<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) August 13, 1998
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Allin Communications Corporation
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(Exact Name of Registrant as Specified in its Charter)
Delaware
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(State of Other Jurisdiction of Incorporation)
0-21395 25-1795265
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(Commission File Number) (IRS Employer Identification No.)
400 Greentree Commons, 381 Mansfield Avenue
Pittsburgh, Pennsylvania 15220-2751
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(Address of Principal Executive Offices) (Zip Code)
(412) 928-8800
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(Registrant's Telephone Number, Including Area Code)
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Item 2. Acquisition or Disposition of Assets
The KCS Acquisition
On August 13, 1998 (the "Closing Date"), Allin Communications Corporation
(the "Company") acquired all of the issued and outstanding capital stock of KCS
Computer Services, Inc., a Pennsylvania corporation ("KCS"), pursuant to a Stock
Purchase Agreement (the "KCS Stock Purchase Agreement") among the Company and
the stockholders of KCS (the "KCS Stockholders"). KCS provides information
technology professional services and offers its clients a complete portfolio of
consulting and custom development services for client/server and legacy systems
on either a project solution or staff supplement basis. KCS' client services
are generally divided into three categories: Microsoft consulting services,
information technology services and bank consulting services. Following the
acquisition (the "KCS Acquisition"), KCS became a wholly owned subsidiary of the
Company. The Company intends to operate KCS as a sister entity to Kent
Consulting Group, Inc., another wholly owned subsidiary of the Company, in the
Company's Allin Consulting business unit. The following summary does not
purport to be complete and is qualified in its entirety by reference to the
documents discussed which are filed as exhibits to this report.
The KCS Stock Purchase Agreement provides for the payment of up to $16.0
million by the Company to the KCS Stockholders, consisting of:
(a) at the time of closing of the KCS Acquisition (collectively, the
"Initial KCS Purchase Price"), (i) $2,443,061.28 in cash, (ii) an aggregate
number of shares (the "Initial Stock Consideration") of the Company's Common
Stock, par value $.01 per share (the "Common Stock") equal to the amount
obtained by dividing $3,547,687 by $4.406 (which was the average of the bid and
asked prices of the Company's Common Stock for the thirty-day period ending
August 7, 1998 (the "Average Bid and Asked Price")), (iii) a secured promissory
note in the original principal amount of $6,200,000 (the "$6.2M Note"), such
note bearing interest at the rate of 5% per annum, with $3,000,000 of the
principal being due and payable upon the earlier to occur of (a) the sale of a
wholly-owned subsidiary of the Company or the sale of substantially all of the
operating assets of such a subsidiary, and (b) December 31, 1998, and the other
$3,200,000 of the principal being due and payable upon the earlier to occur of
(x) the receipt of financing from a third party lender sufficient to refinance
the $3,200,000 portion of such promissory note, and (b) December 31, 1998, (iv)
a second secured promissory note in the original principal amount of $2,000,000
(the "$2M Note", and together with the $6.2M Note, the "Notes"), such $2M Note
bearing interest at the rate of 6% per annum and being due and payable in full
on the second anniversary of the Closing Date, and (v) the post-closing payment
by or on behalf of KCS of a $209,252 tax liability of KCS;
(b) up to $1.6 million in contingent payments, consisting of (i) a
maximum of $1,200,000 in cash and (ii) a maximum of $400,000 in shares of the
Company's Common Stock (the "Contingent
<PAGE>
Stock Consideration"). The amount of the contingent Earn-Out Payment (the
"Earn-Out Payment") will be determined on the basis of the Adjusted Operating
Profit (as defined) of KCS for the period beginning January 1, 1998 and ending
December 31, 1998 (the "Earn-Out Period"). If Adjusted Operating Profit for the
Earn-Out Period is at least $1,671,681, the KCS Shareholders will receive an
aggregate Earn-Out Payment equal to $4.67 for each dollar by which Adjusted
Operating Profit exceeds $1,671,681, with 75% of the Earn-Out Payment being made
in cash and 25% of the Earn-Out Payment being made in shares of the Company's
Common Stock, up to a maximum of $1.2 million in cash and $400,000 in shares of
the Company's Common Stock. The number of shares of the Company's Common Stock
to be issued will be determined by dividing (i) a sum equal to 25% of the Earn-
Out Payment by (ii) the Average Bid and Asked Price.
Only two KCS Shareholders, James S. Kelly, Jr. and Ronald J. Pearce,
received the Initial Stock Consideration and will receive the Contingent Stock
Consideration, if any. The other two KCS Shareholders received or will receive
all cash. James S. Kelly, Jr. is the sole recipient of the Notes.
If the Company does not repay the $2M Note on or before the second
anniversary of the Closing Date, the $2M Note will automatically convert into
the number of shares of Common Stock equal to (a) the amount obtained by
dividing the then outstanding indebtedness evidenced by the $2M Note by the
Average Bid and Asked Price of $4.406, or (b) at the holder's option, the amount
obtained by dividing the then outstanding indebtedness evidenced by the $2M Note
by the average of the bid and asked prices of the Company's Common Stock for the
30 days preceding the second anniversary of the Closing Date, subject to a $2.00
minimum per share price (the "Maturity Formula"). The interest on the $2M Note
is to be paid in cash, subject to approval by any then senior lender to the
Company. In the event of any default, including a payment default with respect
to interest, the holder of the $2M Note has the following options: (i) to take
no action, (ii) to accelerate the principal amount of the $2M Note and convert
such principal amount into Common Stock in accordance with the Maturity Formula
and seek payment from the Company of accrued and unpaid interest, if any,
through the date of conversion or (iii) to accelerate the principal amount of
the $2M Note and convert such principal amount as well as accrued and unpaid
interest through the date of conversion, if any, into Common Stock in accordance
with the Maturity Formula. In addition, if there is a payment default with
respect to interest payments, the holder may also elect to accelerate the
principal amount of the $2M Note and convert such principal amount into Common
Stock in accordance with the Maturity Formula and continue to receive quarterly
payments of interest until the Maturity Date as if the principal amount of the
$2M Note remained outstanding. It will not be a payment default if the Company's
then senior lender does not permit the payment of interest on the $2M Note.
However, no indebtedness evidenced by the $2M Note will be convertible into
Common Stock unless and until the holders of the Common Stock approve the
issuance of the Common Stock upon such conversion.
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For purposes of the KCS Stock Purchase Agreement, the term "Adjusted
Operating Profit" means:
(a) the net profit of KCS, determined on an accrual basis in
accordance with generally accepted accounting principles consistently applied,
before interest income or expense, loss or gain on the sale of assets, any prior
period adjustments and income taxes; plus
(b) expenses related to the following items incurred from January 1,
1998 through the Closing Date:
(i) salary, wage taxes, benefits and other expenses associated
with the employment of James S. Kelly, Jr., not to exceed $30,500 per
month;
(ii) salaries, wage taxes and benefits associated with the
elimination of the positions of administrative office manager and
administrative support person which are not filled prior to December 31,
1998, not to exceed $7,200 per month; and
(iii) professional fees for investment bankers, attorneys and
outside accountants incurred by KCS prior to June 19, 1998 in connection
with the anticipated sale of the KCS Stock.
James S. Kelly, Jr. and Ronald J. Pearce will have demand registration
rights (on no more than two occasions) and unlimited piggyback registration
rights with respect to the shares of the Company's Common Stock issued to them
as (a) the Initial Stock Consideration, and (b) Contingent Stock Consideration
(if any).
As of the Closing Date, KCS had outstanding indebtedness to a financial
institution in the amount of $626,875. Such indebtedness was repaid on the
Closing Date, which amount was in addition to the aggregate $14.4 million
Initial KCS Purchase Price and the aggregate $1.6 million Earn-Out Payment
described above.
At the closing of the KCS Acquisition, James S. Kelly, Jr., Ronald J.
