security with the Securities under the Securities Act or the
rules and regulations of the Commission thereunder, in either case so as to
subject the offering, issuance or sale of the Securities, Conversion Shares
or other securities into which such securities may be converted, to the
registration provisions of the Securities Act. The Company has no
contract, arrangement or understanding with any broker, finder or similar
agent with respect to the transactions contemplated by this Agreement,
other than the Carter Capital Engagement Letter.
Section 2.29 Returns. The Company and the Subsidiaries have
not had any of their products returned by the purchasers thereof, which
returns collectively taken together have had or would reasonably be
expected to have a material adverse effect on the business, affairs,
financial condition, properties or prospects of the Company and the
Subsidiaries taken as a whole.
Section 2.30 Related-Party Transactions. Except as otherwise
disclosed to and approved by the Investors, no employee, officer, director
or stockholder of the Company or any Subsidiary or member of his or her
immediate family is indebted to the Company or any Subsidiary, nor is the
Company or any Subsidiary indebted (or committed to make loans or extend or
guarantee credit) to any of them. To the Company's and each Subsidiary's
knowledge, none of such persons has any direct or indirect ownership
interest in any firm or corporation with which the Company or any
Subsidiary is affiliated or with which the Company or any Subsidiary has a
business relationship, or any firm or corporation that competes with the
Company or any Subsidiary, except that employees, officers, directors or
stockholders of the Company and the Subsidiaries and members of their
immediate families may own stock in publicly traded companies that may
compete with the Company and the Subsidiaries. No member of the immediate
family of any employee, officer, director or stockholder of the Company or
any Subsidiary is directly or indirectly interested in any material
contract with the Company or any Subsidiary.
Section 2.31 Permits. The Company and each Subsidiary have all
franchises, permits, licenses, and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which has
had or would reasonably be expected to have a material adverse effect on
business, affairs, financial condition, properties or prospects of the
Company and its Subsidiaries taken as a whole, and the Company and each
Subsidiary believes it can obtain, without undue burden or expense, any
similar authority for the conduct of its business as planned to be
conducted. The Company and each Subsidiary are not in default in any
material respect under any of such franchises, permits, licenses, or other
similar authority.
Section 2.32 Manufacturing and Marketing Rights. The Company
and each Subsidiary have not granted rights to manufacture, produce,
assemble, license, market, or sell its products to any other person and is
not bound by any agreement that affects the Company's or any Subsidiary's
exclusive right to develop, manufacture, assemble, distribute, market or
sell its products.
Section 2.33 Registration Rights. Except as provided herein,
or by (i) the Preferred Stock Purchase Agreement, dated as of November 21,
1996, among the Company and the investors named therein, (ii) the Unit
Purchase Agreement, dated as of November 21, 1996, among the Company and
the investors named therein, (iii) the Stock Purchase Agreement, dated as
of July 1, 1997, by and among Robert Marchetti, Stephen Michaelson and the
Company, (iv) the Registration Rights Agreement, dated as of September 16,
1997 by and among the Company and the Mellingers, each of which has been
filed as exhibits to the Filed SEC Documents, and (v) the Carter Capital
Engagement Letter, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
Each of the parties to the foregoing agreements (to the extent that they
still own securities of the Company and have registration rights with
respect thereto) have agreed to waive their respective registration rights
under such agreements for a period of 90 days from and after the date of
the Closing.
Section 2.34 Minute Books. The minute books of the Company and
each Subsidiary provided to the Investors contain a summary of all meetings
of directors and stockholders since the time of incorporation and reflect
all transactions referred to in such minutes accurately in all material
respects.
Section 2.35 Representations and Warranties. No representation
or warranty by the Company in this Agreement, in any schedule to this
Agreement, or in the other Transaction Documents, contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact required to be stated herein or therein or necessary to make
the statements contained herein or therein not false or misleading. There
is no fact or circumstance relating specifically to the current business
operations or condition of the Company that could reasonably be expected to
result in a material adverse effect on business, affairs, financial
condition, properties or prospects of the Company and its Subsidiaries
taken as a whole that is not disclosed herein or in a Schedule attached
hereto.
ARTICLE III
Covenants of the Company
Section 3.1 Financial Statements, Reports, Etc.
(a) The Company shall furnish to each Investor, as soon as
available but in no case later than ninety (90) days after the end of each
fiscal year of the Company, a consolidated balance sheet of the Company and
its subsidiaries as of the end of such fiscal year and the related
consolidated statements of income, stockholders' equity and cash flows for
the fiscal year then ended, prepared in accordance with generally accepted
accounting principles and certified by a firm of independent public
accountants of recognized national standing selected by the Board of
Directors of the Company; provided, that for so long as the Company is
subject to the reporting requirements of the Exchange Act, the Company may
satisfy its obligations under this Section 3.1(a) by providing to each
Investor a copy of the Company's Annual Report on Form 10-K or 10-KSB and
any proxy statement and other annual report to shareholders provided to
other shareholders of the Company, as applicable.
(b) The Company shall furnish to each Investor as soon as
available, but in no case later than forty-five (45) days after the end of
each fiscal quarter in each fiscal year (other than the last fiscal quarter
in each fiscal year), a consolidated balance sheet of the Company and its
subsidiaries and the related consolidated statements of income,
stockholders' equity and cash flows, unaudited but prepared in accordance
with generally accepted accounting principles and certified by the Chief
Financial Officer of the Company, such consolidated balance sheet to be as
of the end of such fiscal quarter and such consolidated statements of
income, stockholders' equity and cash flows to be for such fiscal quarter
and for the period from the beginning of the fiscal year to the end of such
fiscal quarter, in each case with comparative statements for the
corresponding period of the prior fiscal year; provided, that for so long
as the Company is subject to the reporting requirements of the Exchange Act
the Company may satisfy its obligations under this Section 3.1(b)(i) by
providing each Investor with a copy of the Company's quarterly report on
Form 10-Q or 10-QSB and any Form 8-K filed in such fiscal quarter, as
applicable.
(c) The Company shall further furnish to each Investor:
(i) promptly upon sending, making available or filing
the same, all press releases, reports and financial statements that the
Company sends or makes available to its stockholders or files with the SEC;
and
(ii) promptly, from time to time, such other
information regarding the business, prospects, financial condition,
operations, property or affairs of the Company and its subsidiaries as such
Investor reasonably may request.
