Exhibit 2.1
STRIDE & ASSOCIATES, INC.
SECURITIES PURCHASE AND REDEMPTION AGREEMENT
Dated as of June 4, 1998
STRIDE & ASSOCIATES, INC.
SECURITIES PURCHASE AND REDEMPTION AGREEMENT
Dated as of June 4, 1998
TABLE OF CONTENTS
PAGE
----
ARTICLE I
PURCHASE AND SALE OF SECURITIES; REDEMPTION.......................................................................1
1.1 PURCHASE AND SALE OF SUBORDINATED DEBENTURES......................................................1
1.2 PURCHASE AND SALE OF CONVERTIBLE PREFERRED STOCK..................................................2
1.3 PURCHASE AND SALE OF COMMON STOCK.................................................................2
1.4 PURCHASE OF WARRANTS..............................................................................3
1.5 USE OF PROCEEDS; REDEMPTION.......................................................................3
1.6 CLOSING...........................................................................................3
1.7 OPTIONS AND RESTRICTED STOCK......................................................................4
1.8 DISTRIBUTIONS ON OR PRIOR TO CLOSING DATE.........................................................4
1.9 BONUS TO SENIOR MANAGERS..........................................................................4
1.10 STOCK SPLIT.......................................................................................5
1.11 HSR FILING........................................................................................5
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE PRINCIPAL SHAREHOLDERS............................................................................5
2.1 ORGANIZATION AND CORPORATE POWER..................................................................5
2.2 AUTHORIZATION.....................................................................................5
2.3 GOVERNMENT APPROVALS..............................................................................6
2.4 AUTHORIZED AND OUTSTANDING STOCK..................................................................6
2.5 SUBSIDIARIES......................................................................................7
2.6 FINANCIAL INFORMATION.............................................................................7
2.7 EVENTS SUBSEQUENT TO THE DATE OF THE FINANCIAL STATEMENTS.........................................8
2.8 LITIGATION........................................................................................8
2.9 COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS........................................................8
2.10 TAXES.............................................................................................8
2.11 REAL PROPERTY; ENVIRONMENTAL MATTERS..............................................................9
2.12 PERSONAL PROPERTY................................................................................10
2.13 PATENTS, TRADEMARKS, ETC.........................................................................10
2.14 AGREEMENTS OF DIRECTORS, OFFICERS AND EMPLOYEES..................................................11
2.15 PERMITS AND LICENSES.............................................................................11
2.16 CONTRACTS AND COMMITMENTS........................................................................11
2.17 REGISTRATION RIGHTS..............................................................................11
2.18 INSURANCE COVERAGE...............................................................................11
2.19 EMPLOYEE MATTERS.................................................................................11
-i-
2.20 CLIENTS..........................................................................................12
2.21 NO BROKERS OR FINDERS............................................................................13
2.22 TRANSACTIONS WITH AFFILIATES.....................................................................13
2.23 ASSUMPTIONS, GUARANTEES, ETC. OF INDEBTEDNESS OF OTHER PERSONS...................................13
2.24 DISCLOSURES......................................................................................13
ARTICLE III
AFFIRMATIVE COVENANTS OF THE COMPANY.............................................................................13
3.1 ACCOUNTS AND REPORTS.............................................................................13
3.2 PAYMENT OF TAXES.................................................................................15
3.3 MAINTENANCE OF KEY MAN INSURANCE.................................................................15
3.4 COMPLIANCE WITH LAWS, ETC........................................................................15
3.5 INSPECTION.......................................................................................15
3.6 CORPORATE EXISTENCE; OWNERSHIP OF SUBSIDIARIES...................................................16
3.7 COMPLIANCE WITH ERISA............................................................................16
3.8 BOARD APPROVAL...................................................................................16
3.9 FINANCINGS.......................................................................................16
3.10 MEETINGS OF THE BOARD OF DIRECTORS...............................................................16
3.11 NINTH BOARD MEMBER...............................................................................16
3.12 TRADING POLICY...................................................................................16
3.13 EMPLOYEE BENEFITS................................................................................17
ARTICLE IV
NEGATIVE COVENANTS OF THE COMPANY................................................................................17
4.1 INVESTMENTS IN OTHER PERSONS.....................................................................17
4.2 DISTRIBUTIONS....................................................................................18
4.3 DEALINGS WITH AFFILIATES.........................................................................19
4.4 MERGER...........................................................................................19
4.5 LIMITATION ON OPTIONS............................................................................19
4.6 LIMITATION ON RESTRICTIONS ON SUBSIDIARY DIVIDENDS AND OTHER DISTRIBUTIONS.......................19
4.7 NO CONFLICTING AGREEMENTS........................................................................20
4.8 CHANGE IN BUSINESS...............................................................................20
4.9 INDEBTEDNESS.....................................................................................20
4.10 LIENS............................................................................................20
4.11 CONSOLIDATED OPERATING CASH FLOW TO CONSOLIDATED TOTAL DEBT......................................20
4.12 PROFITABLE OPERATIONS............................................................................20
4.13 TOTAL INDEBTEDNESS TO EBITDA.....................................................................20
ARTICLE V
INVESTMENT REPRESENTATIONS.......................................................................................20
-ii-
5.1 REPRESENTATIONS AND WARRANTIES...................................................................20
5.2 PERMITTED TRANSFERS; LEGENDS.....................................................................22
ARTICLE VI
SUBORDINATION OF DEBENTURES......................................................................................23
6.1 AGREEMENT TO SUBORDINATE.........................................................................23
ARTICLE VII
CONDITIONS OF PURCHASERS' OBLIGATIONS............................................................................23
7.1 EFFECT OF CONDITIONS.............................................................................23
7.2 REPRESENTATIONS AND WARRANTIES...................................................................23
7.3 PERFORMANCE......................................................................................24
7.4 NO MATERIAL ADVERSE CHANGE.......................................................................24
7.5 OPINION OF COUNSEL...............................................................................24
7.6 COMPLETION OF DUE DILIGENCE......................................................................24
7.7 COMPLETION OF AUDIT..............................................................................24
7.8 EMPLOYMENT AGREEMENT.............................................................................24
7.9 NON COMPETITION AGREEMENTS.......................................................................24
7.10 BOARD ELECTION...................................................................................24
7.11 ARTICLES OF INCORPORATION........................................................................25
7.12 CONSENTS AND WAIVERS.............................................................................25
7.13 REGISTRATION RIGHTS AGREEMENT....................................................................25
7.14 SHAREHOLDERS' AGREEMENT..........................................................................25
7.15 INJUNCTIONS, ETC.................................................................................25
7.16 FIRPTA...........................................................................................25
ARTICLE VIII
CONDITIONS OF THE OBLIGATIONS OF THE
COMPANY AND THE PRINCIPAL SHAREHOLDERS...........................................................................25
8.1 EFFECT OF CONDITIONS.............................................................................25
8.2 REPRESENTATIONS AND WARRANTIES...................................................................25
8.3 SHAREHOLDERS' AGREEMENT..........................................................................25
8.4 PERFORMANCE......................................................................................26
8.5 CONSENTS AND WAIVERS.............................................................................26
8.6 REGISTRATION RIGHTS AGREEMENT....................................................................26
8.7 SENIOR CREDIT AGREEMENT..........................................................................26
8.8 RESTRICTED STOCK AWARDS; FOUNDER OPTIONS.........................................................26
8.9 DISTRIBUTIONS....................................................................................26
8.10 INJUNCTIONS, ETC.................................................................................26
8.11 BONUS PAYMENTS...................................................................................26
-iii-
ARTICLE IX
DEFAULTS AND REMEDIES............................................................................................26
9.1 EVENTS OF DEFAULT; ACCELERATION..................................................................26
9.2 RESCISSION OF ACCELERATION.......................................................................29
ARTICLE X
INDEMNIFICATION AND LIMITS ON LIABILITY..........................................................................29
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.......................................................29
10.2 INDEMNIFICATION BY THE PRINCIPAL SHAREHOLDERS....................................................29
10.3 NOTICE OF CLAIM..................................................................................30
10.4 COMMENCEMENT OF ACTIONS..........................................................................30
10.5 ADJUSTMENT FOR TAXES AND INSURANCE...............................................................31
10.6 EXCLUSIVE REMEDY.................................................................................31
ARTICLE XI
CERTAIN DEFINITIONS..............................................................................................31
ARTICLE XII
MISCELLANEOUS....................................................................................................33
12.1. DEBENTURE PAYMENTS...............................................................................33
12.2 FORM, REGISTRATION, TRANSFER AND EXCHANGE OF DEBENTURES..........................................34
12.3 PARTIES IN INTEREST..............................................................................34
12.4 DEBENTURES OWNED BY AFFILIATES...................................................................34
12.5 AMENDMENTS AND WAIVERS...........................................................................35
12.6 NOTICES..........................................................................................35
12.7 EXPENSES.........................................................................................36
12.8 COUNTERPARTS.....................................................................................36
12.9 EFFECT OF HEADINGS...............................................................................36
12.10 GOVERNING LAW....................................................................................37
Matters .................................................................................................37
EXHIBITS
A Form of Senior Subordinated Debenture
B Description of Preferred Stock
C Amended Certificate of Incorporation
D Opinion of Counsel for the Company and Principal Shareholders
E Employment Agreement
F Non-Solicitation, Non-Competition and Non-Disclosure Agreement
G Registration Rights Agreement
H Shareholders' Agreement
I 1998 Stock Option and Grant Plan
-iv-
J Form of Restricted Stock Award Agreement
K Form of Founders' Option Agreement
L Warrant Agreement
-v-
June 4, 1998
To: The Persons listed on
SCHEDULE 1.1 attached hereto:
Re: SECURITIES PURCHASE AND REDEMPTION AGREEMENT
Ladies and Gentlemen:
Stride & Associates, Inc., a Delaware corporation (the "Company"), and
Xxxx Xxxxxx, Xxxxxx Xxxxxxx, Xxxx Xxxxxxxx and Xxxxxxx Xxxxxxxxx (each a
"Principal Shareholder" and collectively the "Principal Shareholders") hereby
agree with you as follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES; REDEMPTION
1.1 PURCHASE AND SALE OF SUBORDINATED DEBENTURES. At the Closing (as
such term and other terms are defined in Article XI), the Company will sell to
you (the "Purchasers") 12% Senior Subordinated Debentures of the Company (the
"Debentures") in the aggregate principal amount of $10,000,000. The Debentures
shall be in the form of EXHIBIT A attached hereto. The Debentures shall have the
following terms, and shall be entitled to the following rights and benefits:
(a) The principal amount of the Debentures shall be payable in
full on August 4, 2003. The Debentures shall be prepaid in full upon
consummation of a Liquidity Event. The Company may prepay the Debentures in
whole or from time to time in installments of not less than $100,000, without
premium or penalty. Each such optional prepayment shall be preceded by not less
than two Business Days' notice. At any time the Company prepays the Debentures,
it shall also pay any accrued but unpaid interest. Any partial prepayment of the
Debentures shall be allocated among all holders of Debentures PRO RATA in
proportion to the principal amount of the Debentures held by each.
(b) The Debentures shall bear interest from the date of
issuance until the date of payment in principal in full. Interest shall be
computed on the basis of a 365 day year and the actual number of days elapsed,
on the unpaid principal amount of the Debentures at the Applicable Interest Rate
(as herein defined). To the extent permitted under the provisions of the Senior
Credit Agreement and the Subordination Agreement (as each of those terms and
other defined terms used herein are defined in Article XI hereof), interest
shall be payable on each March 31, June 30, September 30, and December 31 for
the respective three month period ending on such date, commencing on the first
such date following Closing, or if any such date is not a Business Day, on the
next succeeding Business Day.
(c) The "Applicable Interest Rate" shall mean the rate of
twelve percent (12%) per annum; provided, however, that if an Event of Default
shall have occurred and be continuing, the Applicable Interest Rate shall
increase to fourteen percent (14%) per annum until the Event of Default shall
have been cured or waived or until the principal of and all accrued interest on
the Debenture shall have been paid in full.
(d) All payments of principal and interest on the Debentures
shall be made by the Company in lawful money of the United States in immediately
available federal funds (or at the request of the holder of a Debenture in
writing not less than two Business Days before a payment date by a certified or
a bank check or wire transfer) on the date such payment is due in accordance
with Section 12.1 hereof.
(e) The indebtedness evidenced by the Debentures shall be
junior and subordinate in right of payment to all Senior Debt, as that term is
defined in Article II hereof.
(f) The parties agree that the issue price of the Debentures
shall be their face amount for federal income tax purposes.
1.2 PURCHASE AND SALE OF CONVERTIBLE PREFERRED STOCK. At the Closing,
the Company will sell to the Purchasers investment units ("Units") comprised of
the Series A Preferred Stock, Common Stock and Warrants herein described.
Included in the Units will be 24,802.5 shares of Series A Convertible Preferred
Stock of the Company, par value $.01 per share (the "Series A Preferred Stock"),
at a price of $1,000 per share, for a total purchase price for the Series A
Preferred Stock of $24,802,500 The Series A Preferred Stock shall have the
rights, terms, preferences and privileges set forth in the Description of
Preferred Stock attached as EXHIBIT B hereto, and shall be convertible into
24,802.5 shares of Series B Redeemable Preferred Stock, par value $.01 per share
("Series B Preferred Stock, and, together with the Series A Preferred Stock, the
"Preferred Stock"), and 40 shares of common stock of the Company, par value $.01
per share ("Common Stock") as set forth on EXHIBIT B. The Series B Preferred
Stock shall have the rights, terms, preferences and privileges set forth on
EXHIBIT B. The shares of Series B Preferred Stock and Common Stock issuable upon
conversion of the Series A Preferred Stock are referred to herein collectively
as the "Conversion Shares." The principal amount of Debentures and number
-2-
of shares of Series A Preferred Stock, Common Stock and Warrants to be issued to
each Purchaser are set forth on SCHEDULE 1.2 attached hereto.
1.3 PURCHASE AND SALE OF COMMON STOCK. At the Closing, the Company will
sell to the Purchasers an aggregate of 49.5 shares of Common Stock, (together
with the Debentures and the Series A Preferred Stock, the "Securities"). The
Common Stock shall be sold at a price of $105,000 per share, for a total
purchase price of $5,197,500 for the Common Stock. Prior to the Closing, the
Certificate of Incorporation of the Company shall be amended as set forth on
EXHIBIT C.