Pearce, Joseph J. Kelly and Bradley C. Friedel, who are all of the KCS
Shareholders, received payments in the following amounts:
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<TABLE>
<CAPTION>
Percentage
Ownership Closing Closing Promissory
of KCS Cash Payment Stock Payment Notes
----------- -------------- ---------------- ----------
<S> <C> <C> <C> <C>
1. James S. Kelly, Jr. 86.5% $ 882,079.00 $3,192,918.30 $8,200,000
(724,675
shares)
2. Ronald J. Pearce 10.0% $1,064,306.10 $ 354,768.70 - 0 -
(80,520
shares)
3. Joseph J. Kelly 2.5% $ 354,768.70 - 0 - - 0 -
4. Bradley C. Friedel 1.0% $ 141,907.48 - 0 - - 0 -
---- ------------- ------------- ----------
Total 100% $2,443,061.28 $3,547,687.00 $8,200,000
(805,195 shares)
</TABLE>
The KCS Shareholders shall, depending on the amount of Adjusted Operating
Profit for the Earn-Out Period, have the right to receive earn-out payments up
to the following maximums:
<TABLE>
<CAPTION>
Percentage Maximum Maximum
Ownership Contingent Contingent
of KCS Cash Payment Stock Payment
----------- ------------ --------------
<S> <C> <C> <C>
1. James S. Kelly, Jr. 86.5% $1,024,000 $360,000
(81,707
shares)
2. Ronald J. Pearce 10.0% $ 120,000 $ 40,000
(9,079 shares)
3. Joseph J. Kelly 2.5% $ 40,000 - 0 -
4. Bradley C. Friedel 1.0% $ 16,000 - 0 -
---- ---------- --------
Total 100% $1,200,000 $400,000
(90,786
shares)
</TABLE>
The KCS Acquisition will be treated as a business combination under the
purchase method of accounting.
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Additional Financing for the KCS Acquisition
In connection with the KCS Acquisition, the Company sold 2,750 shares of a
newly designated series of preferred stock, Series B Redeemable Preferred Stock
(the "Series B Preferred Stock"), and related warrants (the "Warrants") to
purchase shares of Common Stock, at a purchase price of $1,000 per share of
Series B Preferred Stock, resulting in proceeds to the Company of $2,750,000
which were used to pay the cash portion of the Initial KCS Purchase Price.
Additional funds of approximately $323,000 from cash on hand were required for
the transaction. A description of the terms of the Series B Preferred Stock
follows under Item 5. - Other Information. Purchasers of the Series B Preferred
Stock received Warrants to purchase an aggregate of 647,059 shares of Common
Stock, which is the number of shares of Common Stock equal to the product of the
number of shares of Series B Preferred Stock purchased multiplied by 1,000,
divided by $4.25, the closing price of the Common Stock as reported by The
Nasdaq Stock Market ("Nasdaq") on the last trading day preceding the Closing
Date. The per share exercise price under the Warrants will be $4.25. Payment
of the exercise price may be made by delivery to the Company of shares of Series
A Convertible Redeemable Preferred Stock of the Company having an aggregate
liquidation value plus accrued and unpaid dividends, if any, equal to the
exercise price for the number of shares to be purchased upon exercise. The
Warrants will expire on the earlier to occur of (a) December 31, 1998 if the
Company is required to redeem the outstanding shares of Series B Preferred Stock
as of such date or (b) the fifth anniversary of the Closing Date. The Series B
Preferred Stock will not be convertible into Common Stock and the Warrants will
not be exercisable for shares of Common Stock unless and until the holders of
outstanding Common Stock approve the issuance of the Common Stock upon such
conversion or exercise.
If the Company does issue shares of Common Stock upon conversion of the
Series B Preferred Stock or upon exercise of the Warrants (collectively, the
"Conversion Shares"), the holders of the Conversion Shares will have certain
rights to require the Company to register the Conversion Shares for resale under
the Securities Act.
The Series B Preferred Stock and Warrants were offered and sold to certain
existing stockholders of the Company. Richard Talarico, a director and
executive officer of the Company, purchased 300 shares, James Roddey and William
Kavan, directors of the Company, purchased 100 shares and 750 shares,
respectively, and Henry Posner, Jr. and Thomas D. Wright, stockholders of the
Company, purchased 1,400 and 200 shares, respectively.
The Company intends to pursue refinancing and/or repayment of the $6.2M
Note through bank financing, the sale of operating assets or a combination of
the two. However, the Company does not presently have any commitment in place
for bank financing or the sale of assets.
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Changes in Management of the Company
James S. Kelly, Jr., the founder and the President and Chief Executive
Officer of KCS prior to its acquisition by the Company, was elected, effective
as of the closing of the KCS Acquisition, as a director of the Company to serve
in such capacity until the next annual meeting of stockholders of the Company.
Mr. Kelly has been involved in the information technology field for 25 years.
Mr. Kelly now owns 724,675 shares of Common Stock which represent approximately
12.10% of the Common Stock issued and outstanding. Mr. Kelly also received the
Notes in connection with the closing of the KCS Acquisition and may receive
additional shares of Common Stock if any Contingent Stock Consideration is paid.
Ronald J. Pearce, an Executive Vice President and Chief Operating Officer
of KCS prior to its acquisition by the Company, will continue as Chief Operating
Officer of KCS following the KCS Acquisition. Mr. Pearce joined KCS in 1990.
Item 5. Other Information.
Description of Capital Stock
The following is a description of certain provisions of the Company's
Certificate of Incorporation (the "Certificate"), Certificate of Designation
(the "Series A Designation") relating to the Company's Series A Convertible
Redeemable Preferred Stock, par value $.01 per share (the "Series A Preferred
Stock"), the Certificate of Designation (the "Series B Designation") for the
Series B Redeemable Preferred Stock (the "Series B Preferred Stock"), and By-
Laws (the "By-Laws"). Such summary does not purport to be complete and is
qualified in its entirety by reference to the terms of the foregoing documents.
General
The Company is authorized to issue up to 20,000,000 shares of Common Stock,
par value $0.01 per share, and 100,000 shares of preferred stock, par value $.01
per share (the "Preferred Stock"). The Series A Designation provides that
40,000 shares of the authorized Preferred Stock have been designated, and may be
issued as, Series A Preferred Stock. The Series B Designation provides that
5,000 shares of the authorized Preferred Stock have been designated and may be
issued as Series B Preferred Stock. Following the Closing Date, there were
5,987,462 shares of Common Stock issued and outstanding, 25,000 shares of Series
A Preferred Stock having a liquidation value of $100 per share issued and
outstanding and 2,750 shares of Series B Preferred Stock having a liquidation
value of $1,000 per share issued and outstanding.
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Common Stock
Holders of Common Stock are entitled to one vote for each share held of
record on all matters to be submitted to a vote of the stockholders. The
Certificate does not provide for cumulative voting for the election of
directors. Subject to preferences that may be applicable to any outstanding
shares of Preferred Stock, holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors of the Company out of funds legally available therefor. The
holders of Common Stock have no preemptive or other subscription rights, and
there are no conversion rights or redemption or sinking fund provisions with
respect to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable. In the event of any liquidation, dissolution or
winding-up of the affairs of the Company, holders of Common Stock will be
entitled to share ratably in the assets of the Company remaining after payment
or provision for payment of all of the Company's debts and obligations and
liquidation payments to holders of outstanding shares of Preferred Stock.
Series B Convertible Redeemable Preferred Stock
The holders of Series B Preferred Stock are entitled to receive, when and
as declared by the Company's Board of Directors, cumulative quarterly dividends
at the rate of six percent per annum, from and including the date of issuance to
and including the date of payment in redemption (the "Redemption Date"). Such
dividends, to the extent declared by the Board of Directors, will be payable
quarterly in arrears on each October 31, January 31, April 30 and July 31. The
holders of Series B Preferred Stock have no voting rights except as provided by
the Delaware General Corporation Law (the "DGCL") and except with respect to
actions which adversely affect the rights and preferences of the Series B
Preferred Stock set forth in the Series B Designation. The Series B Preferred
Stock is senior in right of payment and on liquidation to the Common Stock and
the Series A Preferred Stock.