All such financial statements, reports or other information
(other than publicly available information) provided to any Investor
pursuant to this Section 3.1 shall be deemed to be confidential information
of the Company. Each Investor agrees to use reasonable efforts to prevent
the disclosure of such confidential information to any other person
(excluding its and its subsidiaries' and affiliates' officers, employees,
agents or counsel) except (i) as may be necessary or desirable in
connection with a request by a governmental agency, regulatory or
supervisory authority or court having or claiming jurisdiction over such
Investor including, without limitation, the National Association of
Insurance Commissioners, or as otherwise required by applicable law, (ii)
information obtained from a third party which is not subject to the
provisions of any confidentiality agreement in favor of the Company, (iii)
in connection with the enforcement of such Investor's rights hereunder or
under the Certificate of Incorporation and (iv) disclosure to other
Investors.
Section 3.2 Properties, Business, Insurance. The Company
shall maintain and cause each of its subsidiaries to maintain as to their
respective properties and businesses, with financially sound and reputable
insurers, insurance against such casualties and contingencies and of such
types and in such amounts as is customary for companies similarly situated,
which insurance shall be deemed by the Company to be sufficient.
Section 3.3 Inspection, Consultation and Advice. The Company
shall permit and cause its subsidiaries to permit each Investor and such
persons as it may designate and reasonably acceptable to the Company, at
such Investor's expense, to visit and inspect any of the properties of the
Company and its subsidiaries, examine their books and make copies and
extracts therefrom, discuss the affairs, finances and accounts of the
Company and its subsidiaries with their executive officers, key employees
and public accountants (and the Company hereby authorizes said accountants
to discuss with such Investor and such designees such affairs, finances and
accounts), all at reasonable times and upon reasonable notice, and with due
regard for the Company's ongoing operations; provided, that the Investors
shall have no right to receive any confidential information from any
customer of the Company or its Subsidiaries; provided, further, that no
information shall be supplied hereunder to the extent that such information
is subject to confidentiality provisions in a given customer's contract
with the Company. Any information or documentation (other than publicly
available information) provided to any such Investor or any such designee
pursuant to this Section 3.3 shall be deemed to be confidential information
of the Company. Each Investor agrees to use reasonable efforts to prevent
the disclosure of such confidential information to any other person
(excluding its and its subsidiaries' and affiliates' officers, employees,
agents or counsel) except (i) as may be necessary or desirable in
connection with a request by a governmental agency, regulatory or
supervisory authority or court having or claiming jurisdiction over such
Investor including, without limitation, the National Association of
Insurance Commissioners, or as otherwise required by applicable law, (ii)
information obtained from a third party which is not subject to the
provisions of any confidentiality agreement in favor of the Company, (iii)
in connection with the enforcement of such Investor's rights hereunder or
under the Certificate of Incorporation and (iv) disclosure to other
Investors.
Section 3.4 Restrictive Agreements Prohibited. Neither the
Company nor its subsidiaries shall become a party to any agreement which by
its terms restricts the Company's performance of this Agreement, any of the
other Transaction Documents or the Certificate of Incorporation.
Section 3.5 Transactions with Affiliates. Except for the
arrangements between the Company and its Subsidiaries, and the transactions
contemplated by this Agreement or as otherwise approved by the Board of
Directors, neither the Company nor any of its subsidiaries shall enter into
any transaction with any director, officer, employee or holder of more than
5% of the outstanding capital stock of any class or series of capital stock
of the Company or any of its subsidiaries, member of the family of any such
person, or any corporation, partnership, trust or other entity in which any
such person, or member of the family of any such person, is a director,
officer, trustee, partner or holder of more than 5% of the outstanding
capital stock thereof, except for transactions on customary terms related
to such person's employment.
Section 3.6 Expenses of Directors. The Company shall promptly
reimburse in full each director of the Company if he or she is not an
employee of the Company for all of his or her reasonable out-of-pocket
expenses incurred in attending each meeting of the Board of Directors of
the Company or any Committee thereof.
Section 3.7 Board of Directors Meetings. The Company shall
use its best efforts to ensure that meetings of its Board of Directors are
held at least four times each year and at least once each quarter. The
Company shall provide to each Investor copies of all notices, reports
(including all materials distributed at the meeting and in the board
books), minutes and consents at the time and in the manner as they are
provided to the members of the Board of Directors or committee. Any
information or documentation (other than publicly available information)
provided to any such Investor pursuant to this Section 3.7 shall be deemed
to be confidential information of the Company. Each Investor agrees to use
reasonable efforts to prevent the disclosure of such confidential
information to any other person (excluding its and its subsidiaries' and
affiliates' officers, employees, agents or counsel) except (i) as may be
necessary or desirable in connection with a request by a governmental
agency, regulatory or supervisory authority or court having or claiming
jurisdiction over such Investor including, without limitation, the National
Association of Insurance Commissioners, or as otherwise required by
applicable law, (ii) information obtained from a third party which is not
subject to the provisions of any confidentiality agreement in favor of the
Company, (iii) in connection with the enforcement of such Investor's rights
hereunder, under any of the other Transaction Documents or under the
Certificate of Incorporation and (iv) disclosure to other Investors.
Section 3.8 By-laws. The Company shall at all times cause its
By-laws to provide that the number of directors fixed in accordance
therewith shall in no event conflict with any of the terms or provisions of
the Series A Preferred Stock as set forth in the Certificate of Amendment.
The Company shall at all times maintain provisions in its By-laws and/or
Certificate of Incorporation indemnifying all directors against liability
and absolving all directors from liability to the Company and its
stockholders to the maximum extent permitted under the laws of the State of
Delaware.
Section 3.9 Performance of Contracts. The Company shall not
amend, modify, terminate, waive or otherwise alter, in whole or in part,
any of the employment agreements in effect on the date hereof without the
affirmative vote of both of the directors who represent the Investors.
Section 3.10 Employment Agreements. The Company shall obtain,
and shall cause its Subsidiaries to obtain, an employment agreement from
all future executive officers and key employees of the Company or any of
its Subsidiaries upon their employment by the Company or any of such
subsidiaries, which employment agreements shall include reasonable and
customary nondisclosure and non-solicitation provisions.