1.4 PURCHASE OF WARRANTS. At the Closing, the Company will issue to the
Purchasers, as part of the Units and for no additional consideration, warrants
(the "Warrants" and, together with the Debentures, the Series A Preferred Stock
and the Common Stock, the "Securities") to purchase an aggregate of 30.5 shares
of Common Stock at a price of $115,500 per share. The Warrants will be issued
pursuant to a Warrant Agreement in the form of EXHIBIT L attached hereto, and
the shares of Common Stock issuable upon exercise thereof are referred to herein
as the "Warrant Shares." The Company and the Purchasers agree that the purchase
price paid for the Series A Preferred Stock and Common Stock represents the fair
market value thereof on the date hereof and agree to account for the purchase of
such securities on such basis.
1.5 USE OF PROCEEDS; REDEMPTION. The proceeds from the sale of the
Securities, and certain additional senior financing to be obtained at the
Closing, shall be used by the Company to fund the redemption of 120 shares of
Common Stock (the "Redemption Shares") from the Principal Shareholders at a
price of $539,292.50 per share, for a total redemption price of $64,715,131,
which amount is $66 million less the Offset Amount under Section 1.8 hereof (the
"Redemption Price"). Each Principal Shareholder shall have redeemed from him or
her that number of Redemption Shares set forth opposite his or her name on
SCHEDULE 1.5 attached hereto in exchange for that portion of the Redemption
Price set forth opposite his or her name on such Schedule. Upon the surrender of
the Redemption Shares to the Company, the Company shall cancel such Redemption
Shares, which shares shall thereafter cease to be issued and outstanding. After
giving effect to the issuance of the Securities and the redemption of the
Redemption Shares, the outstanding shares of Common Stock shall be held by those
Persons and in such amounts as are set forth on SCHEDULE 1.5 attached hereto.
1.6 CLOSING. Subject to the satisfaction or waiver of the conditions
set forth in Articles VII and VIII hereof, the purchase of the Securities shall
be made at a closing (the "Closing") to be held at the offices of Xxxxxxxx,
Xxxxxxx & Xxxxxxx, A Professional Corporation, 000 Xxxxxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxxxxx, at 10:00 A.M. on June 4, 1998, or, if later, a date specified by
the Purchasers which is not later than ten (10) Business Days after the delivery
to the Purchasers of the audited financial statements and management letter
described in Section 7.7. (the "Closing Date"). Payment at the Closing for the
Securities and the Redemption Shares shall be by wire transfer payable in
immediately available federal funds. Each Purchaser
-3-
shall pay that amount for the Securities being acquired by it at the Closing as
described on SCHEDULE 1.2 hereof. At the Closing, the Company will deliver to
each Purchaser one or more certificates and notes representing the Securities
purchased by such Purchaser, in such denominations and issued in such names as
may be requested by such Purchaser. At the Closing, each Principal Shareholder
shall surrender to the Company the certificate or certificates representing his
or her portion of the Redemption Shares, whereupon the Company shall arrange for
the payment by wire transfer to each of the Principal Shareholders their
respective portion of the Redemption Price payable in immediately available
federal funds.
1.7 OPTIONS AND RESTRICTED STOCK. At or prior to the Closing, the
Company shall establish the 1998 Stock Option and Grant Plan (the "Plan") in
substantially the form of EXHIBIT I attached hereto. There shall be reserved for
issuance pursuant to the Plan a total of 32.558 shares of Common Stock. Of such
number, 23.256 shares (the "Management Pool") shall be reserved for issuance
pursuant to awards (including incentive stock options, nonqualified stock
options and restricted and non-restricted stock awards) under the Plan which may
be granted to members of senior management and Directors, other than the
Principal Shareholders. At the Closing, the Company shall grant restricted stock
awards ("Restricted Stock Awards") out of such Management Pool to those members
of senior management (other than the Principal Shareholders) identified in
SCHEDULE 1.6(A) hereto (the "Senior Managers"). Such Restricted Stock Awards
shall be granted to Senior Managers in the amounts set forth opposite their
respective names on SCHEDULE 1.7(A) hereto. The terms and restrictions of the
Restricted Stock Awards shall be contained in an award agreement substantially
in the form of EXHIBIT J attached hereto (the "Restricted Stock Award
Agreement"). Other than the Restricted Stock Awards, none of the shares in the
Management Pool may be issued at a price which corresponds to a Common Stock
valuation of the Company of less than $110,000,000. The balance of 9.302 shares
of Common Stock reserved under the Plan shall be reserved for issuance upon
exercise of non-qualified options granted at the Closing to the Principal
Shareholders (the "Founder Options"). Such Founder Options shall be granted to
the Principal Shareholders in the amounts set forth opposite their respective
names on SCHEDULE 1.7B hereto. The Founder Options shall be in substantially the
form of EXHIBIT K attached hereto, and shall have an excise price which
corresponds to a Common Stock valuation of the Company of at least $120,000,000.
1.8 DISTRIBUTIONS ON OR PRIOR TO CLOSING DATE. On or prior to the
Closing Date, the Company shall distribute to the Principal Shareholders (i) an
amount equal to the pre-tax earnings of the Company for the quarter ended March
31, 1998; and (ii) an amount equal to the pre-tax earnings of the Company for
the period (the "Stub Period") April 1, 1998 through the Closing (the "Stub
Amount"). The Company shall also make the payments and/or distributions
designated by the Principal Shareholders as set forth in SCHEDULE 1.8 attached
hereto (the "Designated Distributions"). To the extent that the aggregate of the
Stub Amount and the Designated Distributions exceeds the Tax Liability Amount
(as hereinafter defined), such excess (the "Offset Amount") shall reduce the
amount of the Redemption Price. For purposes of this Section 1.8, the term "Tax
Liability Amount" shall mean an amount equal to the aggregate
-4-
federal and state income tax liabilities of the Principal Shareholders
attributable to the earnings of the Company for the Stub Period. Except as set
forth in this Section 1.8, the Company shall not have made any distributions to
the Principal Shareholders since December 31, 1997.
1.9 BONUS TO SENIOR MANAGERS. Concurrently with the grant of the
Restricted Stock Awards to the Senior Managers pursuant to Section 1.7, the
Company shall pay to the Senior Managers cash bonuses (the "Cash Bonuses") equal
to the amount of income taxes incurred by such persons in connection with the
receipt of the Restricted Stock Awards and the Cash Bonuses. Such aggregate Cash
Bonuses shall be allocated among the Senior Managers in accordance with SCHEDULE
1.9 hereto. The Cash Bonuses shall be applied to pay all withholding and other
taxes determined to be due in connection with the Restricted Stock Awards and
Cash Bonuses.
1.10 STOCK SPLIT. Immediately after the Closing, the Company will
effect a 5,000-for-1 stock split in the form of a common stock dividend of 4,999
shares issued for each share of Common Stock outstanding.
1.11 HSR FILING. If prior to the conversion of the Series A Preferred
Stock or exercise of the Warrants one or more of the Purchasers is required to
make a filing under the Xxxx-Xxxxx- Xxxxxx Antitrust Improvements Act of 1976
with respect to an acquisition of securities of the Company, the Company will
cooperate in the preparation and submission of such filing and will pay any
filing fee payable in connection therewith.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE PRINCIPAL SHAREHOLDERS
In order to induce the Purchasers to purchase the Securities, the
Company and the Principal Shareholders, acting jointly and severally, make the
following representations and warranties which shall be true, correct and
complete in all respects on the date hereof except for those representations and
warranties that address matters only as of a particular date or only with
respect to a specific period of time; provided, however, that each Principal
Shareholder's warranties set forth in Section 2.2(b) and, with respect to the
title to the Common Stock held by such Principal Shareholder, Section 2.4
(collectively, the "Individual Representations"), are made severally and not
jointly by each Principal Shareholder with respect to his or her respective
warranties contained therein. For purposes of this Agreement, the phrase "to the
knowledge of the Company and the Principal Shareholders" or any similar phrase
shall mean the actual, not constructive or imputed, knowledge of any one or more
of Xxxx Xxxxxx, Xxxxxx Xxxxxxx, Xxxx Xxxxxxxx, Xxxxxxx Xxxxxxxxx, Xxxxxxx
Xxxxxx, Xxxx Xxxxxxx, Xxxxxx XxXxxxxx and Xxxx Xxxxx, without any obligation on
any of their parts to make any independent investigation of the
-5-
matters being represented or warranted, or to make any inquiry of any other
persons, or to search or examine any files, records, books, correspondence and
the like.
2.1 ORGANIZATION AND CORPORATE POWER. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own its properties and to carry on its business as presently
conducted. The Company is qualified as a foreign corporation in good standing in
each jurisdiction in which it owns or leases real property or maintains
employees.
2.2 AUTHORIZATION. (a) The Company has all necessary corporate power
and has taken all necessary corporate action required for the due authorization,
execution, delivery and performance by the Company of this Agreement and the
Related Documents, and any other agreements or instruments executed by the
Company in connection herewith or therewith and the consummation of the
transactions contemplated herein or therein, and for the due authorization,
issuance and delivery of the Securities, and the issuance of the Series B
Preferred Stock and Common Stock upon conversion of the Series A Preferred Stock
and the issuance of the Warrant Shares upon exercise of the Warrants. The
issuance of the Securities, and the issuance of the Series B Preferred Stock and
Common Stock upon conversion of the Series A Preferred Stock and the issuance of
the Warrant Shares upon exercise of the Warrants, does not require any further
corporate action and is not and will not be subject to any preemptive right,
right of first refusal or the like. This Agreement and the Related Documents and
the other agreements and instruments executed by the Company in connection
herewith or therewith will each be a valid and binding obligation of the Company
enforceable in accordance with its respective terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally and except as enforcement thereof is
subject to general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(b) Each Principal Shareholder has full right and power to
execute and deliver this Agreement and the Related Documents to which he or she
is a party, and any other agreements or instruments executed by him or her in
connection herewith or therewith and to consummate the transactions contemplated
herein or therein. This Agreement, the Related Documents and the other
agreements and instruments executed by the Principal Shareholders in connection
herewith or therewith each will be a valid and binding obligation of each
Principal Shareholder enforceable in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally and except as enforcement thereof is
subject to general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
-6-
2.3 GOVERNMENT APPROVALS. No consent, approval, license or
authorization of, or designation, declaration or filing with, any court or
governmental authority is or will be required on the part of the Company or the
Principal Shareholders in connection with the execution, delivery and
performance by the Company or the Principal Shareholders of this Agreement, any
of the Related Documents and any other agreements or instruments executed by the
Company or the Principal Shareholders in connection herewith or therewith, or in
connection with the issuance of the Securities or the issuance of the Series B
Preferred Stock and Common Stock upon conversion of the Series A Preferred Stock
or the Warrant Shares upon exercise of the Warrants, except for (i) those which
have already been made or granted, and (ii) the filing of registration
statements with the Securities and Exchange Commission (the "Commission") and
any applicable state securities commission as specifically provided for in the
Registration Rights Agreement and, (iii) any filing contemplated by Section 1.11
hereof.
2.4 AUTHORIZED AND OUTSTANDING STOCK. Immediately prior to the Closing,
the authorized capital stock of the Company consists of (i) 3,000 shares of
Common Stock, of which 200 shares are validly issued and outstanding and held of
record and owned beneficially by the Persons set forth on SCHEDULE 2.4 attached
hereto, free and clear of all liens, security interests, restrictions on
transfer, and other encumbrances except as otherwise set forth in SCHEDULE 2.4.
Immediately after the Closing, and after giving effect to the stock split
described in Section 1.9, the authorized capital stock of the Company will
consist of (a) 10,000,000 shares of Common Stock, 705,500 of which will be
issued and outstanding and held of record by the Persons set forth on SCHEDULE
1.5 attached hereto; and (b) 5,000,000 shares of Preferred Stock, of which
24,802.5 shall have been designated as Series A Preferred Stock with the rights,
terms and privileges set forth in EXHIBIT A, and all of which will be issued and
outstanding and held of record by the Purchasers as set forth on SCHEDULE 1.1,
and 24,802.5 of which shall have been designated Series B Preferred Stock. All
issued and outstanding shares of capital stock are, and when issued in
accordance with the terms hereof, all Securities and all shares of Series B
Preferred Stock and Common Stock issuable upon conversion of the Series A
Preferred Stock and all Warrant Shares issuable upon exercise of the Warrants,
will be, duly and validly authorized, validly issued and fully paid and
non-assessable and free from any restrictions on transfer, except for
restrictions imposed by federal or state securities or "blue-sky" laws and
except for those imposed pursuant to any Related Document. Except as set forth
on SCHEDULE 2.4, there are no outstanding warrants, options, commitments,
preemptive rights, rights to acquire or purchase, conversion rights or demands
of any character relating to the capital stock or other securities of the
Company other than those specifically contemplated by this Agreement. All issued
and outstanding shares of capital stock of the Company were issued (i) in
transactions exempt from the registration provisions of the Act, and (ii) in
compliance with or in transactions exempt from the registration provisions of
applicable state securities or "blue-sky" laws.
2.5 SUBSIDIARIES. Except as set forth in SCHEDULE 2.5, the Company does
not have any Subsidiaries or other equity investment in any other Person.
-7-
2.6 FINANCIAL INFORMATION. The Company has previously delivered to the
Purchasers the financial statements of the Company for the years ended December
31, 1996 and December 31, 1997 accompanied by the audit report of Deloitte &
Touche, LLP (together with the financial statements referenced in Section 7.7,
the "Audited Financial Statements") and the unaudited financial statements as of
April 30, 1998 (the "Last Balance Sheet Date") and for the four (4) months then
ended (the "Unaudited Financial Statements, and together with the Audited
Financial Statements, the "Financial Statements"). The Financial Statements are
in accordance with the books and records of the Company and present fairly in
accordance with generally accepted accounting principles applied on a basis
consistent with prior periods the financial condition and results of operations
of the Company as of the dates and for the periods shown; provided, however,
that the Unaudited Financial Statements do not have footnotes required by
generally accepted accounting principles ("GAAP"), and are subject to normal and
customary year end adjustments, none of which will be material. The Company has
no liability or obligation, contingent or otherwise, which is required to be
reserved against or reflected in accordance with GAAP and is not adequately
reserved against or reflected in the balance sheets contained in the Financial
Statements, except for liabilities and obligations incurred in the ordinary
course of business since December 31, 1997 and liabilities resulting from the
transactions contemplated hereby. Except as set forth on SCHEDULE 2.6, since
December 31, 1997, there has been no change in the business, assets,
liabilities, financial condition, or operations of the Company except for
changes which, individually or in the aggregate, would not have a Material
Adverse Effect, whether or not insured against.