Upon approval by the holders of the outstanding Common Stock, each holder
of the Series B Preferred Stock will have the right to convert all or a portion
of its shares of Series B Preferred Stock into Common Stock at any time prior to
the redemption date. Until and including the first anniversary of the original
issuance of shares of Series B Preferred Stock, each share of Series B Preferred
Stock held by each holder may be converted into the number of shares of Common
Stock determined by (i) dividing 1,000 by $3.6125, which is 85% of the closing
price of the Common Stock as reported by Nasdaq on the date prior to the Closing
Date, or (ii) if it results in a greater number of shares of Common Stock,
dividing 1,000 by the greater of (A) 85% of the closing price of the Common
Stock as reported by Nasdaq on the trading date prior to the date of the
conversion or (B) $2.00. After the first anniversary of the original issuance
of shares of Series B Preferred Stock, each share of Series B Preferred Stock
held by each holder may be converted into the number of shares of Common Stock
determined by (i) dividing 1,000 by $3.6125, which is 85% of the closing price
of the Common Stock as reported by Nasdaq on the date prior to the Closing Date,
or (ii) if it results in a greater number of shares of Common Stock, dividing
1,000 by 85% of
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the closing price of the Common Stock as reported by Nasdaq on the first trading
date following the first anniversary of the Closing Date. Holders of the Series
B Preferred Stock who exercise the foregoing conversion right shall have the
right to receive any accrued, but unpaid dividends. No fractional shares of
Common Stock shall be issued; instead a cash payment will be made in lieu of the
issuance of any fractional shares of Common Stock. Any shares of Series B
Preferred Stock which are not converted to Common Stock will remain outstanding
until so converted or until redeemed.
In the event that the holders of the outstanding Common Stock have not
approved the issuance of Common Stock pursuant to the foregoing conversion
rights on or before December 31, 1998, the Company shall redeem all outstanding
shares of Series B Preferred Stock (subject to the legal availability of funds
therefor) at $1,000 per share of Series B Preferred Stock, plus accrued and
unpaid dividends, if any, on or before December 31, 1998.
In the event that the Company consummates an Asset Sale prior to the
Maturity Redemption Date (as defined), at the option of the holders of the
Series B Preferred Stock, the Company is to redeem all outstanding shares of
Series B Preferred Stock (subject to the legal availability of funds therefor)
on or before the date which is five business days following consummation of the
Asset Sale. "Asset Sale" means any sale, issuance, conveyance, transfer, lease
or other disposition (including, without limitation, by way of merger,
consolidation or sale and leaseback transaction) (collectively, a "Transfer") by
the Corporation or its subsidiaries, directly or indirectly, in one or a series
of related transactions, to any person other than the Corporation or any of its
subsidiaries, which Transfer results in net proceeds to the Corporation and its
subsidiaries in an aggregate amount sufficient to repay all then outstanding
debt of the Corporation and its subsidiaries and to pay the redemption price of
$1,000 per share of Series B Preferred Stock, plus accrued and unpaid dividends,
if any. Unless earlier redeemed or converted into Common Stock, the outstanding
shares are to be redeemed by the Company (subject to the legal availability of
funds therefor) at $1,000 per share, plus accrued and unpaid dividends, if any,
on or before the fifth anniversary of the Closing Date (the "Maturity Redemption
Date").
Holders of Series B Preferred Stock will have certain pro rata preemptive
rights for one year to subscribe for securities proposed to be issued in
connection with certain future equity financings by the Company, if any.
Series A Convertible Redeemable Preferred Stock
The holders of Series A Preferred Stock are entitled to receive, when and
as declared by the Company's Board of Directors, cumulative compounded quarterly
dividends at the rate of eight percent of the liquidation value thereof per
annum. The holders of Series A Preferred Stock have no voting rights except as
provided by the DGCL and except with respect to actions which affect adversely
the rights and preferences of the Series A Preferred
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Stock set forth in the Series A Designation. The Series A Preferred Stock is
senior in right of payment and on liquidation to the Common Stock.
The Company has the right at any time prior to maturity, to redeem the
outstanding shares of Series A Preferred Stock at $100 per share, plus accrued
and unpaid dividends, if any. Unless earlier redeemed, the outstanding shares
of Series A Preferred Stock are to be redeemed by the Company at $100 per share,
plus accrued and unpaid dividends, if any, on June 30, 2006.
As the outstanding shares of Series A Preferred Stock were not converted to
Common Stock within the permitted time period, they will remain outstanding
until the earlier of the time such shares are redeemed by the Company or June
30, 2006.
Undesignated Preferred Stock
The Board of Directors of the Company is authorized, without further action
of the stockholders, to issue up to 100,000 shares of Preferred Stock in one or
more classes or series and to fix the designations, powers, preferences and the
relative participating, optional or other special rights of the shares of each
series and any qualifications, limitations and restrictions thereon. Of such
authorized shares, 40,000 shares have been designated as Series A Preferred
Stock and 5,000 shares have been designated as Series B Preferred Stock. Any
Preferred Stock issued by the Company may rank prior to the Common Stock as to
dividend rights, liquidation preference or both, may have full or limited voting
rights and may be convertible into shares of Common Stock.
The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring or seeking to acquire, a significant portion of the outstanding Common
Stock.
Certain Anti-Takeover Effects of Certificate and By-Laws Provisions
Certain provisions of the Certificate and By-Laws summarized in the
following paragraphs may be deemed to have anti-takeover effects. These
provisions may have the effect of discouraging a future takeover attempt which
is not approved by the Board of Directors but which individual Company
stockholders may deem to be in their best interests or in which stockholders may
receive a substantial premium for their shares over then-current market prices.
As a result, stockholders who might desire to participate in such a transaction
may not have an opportunity to do so. Such provisions also render the removal
of the current Board of Directors more difficult.
Number of Directors; Removal; Filling Vacancies. The Certificate and By-
Laws provide that the number of directors will be fixed from time to time with
the consent of two-thirds of the Board of Directors. Moreover, the Certificate
provides that directors may only be removed with cause by the affirmative vote
of the holders of at least a majority of the
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outstanding shares of capital stock of the Company then entitled to vote at an
election of directors. This provision prevents stockholders from removing any
incumbent director without cause and allows two-thirds of the incumbent
directors to add additional directors without approval of stockholders until the
next annual meeting of stockholders at which directors are elected.
Advance Notice of Nominations and Stockholder Proposals. The By-Laws
contain a provision requiring advance notice by a stockholder of a proposal or
director nomination that such stockholder desires to present at any annual or
special meeting of stockholders, which would prevent a stockholder from making a
proposal or a director nomination at a stockholder meeting without the Company
having advance notice of the proposal or director nomination. This provision
could make a change in control more difficult by providing the directors of the
Company with more time to prepare an opposition to a proposed change in control.
Vote Requirement for Calling Special Meeting. The By-Laws also contain a
provision requiring the vote of the holders of two-thirds of the outstanding
Common Stock in order to call a special meeting of stockholders. This provision
would prevent a stockholder with less than a two-thirds interest from calling a
special meeting to consider a merger unless such stockholder had first obtained
adequate support from a sufficient number of other stockholders.
Statutory Business Combination Provision. The Company is subject to the
provisions of Section 203 ("Section 203") of the DGCL. Section 203 provides,
with certain exceptions, that a Delaware corporation may not engage in any of a
broad range of business combinations with a person, or an affiliate or associate
of such person, who is an "interested stockholder" for a period of three years
from the date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the board of directors of the corporation
before the person becomes an interested stockholder; (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes it an interested stockholder
(excluding shares owned by persons who are both officers and directors of the
corporation, and shares held by certain employee stock ownership plans); or
(iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and by
the holders of at least 66 2/3% of the corporation's outstanding voting stock at
an annual or special meeting, excluding shares owned by the interested
stockholder. Under Section 203, an "interested stockholder" is defined (with
certain limited exceptions) as any person that is (i) the owner of 15% or more
of the outstanding voting stock of the corporation or (ii) an affiliate or
associate of the corporation and was the owner of 15% or more of the outstanding
voting stock of the corporation at any time within the three-year period
immediately prior to the date on which it is sought to be determined whether
such person is an interested stockholder.
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A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or by-laws by action of
its stockholders to exempt itself from coverage, provided that such by-law or
charter amendment does not become effective until 12 months after the date it is
adopted. Neither the Certificate nor the By-Laws contains any such exclusion.
Limitations on Liability and Indemnification of Directors and Officers
Limitations on Liabilities. Consistent with the DGCL, the Certificate
contains a provision eliminating or limiting liability of directors to the
Company and its stockholders for monetary damages arising from acts or omissions
in the director's capacity as a director. The provision does not, however,
eliminate or limit the personal liability of a director (i) for any breach of
such director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for unlawful dividends or unlawful stock
purchases or redemptions as provided in Section 174 of the DGCL or (iv) for any
transaction from which the director derived an improper personal benefit. This
provision offers persons who serve on the Board of Directors of the Company
protection against awards of monetary damages resulting from breaches of their
duty of care, except as indicated above. As a result of this provision, the
ability of the Company or a stockholder thereof to successfully prosecute an
action against a director for a breach of his duty of care is limited. However,
the provision does not affect the availability of equitable remedies such as an
injunction or rescission based upon a director's breach of his duty of care.