Section 3.11 Compliance with Laws. The Company shall comply,
and use its best efforts to cause each Subsidiary to comply, with all
applicable laws, rules, regulations and orders, noncompliance with which
could materially adversely affect its business or condition, financial or
otherwise. The Company will pay and discharge, or cause to be paid and
discharged, before they become delinquent, all taxes, assessments, and
other governmental charges imposed upon the Company or any of the
properties, sales, or activities of the Company, or any part thereof, or
upon the income or profits therefrom, as well as all claims for labor,
materials, or supplies, which, if unpaid might by law give rise to a Lien
upon any of its properties; provided, however, that any such tax,
assessment, charge, levy, or claim need not be paid if the validity or
amount thereof is currently being contested in good faith by appropriate
proceedings and if the Company has set aside on its books adequate reserves
with respect thereto. The Company will comply in all material respects
with (a) its charter documents and by-laws, and (b) any agreement or
instrument to which it is a party or by which it or any of its properties
are subject (including, without limitation, any of the Transaction
Documents). If at any time any authorization, consent, approval, permit,
or license from any officer, agency, or instrumentality of any government
becomes necessary or required in order that the Company may fulfill any of
its obligations hereunder, the Company will, after providing adequate
written notice to the holders of shares of Series A Preferred Stock,
promptly take or cause to be taken all necessary steps within its power to
obtain such authorization, consent, approval, permit, or license and will,
upon written request, promptly furnish each such holder with evidence
thereof.
Section 3.12 Keeping of Records and Books of Account. The
Company shall keep, and use its best efforts to cause its subsidiaries 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.
Section 3.13 Compensation and Audit Committees. The Company
shall maintain a Compensation Committee and an Audit Committee of the Board
of Directors, each of which shall consist of three directors, two of whom
(on each Committee) may be directors elected solely by the holders of
Common Stock or appointed by the members of the Board of Directors
(provided that one of such two committee members is not an employee of the
Company) and one of whom (on each Committee) shall be a director who
represents the Investors (but only if the Investors shall then be
represented on the Board of Directors). No additional employee stock
option plan, or employee stock purchase plan, employee restricted stock
plan or other employee stock plan shall be established without the approval
of the Compensation Committee. The Audit Committee shall select (subject
to the approval of the Board of Directors) and provide instructions to the
Company's auditors. The compensation of all officers and senior management
of the Company will be as determined from time to time by the Compensation
Committee of the Board of Directors.
Section 3.14 Corporate Existence. The Company shall maintain
its corporate existence, rights and franchises in full force and effect.
Section 3.15 Number of Securities. For purposes of determining
the number of Securities or Conversion Shares held by any Investor under
this Agreement, all affiliated holders of Shares or Conversion Shares shall
be treated as if such affiliated holders were a single Investor; provided,
that each such group of affiliated holders of Shares or Conversion Shares
shall designate a single representative who shall be granted authority to
(i) receive all notices and other information required to be provided to
such Investors, and (ii) exercise all rights of an Investor (or Investor,
as applicable) on behalf of such group of affiliated holders. For the
purposes of this Section 3.15, "affiliates" shall include all mutual funds
or other pooled investment vehicles or entities under the control or
management of any Investor (including as to any Tudor Entity, without
limiting the foregoing, every other Tudor Entity and the affiliated
investment vehicles of Tudor and its Affiliates).
Section 3.16 Survival. The covenants set forth in Article III
of this Agreement, to the extent applicable to an Investor, shall survive
with respect to each Investor until the date such Investor no longer holds
Securities (including the Warrants) or Conversion Shares.
Section 3.17 Use of Proceeds. The proceeds of the sale of the
offering of the Securities shall be used for the purposes approved by the
Board of Directors of the Company, including, without limitation,
marketing, expansion, product development, acquisitions and general
operations.
Section 3.18 Preemptive Rights. Subject to the terms and
conditions specified in this Section 3.18, each time the Company proposes
to offer any shares of, or securities convertible into, or exchangeable or
exercisable for any shares of, its capital stock (whether newly issued or
treasury stock) in a private placement (a "Private Placement"), the Company
shall make an offering of such securities to each Investor in accordance
with the following provisions:
(a) The Company shall deliver a notice ("Notice") to each
Investor stating (i) its bona fide intention to offer such securities, (ii)
the number of such securities to be offered, and (iii) the price and terms,
if any, upon which it proposes to make such Private Placement.
(b) By written notification received by the Company, within
twenty (20) calendar days after giving of the Notice, each Investor
(including its Affiliates) may elect to purchase or obtain, at the price
and on the terms specified in the Notice, up to that portion of the
securities to be offered in the Private Placement which equals the
proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion of the Securities then held, by such Investor
bears to the total number of (assuming full conversion of all convertible
securities and the exercise of all outstanding options, warrants or rights
to purchase Common Stock or other securities convertible into or
exercisable for shares of Common Stock exercisable as of the date of such
Notice) held by all of the Investors ("Pro Rata Share"). The Company shall
promptly, in writing, inform each Investor that purchases all of such
securities available to it (a "Fully-Exercising Investor") of any other
Investor's failure to do likewise. During the ten-day period following
delivery of such information, each Fully-Exercising Investor shall be
entitled to purchase that portion of such securities for which Investors
were entitled to subscribe but which were not subscribed by the Investors,
which is equal to the proportion that the number of shares of Common Stock
issued and held, or issuable upon conversion of the Securities then held,
by such Fully-Exercising Investor bears to the total number of shares of
Common Stock (assuming full conversion of all convertible securities and
the exercise of all options, warrants or rights to purchase Common Stock or
other securities convertible into or exercisable for shares of Common
Stock) then held by all Fully-Exercising Investors ("Proportional Share").
If any Investor fails to purchase its Pro Rata Share or Proportional Share,
any affiliate of such Investor may purchase the shares available to, but
not purchased by, such Investor.
(c) If all securities referred to in the Notice which
Investors are entitled to obtain pursuant to Section 3.18(b) are not
elected to be obtained as provided in Section 3.18(b) hereof, the Company
may, during the sixty (60) day period following the expiration of the last
notice provision provided in Section 3.18(b) hereof, offer the remaining
unsubscribed portion of such securities to any person or persons at a price
not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement
for the sale of such securities within such period, or if such agreement is
not consummated within sixty (60) days of the execution thereof, the right
provided hereunder shall be deemed to be revived and such securities shall
not be offered unless first re-offered to the Investors in accordance
herewith.
(d) The preemptive right in this Section 3.18 shall not be
applicable to:
(i) Shares of Common Stock issuable or issued to
employees, advisors, consultants or outside directors of the Company
directly or pursuant to a stock option plan or restricted stock plan
approved by the Board of Directors of the Company, the total number of such
shares not to exceed 4,302,000 (appropriately adjusted for stock splits,
stock dividends or similar recapitalizations);
(ii) Common Stock, or securities convertible into, or
exchangeable or exercisable for shares of Common Stock, issued or issuable
in connection with bona fide research, licensing or corporate partnering
relationships, in connection with equipment lease financing, or in
connection with non-convertible debt financing with institutional lenders,
in each case approved by a majority of the Board of Directors of the
Company including both of the directors who represent the Investors, but
only to the extent that either of the Investors shall then have
representative directors on the Board of Directors of the Company;
provided, that such issuances of Common Stock are for other than primarily
equity financing purposes;
(iii) Common Stock issued or issuable upon
conversion of the Securities;
(iv) Common Stock issued or issuable in connection with
a merger or consolidation as a result of which the holders of the Company's
outstanding securities immediately prior to the consummation of such
transaction hold voting securities in excess of fifty percent (50%) of the
voting power of the surviving or resulting entity; or
(v) Common Stock issued in a public offering.