2.7 EVENTS SUBSEQUENT TO THE DATE OF THE FINANCIAL STATEMENTS. Except
as specifically contemplated in this Agreement or the Related Documents or as
set forth on SCHEDULE 2.7, since December 31, 1997, the Company has not, except
in the ordinary course of business, (i) issued any stock, stock options,
warrants or other securities convertible into or exchangeable for capital stock,
or any bond or other corporate security, (ii) borrowed any money (except under
revolving lines of credit which existed as of December 31, 1997) or mortgaged,
pledged or subjected to any lien any of its assets, tangible or intangible,
(iii) sold, assigned or transferred any of its tangible assets, or canceled any
debt or claim, or (iv) suffered any loss of property or waived any right of
substantial value. Except as specifically contemplated in this Agreement or the
Related Documents or as set forth on SCHEDULE 2.7, since December 31, 1997, the
Company has not declared or made any payment or distribution to stockholders in
any capacity or purchased or redeemed any shares of its capital stock or other
securities.
2.8 LITIGATION. Except as otherwise set forth on SCHEDULE 2.8, there is
no litigation or governmental proceeding or investigation pending against the
Company or, to the knowledge of the Company or the Principal Shareholders,
threatened against the Company, affecting any of its properties or assets, or to
the knowledge of the Company and the Principal Shareholders any litigation or
governmental proceeding or investigation pending against any officer, key
employee or shareholder of the Company in his capacity as such. The Company is
not, to the knowledge of the Company and the Principal Shareholders, in material
default with respect to any order, writ,
-8-
injunction, decree, ruling or decision of any court, commission, board or other
government agency.
2.9 COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS. Except as set forth on
SCHEDULE 2.9, the Company is in compliance with (i) its charter and by-laws,
and, (ii) with the provisions of each mortgage, indenture, lease, license, other
agreement or instrument, judgment, decree, judicial order, statute, and
regulation by which it is bound or to which it or its properties are subject,
except to the extent non-compliance under this clause (ii) would not have a
Material Adverse Effect. Neither (i) the execution, delivery or performance of
this Agreement and the Related Documents, nor (ii) the consummation of the
transactions contemplated hereby and thereby, nor (iii) the offer, issuance,
sale or delivery of the Securities, nor (iv) the redemption of the Redemption
Shares, will, with or without the giving of notice or passage of time, or both,
violate, or result in any breach of, or constitute a default under, or result in
the imposition of any encumbrance upon any asset of the Company pursuant to any
provision of the Company's charter or by-laws, or any statute, rule or
regulation, contract, lease, judgment, decree or other document or instrument by
which the Company is bound or to which it or any of its properties are subject,
except in each case for violations, breaches, defaults, encumbrances or losses
which would not have a Material Adverse Effect.
2.10 TAXES. Prior to giving effect to the transactions contemplated
hereby, the Company qualifies as an S corporation within the meaning of the
Internal Revenue Code of 1986, as amended (the "Code") for federal income tax
purposes and has been an S corporation continually since October 7, 1996. The
Company has filed all tax returns, reports and forms (including statements of
estimated taxes owed) required to be filed within the applicable periods for
such filings and has paid all taxes required to be paid, and has established
adequate reserves (net of estimated tax payments already made) for the payment
of all taxes payable in respect to the period subsequent to the last periods
covered by such returns. All such tax returns, reports and forms are true,
correct and complete and have been made available to the Purchasers. The Company
has properly classified for tax purposes all employees, consultants and
independent contractors, and has made all filings and has withheld and paid all
taxes, required to have been filed, withheld or paid in connection with services
provided by such persons. Adequate amounts have been withheld by the Company
from its employees for all periods in compliance with the tax, social security
and unemployment withholding provisions of all federal, state, local and foreign
laws. No deficiencies for any past due tax are currently assessed against the
Company, and no tax returns of the Company have ever been audited or examined,
and, to the knowledge of the Company and the Principal Shareholders, there is no
such audit or examination pending and the Company has not received any notice
from any taxing authority that it is contemplating such an audit. There is no
tax lien, whether imposed by any federal, state or local taxing authority,
outstanding against the assets, properties or business of the Company, other
than any lien for taxes not yet due and payable. The Company is not a "United
State Real Property Holding Corporation" within the meaning of Section 897(c)(2)
of the Code. The Company has not filed a consent under Section 341(f) of the
Code. The Company has not waived or extended any statute
-9-
of limitation in respect of taxes or agreed to any extension of time with
respect to a tax assessment or deficiency. None of the Principal Shareholders is
a "foreign person" within the meaning of Section 1445 of the Code. For the
purposes of this Agreement, the term "tax" shall include all federal, state,
local and foreign taxes, including income, franchise, property, sales, use,
gross receipts, excise, withholding, payroll and employment taxes or other
similar assessments of any kind whatsoever, including all interest, penalties
and additions imposed with respect to such amounts.
2.11 REAL PROPERTY; ENVIRONMENTAL MATTERS.
(a) SCHEDULE 2.11 sets forth the addresses and uses of all
real property that the Company leases or subleases, and any lien (exclusive of
any statutory landlord's lien) or encumbrance for which the Company is liable
and which the Company has secured with any such leasehold interest. True and
correct copies of the Company's real property lease have previously been
provided to the Purchasers (or their legal counsel). There are no defaults by
the Company, or to the knowledge of the Company and the Principal Shareholders,
by any other party thereto, which might curtail in any material respect the
present use by the Company of the property listed on SCHEDULE 2.11. Except as
set forth in SCHEDULE 2.11, the performance by the Company of this Agreement and
the Related Documents will not result in the termination of, or in any increase
of any amounts payable under, any lease listed on SCHEDULE 2.11.
(b) The Company is not in violation of any law, regulation or
ordinance relating to zoning, environmental, city planning or similar matters)
relating to any real property or part thereof, as the case may be, leased or
subleased by the Company which violation would have a Material Adverse Effect.
(c) Except for commercially reasonable quantities of leasing
and office supplies, the Company has never generated, transported, used, stored,
treated, disposed of, or managed any Hazardous Waste (as defined below) or
Hazardous Material (as defined below). To the knowledge of the Company and the
Principal Shareholders, (i) the Company does not have any material liability
under, nor has the Company violated in any material respect, any Environmental
Law (as defined below); (ii) the Company is in compliance in all material
respects with applicable Environmental Laws; and (iii) the Company has never
entered into or been subject to any judgment, consent decree, compliance order,
or administrative order with respect to any environmental or health and safety
matter or received any demand letter, formal complaint or claim with respect to
any environmental or health and safety matter or the enforcement of any
Environmental Law. For purposes of this Section 2.11(c), (i) "Hazardous
Material" shall mean and include any hazardous material, hazardous substance,
petroleum product, oil, toxic substance, pollutant, or contaminant, as defined
or regulated under any Environmental Law, or any other substance which may pose
a threat to the environment or to human health or safety; (ii) "Hazardous Waste"
shall mean and include any hazardous waste as defined or regulated under any
Environmental Law; and (iii) "Environmental Law" shall mean
-10-
any environmental or health and safety-related law, regulation, rule, ordinance,
or by-law at the foreign, federal, state, or local level existing as of the date
hereof.
2.12 PERSONAL PROPERTY. Except as set forth on SCHEDULE 2.12 and except
for property sold or otherwise disposed of in the ordinary course of business
since the Last Balance Sheet Date, the Company owns free and clear of any liens
or encumbrances, all of the personal property reflected as owned by the Company
in the Last Balance Sheet, and all other material items of personal property
acquired by the Company through the date hereof. All material items of such
personal property are in normal operating condition, wear and tear excepted.
2.13 PATENTS, TRADEMARKS, ETC. Set forth on SCHEDULE 2.13 is a list of
all material patents, patent rights, patent applications, trademarks, trademark
applications, service marks, service xxxx applications trade names and
copyrights owned by or registered in the name of the Company, or of which the
Company is a licensor or licensee. The Company owns or possesses adequate
licenses or other rights to use all patents, patent applications, trademarks,
trademark applications, service marks, service xxxx applications, trade names,
copyrights, manufacturing processes, formulae, trade secrets and know-how
(collectively, "Intellectual Property") necessary to the conduct of its business
as conducted and no claim is pending or, to the knowledge of the Company and the
Principal Shareholders, threatened to the effect that the operations of the
Company infringe upon or conflict with the asserted rights of any other person
under any Intellectual Property, and the Company and the Principal Shareholders
are not aware of any basis upon which any such claim (whether or not pending or
threatened) should reasonably be anticipated. Except as set forth on SCHEDULE
2.13, no claim is pending or, to the knowledge of the Company and the Principal
Shareholders, threatened to the effect that any such Intellectual Property owned
or licensed by the Company, or which the Company otherwise has the right to use,
is invalid or unenforceable by the Company, and the Company and the Principal
Shareholders are not aware of any basis upon which any such claim (whether or
not pending or threatened) should reasonably be anticipated.
2.14 AGREEMENTS OF DIRECTORS, OFFICERS AND EMPLOYEES. To the knowledge
of the Company, no director, officer or employee of the Company is in violation
of any terms of any employment contract, non-competition agreement,
non-disclosure agreement, patent disclosure or assignment agreement or other
contract or agreement containing restrictive covenants relating to the right of
any such director, officer, employee to be employed or engaged by the Company
because of the nature of the business conducted or proposed to be conducted by
the Company, or relating to the use of trade secrets or proprietary information
of others.
2.15 PERMITS AND LICENSES. The Company has all permits, licenses,
orders, franchises and other rights and privileges of all federal, state, local
or foreign governmental or regulatory bodies (collectively, "PERMITS") necessary
for the conduct of its business as presently conducted except where failure to
obtain Permits would not have a Material Adverse Effect. All such Permits are in
full force and effect and, to the knowledge of the Company and the Principal
-11-
Shareholders, no suspension or cancellation of any of them is pending. None of
the Permits will be materially adversely affected by the consummation of the
transactions contemplated in this Agreement and the Related Documents.
2.16 CONTRACTS AND COMMITMENTS. Except as set forth on SCHEDULE 2.16
attached hereto, the Company has no contract, obligation or commitment which is
material or which involves a potential material commitment, or any stock
redemption or stock purchase agreement, stock option plan, shareholders'
agreement, financing agreement, license or real property lease. For purposes of
this Section 2.16, a contract, obligation or commitment shall be deemed material
if it requires future expenditures by the Company in excess of $100,000 or
requires payment to the Company in excess of $100,000.
2.17 REGISTRATION RIGHTS. The Company has not granted any rights
relating to registration of its capital stock under the Act or state securities
laws other than those contained in the Registration Rights Agreement.
2.18 INSURANCE COVERAGE. SCHEDULE 2.18 hereto contains an accurate list
of the insurance policies currently maintained by the Company. Except as
described on SCHEDULE 2.18, there are currently no material claims pending
against the Company under any insurance policies currently in effect and
covering the property, business or employees of the Company, and all premiums
due and payable with respect to the policies maintained by the Company have been
paid to date. All such policies are in full force and effect and provide
insurance, including without limitation, liability insurance, in such amounts
and against such risks as is customary for companies engaged in similar
businesses to the Company to protect employees, properties, assets, businesses
and operations of the Company.
2.19 EMPLOYEE MATTERS. Except as set forth on SCHEDULE 2.19, the
Company does not have in effect any consulting agreements with any individuals
or labor or collective bargaining agreements, written or oral. The Company and
the Principal Shareholders have no knowledge that any of the officers or other
key employees of the Company presently intends to terminate his employment with
the exception of the Principal Shareholders (other than Xx. Xxxxxxxxx). The
Company is in compliance in all material respects with all applicable laws and
regulations relating to labor, employment, fair employment practices, terms and
conditions of employment, and wages and hours. SCHEDULE 2.19 lists and
identifies: each "employee pension benefit plan" (as such term is defined in
section 3(2) of ERISA); each "employee welfare benefit plan" (as such term is
defined in section 3(1) of ERISA); each stock purchase, stock option, stock
bonus, restricted stock, deferred compensation, severance pay, incentive
compensation, salary continuation, vacation, sick pay, or disability plan,
policy, or arrangement; each material fringe benefit plan, policy, arrangement,
or practice; and each employment, separation, termination, stay-with-bonus,
change-of-control, retention, or similar contract, agreement, policy, or
understanding, which is maintained or contributed to by the Company or any ERISA
Affiliate for, on behalf of, or with respect to, any current or former employee,
officer, director, or
-12-
dependent thereof, to which the Company is a party, or for which the Company has
any liability or contingent liability (individually a "Plan" and collectively
the "Plans"). True and complete copies of all Plans and all amendments thereto
(and where written Plan documents do not exist, detailed written summaries
thereof) have been furnished to the Purchaser. For purposes of this Agreement,
"ERISA Affiliate" means, with respect to Title IV of ERISA, any trade or
business, whether or not incorporated, that together with the Company , would be
deemed to be a "single employer" within the meaning of section 4001 of ERISA,
and, with respect to the Code, any member of any group that, together with the
Company, is treated as a "single employer" under section 414 of the Code. Each
Plan complies and has been administered in form and operation with all material
requirements of law and regulation applicable thereto. The Company and the ERISA
Affiliates have performed all of their material obligations under all such
Plans. There have been no acts or omissions which have given rise to, or which
could give rise to, any penalty, tax, or fine under sections 409, 502(c) or
502(i) of ERISA, or sections 4975 or 4976 of the Code, for which the Company may
be liable. None of the assets of any Plan are invested in any employer
securities, employer real property, or any insurance contract of any company
subject to rehabilitation proceedings. All contributions required with respect
to any Plan for all periods ending prior to the Closing (including periods from
the first day of the current plan year to the Closing) will be completely and
timely made prior to the Closing by the Company or the ERISA Affiliates. All
required reports and descriptions of each Plan (including IRS Form 5500 Annual
Reports, summary annual reports, and summary plan descriptions) have been timely
filed and distributed. None of the Company or any ERISA Affiliate has any plan
or commitment to establish any additional Plans or to amend any existing Plan,
other than as may be required by applicable statute. Other than coverage
mandated by applicable statute, the Company is not under any obligation or
liability to provide medical benefits or death benefits (including through
insurance) to retirees or former employees, officers or directors of the Company
or any ERISA Affiliate or to their respective dependents. The consummation of
the transactions contemplated hereby will not entitle any employee of the
Company to receive any bonus, severance or other payment except as contemplated
by this Agreement or except as set forth in Schedules 1.7, 1.8 and 1.9.