The Commission has taken the position that the provision will have no effect on
claims arising under the federal securities laws.
Indemnification. The Certificate and By-Laws provide for mandatory
indemnification rights to the maximum extent permitted by applicable law,
subject to limited exceptions, to any director or officer of the Company who, by
reason of the fact that he is a director or officer of the Company, is involved
in a legal proceeding of any nature. Such indemnification rights include
reimbursement for expenses incurred by such director or officer in advance of
the final disposition of such proceeding in accordance with the applicable
provisions of the DGCL. The Company also maintains directors' and officers'
liability insurance.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
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Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses to be Acquired
To be filed by amendment.
(b) Pro Forma Financial Information
To be filed by amendment.
(c) Exhibits
2.1 Stock Purchase Agreement dated August 13, 1998 among the Registrant, KCS
Computer Services, Inc. and the stockholders of KCS Computer Services,
Inc.
3(i)(a) Certificate of Designation for Series B Redeemable Preferred Stock of
the Registrant
3(i)(b) Certificate of Correction Relating to the Series B Redeemable
Preferred Stock of the Registrant
4.1 Preemptive Rights Agreement dated August 13, 1998 among the Registrant
and certain stockholders of the Registrant.
4.2 Form of Warrant for purchasers of Series B Redeemable Preferred Stock
4.3 Promissory Note dated August 13, 1998 in the principal amount of
$2,000,000
10.1 Registration Rights Agreement dated August 13, 1998 among the Registrant
and certain stockholders of the Registrant
10.2 Promissory Note dated August 13, 1998 in the principal amount of
$6,200,000
99 Press Release dated August 13, 1998
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ALLIN COMMUNICATIONS CORPORATION
Date: August 13, 1998 By: /s/ Richard W. Talarico
-----------------------------------
Richard W. Talarico
Chairman and Chief Executive Officer
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<PAGE>
EXHIBIT INDEX
2.1 Stock Purchase Agreement dated August 13, 1998 among the Registrant, KCS
Computer Services, Inc. and the stockholders of KCS Computer Services,
Inc.
3(i)(a) Certificate of Designation for Series B Redeemable Preferred Stock of
the Registrant
3(i)(b) Certificate of Correction Relating to the Series B Redeemable Preferred
Stock of the Registrant
4.1 Preemptive Rights Agreement dated August 13, 1998 among the Registrant
and certain stockholders of the Registrant.
4.2 Form of Warrant for purchasers of Series B Redeemable Preferred Stock
4.3 Promissory Note dated August 13, 1998 in the principal amount of
$2,000,000
10.1 Registration Rights Agreement dated August 13, 1998 among the Registrant
and certain stockholders of the Registrant
10.2 Promissory Note dated August 13, 1998 in the principal amount of
$6,200,000
99 Press Release dated August 13, 1998
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<PAGE>
Exhibit 2.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into
this 13th day of August, 1998, but effective for accounting purposes as of
August 1, 1998, by and among (i) KCS COMPUTER SERVICES, INC., a Pennsylvania
corporation (the "Company"); (ii) JAMES S. KELLY, JR., RONALD J. PEARCE, JOSEPH
J. KELLY and BRADLEY C. FRIEDEL (collectively, the "Shareholders" and with
references herein to the Shareholders' Representative being to James S. Kelly,
Jr.); and (iii) ALLIN COMMUNICATIONS CORPORATION, a Delaware corporation (the
"Purchaser").
Recitals
A. The Shareholders own all of the issued and outstanding shares of
capital stock of the Company.
B. The Shareholders desire to sell, transfer and assign to the
Purchaser and the Purchaser desires to purchase from the Shareholders, all of
the issued and outstanding shares of capital stock of the Company, all as herein
provided and on the terms and conditions hereinafter set forth.
Covenants
In consideration of the mutual representations, warranties and
covenants and subject to the conditions herein contained, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
Purchase and Sale of Shares
1.1 Shares. At the Closing (as defined in Section 3.1), each
Shareholder shall sell, convey, transfer, assign and deliver to the Purchaser
and the Purchaser shall purchase from each Shareholder, free and clear of all
liens, mortgages, pledges, security interests, claims, assessments,
restrictions, encumbrances and charges of every kind (collectively, "Liens"), on
the terms and subject to the conditions set forth in this Agreement, the number
of shares of capital stock of the Company set forth opposite the name of such
Shareholder on Schedule 4.3 (collectively, the "Shares").
------------
<PAGE>
ARTICLE II
Purchase Price
2.1 Purchase Price. As consideration for the Shares, Purchaser
shall, subject to and upon the terms and conditions set forth in this Agreement,
make the following payments:
2.1.1 Payment to be Made at Closing. At the Closing, Purchaser shall
deliver to the Shareholders, an aggregate payment (the "Closing Payment") of
$14,190,748, such aggregate payment to consist of cash, promissory notes and
common stock of the Purchaser ("Purchaser Common Stock") as follows:
(i) a cash payment of $2,443,061.28, $882,079 of which will be
paid to James S. Kelly Jr., $1,064,306.10 of which will be paid to
Ronald J. Pearce, $354,768.70 of which will be paid to Joseph J.
Kelly, and $141,907.48 of which will be paid to Bradley C. Friedel;
and
(ii) a promissory note in the original principal amount of
$6,200,000 payable to the order of James S. Kelly, Jr. and
substantially in the form of Exhibit 2.1(a) hereto, which promissory
note shall be secured in accordance with the terms of a security
agreement substantially in the form of Exhibit 2.1(b) hereto (the
"Security Agreement") and guaranteed in accordance with the terms of a
guaranty and suretyship agreement substantially in the form of Exhibit
2.1(c) hereto (the "Guaranty") and shall bear interest at the rate of
5% per annum (the "6.2m Note"), with $3,000,000 of the principal to be
due and payable no later than the earlier to occur of (a) the sale of
a subsidiary of Purchaser or substantially all of the operating assets
of a subsidiary of Purchaser, and (b) December 31, 1998, and with the
other $3,200,000 of the principal to be due and payable no later than
the earlier to occur of (x) the receipt by Purchaser or any affiliate
of Purchaser of one or more loans from one or more third party lenders
in amounts in the aggregate at least equal to $3,200,000 in connection
with the refinancing of the $3,200,000 portion of the 6.2m Note, and
(y) December 31, 1998; and
(iii) a promissory note in the original principal amount of
$2,000,000 payable to the order of James S. Kelly, Jr. and
substantially in the form of Exhibit 2.1(d) hereto, which promissory
note shall be secured by the Security Agreement and guaranteed by the
Guaranty and shall bear interest at the rate of 6% per annum (the "2m
Note," and together with the 6.2m Note, the "Notes"), with the
principal thereof to be due and payable in full on the second (2nd)
anniversary of the Closing Date (the "Maturity Date"); provided that
if all principal and accrued and unpaid interest (collectively, the
"Unpaid Amount"), is not paid in full on the Maturity Date, then,
subject to the receipt of approval of the shareholders of Purchaser,
the Unpaid Amount shall
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<PAGE>
automatically be converted to Purchaser Common Stock, the number of
shares of Purchaser Common Stock to be issued to be determined by
dividing the Unpaid Amount by (a) the average of the bid and asked
prices of Purchaser Common Stock for the thirty (30) days preceding
the earlier of (i) the date of public disclosure of this Agreement or
(ii) the date which is two (2) business days prior to the Closing Date
(the "Average Bid and Asked Price"), or (b) at the option of James S.
Kelly, Jr., the average of the bid and asked prices of Purchaser
Common Stock for the thirty (30) days preceding the Maturity Date (the
"Alternate Average Bid and Asked Price"); provided, however, that if
the Alternate Average Bid and Asked Price is less than $2.00 per share
of Purchaser Common Stock, the Alternate Average Bid and Asked Price
shall be deemed, for purposes of this Agreement, to be $2.00 per share
of Purchaser Common Stock; and
(iv) the issuance to James S. Kelly, Jr. of 724,675 shares of
Purchaser Common Stock which is equal to $3,192,918.30 divided by the
Average Bid and Asked Price of $4.406; and
(v) the issuance to Ronald J. Pearce of 80,520 shares of
Purchaser Common Stock, which is equal to $354,768.70 divided by the
Average Bid and Asked Price of $4.406.