(e) The preemptive rights set forth in this Section 3.18
may be assigned or transferred by an Investor to a transferee or assignee
of any of its shares of capital stock of the Company, provided such
transferee or assignee agrees in writing to be bound by and subject to the
terms and conditions of this Agreement.
Section 3.19 Reservation of Shares. The Company shall at all
times reserve and keep available out of its authorized but unissued shares
of Common Stock, sufficient numbers of such duly authorized securities for
the purpose of effecting the conversion of the Shares and exercise of the
Warrants and otherwise complying with the terms of this Agreement. If at
any time the number of authorized but unissued shares of such securities
shall not be sufficient to effect the exercise of the conversion of the
Shares or otherwise to comply with the terms of this Agreement, the Company
will forthwith take such corporate action as may be necessary to increase
its authorized but unissued shares of such securities to such number of
shares as shall be sufficient for such purposes. The Company will obtain
any authorization, consent, approval or other action by or make any filing
with any court or administrative body that may be required under applicable
state securities laws in connection with the issuance of shares of Common
Stock upon conversion of the Shares.
Section 3.20 Employee Stock Options. After the Closing, each
Company employee shall be granted a number of additional Options so as to
maintain as near as practicable (it being understood that Options to
purchase only 1,568,506 shares of Common Stock remain ungranted under the
Option Plan and that Options to purchase no more than such number of shares
of Common Stock shall be granted pursuant to this Section 3.20) their
percentage ownership of the Company's Common Stock as of the date of the
Closing (on a fully-diluted basis assuming the exercise of all outstanding
Options and conversion of all of the Series A Preferred Stock issued
hereunder, but without taking into account for such purpose the shares of
Common Stock issuable upon exercise of the Warrant and the warrant to be
granted to Carter Capital under the Carter Capital Engagement Letter) at an
exercise price equal to the market price of the Company's Common Stock at
the close of trading on the third trading day after the Closing.
Section 3.21 Increase in Expenses. The approval of a majority
of the non-employee directors of the Company will be necessary for any
increase in the level of operating expenses to be made by the Company in
excess of ten percent (10%) of the aggregate operating expenses set forth
in the budgets provided to Investors pursuant to Section 3.1(c) hereof.
Section 3.22 Use of Name and Management Responsibility. The
Company shall not use or reference the name of any Investor in any publicly
available document or communication, including but not limited to any press
release, without the prior written approval of such Investor. The Company
acknowledges that each Investor has no responsibility for managing the
Company.
Section 3.23 Board Size. The Company hereby covenants and
agrees that the number of directors which shall comprise the Company's
Board of Directors shall not exceed nine (9) directors.
Section 3.24 U.S. Real Property Holding Corporation. The
Company covenants that it will operate in a manner such that it will not
become a "United States real property holding corporation" as that term is
defined in Section 897(c)(2) of the Internal Revenue Code of 1986, as
amended ("USRPHC"), and the regulations thereunder. The Company agrees to
make determinations as to its status as a USRPHC, and will file statements
concerning those determinations with the Internal Revenue Service, in the
manner and at the times required under Reg. 1.897-2(h), or any
supplementary or successor provision thereto. Within 30 days of a request
from a Purchaser, the Company will inform the requesting party, in the
manner set forth in Reg. 1.897-2(h) or any supplementary or successor
provision thereto, whether that party's interest in the Company constitutes
a United States real property interest (within the meaning of Internal
Revenue Code Section 897(c)(1) and the regulations thereunder) and whether
the Company has provided to the Internal Revenue Service all required
notices as to its USRPHC status.
ARTICLE IV
Representations, Warranties and Covenants
of the Investors
Each of the following representations, warranties and covenants
is made by each Investor severally (as to itself) and not jointly.
Section 4.1 Authorization. Each Investor represents and
warrants that this Agreement when executed shall constitute its valid and
legally binding obligation, enforceable in accordance with its terms except
as enforceability thereof may be limited by bankruptcy, insolvency,
reorganization or moratorium or other similar laws relating to the
enforcement of creditors' rights generally and by general equitable
principles.
Section 4.2 Purchase Entirely for Own Account. This Agreement
is made with each Investor in reliance upon such Investor's representation
to the Company, which by such Investor's execution of this Agreement such
Investor hereby confirms, that the Securities (including any Conversion
Shares) to be received by such Investor hereunder, will be acquired for
investment for such Investor's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and that
such Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, each Investor further represents that such Investor does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third
person, with respect to any of the Securities. Each Investor represents
that it has full power and authority to enter into this Agreement.
Notwithstanding the foregoing, this Section 4.2 is qualified in its
entirety with reference to Section 3.15, above.
Section 4.3 Disclosure of Information. Each Investor further
represents that it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the sale of
the Securities.
Section 4.4 Restricted Securities. Each Investor understands
that the Securities are characterized as "restricted securities" under the
federal securities laws inasmuch as such securities are being acquired from
the Company in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without
registration under the Securities Act, only in certain limited
circumstances ; provided, however, that this Section 4.4 shall in no way
diminish or affect the obligations of the Company under Section 7, below.
Section 4.5 Limitations on Disposition. Without in any way
limiting the representations set forth in Section 4.4 above, each Investor
further agrees not to make any disposition of all or any portion of the
Securities being purchased hereunder (or any Conversion Shares issuable
upon the exercise and/or conversion thereof) unless:
(i) there is then in effect a registration statement
under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(ii) such disposition will not require registration of
the Securities under the Securities Act.
Section 4.6 Legends. Until such time as the Conversion Shares
are sold pursuant to a registration statement under Article VII hereof or
pursuant to Rule 144 under the Securities Act, it is understood that the
certificates evidencing the Securities may bear a legend substantially
similar to the following:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO RULE 144 PROMULGATED UNDER SUCH ACT. ANY SUCH
TRANSFER MAY ALSO BE SUBJECT TO APPLICABLE STATE SECURITIES LAWS."
The Company covenants to immediately remove the foregoing legend at
such time as the Securities become freely tradable without restriction
thereon.
Section 4.7 Accredited Investor. Each Investor is an
Accredited Investor within the definition set forth in Rule 501(a) under
the Securities Act.