2.20 CLIENTS. During each of the past two years, no single customer has
accounted for more than 5% of the Company's aggregate revenues, and no group of
five customers have accounted for more than 10% of the Company's aggregate
revenues. The relationships of the Company with its clients are good commercial
working relationships and, except as set forth on SCHEDULE 2.20, no clients
which accounts for more than 2% of the Company's revenues in 1997 has canceled
or otherwise terminated, or threatened to cancel or otherwise terminate, its
relationship with the Company.
2.21 NO BROKERS OR FINDERS. Except for a fee payable to Xxxxxxxxx &
Xxxxx, which fee shall be the sole responsibility of and shall be paid by the
Principal Shareholders, no person has or will have, as a result of the
transactions contemplated by this Agreement, any right, interest or
-13-
claim against or upon the Company for any commission, fee or other compensation
as a finder or broker because of any act or omission by the Company.
2.22 TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE
2.22, there are no loans, leases or other continuing transactions between the
Company on the one hand, and any officer or director of the Company or any
Principal Shareholder or any respective family member or affiliate of such
officer, director or shareholder on the other hand.
2.23 ASSUMPTIONS, GUARANTEES, ETC. OF INDEBTEDNESS OF OTHER PERSONS.
Except as set forth on SCHEDULE 2.23, the Company has not assumed, guaranteed,
endorsed or otherwise become directly or contingently liable on or for any
indebtedness for borrowed money of any other Person, except guarantees by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business.
2.24 DISCLOSURES. To the knowledge of the Company and the Principal
Shareholders, the representations and warranties contained in this Agreement,
together with the Schedules to this Agreement, taken as a whole, do not contain
any untrue statement of material fact or omit to state any material fact
necessary to make the statements contained herein or therein, in light of the
circumstances in which they were made, not misleading.
ARTICLE III
AFFIRMATIVE COVENANTS OF THE COMPANY
Without limiting any other covenants and provisions hereof, the Company
covenants and agrees that it will observe the following covenants on and after
the Closing Date and until any Securities shall remain outstanding.
3.1 ACCOUNTS AND REPORTS. The Company will, and will cause each of its
Subsidiaries (if any) to, maintain a system of accounts in accordance with
generally accepted accounting principles consistently applied and the Company
will, and will cause each of its Subsidiaries (if any) to keep full and complete
financial records. The Company will furnish to each Purchaser the information
set forth in this Section 3.1.
(a) Within ninety (90) days after the end of each fiscal year,
a copy of the consolidated and consolidating balance sheet of the Company and
its Subsidiaries as at the end of such year, together with consolidated and
consolidating statements of income, shareholders' equity and cash flow of the
Company and its Subsidiaries for such year, setting forth in each case in
comparative form the corresponding figures for the preceding fiscal year, all in
reasonable detail and accompanied by the unqualified report of one of the six
largest public accountant firms
-14-
(measured by total revenues), which firm shall be selected by the Board of
Directors of the Company; provided that such consolidating statements need not
be audited.
(b) Within thirty (30) days after each month, a preliminary
consolidated and consolidating balance sheet of the Company and its Subsidiaries
as of the end of such month and preliminary consolidated and consolidating
statements of income, shareholders' equity and cash flow for such month and for
the period commencing at the end of the previous fiscal year and ending with the
end of such month, setting forth in each case in comparative form the
corresponding figures for the corresponding period of the preceding fiscal year,
all in reasonable detail.
(c) At the time of delivery of each monthly and annual
statement, a certificate, executed by either the president or chief financial
officer of the Company stating that such officer has caused the provisions of
Articles III, IV and IX of this Agreement, and the terms of the documents
related to the Senior Credit Financing to be reviewed and has no knowledge of
any default by the Company or any Subsidiary in the performance or observance of
any of the provisions thereof or, if such officer has such knowledge, specifying
such default.
(d) Not later than thirty (30) days prior to the end of each
fiscal year, a copy of the operating plan and budget for the next fiscal year
required under Section 3.8.
(e) Promptly upon receipt thereof, any written report, so
called "management letter," and any other reports submitted to the Company or
any Subsidiary by its independent public accountants relating to the business,
prospects or financial condition of the Company and its Subsidiaries;
(f) Promptly after the commencement thereof, notice of (i) all
actions, suits and proceedings before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
affecting the Company (or any Subsidiary) which, if successful, would have a
Material Adverse Effect; and (ii) all material defaults by the Company or any
Subsidiary (whether or not declared) under any agreement for money borrowed
(unless waived or cured within applicable grace periods); and
(g) Such other information with regard to the business,
properties or the condition or operations, financial or otherwise, of the
Company or its Subsidiaries as the Purchasers may from time to time reasonably
request.
3.2 PAYMENT OF TAXES. The Company will pay and discharge (and cause any
Subsidiary to pay and discharge) all taxes, assessments and governmental charges
or levies imposed upon it or upon its income or profits, or upon any properties
belonging to it, prior to the date on which penalties attach thereto, and all
lawful claims which, if unpaid, might become a lien or charge upon any
properties of the Company (or any Subsidiary), provided that neither the
-15-
Company nor any Subsidiary shall be required to pay any such tax, assessment,
charge, levy or claim which (i) has not been asserted or is not owed, or (ii) is
being contested in good faith and by proper proceedings if the Company or such
Subsidiary shall have set aside on its books adequate reserves in the opinion of
management and the Company's independent accountants with respect thereto.
3.3 MAINTENANCE OF KEY MAN INSURANCE. The Company will, at its expense,
maintain a life insurance policy in the face amount of $1,000,000 with a
responsible and reputable insurance company payable to the Company on the life
of Xxxxxxx Xxxxxxxxx. The Company will maintain such policy and will not cause
or permit any assignment of the proceeds of such policy and will not borrow
against such policy; PROVIDED, HOWEVER, that the Company may assign the proceeds
thereof to its senior lender in connection with the Senior Credit Agreement. The
Company will add one designee of the Purchasers as a notice party to such
policy, and will request that the issuer of each policy provide such designee
with ten (10) days' notice before such policy is terminated (for failure to pay
premium or otherwise) or assigned, or before any change is made in the
designation of the beneficiary thereof.
3.4 COMPLIANCE WITH LAWS, ETC. The Company will comply (and cause each
of its Subsidiaries to comply) with all applicable laws, rules, regulations and
orders of any governmental authority, the noncompliance with which would have a
Material Adverse Effect.
3.5 INSPECTION. At any reasonable time during normal business hours and
from time to time, but not more frequently than once per calendar quarter,
respectively, for all Purchasers and transferees of Purchasers as a group, the
Company (and each of its Subsidiaries) will permit upon reasonable prior written
notice (i) any one or more of the Purchasers so long as it shall own any
Securities and (ii) any of the agents or representatives of the foregoing
Persons, to examine and make copies of and extracts from the records and books
of account of and visit the properties of the Company (and any of its
Subsidiaries) and to discuss the Company's affairs, finances and accounts with
any of its officers or directors; provided that any Person or Persons exercising
rights under this Section 3.5 shall (i) use all reasonable efforts to ensure
that any such examination or visit results in a minimum of disruption to the
operations of the Company and (ii) shall agree in writing to keep any
proprietary information of the Company disclosed to him in the course of such
inspection confidential in a manner consistent with prudent business practices
and treatment of such Person's or Persons' own confidential information and not
use such proprietary information for any purpose in competition with the
Company's business. The rights granted under this Section 3.5 shall be in
addition to any rights which any Purchaser may have under applicable law.
3.6 CORPORATE EXISTENCE; OWNERSHIP OF SUBSIDIARIES. The Company will,
and will cause its Subsidiaries to, at all times preserve and keep in full force
and effect their corporate existence, and rights and franchises material to the
business of the Company and its Subsidiaries, taken as a whole, and will
qualify, and will cause each of its Subsidiaries to qualify, to do
-16-
business as a foreign corporation in any jurisdiction where the failure to do so
would have a Material Adverse Effect. The Company shall at all times own of
record and beneficially, free and clear of all liens, charges, restrictions,
claims and encumbrances of any nature, all of the issued and outstanding capital
stock of each of its Subsidiaries other than such liens, charges, restrictions,
claims and encumbrances as are granted for the benefit of the holders of Senior
Debt.
3.7 COMPLIANCE WITH ERISA. The Company will comply (and cause each of
its Subsidiaries to comply) in all material respects with all minimum funding
requirements applicable to any pension or other employee benefit plans which are
subject to ERISA or to the Code, and comply in all other material respects with
the provisions of ERISA and the Code, and the rules and regulations thereunder,
which are applicable to any such plan. Neither the Company nor any of its
Subsidiaries will permit any event or condition to exist which could permit any
such plan to be terminated under circumstances which cause the lien provided for
in Section 4068 of ERISA to attach to the assets of the Company or any of its
Subsidiaries.
3.8 BOARD APPROVAL. Not later than thirty (30) days prior to the end of
each fiscal year, the Company will prepare and submit to its Board of Directors
for its approval prior to such year end an operating plan and budget, cash flow
projections and profit and loss projections, all itemized in reasonable detail
for the immediately following year.
3.9 FINANCINGS. The Company will promptly provide to the Board of
Directors the details and terms of, and any brochures or investment memoranda
prepared by the Company related to, any possible financing of any nature for the
Company (or any of its Subsidiaries), whether initiated by the Company or any
other Person.
3.10 MEETINGS OF THE BOARD OF DIRECTORS. The Directors shall schedule
regular meetings not less frequently than once every fiscal quarter. The Company
shall reimburse all members of the Board of Directors of the Company for all
direct out-of-pocket expenses incurred by them in attending such meetings.
3.11 NINTH BOARD MEMBER. The Purchasers and the Principal Shareholders
will use their best efforts to elect a ninth member of the Company's Board of
Directors in accordance with the Shareholders' Agreement within 180 days
following the Closing Date.
3.12 TRADING POLICY. After the Company has consummated its first public
offering of securities pursuant to a registration statement filed under the
Securities Act of 1933, as amended, the Company shall establish a trading policy
(the "Trading Policy") relating to the sale of shares of the Company by
officers, directors and principal shareholders. The Trading Policy shall provide
that any such person may purchase or sell securities of the Company only during
the period commencing 48 hours after release of the Company's operating results,
and ending on the day which is no less than two weeks prior to expiration of the
fiscal quarter within which such announcement is made.
-17-
3.13. EMPLOYEE BENEFITS. As a condition to the Closing, the Company
shall agree to cause Bond Technologies, Inc. and its related insurance and
pension service providers to allow employees of the Company to continue to
participate in the Bond Technologies, Inc. group medical, life, death and
disability, and dental insurance plans, as well as the Bond Technologies, Inc.
401(k) Savings Plan for a period of three months after Closing on the same terms
and conditions as such employees of the Company have participated prior to
Closing.
ARTICLE IV
NEGATIVE COVENANTS OF THE COMPANY
Without limiting any other covenants and provisions hereof, the Company
covenants and agrees that it will comply (and will cause each Subsidiary to
comply) for the benefit of the Purchasers with each of the provisions of this
Article IV on and after the Closing Date and until the repayment in full of all
obligations under the Debentures and redemption of the Preferred Stock. In each
instance where this Article IV provides for action to be taken only with the
approval of the Purchasers, such approval may be evidenced either (i) by the
prior written consent or waiver of the Purchasers in accordance with Section
12.5, or (ii) by the prior written consent or waiver by a majority of the
members of the Company's Board of Directors designated exclusively by the
Purchasers, provided in each case that the document evidencing such consent or
waiver accurately describes the action to be taken and clearly references the
section or sections of this Agreement affected thereby.
4.1 INVESTMENTS IN OTHER PERSONS. The Company will not make or permit
any Subsidiary to make any loan or advance to any Person, or purchase, otherwise
acquire, or permit any Subsidiary to purchase or otherwise acquire, the capital
stock or assets of any Person without the prior approval of the Purchasers,
EXCEPT:
(i) investments by the Company or a Subsidiary in evidences of
indebtedness issued or fully guaranteed by the United States of America
and having a maturity of not more than one year from the date of
acquisition;
(ii) investments by the Company or a Subsidiary in certificates
of deposit, notes, acceptances and repurchase agreements having a
maturity of not more than one year from the date of acquisition issued
by a bank organized in the United States having a combined capital and
surplus of at least $50,000,000;
(iii) loans or advances from the Company to any Subsidiary, a
Subsidiary to the Company or from a Subsidiary to another Subsidiary;
-18-
(iv) investments by the Company or a Subsidiary in A-rated or
better commercial paper having a maturity of not more than one year
from the date of acquisition;
(v) investments by the Company or a Subsidiary in shares of a
"money market" fund registered under the Investment Company Act of
1940, or in "money market" accounts fully insured by the Federal
Deposit Insurance Corporation and sponsored by banks and other
financial institutions, provided that such "money market" fund or
"money market" accounts invest principally in investments of the types
described in clauses (i), (ii) or (iv) of this subsection 4.1;
(vi) investments existing as of the date of this Agreement
identified on SCHEDULE 4.1;
(vii) interest rate agreements entered into pursuant to the
Senior Credit Agreement in the ordinary course of the Company's
business;
(viii) repurchase agreements fully collateralized by United States
government securities;
(ix) operating deposit accounts of the Company and its
Subsidiaries;
(x) advances to employees in the ordinary course of business
in an aggregate amount not to exceed $25,000 outstanding at any time;
(xi) loans or advances made to directors, officers, employees
and consultants to fund the purchase or exercise price of stock grants
or options issued under the Plan or in connection other employee
benefit plans of the Company; and
(xii) other Investments in an aggregate amount not exceeding
$500,000 at any time which have been approved by the Company's Board of
Directors.