The cash portion of the Closing Payment will be made on the Closing Date by wire
transfer of immediately available funds to one or more accounts identified by
the Shareholders at least three (3) business days prior to the Closing,
Purchaser hereby acknowledging its timely receipt of all such wire transfer
instructions. Purchaser acknowledges and agrees that the Closing Payment has
already been reduced by $209,252, which represents the total remaining unpaid
amount of the Company's liability for income taxes related to the Company's
change from the cash basis to the accrual basis of accounting (the "Tax
Liability"), and except as set forth in Section 2.2, no further adjustment to
the Purchase Price shall be made on account of the Tax Liability. At the
Closing the Purchaser shall deliver to James S. Kelly, Jr. and Ronald J. Pearce
a certificate executed by the Chief Executive Officer of Purchaser certifying
the Average Bid and Asked Price. The following chart summarizes the Closing
Payment described above:
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<PAGE>
<TABLE>
<CAPTION>
Percentage
Ownership Closing Closing Common Promissory
Shareholder of KCS Cash Payment Stock Payment Notes
----------- ----------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
1. James S. Kelly, Jr. 86.5% $ 882,079.00 $3,192,918.30 $8,200,000
2. Ronald J. Pearce 10.0% $1,064,306.10 $ 354,768.70 - 0 -
3. Joseph J. Kelly 2.5% $ 354,768.70 - 0 - - 0 -
4. Bradley C. Friedel 1.0% $ 141,907.48 - 0 - - 0 -
---- ------------- ------------- ----------
Total 100% $2,443,061.28 $3,547,687.00 $8,200,000
</TABLE>
2.1.2 Contingent Earn-out Payment. If Adjusted Operating Profit (as
defined in Section 2.1.3) for the period beginning January 1, 1998 and ending
December 31, 1998 is at least $1,671,681, Shareholders shall receive, on the
Earn-out Payment Date (as defined in Section 2.1.4), an aggregate earn-out
payment (the "Earn-out Payment") equal to $4.67 for each dollar by which
Adjusted Operating Profit exceeds $1,671,681, up to a maximum aggregate Earn-out
Payment of $1,200,000 in cash and $400,000 in Purchaser Common Stock. Seventy-
five percent (75%) of the Earn-out Payment shall be paid in cash and twenty-five
percent (25%) of the Earn-out Payment shall be paid in shares of Purchaser
Common Stock, with the number of shares of Purchaser Common Stock to be
determined by dividing (i) a sum equal to 25% of the Earn-out Payment by (ii)
the Average Bid and Asked Price, with each Shareholder to receive up to the
following maximum Earn-out Payments:
<TABLE>
<CAPTION>
Percentage Maximum Maximum
Ownership Contingent Contingent
Shareholder of KCS Cash Payment Stock Payment
----------- ----------- ------------ -------------
<S> <C> <C> <C>
1. James S. Kelly, Jr. 86.5% $1,024,000 $360,000
2. Ronald J. Pearce 10.0% $ 120,000 $ 40,000
3. Joseph J. Kelly 2.5% $ 40,000 - 0 -
4. Bradley C. Friedel 1.0% $ 16,000 - 0 -
---- ---------- --------
Total 100% $1,200,000 $400,000
</TABLE>
During the period commencing on the Closing Date and ending on December 31, 1998
(the "Earn-Out Period"), the Company and its business shall at all times be
operated by Purchaser as provided in Section 11.4 of this Agreement.
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<PAGE>
2.1.3 Adjusted Operating Profit. The term "Adjusted Operating
Profit" means
(a) the net profit of the Company, determined on an accrual basis
in accordance with generally accepted accounting principles
consistently applied ("GAAP") (Purchaser hereby acknowledges that the
Company has made certain changes in its accounting methods, from the
cash method to the accrual method, such changes being applied in
respect of periods commencing on or after January 1, 1997), before
interest income or expense, loss or gain on the sale of assets, any
prior period adjustments and income taxes,
plus
(b) expenses related to the following items incurred from January
1, 1998 through the Closing Date (the parties hereby acknowledging
that while August 1, 1998 is the Accounting Effective Date, that they
intend the following expenses to be determined through the Closing
Date, not the Accounting Effective Date, as such term is defined in
Section 3.1):
(i) salary, wage taxes, benefits and other expenses
associated with the employment of James S. Kelly, Jr., not to
exceed $30,500 per month;
(ii) salaries, wage taxes and benefits associated with the
elimination of the positions of the Company's Administrative
Office Manager and Administrative Support Person which are not
filled prior to December 31, 1998, not to exceed $7,200 per
month; and
(iii) Professional fees for investment bankers, attorneys
and outside accountants incurred by Company prior to June 19,
1998 in connection with the anticipated sale of the Shares.
2.1.4 Accounting Procedures.
(a) For calendar year 1998, Purchaser shall prepare a report
containing a balance sheet of the Company, and a related statement of
income for the twelve (12) months ending December 31, 1998, prepared
in accordance with GAAP consistently applied (Purchaser hereby
acknowledging that the Company has made certain changes in its
accounting methods, from the cash method to the accrual method, such
changes being applied in respect of periods commencing on or after
January 1, 1997), together with a statement setting forth the Earn-out
Payment (including the calculation of Adjusted Operating Profit) and
all other adjustments required to be made to such financial statements
in order to make the calculations required under Section
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<PAGE>
2.1.2 (the "Earn-out Determination"). A copy of the Earn-out
Determination shall be delivered to the Shareholders' Representative
not later than February 28, 1999.
(b) If the Shareholders' Representative does not agree that the
Earn-out Determination delivered pursuant to clause (a) above
correctly states the Earn-out Payment, the Shareholders'
Representative shall promptly (but not later than 60 days after the
delivery of such Earn-out Determination) give written notice to
Purchaser of any exceptions thereto (in reasonable detail describing
the nature of the disagreement asserted). If the Shareholders'
Representative and Purchaser reconcile their differences within twenty
(20) days after Purchaser's receipt of such written notice, the Earn-
out Determination shall be adjusted accordingly and shall thereupon
become final and conclusive upon all of the parties hereto and
enforceable in a court of law. If the Shareholders' Representative
and Purchaser are unable to reconcile their differences in writing
within 20 days after written notice of exceptions is received by
Purchaser, the Purchaser shall promptly, but not later than sixty (60)
days after the end of such 20-day period deliver to the Shareholders'
Representative, the financial statements described in Section 2.1.4(a)
above, audited by Arthur Andersen or such other independent accounting
firm then auditing the books of Purchaser (the "Accountants"). If
within a period of thirty (30) additional days after receipt of such
audited financial statements the Shareholders' Representative and the
Purchaser are still unable to resolve or reconcile their differences,
the items in dispute shall be submitted to the Pittsburgh office of
Deloitte & Touche or its successors (the "Arbitrator") for final
determination, and the Earn-out Determination shall be deemed adjusted
in accordance with the determination of the Arbitrator and shall
become final and conclusive upon all of the parties hereto and
enforceable in a court of law. For purposes of this Agreement, any
item not accepted in writing by both Purchaser and the Shareholders'
Representative shall be deemed to be in dispute. Each of the
Shareholders' Representative and Purchaser shall be entitled to submit
items in dispute to the Arbitrator. Both parties shall request in
their initial submissions that the Arbitrator render its decision as
to items in dispute as soon as possible, but in no event later than
sixty (60) days following the initial submission.
(c) In the event the Arbitrator shall have, at any time during
the period it might be called upon to determine a dispute under this
Section 2.1.4, performed auditing or other services for Purchaser or
the Shareholders (other than as an arbitrator in other dispute
proceedings), or for any other reason is unable or unwilling to
perform the services required of it under this Section, then Purchaser
and the Shareholders' Representative agree to select another
accounting firm from among the six largest accounting firms in the
United States in terms of gross revenues to perform the services to be
performed
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<PAGE>
under this Section 2.1.4 by the Arbitrator. If the Purchaser and the
Shareholders' Representative fail to select another accounting firm
within 15 days after it is determined that the Arbitrator will not
perform the services required, either Purchaser or the Shareholders'
Representative may request the American Arbitration Association in
Pittsburgh, Pennsylvania to appoint an independent firm of certified
public accountants of recognized national standing to perform the
services required under this Section 2.1.4 by the Arbitrator. For
purposes of this Agreement, the term "Arbitrator" shall include such
other accounting firm chosen in accordance with this clause (c).
(d) The fees and expenses of the Arbitrator shall be shared
equally by Purchaser, on the one hand, and the Shareholders on the
other hand.