ARTICLE V
Conditions of Each Investor's
Obligations at Closing
The obligations of each Investor under Section 1.1 of this
Agreement are subject to the fulfillment on or before the Closing of each
of the following conditions, the waiver of which shall not be effective
against any Investor who does not consent in writing thereto:
Section 5.1 Representations and Warranties. The
representations and warranties made by the Company in Article II hereof
shall be true and correct in all material respects when made and shall be
true and correct in all material respects on the date of the Closing,
except that the number of issued and outstanding shares of the Company's
Common Stock may be affected by the exercise of Options granted under the
Option Plan.
Section 5.2 Compliance Certificate. The Company shall deliver
to each Investor at the Closing a certificate certifying that (i) the
conditions specified in this Article V that apply to the Company have been
fulfilled and (ii) except as otherwise disclosed to the Investors, there
has been no material adverse change in the business, affairs, prospects,
operations, properties, assets, or financial condition of the Company and
its Subsidiaries taken as a whole since the date of the audited Financial
Statements.
Section 5.3 Proceedings and Documents. All corporate and
other proceedings in connection with the transactions contemplated at the
Closing and all documents incident thereto shall be reasonably satisfactory
in form and substance to the Investors and their counsel and such counsel
shall have received all such counterpart original and certified or other
copies of such documents as the Investors may reasonably request, including
but not limited to a copy of this Agreement executed by the Company.
Section 5.4 Opinion of Company Counsel. Each Investor shall
have received from each of Skadden, Arps, Slate, Meagher & Flom LLP,
special counsel for the Company, and Richard Rosenfeld, General Counsel of
the Company, an opinion, dated as of the Closing, in form and substance
satisfactory to the Investors in substantially the forms of Exhibits C and
D, respectively, attached hereto.
Section 5.5 Performance. The Company shall have performed and
complied with all agreements contained herein required to be performed or
complied with by it prior to or at the Closing, and the Chief Executive
Officer of the Company shall have certified to the Investors in writing to
such effect and to the further effect that all of the conditions set forth
in this Article V have been satisfied.
Section 5.6 Purchase by Other Investors. Each Investor shall
have purchased and paid for the Securities being purchased by it on the
date of the Closing.
Section 5.7 Supporting Documents. The Investors and their
counsel shall have received copies of the following documents at or prior
to the Closing:
(i) (A) the Certificate of Incorporation and
Certificate of Amendment, certified as of a recent date by the Secretary of
State of the State of Delaware and (B) a certificate of said Secretary
dated as of a recent date as to the due incorporation and good standing of
the Company, the payment of all excise taxes by the Company;
(ii) a certificate of the Secretary or an Assistant
Secretary of the Company dated the date of the Closing and certifying: (A)
that attached thereto is a true and complete copy of the By-laws of the
Company as in effect on the date of such certification; (B) that attached
thereto is a true and complete copy of all resolutions adopted by the Board
of Directors or the stockholders of the Company authorizing the execution,
delivery and performance of this Agreement, the issuance, sale and delivery
of the Securities, the reservation of the Conversion Shares, the issuance
and delivery of the Conversion Shares upon conversion of the Securities and
the Certificate of Amendment, and that all such resolutions are in full
force and effect and are all the resolutions adopted in connection with the
transactions contemplated by this Agreement; (C) that the Certificate of
Incorporation has not been amended since the date of the last amendment
referred to in the certificate delivered pursuant to clause (i)(B) above;
and (D) to the incumbency and specimen signature of each officer of the
Company executing this Agreement, the stock certificates representing the
Shares and any certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the incumbency and
signature of the officer signing the certificate referred to in this clause
(ii); and
(iii) such additional supporting documents and
other information with respect to the operations and affairs of the Company
as the Investors or their counsel reasonably may request.
Section 5.8 Certificate of Incorporation. The Certificate of
Incorporation shall be as previously filed with the Filed SEC Documents,
except as amended by the Certificate of Amendment. The Company shall, at or
before the Closing, deliver to each Investor evidence of filing of the
Certificate of Amendment.
Section 5.9 Fees of Investors' Counsel. The Company shall
have paid, or shall have made provision to pay, in accordance with Section
8.8 hereof, the reasonable fees and disbursements of counsel for the
Investors invoiced at the Closing.
Section 5.10 Deliveries. The Company shall deliver to each
Investor at the Closing certificates representing the Shares and Warrants
being purchased by such Investor hereunder and the Investors shall each
deliver to the Company, by wire transfer, the amounts payable for the
Shares and Warrants being purchased by such Investor. The Investors shall
notify the Company prior to the Closing of the names and addresses in which
to issue such certificates. The Company shall provide the Investors prior
to the Closing bank wire information with respect to the account to receive
the purchase price for the Securities being issued hereunder.
ARTICLE VI
Conditions of the Company's Obligations at Closing
The obligations of the Company to each Investor under this
Agreement are subject to the delivery on or before the Closing of the
purchase price to be paid by such Investor specified in Section 1.1.
ARTICLE VII
Registration
Section 7.1 Definitions. For purposes of this Article VII:
(a) The terms "register", "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act, and
the declaration or ordering of effectiveness of such registration statement
or document;
(b) The term "Registrable Securities" means (x) the
Conversion Shares and (y) on and after the date which is 90 days after the
date of the Closing, any shares of Common Stock that may be issued to
Carter Capital Corporation upon exercise of the warrant issued to Carter
Capital Corporation pursuant to the Carter Capital Engagement Letter;
provided, however, that as to any particular security or securities that
are contained in Registrable Securities, such securities shall cease to be
Registrable Securities when (i) a registration statement with respect to
the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in
accordance with such registration statement or (ii) such securities shall
have been sold to the public pursuant to Rule 144;
(c) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in
accordance with the provisions of Section 7.6 hereof; and
(d) The term "Form S-3" means such form under the
Securities Act as in effect on the date hereof or any registration form
under the Securities Act subsequently adopted by the SEC which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
Section 7.2 Shelf Registration.
(a) As soon as reasonably practicable after the Closing,
but in no event later than April 30, 2000, the Company shall file with the
SEC a shelf registration statement on Form S-3 (or if Form S-3 is not
available, then such other form on which the Registrable Securities may be
registered for resale) under the Securities Act with respect to the
registration of the Conversion Shares, provided that the Company may, with
the prior written approval of the Holders, delay such filing (but not
beyond 90 days after the Closing) if such filing would require the Company
to disclose material non-public information, the disclosure of which would
be detrimental to the Company. The Company may, with the approval of the
Holders, include in such registration statement securities of the Company
to be offered and sold by the Company. The Company shall use its best
efforts to cause such registration statement to be declared effective
within 90 days after the Closing.