4.2 DISTRIBUTIONS. The Company will not declare or pay any dividends,
purchase, redeem, retire, or otherwise acquire for value any of its capital
stock (or rights, options or warrants to purchase such shares) now or hereafter
outstanding, return any capital to its shareholders as such, or make any
distribution of assets to its shareholders as such, or permit any Subsidiary to
do any of the foregoing, except that the Subsidiaries may declare and make
payment of cash and stock dividends to the Company, return capital to the
Company and make distributions of assets to the Company and except that nothing
herein contained shall prevent the Company from:
-19-
(i) effecting a stock split or declaring or paying any dividend
consisting of shares of any class of capital stock to the holders of
shares of such class of capital stock;
(ii) complying with any specific provision of the terms of the
Preferred Stock relating to the payment of dividends, liquidation
preferences or redemption payments on or with respect to the Preferred
Stock or redemption of the Preferred Stock;
(iii) redeeming the Redemption Shares as provided in Section 1.5;
(iv) repurchasing at cost Restricted Stock in accordance with the
Plan; or
(v) making the Designated Distributions pursuant to Section 1.8.
4.3 DEALINGS WITH AFFILIATES. Except for those transactions
contemplated by this Agreement or the Related Documents or listed in SCHEDULE
4.3 attached hereto, the Company will not enter into any transaction with any
officer or director of the Company or any Subsidiary or holder of any class of
capital stock of the Company, or any member of their respective immediate
families or any corporation or other entity directly or indirectly controlling,
controlled by or under common control with one or more of such officers,
directors or shareholders or members of their immediate families, unless (i) the
interest of such person is disclosed in advance to the Board of Directors, (ii)
such transaction is on arm's-length terms which are no less favorable to the
Company or any Subsidiary as those which could have been obtained from an
unaffiliated third party, and (iii) such transaction is approved by a
disinterested majority of the Board of Directors of the Company or such
Subsidiary.
4.4 MERGER. The Company shall not, and shall not permit any Subsidiary
to, merge or consolidate with any other corporation, or sell, assign, lease or
otherwise dispose of or voluntarily part with the control of (whether in one
transaction or in a series of transactions) all, or substantially all, of its
assets (whether now owned or hereinafter acquired) or permit any Subsidiary to
do any of the foregoing, (i) EXCEPT for sales or other dispositions of assets in
the ordinary course of business, and (ii) except that (a) any wholly owned
Subsidiary may merge into or consolidate with or transfer assets to any other
wholly owned Subsidiary and (b) any wholly owned Subsidiary may merge into or
transfer assets to the Company.
4.5 LIMITATION ON OPTIONS. The Company shall not grant any options,
warrants or other rights to acquire shares of Common Stock or other equity
securities of the Company, except up to an aggregate of 32.558 shares of Common
Stock (as appropriately adjusted for any stock split, combination,
reorganization, recapitalization, reclassification, stock dividend or similar
event, including the stock split referred to in Section 1.10 hereof) may be
issued in the form of awards pursuant to the Plan as described in Section 1.6,
and all such grants made after the date hereof shall be approved by the
Compensation Committee of the Company's Board of Directors.
-20-
4.6 LIMITATION ON RESTRICTIONS ON SUBSIDIARY DIVIDENDS AND OTHER
DISTRIBUTIONS. Except for the Senior Credit Agreement, the Company shall not
permit any of its Subsidiaries, directly or indirectly, to create or suffer to
exist or become effective any encumbrances or restrictions on the ability of any
of its Subsidiaries to (i) pay dividends or make any other distributions on its
capital stock or any other interest or participation in its profit owned by any
of the Company or any of its Subsidiaries, or pay any indebtedness owed by any
of the Subsidiaries, (ii) make loans or advances to the Company, or (iii)
transfer any of its properties or assets to the Company.
4.7 NO CONFLICTING AGREEMENTS. The Company agrees that neither it nor
any Subsidiary will enter into or amend any agreement, contract, commitment or
understanding, other than the Senior Credit Agreement which would restrict or
prohibit the exercise by the Purchasers of any of their rights under this
Agreement or any of the Related Documents.
4.8 CHANGE IN BUSINESS. The Company will continue to remain principally
engaged in its present line of business, and will not enter, to any material
extent, into any unrelated business.
4.9 INDEBTEDNESS. Neither the Company nor any of its Subsidiaries will
create, incur, guarantee, assume or otherwise become directly or indirectly
liable for any Indebtedness other than the Indebtedness (including any
refinancing thereof), evidenced by
(a) Indebtedness arising under the Senior Credit
Agreement;
(b) endorsements for collection, deposit, or negotiation
and warranties of products or services, in each case
incurred in the ordinary course of business;
(c) Indebtedness under this Agreement;
(d) Indebtedness incurred in connection with the
acquisition after the date hereof of any real or
personal property by the Company or any Subsidiary or
under any Capitalized Lease, PROVIDED that the
aggregate principal amount of such Indebtedness of
the Company and its Subsidiaries shall not exceed the
aggregate amount of $100,000 at any one time;
(e) Indebtedness existing on the date hereof and listed
and described on SCHEDULE 4.9 hereto;
(f) Indebtedness of a Subsidiary to the Company or
another Subsidiary and Indebtedness of the Company to
any Subsidiary;
-21-
(g) Indebtedness of the Company in respect of interest
rate protection arrangements or in respect of
currency swap arrangements so long as such
arrangements are in the ordinary course of business
and are not for speculative purposes;
(h) unsecured Indebtedness of the Company not otherwise
permitted by this Section 4.9 in an aggregate amount
outstanding at any time not to exceed $250,000; and
(i) Indebtedness of the Company existing as a result of a
refinancing of Indebtedness permitted by this Section
4.9, provided that the terms of any such refinancing
Indebtedness, and any agreement or instrument
relating thereto, are otherwise permitted by the
Senior Credit Agreement and further provided that the
principal amount of such Indebtedness shall not be
increased above the amount of such Indebtedness
outstanding on the date of such refinancing and the
direct (and any contingent) obligors therefor and any
collateral security in respect thereof shall not be
changed (or increased), as a result of or in
connection with such refinancing.
4.10 RESTRICTIONS ON LIENS. The Company will not, and will not permit
any of its Subsidiaries to, (a) create or incur or suffer to be created or
incurred or to exist any lien, encumbrance, mortgage, pledge, charge,
restriction, or other security interest of any kind upon any of its property or
assets of any character, whether now owned or hereafter acquired, or upon the
income or profits therefrom; (b) transfer any of such property or assets or the
income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors; (c) acquire, or agree or have an option to
acquire, any property or assets upon conditional sale or other title retention
or purchase money security agreement, device, or arrangement; (d) suffer to
exist for a period of more than thirty (30) days after the same shall have been
incurred any Indebtedness or claim or demand against it that if unpaid might by
law or upon bankruptcy or insolvency, or otherwise, be given any priority
whatsoever over its general creditors; (e) sell, assign, pledge, or otherwise
transfer any "receivables" as defined in clause (g) of the definition of the
term "Indebtedness," with or without recourse; or (f) enter into or permit to
exist any arrangement or agreement, enforceable under applicable law, which
directly or indirectly prohibits the Company or any of its Subsidiaries from
creating or incurring any lien, encumbrance, mortgage, pledge, charge,
restriction, or other security interest other than in favor of the lenders under
the Senior Credit Agreement and other than customary anti-assignment provisions
in leases and licensing agreements entered into by the Company or such
Subsidiary in the ordinary course of its business, PROVIDED that the Company or
any of its Subsidiaries may create or incur or suffer to be created or incurred
or to exist:
-22-
(i) liens in favor of the Company or all or part
of the assets of Subsidiaries of the Company
securing Indebtedness owing by Subsidiaries
of the Company to the Company;
(ii) liens to secure taxes, assessments, and
other government charges in respect of
obligations not overdue or liens on
properties to secure claims for labor,
material, or supplies in respect of
obligations not overdue;
(iii) deposits or pledges made in connection with,
or to secure payment of, workmen's
compensation, unemployment insurance, old
age pensions, or other social security
obligations;
(iv) liens on properties in respect of judgments
or awards that have been in force for less
than the applicable period for taking an
appeal so long as execution is not levied
thereunder or in respect of which the
Company or such Subsidiary shall at the time
in good faith be prosecuting an appeal or
proceedings for review and in respect of
which a stay of execution shall have been
obtained pending such appeal or review;
(v) liens of carriers, warehousemen, mechanics,
and materialmen, and other like liens on
properties in existence less than 120 days
from the date of creation thereof in respect
of obligations not overdue;
(vi) encumbrances on real estate consisting of
easements, rights of way, zoning
restrictions, restrictions on the use of
real property and effects and irregularities
in the title thereto, landlord's or lessor's
liens under leases to which the Company or a
Subsidiary of the Company is a party, and
other minor liens or encumbrances none of
which in the opinion of the Company
interferes materially with the use of the
property affected in the ordinary conduct of
business of the Company and its
Subsidiaries, which defects do not
individually or in the aggregate have a
materially adverse effect on the business of
the Company individually or of the Company
and its Subsidiaries on a consolidated
basis;
(vii) liens existing on the date hereof and listed
on SCHEDULE 4.10 hereto;
(viii) purchase money security interests in or
purchase money mortgages on real or personal
property acquired after the date hereof to
secure
-23-
purchase money Indebtedness of the type and
amount permitted by ss.4.9(d), incurred in
connection with the acquisition of such
property, which security interests or
mortgages cover only the real or personal
property so acquired;
(ix) liens in favor of the lender under the
Senior Credit Agreement;
(x) liens on security deposits with respect to
leases of office space of the Borrower or
any Subsidiary and other liens arising under
leases or rental agreements made by the
Borrower or any Subsidiary, in each case in
the ordinary course of business consistent
with past practices, which liens cover only
the real property so rented; and
(xi) UCC-1 financing statements filed solely for
notice or precautionary purposes under
operating leases which do not secure
Indebtedness and which are limited to the
items of equipment leased by the Borrower or
any Subsidiary pursuant to the lease in
question.
4.11 LEVERAGE RATIO. The Company will not at any time during any period
described in the table set forth below permit the Leverage Ratio to exceed the
ratio set forth opposite such period in such table:
PERIOD RATIO
------ -----
Closing Date - September 30, 1998 4.00:1.00
October 1, 1998 - December 31, 1998 3.75:1.00
January 1, 1999 - December 31, 1999 3.00:1.00
any time thereafter 2.50:1.00
4.12 DEBT SERVICE COVERAGE RATIO. The Company will not permit the Debt
Service Coverage Ratio at the end of any fiscal quarter to be less than
1.1:1.00.
4.13 CURRENT RATIO. The Company will not permit the ratio of
Consolidated Current Assets to Consolidated Current Liabilities to be less than
.85:1.00 at any time.
-24-
ARTICLE V
INVESTMENT REPRESENTATIONS
5.1 REPRESENTATIONS AND WARRANTIES. Each Purchaser hereby represents
and warrants to the Company as follows:
(a) Such Purchaser is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite partnership power and authority and has taken all
necessary partnership action required for the due authorization, execution,
delivery and performance by such Purchaser of this Agreement and the Related
Documents, and any other agreements or instruments executed by such Purchaser in
connection herewith or therewith and the consummation of the transactions
contemplated herein or therein;
(b) This Agreement, the Related Documents and the other
agreements and instruments executed by such Purchaser in connection herewith or
therewith will each be a legal, valid and binding obligation of such Purchaser,
enforceable against such Purchaser in accordance with its terms;
(c) No consent, approval, license or authorization of, or
designation, declaration or filing with, any court or governmental authority is
or will be required on the part of such Purchaser in connection with the
execution, delivery and performance by such Purchaser of this Agreement, any
Related Documents and any other agreements or instruments executed by such
Purchaser in connection herewith or therewith;
(d) Such Purchaser is in compliance with all the provisions of
this Agreement and their organizational and partnership documents, and, to such
Purchaser's knowledge, in all material respects with the material provisions of
each other agreement or instrument, judgment, decree, judicial order, statute
and regulation by which it is bound or to which it is subject. Neither the
execution, delivery or performance of this Agreement and the Related Documents
nor the consummation of the transactions contemplated hereby and thereby, will,
with or without the giving of notice or passage of time, or both, materially
violate, or result in any material breach of, or constitute a default under any
provision of such Purchaser's organization or partnership documents, or any
statute, rule or regulation, contract, lease, judgment, decree or other document
or instrument by which such Purchaser is bound or to which it or any of its
properties are subject;
(e) Such Purchaser is acquiring the Securities solely for its
own account as an investment and not with a view to any distribution or resale
thereof in violation of the Securities Act. Such Purchaser has been advised that
the Securities have not been registered under the Securities Act or under the
provisions of any state securities or "blue sky" law. Such Purchaser,
-25-
by accepting the Securities, agrees and acknowledges that it will not directly
or indirectly, offer, transfer, sell, assign, pledge, encumber, hypothecate or
dispose of any of such Securities (or solicit any offers to purchase or
otherwise acquire or take a pledge of any of the Securities) unless such offer,
transfer, sale, assignment, pledge, encumbrance, hypothecation or other
disposition is made in accordance with the provisions of the Shareholders'
Agreement and (i) pursuant to an effective registration statement under the
Securities Act and in compliance with all applicable state securities or "blue
sky" laws or (ii) pursuant to an available exemption from registration under, or
otherwise in compliance with, the Securities Act and all applicable state
securities or "blue sky" laws. Such Purchaser understands and agrees that in the
case of a transfer or other disposition made pursuant to clause (ii) above, such
Purchaser of Securities shall be required to provide to the Company an opinion
of counsel reasonably satisfactory to the Company to the effect that
registration under the Securities Act is not required and a written
certification (or in the Company's discretion, an opinion of counsel reasonably
acceptable to the Company (who may be counsel employed by such Purchaser)) that
qualification or registration under any such state securities laws and
regulations is not required (or that any applicable state qualification or
registration requirements have been satisfied in full);
(f) Such Purchaser is an "Accredited Investor" (as such term
is defined in Rule 501 of Regulation D of the Securities Act). The financial
situation of such Purchaser is such that it can afford to bear the economic risk
of holding the unregistered Securities for an indefinite period of time. Such
Purchaser can afford to suffer the complete loss of its investment in the
Securities. The knowledge and experience of such Purchaser in financial and
business matters is such that it is capable of evaluating the risk of the
investment in the Securities. Such Purchaser acknowledges that it has had access
to such financial and other information, and has been afforded the opportunity
to ask such questions of representatives of the Company and receive answers
thereto, as such Purchaser has deemed necessary in connection with its decision
to purchaser the Securities, and that no representation or warranty, express or
implied, is being made by the Company with respect to the Company or the
Securities, other than those expressly set forth herein;
(g) Such Purchaser has been advised and understands that the
Securities have not been registered under the Act, on the grounds that no
distribution or public offering of the Securities is to be effected, and that in
this connection, the Company is relying in part on the representations of such
Purchaser set forth in this Article V;
(h) Such Purchaser has been further advised and understands
that no public market now exists for any of the securities issued by the Company
and that a public market may never exist for the Securities;
(i) Such Purchaser is aware of the Company's business affairs
and financial condition and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the
Securities; PROVIDED, HOWEVER, that nothing in this Section
-26-
5.1 shall be deemed to vitiate or limit the representations, warranties and
covenants of the Company or the Principal Shareholders contained in this
Agreement; and
(j) No person has or will have, as a result of the transaction
contemplated by this Agreement, any right, interest or claim against or upon the
Purchasers or the Company or any of its Subsidiaries for any commission, fee or
other compensation as a finder or broker because of any act or omission by such
Purchaser.