(e) The books and records of the Company shall be made available
during normal business hours upon reasonable advance notice at the
principal office of the Company, to Purchaser, the Shareholders and to
the Arbitrator (or if applicable, such other accounting firm selected
in accordance with Section (c) above). Purchaser and the Shareholders
shall use their best efforts to cause all information required by the
Arbitrator to be submitted on a timely basis such that the Arbitrator
will be able to render a decision within sixty (60) days after the
initial submission of items in dispute.
(f) The Earn-out Payment shall be paid within ten (10) days of
the date the Earn-out Determination becomes final. The date on which
the Earn-out Payment is made shall be referred to herein as the "Earn-
out Payment Date."
2.2 Adjustment to Purchase Price. The Closing Payment of $14,190,748
(in cash, Purchaser Common Stock and the Notes) is based on the assumption that
(a) at the Closing the Company will have no indebtedness other than (i) bank
indebtedness not to exceed $675,000, (ii) accounts payable in the ordinary
course of business, and (iii) capital lease obligations existing as of June 18,
1998, all of which are set forth on Schedule 4.5 (all of the foregoing,
collectively, the "Permitted Indebtedness"), and (b) that the Tax Liability
shall not exceed $209,252. If (a) the Company on the Closing Date has
indebtedness other than $675,000 or less of bank indebtedness, accounts payable
other than in the ordinary course of business, or capital lease obligations in
excess of those set forth on Schedule 4.5, or (b) if the Tax Liability exceeds
------------
$209,252, the cash portion of the Closing Payment shall be reduced dollar for
dollar by the amount of the difference between such indebtedness and the
Permitted Indebtedness, or the difference between (i) the unpaid amount of the
Company's actual liability for income taxes related to the Company's change, as
of January 1, 1997, from the cash basis to the accrual basis of accounting and
(ii) $209,252, as the case may be.
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<PAGE>
2.3 Retained Liabilities of Shareholders. Notwithstanding anything
in this Agreement to the contrary, Shareholders shall retain all liability for
(a) all sales and use tax obligations of the Company through the Closing Date to
the extent not reserved for on the Company's Financial Statements (as defined in
Section 4.4), (b) severance obligations payable to the Company's Administrative
Office Manager and Administrative Support Person and (c) any Tax Liability in
excess of $209,252 which is not deducted from the Purchase Price as provided in
Section 2.2 ("Retained Liabilities").
2.4 Closing Payment Adjustment Mechanism. Not fewer than two
business days before the Closing Date, the Shareholders and the Company will
prepare and deliver to Purchaser a balance sheet (together with notes thereto
and any related schedules) of the Company (the "Closing Balance Sheet")
reflecting, among other things, the Shareholders' best estimate of the
indebtedness of the Company (which for purposes of this Section 2.4 shall mean
indebtedness of the types described in clause (a) of Section 2.2 hereof) as of
11:59 p.m. on the Accounting Effective Date. Based on the foregoing, the
Shareholders and the Company shall prepare and deliver a certificate
("Shareholders' Balance Sheet Certificate") to Purchaser certifying that, to the
best knowledge of the Shareholders and the Company, the Closing Balance Sheet
fairly sets forth the indebtedness of the Company estimated as of 11:59 p.m. on
the Accounting Effective Date in accordance with GAAP applied in a manner
consistent with the Last Balance Sheet (as defined in Section 4.4 hereof). In
the event Purchaser disagrees with any item on the Shareholders' Balance Sheet
Certificate and Purchaser and the Shareholders' Representative are unable to
resolve such disagreement within thirty (30) days after the Closing, then
Purchaser shall have the right to cause Arthur Andersen (the "Auditor"), within
60 days after the Closing, to audit the Closing Balance Sheet in accordance with
GAAP applied in a manner consistent with the Last Balance Sheet and make any
adjustments thereto that are necessary, in the Auditor's professional opinion,
to render the Closing Balance Sheet as fairly representing the indebtedness of
the Company as of 11:59 p.m. on the Accounting Effective Date (the Closing
Balance Sheet, as so adjusted by the Auditor, the "Adjusted Closing Balance
Sheet.") If Purchaser elects to have the Auditor audit the Closing Balance
Sheet, the Auditor shall, within 60 days after the Closing Date, deliver to
Purchaser and the Shareholders the Adjusted Closing Balance Sheet, notes thereto
and auditor's report thereon. Within 60 days of receipt of the Adjusted Closing
Balance Sheet, the Shareholders will either accept the Adjusted Closing Balance
Sheet or provide Purchaser with written objections thereto. If the Shareholders
accept the Adjusted Closing Balance Sheet as presented or fail to object within
the 60-day period, then the Adjusted Closing Balance Sheet and the indebtedness
of the Company reflected therein will be deemed to be final and binding on the
parties. In such event, if the indebtedness of the Company as of 11:59 p.m. on
the Accounting Effective Date reflected on the Adjusted Closing Balance Sheet
exceeds the Permitted Indebtedness, then the Shareholders shall, within 30 days
after the acceptance by the Shareholders of the Adjusted Closing Balance Sheet
or the expiration without objection thereto within such 60-day period, as the
case may be, pay by wire transfer to the Purchaser, any amounts needed to adjust
the Closing Payment as provided in Section 2.2 hereof in order to reflect the
changes made from the estimated indebtedness of the Company set forth in the
Shareholders' Balance Sheet Certificate caused
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<PAGE>
by the Adjusted Closing Balance Sheet as so audited by the Auditor. Any
disagreement between the Purchaser and the Shareholders that cannot be resolved
within 30 days after receipt of the Shareholders' written objections will be
resolved by the Shareholders selecting a firm of certified public accountants of
national reputation to resolve the dispute. If the Auditor and the
Shareholders' accountants cannot resolve the dispute within 30 days after
submission to them, then the Auditor and the Shareholders' accountants shall
select a third firm of certified public accountants of national reputation and
the amount of indebtedness of the Company as of 11:59 p.m. on the Accounting
Effective Date shall be the average of (a) the median of the three
determinations of indebtedness and (b) whichever of the remaining two
determinations is closest to such median, and such amount shall be binding on
the parties and subject to judicial enforcement, and the Shareholders shall,
within 30 days after the expiration of such 30-day period, pay by wire transfer
to the Purchaser, any amounts needed to adjust the Closing Payment as provided
in Section 2.2 hereof in order to reflect the changes made from the estimated
indebtedness of the Company set forth in the Shareholders' Balance Sheet
Certificate caused by the Adjusted Closing Balance Sheet as so determined.
Purchaser, on the one hand, and the Shareholders, on the other hand, shall bear
all costs of its or their own accountants and one-half of the cost of the third
accounting firm, if any.
ARTICLE III
Closing
3.1 Time and Place of the Closing. Subject to and after the
fulfillment or waiver of the conditions set forth in Articles IX and X, the
closing of the purchase and sale of the Shares shall take place at the offices
of Eckert Seamans Cherin & Mellott, LLC, 600 Grant Street, 42nd Floor,
Pittsburgh, Pennsylvania 15219, within two business days after the fulfillment
or waiver of the conditions set forth in Articles IX and X or on such other date
and at such other time and place as the parties may agree, but in any event on
or before August 14, 1998. In this Agreement, such event is referred to as the
"Closing" and such date and time are referred to as the "Closing Date." The
Closing shall be effective at 12:01 a.m., prevailing time on the Closing Date;
provided, however, that for accounting purposes only, the Closing shall be
effective as of 12:01 a.m., prevailing time, on August 1, 1998 (the "Accounting
Effective Date"), so that all revenues and expenses of the Company for the
period from August 1, 1998 until the Closing Date shall be for the account of
Purchaser.
ARTICLE IV
Representations and Warranties
of the Company and the Shareholders
To induce the Purchaser to enter into this Agreement and to consummate
the transactions contemplated hereby, the Company and the Shareholders jointly
and severally make the following representations and warranties, which
representations and warranties shall survive the Closing for a period of twenty-
four (24) months after the Closing Date:
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<PAGE>
4.1 Organization, Power and Authority; Subsidiaries. The Company is
a corporation duly organized, validly existing and subsisting under the laws of
the Commonwealth of Pennsylvania and has all requisite corporate power and
authority (i) to own or lease its properties and to carry on its business as it
is now being conducted; (ii) to enter into this Agreement; and (iii) to carry
out the other transactions and agreements contemplated hereby. Except as set
forth on Schedule 4.1, the Company is legally qualified to transact business as
------------
a foreign corporation in each of the jurisdictions in which its business or
property is such as to require that it be thus qualified, and it is in good
standing in each of the jurisdictions in which it is so qualified. The Company
does not own, directly or indirectly, of record or beneficially, or have any
right to acquire, any capital stock or equity interest or investment in any
corporation, partnership, limited liability company, joint venture, association
or other business entity, and has no right to control the management of any
corporation, partnership, limited liability company, joint venture, association
or other business entity, whether by agreement or otherwise.