(b) The Holders shall promptly notify the Company of the
jurisdictions in which such offering will be made and, if and as required
and subject to the provisions of clause (d)(iv), below, the Company shall
effect the registration and/or qualification of the Conversion Shares under
applicable state securities laws (the "State Laws").
(c) Except as otherwise prohibited by applicable law, the
Company will pay all fees and expenses, including, without limitation,
printing and reproduction costs and fees and expenses of counsel for
Holders, incurred in connection with the registration of the Conversion
Shares pursuant to this Article VII; provided, that transfer taxes, if any,
solely attributable to the sale of the Conversion Shares, shall be borne by
the Holders.
(d) The Company shall further:
(i) prepare and file as soon as reasonably practicable
with the SEC such amendments and supplements to such shelf registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and such prospectus
current and to comply with the provisions of the Securities Act with
respect to the disposition of the Conversion Shares until the earlier of
(A) such time as all of the Conversion Shares have been disposed of; or (B)
such time as the Conversion Shares are otherwise freely tradeable;
(ii) furnish to Holders copies of the preliminary
prospectus and prospectus included in such registration statement and each
amendment and supplement thereto;
(iii) use its best efforts to register or qualify
the Conversion Shares under the State Laws after the filing of the Form S-3
registration statement (or any other registration form for which the
Company then qualifies) with the SEC and to keep such registration or
qualification in effect for so long as the Form S-3 registration statement
(or any other registration form for which the Company then qualifies) filed
with the SEC remains in effect as provided in clause (ii), above, provided
that the Company shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction in
which it would not otherwise be obligated to be so qualified, or to subject
itself to taxation in any such jurisdiction, or to consent to general
service of process in any such jurisdiction, or to qualify as a dealer in
securities; and
(iv) notify Holders, at any time when a prospectus is
required to be delivered by Holders under the Securities Act, upon
discovery by the Company that the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, whereupon Holders shall suspend any offers or
sales of the Conversion Shares until such time as such prospectus, as
amended or supplemented from time to time, shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and which, except
as otherwise approved by the Holders, period of time shall not exceed
thirty (30) days in any twelve month period.
(e) The Holders agree to cooperate fully with the Company
in connection with effecting the registration pursuant to this Article VII,
including, but not limited to, furnishing such information as the Company
may from time to time reasonably request and as shall be required by law or
by the SEC in connection with such registration.
(f) If such Holders intend to distribute the Registrable
Securities by means of an underwritten offering, they shall so advise the
Company. In such event, the right of any Holder to include his securities
in such underwritten offering shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
enter into an underwriting agreement in customary form with the underwriter
or underwriters selected for such underwriting by a majority in interest of
the Holders participating in the underwritten offering. Notwithstanding
any other provision of this Section 7.2, if the underwriter advises the
Holders in writing that marketing factors require a limitation of the
maximum number of Registrable Securities to be underwritten (such maximum
being the "Underwriter's Maximum Number"), then the number of shares of
such securities that may be included in the underwriting shall be allocated
(x) first among all of the respective Holders of Registrable Securities
(other than Carter Capital Corporation) who requested such underwritten
offering whose shares are to be included in such registration by a pro rata
allocation, based upon the number of Securities then held, and then, to the
extent that the Underwriter's Maximum Number has not been exceeded by the
operation of clause (x), (y) on and after the date which is 90 days after
the date of the date of the Closing, to Carter Capital Corporation, and
then, to the extent that the Underwriter's Maximum Number has not been
exceeded by the operation of clauses (x)and (y), (z) among the Company and
any other persons, if any, exercising piggy-back rights by a pro rata
allocation.
In the event of any underwritten public offering, the Company
agrees to enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of
such offering. Each Holder of Registrable Securities participating in such
underwriting shall also enter into and perform its obligations under such
an agreement. It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Agreement with respect to an
underwritten offering of Registrable Securities of any selling Holder (the
"Selling Holder") that such Selling Holder shall furnish to the Company
such information regarding itself, the Registrable Securities held by it,
and the intended method of disposition of such securities as shall be
required to effect the registration of such Selling Holder's Registrable
Securities.
Section 7.3 Obligations of the Company. Whenever required
under this Agreement to maintain a registration statement for the sale of
any Registrable Securities, the Company shall use its best efforts to list
the Registrable Securities covered by such registration statement with any
securities exchange on which the Common Stock of the Company is then listed
and provide a transfer agent and registrar for all Registrable Securities
registered hereunder and a CUSIP number for all such Registrable Securities
within the time frames set forth in Section 7.2 hereof.
Section 7.4 Indemnification.
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder of Registered Securities and such
Holder's officers and directors, and each person, if any, who controls such
Holder within the meaning of the Securities Act or the Exchange Act (each,
an "Indemnitee"), against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the Securities
Act, or the Exchange Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions
or violations (collectively a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the
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 (iii) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any state securities law or any rule
or regulation promulgated under the Securities Act, or the Exchange Act or
any state securities law; and the Company will pay to each such Indemnitee
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section 7.4(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such
loss, claim, damage, liability, or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in
connection with such registration by any such Indemnitee. Notwithstanding
the above, the foregoing indemnity agreement is subject to the condition
that, insofar as it relates to any such untrue statement, alleged untrue
statement, omission or alleged omission made in a preliminary prospectus,
such indemnity agreement shall not inure to the benefit of any Holder if a
copy of the final prospectus was not furnished to the person asserting the
loss, liability, claim or damage at or prior to the time such action is
required by the Securities Act if the final prospectus corrected the untrue
statement or omission or alleged untrue statement or omission and was (i)
provided to the Holder, and (ii) such Holder was required by applicable law
to deliver such prospectus.
(b) To the extent permitted by law, each Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter, any other Holder selling securities in such registration
statement and any controlling person of any such underwriter or other
Holder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under
the Securities Act, or the Exchange Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each
such Holder will pay any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this Section 7.4(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement
contained in this Section 7.4(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; further provided, that, in no event
shall any indemnity under this Section 7.4(b) exceed the net proceeds
(excluding underwriting discounts and commissions) from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 7.4 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section
7.4, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly with any
other indemnifying party similarly noticed, to assume the defense thereof
with counsel mutually satisfactory to the parties; provided, however, that
an indemnified party (together with all other indemnified parties which may
be represented without conflict by one counsel) shall have the right to
retain one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate, in the
reasonable judgment of the indemnified party, due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 7.4 to the extent of such prejudice,
but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 7.4.