5.2 PERMITTED TRANSFERS; LEGENDS. The Company agrees that it will
permit (i) a transfer of the Securities by a partnership to one or more of its
partners, where no consideration is exchanged therefor by such partners, or to a
retired or withdrawn partner who retires or withdraws after the date hereof in
full or partial distribution of his interest in such partnership, or to the
estate of any such partner or the transfer by gift will or intestate succession
of any partner to his spouse or to his siblings, lineal descendants or ancestors
of such partner of his spouse, or to a trust created for the benefit of one or
more of the foregoing and (ii) a sale or other transfer of any of the
Securities, if the transferee agrees in writing to be subject to the terms
hereof and the Related Documents to the same extent as if it were an original
Purchaser hereunder and thereunder and upon obtaining assurance satisfactory to
the Company that such transaction is exempt from the registration requirements
of, or is covered by an effective registration statement under the Act and
applicable state securities or "blue-sky" laws, including without limitation,
receipt of an unqualified opinion of counsel reasonably satisfactory to the
Company. The certificates representing the Securities shall bear a legend
evidencing such restriction on transfer substantially in the following form:
"These Securities have been acquired for investment and has
not been registered under the Securities Act of 1993 (the
"Act") or the securities laws of any state. These Securities
may not be transferred by sale, assignment, pledge or
otherwise unless (i) a registration statement for the
Securities under the Act is in effect or (ii) the corporation
has received an opinion of counsel, which opinion is
reasonably satisfactory to the corporation to the effect that
such registration is not required under the Act or the
securities laws of any state."
ARTICLE VI
SUBORDINATION OF DEBENTURES
6.1 AGREEMENT TO SUBORDINATE. The Company agrees, and each holder of
the Debentures by its acceptance thereof agrees, that notwithstanding any other
provision of this Agreement or the Debentures, the payment of the principal of
and interest on each and all of the Debentures shall be subordinate and junior
in right of payment, to the extent and in the manner
-27-
set forth in a separate Subordination Agreement of even date among the Company,
the holders of the Debentures and the holder of the Senior Debt. Each holder of
a Debenture further agrees, upon request of any future holder of Senior Debt, to
enter into an intercreditor agreement for the benefit of such future holder of
Senior Debt; provided that such agreement shall be on terms no more onerous to
the holder of a Debenture than those contained in the Subordination Agreement of
even date.
ARTICLE VII
CONDITIONS OF PURCHASERS' OBLIGATIONS
7.1 EFFECT OF CONDITIONS. The obligations of the Purchaser to purchase
and pay for the Securities at the Closing shall be subject at its election to
the satisfaction of each of the conditions stated in the following Sections of
this Article.
7.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company and the Principal Shareholders contained in this Agreement shall
be true and correct in all material respects, and the Purchasers shall have
received a certificate dated as of such Closing Date and signed on behalf of the
Company and the Principal Shareholders to that effect.
7.3 PERFORMANCE. The Company and the Principal Shareholders shall have
performed and complied in all material respects with all of the agreements,
covenants and conditions contained in this Agreement required to be performed or
complied with by it and them at or prior to such Closing Date, and the
Purchasers shall have received a certificate dated as of such Closing Date and
signed on behalf of the Company and the Principal Shareholders to that effect.
7.4 NO MATERIAL ADVERSE CHANGE. The business, properties, assets or
financial condition of the Company shall not have been materially adversely
affected since the date of this Agreement, whether by fire, casualty, act of God
or otherwise, and there shall have been no other changes in the business,
properties, assets, financial condition, or management of the Company that would
have a Material Adverse Effect.
7.5 OPINION OF COUNSEL. The Purchasers shall have received opinions,
dated the Closing Date, from Xxxxxxx, Procter & Xxxx, LLP, counsel to the
Company and the Principal Shareholders, in the form attached as EXHIBIT D.
7.6 COMPLETION OF DUE DILIGENCE. The Purchasers shall have
satisfactorily completed their due diligence review with respect to the
financial condition, results of operations, business and prospects of the
Company.
7.7 COMPLETION OF AUDIT. The Company shall have provided to the
Purchasers audited financial statements, audited by Deloitte & Touche LLP
accompanied by management
-28-
letters, for the fiscal years of the Company ended December 31, 1996 and
December 31, 1997, which financial statements shall have corroborated the
information previously furnished by the Company to the Purchasers with respect
to its financial condition and results of operation during such period.
7.8 EMPLOYMENT AGREEMENT. Xxxxxxx Xxxxxxxxx shall have entered into,
executed and delivered an Employment Agreement (the "Employment Agreement") in
form and substance as set forth in EXHIBIT E attached hereto.
7.9 NON COMPETITION AGREEMENTS. Xxxxxxx Xxxxxxxxx, Xxxx Xxxxxx, Xxxxxx
Xxxxxxx and Xxxx Xxxxxxx shall each have entered into, executed and delivered
Non Competition Agreements with the Company (the "Non Competition Agreement") in
form and substance as set forth in EXHIBIT F attached hereto.
7.10 BOARD ELECTION. Concurrently with the Closing, the Board of
Directors of the Company shall have been expanded to nine members, four of whom
shall be designees of the Purchasers as provided in the Shareholders' Agreement.
7.11 ARTICLES OF INCORPORATION. The Articles of Incorporation of the
Company shall have been amended to provide for the authorization of the
Preferred Stock.
7.12 CONSENTS AND WAIVERS. The Company shall have obtained all consents
or waivers necessary to execute this Agreement and the other agreements and
documents contemplated herein, to issue the Securities, and to carry out the
transactions contemplated hereby and thereby. All corporate and other action and
governmental filings necessary to effectuate the terms of this Agreement and the
Related Documents and other agreements and instruments executed and delivered by
the Company in connection herewith shall have been made or taken.
7.13 REGISTRATION RIGHTS AGREEMENT. The Company, the Purchasers and the
Principal Shareholders shall have entered into a registration rights agreement
(the "Registration Rights Agreement") in the form of EXHIBIT G attached hereto.
7.14 SHAREHOLDERS' AGREEMENT. The Company, the Purchasers and the
Principal Shareholders shall have entered into a Shareholders' Agreement in the
form of EXHIBIT H attached hereto.
7.15 INJUNCTIONS, ETC.. There shall exist no injunction, restraining
order or other similar proceeding seeking to prevent consummation of the
transactions set forth in this Agreement and in the Related Documents.
-29-
7.16 FIRPTA. The Principal Shareholder shall deliver FIRPTA certificate
under Section 1445 of the Code and Regulation Section 1.1445-2(b)(2) in the form
satisfactory to the Purchaser.
ARTICLE VIII
CONDITIONS OF THE OBLIGATIONS OF THE
COMPANY AND THE PRINCIPAL SHAREHOLDERS
8.1 EFFECT OF CONDITIONS. The obligation of the Company to sell the
Securities at the Closing and the obligation of the Principal Shareholders to
surrender their Redemption Shares shall be subject at their election to the
satisfaction of each of the conditions stated in the following Sections of this
Article.
8.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Purchasers contained in this Agreement shall be true and correct in all
material respects and the Company shall have received a certificate on the
Closing Date and signed on behalf of each Purchaser to that effect.
8.3 SHAREHOLDERS' AGREEMENT. The Shareholders' Agreement shall have
been executed and delivered by the Purchasers.
8.4 PERFORMANCE. The Purchasers shall have performed and complied in
all material respects with all of the agreements, covenants and conditions
contained in the Agreement required to be performed or complied with by them at
or prior to such Closing, and the Company shall have received a certificate
dated as of such Closing and signed on behalf of the Purchasers to that effect.
8.5 CONSENTS AND WAIVERS. The Purchasers shall have obtained all
consents or waivers necessary to execute this Agreement and the other agreements
and documents contemplated herein, and to carry out the transactions
contemplated hereby and thereby.
8.6 REGISTRATION RIGHTS AGREEMENT. The Company, the Purchasers and the
Principal Shareholders shall have entered into the Registration Rights
Agreement.
8.7 SENIOR CREDIT AGREEMENT. The Company shall have entered into the
Senior Credit Agreement with the lenders therein, and the lenders therein shall
have made financing available to the Company, all on terms and conditions
reasonably acceptable to the Company and the Principal Shareholders.
8.8 RESTRICTED STOCK AWARDS; FOUNDER OPTIONS. The Restricted Stock
Awards and Founder Options shall have been granted as provided in Section 1.6.
-30-
8.9 DISTRIBUTIONS. The distributions described in Section 1.7 shall
have been made to the Principal Shareholders.
8.10 INJUNCTIONS, ETC.. There shall exist no injunction, restraining
order or other similar proceeding seeking to prevent consummation of the
transactions set forth in this Agreement and in the Related Documents.
8.11 BONUS PAYMENTS. The Company shall have made the bonus payments
provided for in Section 1.9.
ARTICLE IX
DEFAULTS AND REMEDIES
9.1 EVENTS OF DEFAULT; ACCELERATION.
An "Event of Default" occurs if:
(1) The Company defaults in the payment of any principal of any
Debenture when the same shall become due, either by the terms thereof or
otherwise as herein provided; or
(2) The Company defaults in the payment of interest on any Debenture
when the same becomes due and payable (provided that such payment is otherwise
permitted to be made under the terms of the Senior Credit Agreement) and the
default continues for a period of five days; or
(3) The Company or any Subsidiary shall fail to perform or observe any
covenant contained in Article IV of this Agreement and such default shall not
have been remedied within thirty days after such default shall first have become
known to any officer of the Company or written notice thereof shall have been
received by the Company (regardless of the source of such notice); or
(4) The Company or any of its Subsidiaries defaults in the performance
or observance of any other agreement, term or condition contained in the
Debentures, this Agreement or the Related Documents and such default shall not
have been remedied within sixty (60) days after such default shall first have
become known to any officer of the Company or written notice thereof shall have
been received by the Company (regardless of the source of such notice); or
(5) The Company or any Subsidiary shall default (subject to any
applicable grace period) in the payment of any principal of or premium, if any,
or interest on any other Indebtedness or obligation with respect to borrowed
money the outstanding principal of which is, at the time of such default, in an
aggregate amount greater than $400,000 or shall default in the performance of
any material term of any instrument evidencing such Indebtedness or of any
-31-
mortgage, indenture or agreement relating thereto, and in each case the effect
of such default is to cause, such Indebtedness or obligation to become due and
payable prior to its stated maturity, unless such failure to pay or perform
shall have been waived in writing by the requisite holders of such Indebtedness
or other obligation; or
(6) The Company or any Material Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in
an involuntary case,
(C) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors, or
(E) is the debtor in an involuntary case which is not
dismissed within 60 days of the commencement thereof; or
(7) A court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) provides for relief against the Company or any Material
Subsidiary in an involuntary case,
(B) appoints a Custodian of the Company or any Material
Subsidiary for all or substantially all of its property, or
(C) orders the liquidation of the Company or any Material
Subsidiary; or
(8) A final judgment for the payment of money in an amount in excess of
$250,000 shall be rendered against the Company or any of its Subsidiaries (other
than any judgment as to which a reputable insurance company shall have accepted
full liability (less any applicable deductible) in writing) and shall remain
undischarged for a period (during which execution shall not be effectively
stayed) of 30 days after the date on which the right to appeal has expired; or
(9) Any representation or warranty made by the Company in this
Agreement or in the Related Documents shall prove to be materially false or
incorrect on the date as of which made which has a Material Adverse Effect; then
and in any such case (a) upon the occurrence of any Event of Default described
in clause (6) or (7) above, the unpaid principal amount of and accrued and
unpaid interest on the Debentures shall automatically become due and payable,
without
-32-
presentment, demand, protest or notice of any kind, all of which are hereby
waived by the Company, and (b) upon the occurrence of any other Event of
Default, in addition to any other rights, powers and remedies permitted by law
or in equity, the holder or holders of greater than 50% in principal amount of
the Debentures then outstanding may, at its or their option, by notice in
writing to the Company, declare all of the Debentures to be, and all of the
Debentures shall thereupon be and become, immediately due and payable together
with interest accrued and unpaid thereon and all other sums due hereunder,
without presentment, demand, protest or other notice of any kind, all of which
are waived by the Company.
Upon the occurrence of any such Event of Default, the holders of
Debentures may, subject to the rights of holders of Senior Debt, proceed to
protect and enforce their rights by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any agreement
contained herein or in the Debentures held by them, for an injunction against a
violation of any of the terms hereof or thereof, or for the pursuit of any other
remedy which it may have by virtue of this Agreement or pursuant to applicable
law. The Company shall pay to the holders of Debentures upon demand the
reasonable costs and expenses of collection and of any other actions referred to
in this Article IX, including without limitation reasonable attorney's fees,
expenses and disbursements.