4.2 Due Authorization; Binding Obligation; No Conflicts; Consents.
The execution, delivery and performance of this Agreement and each of the other
agreements contemplated hereby and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
of the Company. This Agreement has been duly executed and delivered by the
Company and the Shareholders and is a valid and binding obligation of the
Company and the Shareholders, enforceable against each of them in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other
similar laws of general application now or hereafter in effect relating to the
enforcement of creditors' rights generally, and except that remedies of specific
performance, injunction and other forms of equitable relief are subject to
certain tests of equity jurisdiction, equitable defenses and the discretion of
the court before which any proceeding therefor may be brought. The execution
and delivery of this Agreement by the Company and the Shareholders do not, and
the consummation of the transactions contemplated hereby will not: (i) violate
or conflict with any provision of the Company's charter or by-laws; (ii) violate
or conflict with any federal, state or local law, statute, ordinance, rule,
regulation or any decree, writ, injunction, judgment or order of any court or
administrative or other governmental body or of any arbitration award which is
either applicable to, binding upon or enforceable against the Company, any of
the Shareholders or the Shares; (iii) except as set forth on Schedule 4.2,
------------
conflict with, result in any breach of, or constitute a default (or an event
which would, with the passage of time or the giving of notice or both,
constitute a default) under, or give rise to a right to terminate, amend,
modify, abandon or accelerate, any material mortgage, contract, agreement,
lease, license, indenture, will, trust or other instrument which is either
binding upon or enforceable against the Company, any of the Shareholders or the
Shares; (iv) except as set forth on Schedule 4.2, violate any legally protected
------------
right arising in the operation of the Company's business of any person or entity
or give to any person or entity (including in each case any shareholder) a right
or claim against the Purchaser, the Company or the Shares or property of the
Company; (v) except as set forth on Schedule 4.2, result in or require the
------------
creation or imposition of any Lien upon or with respect to the Shares or
property of the
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<PAGE>
Company; or (vi) except as set forth on Schedule 4.2, require the consent,
------------
approval or authorization of or the registration, recording, filing or
qualification with, or notice to, or the taking of any other action in respect
of, any governmental authority or any other person or entity (all of which
consents shall have been obtained as of the Closing Date).
4.3 Company Capital Structure; Shareholders.
4.3.1 The authorized capital stock of the Company consists of 500,000
shares of common stock, $1.00 par value per share, of which 1,040 shares
are outstanding. There are no (i) existing preemptive rights, options,
warrants, calls or other rights or other agreements or commitments
obligating the Company to issue, transfer or sell any shares of capital
stock of the Company or (ii) voting trusts or other agreements or
understandings to which the Company or any Shareholder is a party with
respect to the voting of capital stock of the Company.
4.3.2 The Shareholders have full power, authority and capacity to
enter into this Agreement and to carry out the transactions and agreements
contemplated hereby to be carried out by them. Each Shareholder owns the
Shares set forth opposite such Shareholder's name on Schedule 4.3, free and
------------
clear of all Liens. The Shares set forth on Schedule 4.3 in the aggregate
------------
constitute all of the outstanding shares of capital stock of the Company.
The Shares owned by each Shareholder have been duly and validly authorized
and issued and are fully paid and nonassessable.
4.4 Financial Statements. The Company and the Shareholders
previously have furnished to the Purchaser the following financial
statements of the Company, including the notes pertaining thereto
(collectively, the "Financial Statements"):
(a) reviewed balance sheets at December 31, 1997 and June 30,
1998, and compiled balance sheets at December 31, 1996;
(b) balance sheet at June 30, 1998 (the "Last Balance Sheet");
(c) reviewed statements of income at December 31, 1997 and June
30, 1998, and compiled statements of income for the year ended
December 31, 1996; and
(d) statement of income for the 6-month period ended June 30,
1998.
The Financial Statements present fairly and in all material respects are true,
correct and complete statements of the financial position of the Company, at
each of the said balance sheet dates and the results of operations for each of
the said periods covered, and, except as set forth on Schedule 4.4, they have
------------
been prepared in accordance with GAAP consistently
-11-
<PAGE>
applied. The books and records of the Company properly and accurately reflect
in all material respects all transactions, properties, assets and known
liabilities of the Company.
4.5 Liabilities. The Company has no liabilities or obligations,
either accrued, absolute, contingent or otherwise, except: (i) to the extent
reflected or taken into account in determining net worth in the Last Balance
Sheet and not heretofore paid or discharged; (ii) capital lease obligations
existing as of June 18, 1998 and bank indebtedness not to exceed $675,000, all
as set forth on Schedule 4.5 to this Agreement; (iii) accounts payable incurred
in the ordinary course of business since the date of the Last Balance Sheet, and
(iv) the Tax Liability.
4.6 Tax Matters.
4.6.1 The Company has timely filed all tax returns and reports
required to be filed by it in connection with the Company's tax years 1994
through 1997, including all federal, state, local and foreign tax returns
in respect of such years, and except as set forth on Schedule 4.6, has paid
------------
in full or made adequate provision by the establishment of reserves for all
taxes and other charges which have become due. Except as set forth on
Schedule 4.6, all tax returns and reports have been prepared in accordance
------------
with applicable laws and accurately reflect the taxable income (or other
measure of tax) of the Company for the periods set forth therein. To the
knowledge of the Company and the Shareholders, except as set forth on
Schedule 4.6, there is no tax deficiency proposed or threatened against the
------------
Company. There are no tax liens upon any property or assets of the
Company. The Company has made all payments of estimated taxes when due in
amounts sufficient to avoid the imposition of any penalty.
4.6.2 All taxes and other assessments and levies which the Company
was required by law to withhold or to collect have been duly withheld and
collected and have been paid over to the proper governmental entity, are
being contested in good faith by the Company (with adequate reserves having
been established therefor), or are being held by the Company in separate
bank accounts for such payment. All such withholdings and collection and
all other payments due in connection therewith as of the date of the Last
Balance Sheet are duly reflected on the Last Balance Sheet.
4.6.3 Except as set forth on Schedule 4.6, none of the federal,
------------
state or local income tax returns of the Company have been examined by any
applicable tax authorities. There are no outstanding agreements or
waivers extending the statute of limitations applicable to any federal,
state or local income, sales/use or similar tax returns of the Company for
any period.
-12-
<PAGE>
4.7 Real Estate.
4.7.1 The Company owns no real estate.
4.7.2 Schedule 4.7 is an accurate and complete list of each lease
------------
agreement with respect to premises leased by the Company (the "Leasehold
Premises") and sets forth: (i) the lessor and lessee thereof and the date
and term of the lease governing such property; (ii) the location, including
address, thereof, and (iii) the purpose for which the Company uses such
premises. A true and complete copy of each lease agreement listed on
Schedule 4.7, including all amendments thereto and modifications thereof
------------
(collectively, the "Leases"), has been delivered to the Purchaser prior to
the date hereof. Schedule 4.7 also sets forth a description of the nature
------------
and amount of all Liens on the Company's interest in the Leasehold
Premises. The Leases are in full force and effect, the Company is not in
material default or breach under any Lease and to the knowledge of the
Company and the Shareholders, no event has occurred which with the passage
of time or the giving of notice or both would cause a material breach of or
default under any Lease. To the knowledge of the Company and the
Shareholders, there is no breach or anticipated breach of any Lease by any
other party to such Lease.
4.7.3 The Company has valid leasehold interests in the Leasehold
Premises, free and clear of any Liens, covenants and easements or title
defects of any nature whatsoever of which the Company is aware, except for
(i) liens set forth on Schedule 4.7; (ii) liens for real estate taxes not
------------
yet due and payable; and (iii) such imperfections of title and
encumbrances, if any, as are not material in character, amount or extent
and do not detract from the value, or interfere with the present use, of
such properties or otherwise impair the Company's business operations in
any material respect ("Permitted Liens"), it being acknowledged by
Purchaser that neither the Company nor the Shareholders have conducted any
investigation related to the matters set forth in clauses (ii) and (iii)
hereof.