(d) To provide for just and equitable contribution, if
(i) an indemnified party makes a claim for indemnification pursuant to
Section 7(a) or 7(b) but it is found in a final judicial determination, not
subject to further appeal, that such indemnification may not be enforced in
such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Securities Act, the Exchange Act, or
otherwise, then the Company (including for this purpose any contribution
made by or on behalf of any officer, director, employee, agent or counsel
of the Company, or any controlling person of the Company), on the one hand,
and the Holders (including for this purpose any contribution by or on
behalf of a Holder), on the other hand, shall contribute to the losses,
liabilities, claims, damages, and expenses to which any of them may be
subject, in such proportions as are appropriate to reflect the relative
fault of the Company and the Holders in connection with the facts which
resulted in such losses, liabilities, claims, damages, and expenses shall
also be considered.
The relative fault, in the case of an untrue statement, alleged
untrue statement, omission, or alleged omission, shall be determined by,
among other things, whether such statement, alleged statement, omission, or
alleged omission relates to information supplied by the Company or by the
Holders, and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement, alleged
statement, omission, or alleged omission. The Company and Holders agree
that it would be unjust and inequitable if the respective obligations of
the Company and the Holders for contribution were determined by pro rata or
per capital allocation of the aggregate losses, liabilities, claims,
damages, and expenses or by any other method of allocation that does not
reflect the equitable considerations referred to in this Section 7.4(d).
No person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. For
purposes of this Section 7.4(d), each person, if any, who controls a Holder
within the meaning of Section 15 of the Securities Act or Section 20(a) of
the Exchange Act and each officer, director, stockholder, employee, agent,
and counsel of the Holders, shall have the same rights of contribution as
the Holder, and each person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act and each officer, director, employee, agent, and counsel of
the Company, shall have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 7.4(d). Anything in
this Section 7.4(d) to the contrary notwithstanding, no party shall be
liable for contribution with respect to the settlement of any claim or
action effected without its written consent. This Section 7.4(d) is
intended to supersede any right to contribution under the Securities Act,
the Exchange Act, or otherwise.
(e) Notwithstanding the foregoing Section 7.4(d), if the
indemnification provided for in the preceding provisions of this Section
7.4 is unavailable to an indemnified party in respect of any expense, loss,
claim, damage or liability referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to
the amount paid or payable by such indemnified party as a result of such
expense, loss, claim, damage or liability (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the
one hand and the Holder or underwriter, as the case may be, on the other
from the distribution of the Registrable Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company on the one hand and of the Holder or underwriter, as the case may
be, on the other in connection with the statements or omissions which
resulted in such expense, loss, damage or liability, as well as any other
relevant equitable considerations.
Notwithstanding the provisions of subdivision (d) or this
subdivision (e), no Holder of Registrable Securities or underwriter shall
be required to contribute any amount in excess of the amount by which (i)
in the case of any such Holder, the net proceeds received by such Holder
from the sale of Registrable Securities or (ii) in the case of an
underwriter, the total price at which the Registrable Securities purchased
by it and distributed to the public were offered to the public exceeds, in
any such case, the amount of any damages that such holder or underwriter
has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission.
(f) The obligations of the Company and Holders under this
Section 7.4 shall survive the completion of any offering of Registered
Securities under this Agreement, and otherwise.
Section 7.5 Reports Under Exchange Act. With a view to making
available to the Holders of Registrable Securities the benefits of a
registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144, at all times;
(b) take such action as is necessary to enable the Holders
to utilize Form S-3 (or any other registration form for which the Company
then qualifies) for the sale of their Registrable Securities;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of Rule
144, the Securities Act and the Exchange Act, and that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such
form.
Section 7.6 Assignment of Registration Rights. The rights to
require the Company to register Registrable Securities pursuant to this
Agreement may be assigned (but only with all related obligations) by a
Holder to a transferee or assignee of such Registrable Securities,
provided: (i) the Company is furnished with written notice of the name and
address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (ii) if immediately
following such transfer the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act; (iii) such
transferee or assignee shall deliver to the Company a written instrument by
which such transferee agrees to be bound by the obligations imposed upon
Holders of Registrable Securities pursuant to this Agreement; (iv) any such
transferee or assignee may not again transfer such rights to any other
person or entity, other than as provided in this Section 7.6; and (v) such
transfer of Registrable Securities is in compliance with applicable federal
and state securities laws.
Section 7.7 Limitations on Subsequent Registration Rights.
From and after the date of this Agreement, the Company shall not, without
the prior written consent of the Holders of 70% of the Registrable
Securities, enter into any agreement with any holder or prospective holder
of any securities of the Company which would allow such holder or
prospective holder to include such securities in any registration filed
under this Agreement, unless under the terms of such agreement, such holder
or prospective holder may include such securities in any such registration
only to the extent that the inclusion of his securities will not reduce the
amount of the Registrable Securities of the Holders which is included.
Section 7.8 Amendment of Registration Rights. Any provision
of this Article VII may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only with the written consent of the Company and the Holders
of 70% of the Registrable Securities. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder of any
Registrable Securities then outstanding, each future Holder of all such
Registrable Securities and the Company.
ARTICLE VIII
Miscellaneous
Section 8.1 Survival of Warranties. The warranties,
representations and covenants of the Company and the Investors contained in
or made pursuant to this Agreement shall survive the execution and delivery
of this Agreement and the Closing and shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of the
Investors or the Company.
Section 8.2 Successors and Assigns. Except as otherwise
provided herein, the terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the respective successors and assigns of
the parties (including transferees of any of the Series A Preferred Stock
or Conversion Shares issued hereunder (except to the extent such Conversion
Shares shall be sold pursuant to any Registration Statement pursuant to
Section 7.2 hereof)). Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.
Notwithstanding the provisions set forth in this Agreement, this
Agreement, any of the other Transaction Documents and the rights and
obligations hereunder and thereunder, and the Securities may be transferred
by each of the Investors in its sole discretion at any time, in whole or in
part, including without limitation transfers to any of the Tudor Entities,
Affiliates or Affiliated Groups of the transferor, without the consent of
any other party hereto, subject to applicable law.
"Affiliate" means any other person directly or indirectly
controlling, controlled by, or under direct or indirect common control with
the Company (or other referenced person) and includes without limitation,
(a) any person who is an officer, director, or direct or indirect
beneficial holder of at least 5% of the then outstanding capital stock of
the Company (or other referenced person), and any of the Family Members of
any such person, (b) any person of which the Company (or other referenced
person) and/or its Affiliates (as defined in clause (a) above), directly or
indirectly, either beneficially own(s) at least 5% of the then outstanding
equity securities or constitute(s) at least a 5% equity participant, (c) in
the case of a specified person who is an individual, Family Members of such
person, and (d) in the case of the Investors, any entities for which an
Investor or any of its Affiliates serve as general partner and/or
investment adviser or in a similar capacity, and all mutual funds or other
pooled investment vehicles or entities under the control or management of
such Investor or the general partner or investment adviser thereof, or any
person or entity acting in such capacity, or any Affiliate of any of them,
or any Affiliates of any of the foregoing.