No course of dealing and no delay on the part of the holders of
Debentures in exercising any of their rights shall operate as a waiver thereof
or otherwise prejudice the rights of any holder of the Debentures, nor shall any
single or partial exercise of any right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder. No right, power or remedy conferred hereby or by the Debentures on
the holders thereof shall be exclusive of any other right, power or remedy
referred to herein or therein or now or hereafter available at law, in equity,
by statute or otherwise.
9.2 RESCISSION OF ACCELERATION. At any time after any declaration of
acceleration of all the Debentures shall have been made pursuant to Section 9.1
by any holder or holders of the Debentures and before a judgment or decree for
the payment of money due has been obtained by such holder or holders, the holder
or holders of at least a majority in aggregate principal amount of the
Debentures at the time outstanding may, by written notice to the Company and to
the other holders of the Debentures rescind and annul such declaration and its
consequences, PROVIDED that (i) the principal of and accrued and unpaid interest
on the Debentures which shall have become due otherwise than by such declaration
of acceleration shall have been duly paid, and (ii) all Events of Default other
than the nonpayment of principal of and accrued and unpaid interest on the
Debentures which have become due solely by such declaration of acceleration
shall have been cured or waived by the holders of a majority in aggregate
principal amount of the Debentures at the time outstanding. No rescission or
annulment referred to above shall affect any subsequent Default or any right,
power or remedy arising out of such subsequent Default.
ARTICLE X
-33-
INDEMNIFICATION AND LIMITS ON LIABILITY
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in this Agreement shall survive the Closing until the
first to occur of (i) ten (10) days after receipt by the Purchasers of audited
financial statements of the Company for the year ending December 31, 1999 and
(ii) April 15, 2000; provided that if a claim is brought within such periods it
shall remain valid thereafter until ultimately resolved; and provided further;
that the time limitation set forth in this Section 10.1 shall not apply to
matters described in Sections 2.2, 2.4 (each of which shall survive
indefinitely) and 2.10 (which shall survive until the termination of the
applicable statute of limitations). The covenants of the Company contained in
Articles III and IV hereof shall survive the Closing in accordance with their
terms.
10.2 INDEMNIFICATION BY THE PRINCIPAL SHAREHOLDERS.
(a) Subject to the conditions and limitations set forth in
this Section 10.2, the Principal Shareholders shall jointly and severally
(except with respect to the representations in Section 2.2(b) with respect to
title to stock and 2.4 (the "Individual Representations"), as to which the
liability of the Principal Shareholders shall be several and not joint) defend,
indemnify and hold harmless the Company from and against any loss, liability,
damage, claim, action or cause of action, assessment, cost, penalty and expense,
including reasonable legal and accounting fees (a "Loss," and collectively, the
"Losses") to the extent not covered by insurance, asserted against, resulting
to, imposed upon or incurred by the Company by reason of or resulting from the
breach of any representation or warranty made by the Company or the Principal
Shareholders set forth in Article II of this Agreement, or any facts or
circumstances constituting such a breach. The Principal Shareholders each agree
that they shall have no right to seek damages, reimbursement, indemnification,
contribution or similar rights from the Company for any indemnification payments
for which the Principal Shareholder is liable under this Section 10.
(b) Notwithstanding the provisions of Section 10.2(a), the
Principal Shareholders shall not be required to provide indemnity under this
Section 10.2 unless, and then only to the extent that, the aggregate Losses
exceed $750,000 (the "Deductible"); provided, however, that the Deductible shall
not apply to a breach of a representation or warranty contained in Sections 2.2,
2.4, 2.10 or 2.21.
(c) Notwithstanding any other provision of this Agreement to
the contrary, each Principal Shareholder's indemnification obligations under
this Article X shall be limited as follows: (i) with regard to breaches of any
representations or warranties of the Company or the Principal Shareholders set
forth in Article II (other than the Individual Representations), each Principal
Shareholder's indemnification obligations shall be limited in the aggregate to
such Principal Shareholder's Pro Rata Share of $15,000,000; and (ii) with regard
to breaches of any Individual Representation by a particular Principal
Shareholder, such Principal Shareholder's indemnification obligation shall be
limited in the aggregate to his or her share of the Redemption
-34-
Price. For purposes of this Section 10.2(c), "Pro Rata Share" shall mean the
percentage set forth opposite such Principal Shareholder's name on SCHEDULE 10.2
hereto.
10.3 NOTICE OF CLAIM.
(a) The Company or the Purchasers shall give the Principal
Shareholders prompt written notice of any threatened, potential or actual claim
or the commencement of any action in respect of which indemnity may be sought
hereunder, enclosing a copy of all papers served provided that the failure of
the Company or the Purchasers to give notice as provided herein shall not
relieve the Principal Shareholders of their obligations under this Article X
except if and to the extent the Principal Shareholders have been materially
prejudiced thereby.
(b) In the event that any action, suit or proceeding shall be
brought against the Company, it shall promptly notify the Principal Shareholders
of the commencement thereof, the Principal Shareholders shall be entitled to
participate therein and, to the extent that they desire to do so, to assume the
defense thereof, with counsel reasonably satisfactory to the Company and the
Purchasers. The Purchasers agree to cooperate fully with the Principal
Shareholders and its counsel in the defense against any such action, suit or
proceeding. In any event, the Company or the Purchasers shall have the right to
participate at their own expense in the defense of such action, suit or
proceeding. The indemnifying Principal Shareholder(s) shall have the right, with
the consent of the Company and the Purchasers, which consent shall not be
unreasonably withheld, to settle all indemnifiable matters related to claims by
third parties which are susceptible to being settled provided the Principal
Shareholders' obligations to indemnify the Company therefor will be fully
satisfied.
10.4 COMMENCEMENT OF ACTIONS. All actions by the Company to seek
indemnification pursuant hereto shall be controlled by a majority of the members
of the Board of Directors of the Company appointed by the Purchasers as provided
in the Shareholders Agreement.
10.5 ADJUSTMENT FOR TAXES AND INSURANCE. The amount which the Principal
Shareholders are required to pay pursuant to this Article X shall be adjusted
(i) by the amount of any tax benefit realized by the Company as a result of any
Loss, or the amount of any tax benefit received by the Company as a result of
any payment made pursuant to this Article X; and (ii) the proceeds of any
insurance coverage actually received by the Company with respect to any Loss.
10.6 EXCLUSIVE REMEDY. Notwithstanding anything contained herein or in
any Related Document to the contrary, the rights and remedies of the Company or
the Purchasers against the Principal Shareholders shall be limited to the
indemnification provisions contained in this Article X, which shall be the sole
and exclusive rights and remedies with respect to any breach of any
representation or warranty by the Company or the Principal Shareholders, whether
at law or in equity; provided, however, that nothing herein shall limit the
right of the Company or the
-35-
Purchasers to pursue an action against any Principal Shareholder which is based
on fraud or knowing and willful misrepresentations.
ARTICLE XI
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"Act" means the Securities Act of 1933, as amended.
"Affiliate" when used with respect to a Person means a Person
controlling, controlled by, or under common control with such person.
"Agreement" means this Securities Purchase and Redemption Agreement as
from time to time amended and in effect between the parties.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Business Day" shall mean a day other than Saturday or Sunday which is
not a legal holiday in the Commonwealth of Massachusetts or the City of Boston.
"Capitalized Leases" means leases under which the Company or any of its
Subsidiaries is the lessee or obligor, the discounted future rental payment
obligations under which are required to be capitalized on the balance sheet of
the lessee or obligor in accordance with generally accepted accounting
principles.
"Cash and Cash Equivalents" means cash and investments in certificates
of deposit, money market funds and obligations issued or guaranteed by the
United States Government or any instrumentality thereof, in each case only if
due and payable on demand or within thirty (30) days after the date of purchase.
"Closing" shall have the meaning set forth in Section 1.6.
"Closing Date" shall have the meaning set forth in Section 1.6.
"Commission" shall have the meaning set forth in Section 2.3.
"Company" means and shall include Stride & Associates, Inc., a Delaware
corporation, and its successors and assigns.
-36-
"Consolidated Current Assets" means all assets of the Company and its
Subsidiaries on a consolidated basis that, in accordance with generally accepted
accounting principles, are properly classified as current assets, provided that
(a) notes and accounts receivable shall be included only if good and collectible
as determined by the Company in accordance with established practice
consistently applied and, with respect to such notes, only if payable on demand
or within one (1) year from the date as of which Consolidated Current Assets are
to be determined and if not directly or indirectly renewable or extendible at
the option of the debtors, by their terms, or by the terms of any instrument or
agreement relating thereto, beyond such year, and, with respect to such accounts
receivable, only if payable and outstanding not more than ninety (90) days after
the date of the shipment of goods or other transaction out of which any such
account receivable arose; and such notes and accounts receivable shall be taken
at their face value less reserves determined to be sufficient in accordance with
generally acceptable accounting principles; and (b) inventory shall be included
only if and to the extent that the same shall consist of saleable finished goods
ready and available for shipment to purchasers thereof.
"Consolidated Current Liabilities" means all liabilities and other
Indebtedness of the Company and its Subsidiaries on a consolidated basis
maturing on demand or within one (1) year from the date as of which Consolidated
Current Liabilities are to be determined, and such other liabilities as may
properly be classified as current liabilities in accordance with generally
accepted accounting principles.
"Consolidated Operating Cash Flow" means, for any period, an amount
equal to (a) EBITDA for such period, less (b) the sum of (i) cash payments for
all taxes paid during such period, PLUS (ii) to the extent not already deducted
in the determination of EBITDA, capital expenditures made during such period.
"Consolidated Total Debt Service" means, for any fiscal period with
respect to the Company and its Subsidiaries, the sum of (a) Consolidated Total
Interest Expense for such period, PLUS (b) any and all mandatory or required
payments of principal in respect of Indebtedness of the Company and its
Subsidiaries made or required to be made in such period.
"Consolidated Total Interest Expense" means, for any period, the
aggregate amount of interest required to be paid or accrued by the Company and
its Subsidiaries during such period on all Indebtedness of the Company and its
Subsidiaries outstanding during all or any part of such period, whether such
interest was or is required to be reflected as an item of expense or
capitalized, including payments consisting of interest in respect of any
Capitalized Lease or any synthetic lease, and including commitment fees, agency
fees, facility fees, balance deficiency fees, and similar fees or expenses in
connection with the borrowing of money.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
-37-
"Default" shall mean an Event of Default or any event which, with
notice or lapse of time or both, would become an Event of Default.
"Debt Service Coverage Ratio" means, as at any date of determination,
the ratio of (a) Consolidated Operating Cash Flow of the Company and its
Subsidiaries for the fiscal quarter most recently ended to (b) Consolidated
Total Debt Service of the Company and its Subsidiaries for the fiscal quarter
most recently ended.
"EBITDA" means, with respect to the Company and its Subsidiaries for
any fiscal period, an amount equal to consolidated net income for such period,
PLUS, to the extent deducted in the calculation of consolidated net income and
without duplication, (a) depreciation and amortization for such period, (b)
other noncash charges for such period, (c) income tax expense for such period,
(d) consolidated total interest expense for such period, and MINUS, to the
extent added in computing consolidated net income and without duplication, all
noncash gains (including income tax benefits) for such period, all as determined
in accordance with generally accepted accounting principles.
"Event of Default" shall have the meaning set forth in Section 9.1.
"Last Balance Sheet" shall mean the balance sheet of the Company as of
April 30, 1998.
"Leverage Ratio" means, as of any date of determination, the ratio of
(a) Senior Funded Indebtedness of the Company and its Subsidiaries outstanding
on such date to (b) the EBITDA of the Company and its Subsidiaries for the
period ended on such date; provided, however, for purposes of determining the
Leverage Ratio for purposes of calculating compliance with ss.4.11 hereof for
the period from the Closing date through March 31, 1999, EBITDA for the quarter
ending (i) June 30, 1998, shall be $2,147,200; (ii) September 30, 1998, shall be
$2,557,500; (iii) December 31, 1998, shall be $1,382,000; and (iv) March 31,
1999, shall be $2,068,300.
"Lien" shall mean any mortgage, deed of trust, pledge, security
interest, encumbrance, lien or charge of any kind (including any agreement to
give any of the foregoing, any conditional sale or other title retention
agreement, and the filing of or agreement to give any financing statement under
the Uniform Commercial Code of any jurisdiction).
"Liquidity Event" shall mean any one or more of the following: (i) a
liquidation, dissolution or winding-up of the Company, whether voluntary or
involuntary; (ii) a sale, merger or similar transaction involving the Company,
as the result of which those Persons who held 100% of the voting stock of the
Company immediately prior to such transaction do not hold more than 50% of the
voting stock of the Company (or the surviving or resulting entity) after giving
effect to such transaction; (iii) the sale of all or substantially all of the
assets of the Company; or (iv) a Qualified Public Offering.
-38-
"Material Adverse Effect" means a material and adverse effect on the
assets, liabilities, properties, business, results of operation, or financial
condition of the Company and its Subsidiaries, taken as a whole.
"Material Subsidiary" shall mean a Subsidiary of the Company which,
during the immediately preceding fiscal quarter accounted for at least ten
percent (10%) of the consolidated revenues or net income of the Company or its
Subsidiaries for such period.
"Person" means an individual, corporation, partnership, joint venture,
trust or unincorporated organization or a government or agency or political
subdivision thereof.
"Purchasers" shall have the meaning set forth in Section 1.1.
"Qualified Public Offering" means a public offering of equity
securities of the Company effected pursuant to a registration statement filed
under the Act where the gross proceeds to the Company are at least $20,000,000
and the price per share is at least $210,000.
"Related Documents" shall mean the Registration Rights Agreement, the
Shareholders' Agreement, the Plan, the Restricted Stock Award Agreement, the
Founder Options, the Debentures and the Warrant Agreement.
"Senior Credit Agreement" means the credit agreement entered into as of
the date hereof between the Company and BankBoston, N.A., for itself and as
agent for the other lenders named therein and any other agreement hereafter
entered into by the Company with respect to the issuance of Senior Debt.
"Senior Debt" shall mean the Indebtedness incurred pursuant to the
Senior Credit Agreement executed on the date hereof, as supplemented or
modified, any any replacement or refinancing thereof which does not extend the
maturity or increase the principal amount of, or the interest rate payable with
respect to the Senior Debt.
"Subordination Agreement" shall mean the Intercreditor and
Subordination Agreement executed on the date hereof by the holder of the
Debentures for the benefit of the holder of Senior Debt, and any comparable
agreement executed in the future for future holders of Senior Debt.
"Subsidiary" or "Subsidiaries" means any corporation, association or
other business entity of which the Company and/or any of its other Subsidiaries
(as herein defined) directly or indirectly owns at the time more than fifty
percent (50%) of the outstanding voting shares of every class of such
corporation or trust other than directors' qualifying shares.
-39-
ARTICLE XII
MISCELLANEOUS
12.1. DEBENTURE PAYMENTS. The Company agrees that, so long as any
Purchaser shall hold any Debentures, it will make payments of principal and
interest on any Debenture held by such Purchaser not later than 2:00 p.m.,
Boston, Massachusetts time, on the date such payment is due, in immediately
available federal funds, by credit to the Purchaser's account, as specified in
SCHEDULE 1.1 hereto, or such other account or accounts as the Purchaser may
designate in writing not less than two (2) Business Days prior to the payment
date, notwithstanding any contrary provision contained herein or any Debenture
with respect to the place of payment. Each Purchaser agrees that, before
disposing of any Debenture, it or its nominee will make a notation thereon of
all principal payments previously paid thereon and of the date to which interest
thereon has been paid, and will notify the Company of the name and address of
the transferee of such Debenture. At the election of any subsequent holder of
any Debenture which has made the same agreements relating to such Debenture as
the Purchaser has made in this Section 12.1, the Company will make payments of
principal and interest to the account of such successor holder in the same
manner as set forth above.
12.2 FORM, REGISTRATION, TRANSFER AND EXCHANGE OF DEBENTURES. The
Debentures are issuable as registered notes and in denominations of not less
than $10,000. The Company shall keep at its principal office the register in
which the Company shall provide for the registration of the Debentures and for
transfers of the Debentures. Upon surrender for registration of transfer of any
Debenture at such office, the Company shall execute and deliver, at its expense,
one or more new such Debenture or Debentures of like tenor and of like aggregate
principal amount, which new Debenture or Debentures shall each be a registered
Debenture. At the option of the holder of any Debenture, such Debenture may be
exchanged for other Debentures, of any authorized denominations, of a like
aggregate principal amount, upon surrender of the Debenture to be exchanged at
the office of the Company. Whenever any Debenture is so surrendered for
exchange, the Company shall execute and deliver, at its expense, the Debentures
which the holder thereof making the exchange is entitled to receive. Every
Debenture presented or surrendered for registration of transfer shall be duly
endorsed, or be accompanied by a written instrument of transfer duly executed by
the holder of such Debenture or such holder's attorney-in-fact duly authorized
in writing. Any Debenture issued in exchange for any Debenture or upon transfer
thereof shall carry the rights to unpaid interest and interest to accrue which
were carried by the Debenture so exchanged or transferred, and neither gain nor
loss of interest shall result from any such transfer or exchange. Upon receipt
by the Company of an affidavit of the treasurer, assistant treasurer, or other
responsible official of any Purchaser (or, in the case of holders of Debentures
other than a Purchaser, evidence reasonably satisfactory to the Company) of the
ownership of and the loss, theft, destruction or mutilation of a Debenture and
(i) in case of loss, theft or destruction of a Debenture, of indemnity
reasonably satisfactory to it or (ii) in the
-40-
case of the mutilation of any Debenture, upon surrender and cancellation
thereof, the Company, at its expense, shall execute and deliver in lieu thereof
a new Debenture of like tenor and of a like principal amount and dated and
bearing interest from the date to which interest has been paid on such lost,
stolen, destroyed or mutilated Debenture.
12.3 PARTIES IN INTEREST. Except as otherwise set forth herein, all
covenants, agreements, representations, warranties and undertakings contained in
this Agreement shall be binding on and shall inure to the benefit of the parties
hereto and the respective successors and assigns of the parties hereto
(including transferees of any of the Debentures).
12.4 DEBENTURES OWNED BY AFFILIATES. For the purposes of applying all
provisions of this Agreement which condition the receipt of information or
access to information or exercise of any rights upon ownership of a specified
principal amount of Debentures, the Debentures or shares owned of record by any
affiliate of a Purchaser shall be deemed to be owned by such Purchaser. For the
purpose of this Agreement, the term "affiliate" shall mean any Person
controlling, controlled by or under common control with, a Purchaser and any
general or limited partner of any Purchaser. Without limiting the foregoing,
each Purchaser shall be considered an affiliate of each other Purchaser.
12.5 AMENDMENTS AND WAIVERS. This Agreement may be amended and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of not less than a majority in aggregate principal amount of the
Debentures at the time outstanding, or, at such time as no Debentures remain
outstanding, of the holder or holders of not less than a majority of the shares
of Preferred Stock outstanding, or, at such time as no Debentures or Preferred
Stock remain outstanding, if the holder or holders of a majority of the shares
of Common Stock then outstanding and held by the Purchaser, and each holder of
any Debenture, share of Preferred Stock or share of Common Stock at the time
outstanding shall be bound by any consent authorized by this Section 12.5,
whether or not such Debenture, share of Preferred Stock or share of Common Stock
shall have been marked to indicate such consent; PROVIDED that notwithstanding
anything in this Section 12.5 to the contrary, without the written consent of
the holder or holders of all Debentures at the time outstanding, no consent,
amendment or waiver to or under this Agreement shall (i) extend or reduce the
maturity of any Debenture, or (ii) reduce the rate or affect the time of payment
of interest with respect to any Debenture, or (iii) affect the time, amount or
allocation of any required prepayments, or (iv) reduce the proportion of the
principal amount of the Debentures required with respect to any consent,
amendment or waiver, or (v) affect the provisions of Article VI. The Company
shall promptly send copies of any amendment, consent or waiver (and any requests
for any such amendment, consent or waiver) relating to this Agreement or the
Debentures, Preferred Stock or Common Stock to each Purchaser which holds
Debentures, Preferred Stock or Common Stock and, to the extent practicable,
shall consult with holders of the Debentures, in connection with each such
-41-
amendment, consent and waiver. No course of dealing between the Company and the
holder of any of the Debentures, Preferred Stock or Common Stock nor any delay
in exercise any rights hereunder or any of the Debentures shall operate as a
waiver of any rights of any holder of such Debentures, Preferred Stock or Common
Stock. The Company will reimburse the Purchasers for the reasonable fees and
expenses of counsel incurred in connection with any amendment or modification of
this Agreement or any of the Related Documents or any waiver hereof or thereof.
12.6 NOTICES. All notices, requests, consents, reports and demands
shall be in writing and shall be hand delivered, sent by facsimile or other
electronic medium, or mailed, postage prepaid, to the Company or to the
Purchasers at the address set forth below or to such other address as may be
furnished in writing to the other parties hereto:
The Company: Stride & Associates, Inc.
000 Xxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: President
Fax:
The Principal
Shareholders: The address set forth opposite the Principal
Shareholder's name on Schedule 1.4 attached
hereto.
in each case,
with copy to: Xxxxxxx, Procter & Xxxx, LLP
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxx X. Xxxx III, Esquire
H. Xxxxx Xxxxxx, Esquire
Fax: (000) 000-0000
The Purchasers: The address set forth opposite the
Purchaser's name on SCHEDULE 1.1 attached
hereto.
with copy to: Xxxxxxxx, Xxxxxxx & Xxxxxxx,
A Professional Corporation
000 Xxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxx Xxxxxx, Esquire
Fax: (000) 000-0000
-42-
12.7 EXPENSES. Immediately upon consummation of the Closing, the Company
shall pay all reasonable costs and expenses of the Purchasers and the Principal
Shareholders in connection with the investigation, preparation, execution and
delivery of this Agreement and the Related Documents, the Senior Credit
Agreement (and due diligence related thereto) and the other instruments and
documents to be delivered hereunder and thereunder and the transactions
contemplated hereby and thereby, including the reasonable fees and disbursements
of Xxxxxxxx, Xxxxxxx & Xxxxxxx, A Professional Corporation, special counsel to
the Purchasers.
12.8 COUNTERPARTS. This Agreement and any exhibit hereto may be executed
in multiple counterparts, each of which shall constitute an original but all of
which shall constitute but one and the same instrument. One or more counterparts
of this Agreement or any exhibit hereto may be delivered via telecopier, with
the intention that they shall have the same effect as an original counterpart
hereof.
12.9 EFFECT OF HEADINGS. The article and section headings herein are for
convenience only and shall not affect the construction hereof.
12.10 GOVERNING LAW. This Agreement shall be deemed a contract made
under the laws of The Commonwealth of Massachusetts and together with the rights
and obligations of the parties hereunder, shall be construed under and governed
by the laws of such Commonwealth.
12.11 TAX MATTERS.
(a) S CORPORATION STATUS. Prior to the Closing, the Company and the
Principal Shareholders will not revoke the Company's election to be taxed as
an S corporation within the meaning of Code Sections 1361 and 1362. Prior to
the Closing, the Company and the Principal Shareholders will not take or
allow any action other than the sale of the Company's stock pursuant to this
agreement that would result in the termination of the Company's status as
a validly electing S corporation within the meaning of Code Sections 1361
and 1362.
(b) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. The Company
shall prepare, and shall permit the Purchasers and the Principal Shareholders
to review and comment on, each such tax return for fiscal year 1998 prior to
filing. To the extent permitted by applicable law, the Principal Shareholders
shall include any income, gain, loss, deduction or other tax items for such
periods on their tax returns in a manner consistent with the Schedule K-1s
furnished by the Company to the Principal Shareholders for such periods.
Income tax returns for the S termination year as defined under Section
1362(e)(4) of the Code shall be prepared using the closing of the books
method of accounting on the Closing Date and the Principal Shareholders and
Purchasers shall make any required elections under Federal or state
law to use such method of accounting, including the election under
Section 1362(e)(3) of the Code, if necessary.
(c) COOPERATION ON TAX MATTERS.
-43-
(i) The Purchasers, the Company and the Principal
Shareholders shall cooperate fully, as and to the extent reasonably requested by
the other party, in connection with the filing of tax returns pursuant to this
section and any audit, litigation or other proceeding with respect to taxes.
Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to any such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. The Company and the Principal Shareholders
agree (A) to retain all books and records with respect to tax matters pertinent
to the Company relating to any taxable period beginning before the Closing Date
until the expiration of the statute of limitations (and, to the extent notified
by the Purchasers or the Principal Shareholders, any extensions thereof) of the
respective taxable periods, and to abide by all record retention agreements
entered into with any taxing authority, and (B) to give the other party
reasonable written notice prior to transferring, destroying or discarding any
such books and records and, if the other party so requests, the Company or the
Principal Shareholders, as the case may be, shall allow the other party to take
possession of such books and records.
(ii) The Purchasers and the Principal Shareholders further
agree, upon request, to use their best efforts to obtain any certificate or
other document from any governmental authority or any other Person as may be
necessary to mitigate, reduce or eliminate any tax that could be imposed
(including, but not limited to, with respect to the transactions contemplated
hereby).
(d) CERTAIN TAXES. All transfer, documentary, sales, use, stamp,
registration and other such taxes and fees (including any penalties and
interest) incurred in connection with the execution of this agreement (including
any corporate-level gains tax triggered by the sale of Company stock, New York
City transfer tax and any similar tax imposed in other states or subdivisions),
shall be paid by the Principal Shareholders when due, and the Principal
Shareholders will, at their own expense, file all necessary tax returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration and other taxes and fees, and, if required by applicable
law, the Purchasers will, and will cause their affiliates to, join in the
execution of any such tax returns and other documentation.
* * * * *
S-1
STRIDE & ASSOCIATES, INC.
SECURITIES PURCHASE AND REDEMPTION AGREEMENT
COUNTERPART SIGNATURE PAGE
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
Company, whereupon, this letter shall become a binding agreement among us.
Very truly yours,
STRIDE & ASSOCIATES, INC.
By: /s/ Xxxxxxx Xxxxxxxxx
-------------------------------------
Name: Xxxxxxx Xxxxxxxxx
Title: President
PRINCIPAL SHAREHOLDERS:
/s/ Xxxx Xxxxxx
----------------------------------------
Xxxx Xxxxxx
/s/ Xxxxxx Xxxxxxx
----------------------------------------
Xxxxxx Xxxxxxx
/s/ Xxxx Xxxxxxxx
----------------------------------------
Xxxx Xxxxxxxx
/s/ Xxxxxxx Xxxxxxxxx
----------------------------------------
Xxxxxxx Xxxxxxxxx
S-2
STRIDE & ASSOCIATES, INC.
SECURITIES PURCHASE AND REDEMPTION AGREEMENT
COUNTERPART SIGNATURE PAGE
PURCHASERS:
Summit Ventures IV, L.P.
By: Summit Partners IV, L.P.
Its General Partner
By: Stamps, Xxxxxxx & Co., IV
Its General Partner
By: /s/ Xxx Xxxxxxx
------------------------------------
General Partner
Summit Ventures V, L.P.
By: Summit Partners V, L.P.
Its General Partner
By: Summit Partners, LLC
Its General Partner
By: /s/ Xxx Xxxxxxx
------------------------------------
Member
Summit V Advisors Fund, L.P.
By: Summit Partners, LLC
Its General Partner
By: /s/ Xxx Xxxxxxx
------------------------------------
Member
S-3
Summit V Advisors Fund (QP), L.P.
By: Summit Partners, LLC
Its General Partner
By: /s/ Xxx Xxxxxxx
------------------------------------
Member
Summit Subordinated Debt Fund II, L.P.
By: Summit Partners SD II, LLC
Its General Partner
By: /s/ Xxx Xxxxxxx
------------------------------------
Summit Investors III, L.P.
By: /s/ Xxx Xxxxxxx
------------------------------------
General Partner
S-4