"Affiliated Group" has the meaning given to it in Section 1504 of
the Code, and in addition includes any analogous combined, consolidated, or
unitary group, as defined under any applicable state, local, or foreign
income Tax law.
"Family Members" means, as applied to any individual, any parent,
spouse, child, spouse of a child, brother or sister of the individual, and
each trust created for the benefit of one or more of such persons and each
custodian of a property of one or more such persons and the estate of any
such persons.
Section 8.3 Governing Law. This Agreement shall be governed
by and construed under the laws of the State of New York applicable to
contracts made and to be performed in such jurisdiction, without regard to
choice of law principles.
Section 8.4 Counterparts; Facsimile Counterparts. This
Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and
the same instrument. This Agreement may be executed by means of facsimile
transmission; provided, that an original, manually executed copy of such
facsimile counterpart shall be promptly sent by overnight delivery to the
other parties to this Agreement.
Section 8.5 Titles and Subtitles. The titles and subtitles
used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
Section 8.6 Notices. Unless otherwise provided, any notice
required or permitted under this Agreement shall be given in writing and
shall be deemed effectively given upon personal delivery to the Investor to
be notified or upon deposit with a reputable overnight courier or with the
United States Post Office, by registered or certified mail, postage prepaid
and addressed to the Investor at such address as such Investor may
designate to the other Company.
Section 8.7 Finder's Fee. Each party represents that it
neither is nor will be obligated for any finder's fee or commission in
connection with this transaction, other than the fees payable by the
Company to Carter Capital under the Carter Capital Engagement Letter. Each
Investor agrees to severally and not jointly indemnify and to hold harmless
the Company from any liability for any commission or compensation in the
nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Investor or any of its
officers, partners, employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
Section 8.8 Expenses. Irrespective of whether the Closing is
effected, the Company shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement. In addition, the Company shall pay the reasonable legal
expenses of separate counsel for each of the Investors in connection with
the negotiation, execution and delivery of this Agreement. If any action
at law or in equity is necessary to enforce or interpret the terms of this
Agreement or the Certificate of Incorporation, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
Section 8.9 Amendments and Waivers. Except for the provisions
of Article VI hereof which may be waived with the written consent of the
Company only, and except as set forth in Section 7.8 hereof, any term of
this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively), only with the written consent of
the holders of 67% of the shares of Common Stock issued or issuable upon
conversion of the Series A Preferred Stock and exercise of the Warrants;
provided, however, that the provisions of this Section 8.9 may be amended
only with the written consent of the Company and all of such Holders. Any
amendment or waiver effected in accordance with this Section 8.9 shall be
binding upon each Holder of any securities purchased under this Agreement
at the time outstanding (including securities into which such securities
are convertible), each future Holder of all such securities, and the
Company; provided, however, that no condition set forth in Article V hereof
may be waived with respect to any Investor who does not consent thereto.
Section 8.10 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement
shall be interpreted as if such provision were so excluded and shall be
enforceable in accordance with its terms.
Section 8.11 Entire Agreement. This Agreement, the other
Transaction Documents and the other documents delivered pursuant hereto and
thereto constitute the full and entire understanding and agreement between
the parties with regard to the subjects hereof and thereof.
Section 8.12 Further Assurances. From time to time on and
after Closing, the Company will promptly execute and deliver all such
further instruments and assurances, and will promptly take all such further
actions, as the Investors or any of them may reasonably request in order
more effectively to effect or confirm the transactions contemplated by this
Agreement and/or any of the other Transaction Documents and to carry out
the purposes hereof and thereof.
Section 8.13 Equitable Relief. Each of the parties
acknowledges that any breach by such party of his, her, or its obligations
under this Agreement or any of the other Transaction Documents would cause
substantial and irreparable damage to one or more of the other parties and
that money damages would be an inadequate remedy therefor. Accordingly,
each party agrees that the other parties or any of them will be entitled to
an injunction, specific performance, and/or other equitable relief to
prevent the breach of such obligations.
Section 8.14 Publicity. The Investors or any of them will have
the right to publicize their investment in the Company as contemplated
hereby by means of a "tombstone" advertisement or other customary
advertisement in newspapers and other media.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
PRT GROUP INC.
By: /s/ DAN WOODWARD
----------------------------
Name: Dan Woodward
Title: Chief Executive Officer
THE TRAVELERS INDEMNITY COMPANY
By: /s/ F. DENNY VOSS
----------------------------
Name: F. Denny Voss
Title: Senior Vice President
TUDOR INVESTMENT CORPORATION,
as Investment Advisor,
Tudor BVI Futures, Ltd.
By: /s/ ROBERT P. FORLENZA
----------------------------
Name: Robert P. Forlenza
Title: Managing Director
TUDOR GLOBAL TRADING, INC.,
as General Partner,
Tudor Arbitrage Partners L.P.
By: /s/ ROBERT P. FORLENZA
----------------------------
Name: Robert P. Forlenza
Title: Managing Director
TUDOR INVESTMENT CORPORATION,
as Investment Advisor,
The Raptor Global Portfolio Ltd.
By: /s/ ROBERT P. FORLENZA
----------------------------
Name: Robert P. Forlenza
Title: Managing Director
EFG EUROFINANCIAL INVESTMENT
COMPANY
By: /s/ GEORGE CATSIAPIS
----------------------------
Name: George Catsiapis
Title: Managing Director
Schedule 1.1
Investors: Securities Purchased:
--------- --------------------
Tudor BVI Global Portfolio Ltd. 1,942,769 Shares and
Warrants to purchase 971,385
shares of Common Stock
Raptor Global Portfolio Ltd. 1,210,497 Shares and
Warrants to purchase 605,248
shares of Common Stock
Tudor Arbitrage Partners L.P. 596,734 Shares and
Warrants to purchase 298,367
shares of Common Stock
Tudor aggregate price: $3,750,000
----------
The Travelers Indemnity Company
3,750,000 Shares and Warrants to purchase 1,875,000
shares of Common Stock
Travelers aggregate price: $3,750,000
----------
EFG Eurofinancial Investment Company 500,000 Shares and
Warrants to purchase 250,000
shares of Common Stock
Eurofinancial aggregate price: $500,000
--------
Aggregate investment: $8,000,000
==========