4.7.4 The portions of the buildings located on the Leasehold
Premises that are used in the Company's business are each in good operating
condition and repair, normal wear and tear excepted, and are in the
aggregate sufficient to satisfy the Company's current business activities
as conducted thereat.
4.7.5 Each of the Leasehold Premises (i) has access to public
roads, such access being sufficient to satisfy the current and reasonably
anticipated normal transportation requirements of the Company's business as
presently conducted at such parcel; and (ii) is served by all utilities in
such quantity and quality as are sufficient to satisfy the Company's
current business activities as conducted at such parcel.
4.7.6 The Company has not received written notice of (i) any
condemnation proceeding with respect to any portion of the Leasehold
Premises or any access
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<PAGE>
thereto, and, to the knowledge of the Company and the Shareholders, no such
proceeding is currently contemplated by any governmental authority; or (ii)
any special assessment which may affect any of the Leasehold Premises, and,
to the knowledge of the Company and the Shareholders, no such special
assessment is currently contemplated by any governmental authority.
4.8 Good Title to and Condition of the Assets.
4.8.1 The Company has good and marketable title to all of its
properties and assets (other than the Leasehold Premises and personal
property which is leased or licensed by the Company, which Leasehold
Premises and leased or licensed personal property the Company has valid
leases or licenses to use), free and clear of any Liens other than those
Liens described on Schedule 4.8.
------------
4.8.2 The machinery, equipment, tools, supplies, leasehold
improvements, construction in progress, furniture and fixtures of the
Company currently in use or necessary for the business of Company as
presently conducted are in good operating condition and repair, normal wear
and tear excepted.
4.8.3 The inventory of the Company consists of items of a quality
and quantity usable and saleable in the ordinary course of the Company's
business, at values in the aggregate not materially less than the values at
which such items are carried on its books. The inventory of the Company as
of the date of the Last Balance Sheet and as reflected therein does not
include any unreasonable accumulation of slow moving inventory or inventory
of below standard quality. All of the inventory of the Company is located
at the locations indicated on Schedule 4.8.3.
--------------
4.9 Receivables. The Company has no accounts receivable, notes
receivable or insurance proceeds receivable other than as set forth on Schedule
--------
4.9. All of the Company's receivables are valid and legally binding, represent
- ---
bona fide transactions and arose in the ordinary course of business of the
Company. Except as set forth on Schedule 4.9, the Company and the Shareholders
------------
have no knowledge that any of the Company's receivables would not be fully
collectible within 120 days without resort to litigation provided that the
collection methods historically and customarily used by the Company to collect
its accounts receivable are used.
4.10 Licenses and Permits. The Company possesses all licenses and
required governmental or official approvals, permits or authorizations
(collectively, the "Permits") necessary for the business and operations of the
Company. All such Permits are valid and in full force and effect, the Company
is in material compliance with their requirements, and no proceeding is pending
or, to the best knowledge of the Company and the Shareholders, threatened, to
revoke or amend any of them. Schedule 4.10 contains a complete list of all such
-------------
material Permits. Except as indicated on Schedule 4.10, none of
-------------
-14-
<PAGE>
such Permits is or will be impaired or in any way affected by the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby.
4.11 Intellectual Property. Set forth on Schedule 4.11 is a list of
-------------
all trade names, assumed names, service marks and trademarks, logos, patents,
copyrights, rights and applications therefor and other intellectual property of
Company, including without limitation, trade secrets, technology, know-how,
formulae, designs, drawings, computer software, slogans, and operating rights,
and all registrations and filings thereof ("Intellectual Property"). Except as
set forth on Schedule 4.11, Company holds all Intellectual Property or other
-------------
intellectual properties which it uses in its business free and clear of all
Liens and requires no rights in such properties that it does not have to conduct
its business as presently conducted. Except as set forth on Schedule 4.11, no
-------------
proceedings have been instituted or are pending or, to the knowledge of Company
or the Shareholders threatened or contemplated, which assert the invalidity,
abuse, misuse or unenforceability of any such rights, and to the knowledge of
the Company and the Shareholders, there are no grounds for the same. Except as
disclosed in Schedule 4.11, Company has not licensed anyone to use any
-------------
Intellectual Property. Neither Company nor any Shareholder has knowledge of the
infringing use of such proprietary rights by any other person. Except as set
forth on Schedule 4.11, neither Company nor any Shareholder has received any
-------------
written notice of conflict with the asserted rights of others in or to any
intellectual properties. To the knowledge of the Company and the Shareholders,
and other than as set forth on Schedule 4.11, the conduct of the business of
-------------
Company has not infringed any asserted rights of others.
4.12 Adequacy of the Assets; Relationships with Customers and
Suppliers. The property and assets of the Company constitute, in the aggregate,
all of the property necessary for the conduct of the business of the Company in
the manner in which and to the extent to which it is currently being conducted.
Except as set forth on Schedule 4.12, the Company is not aware that:
-------------
4.12.1 any current customer of the Company which accounted for over
5% of the total consolidated revenue of the Company for the year ended
December 31, 1997 will terminate its business relationship with the
Company; or
4.12.2 any current supplier to the Company of items essential to the
conduct of its business, which items cannot be replaced by the Company at
comparable cost to the Company and the loss of which would result in a
Material Adverse Change (as defined in Section 4.16), will terminate its
business relationship with the Company. Neither the Company nor any of its
Affiliates (as defined in Section 11.2.1) has any direct or indirect
interest in any customer, supplier or competitor of the Company, or in any
person or entity from whom or to whom the Company leases real or personal
property, or in any person or entity with whom the Company is doing
business. Except as set forth on Schedule 4.12, the Company is not
-------------
restricted by agreement from carrying on its business anywhere in the
world.
-15-
<PAGE>
4.13 Documents of and Information with Respect to the Company.
4.13.1 Schedule 4.13 is an accurate and complete list of the
-------------
following: (i) each policy of insurance in force with respect to the
assets and properties of the Company and each of the performance or other
surety bonds maintained by the Company in the conduct of its business; (ii)
each loan, credit agreement, guarantee, security agreement or similar
document or instrument to which the Company is a party or by which it is
bound; (iii) each lease of personal property to which the Company is a
party or by which it is bound; (iv) any other agreement, contract or
commitment to which the Company is a party or by which it is bound which
involves a future commitment by the Company in excess of $5,000 and which
cannot be terminated without liability on 30 days or less notice; (v) the
name and current annual salary or hourly wages of each officer or other
employee of the Company and the profit sharing, bonus or any other form of
compensation (other than salary or hourly wages) paid or payable by the
Company to or for the benefit of each such person for the year ended
December 31, 1997, and any employment or other agreement of the Company
with any of its officers or employees; (vi) the names of the directors of
the Company; and (vii) the name of each bank in which the Company has an
account or safe-deposit box, the name in which the account or box is held
and the names of all persons authorized to draw thereon or to have access
thereto. The Company and the Shareholders have previously furnished the
Purchaser with an accurate and complete copy of each such agreement,
contract or commitment listed on Schedule 4.13. Except as set forth on
-------------
Schedule 4.13, there has not been any breach of or default in any
-------------
obligation to be performed by the Company under any such agreement,
contract or commitment. All of such agreements, contracts and commitments
are valid, binding and enforceable and in full force and effect in
accordance with their respective terms.
4.13.2 The Company carries insurance, which is adequate in character
and amount, with reputable insurers, covering all of its assets, properties
and business, and it has provided all required performance or other surety
bonds. All premiums and other payments which have become due under the
policies of insurance listed on Schedule 4.13 have been paid in full, all
-------------
of such policies are now in full force and effect and the Company has not
received written notice from any insurer, agent or broker of the
cancellation of, or any increase in premium with respect to, any of such
policies or bonds. Except as set forth on Schedule 4.13, the Company has
-------------
not received any written notification from any insurer, agent or broker
denying or disputing any claim made by the Company or denying or disputing
any coverage for any such claim or the amount of any claim. Except as set
forth on Schedule 4.13, the Company has no claim against any of its
-------------
insurers under any of such policies pending or anticipated and there has
been no occurrence of any kind which, to the knowledge of the Company and
the Shareholders, would give rise to any such claim.
-16-
<PAGE>
4.14 Litigation. Except as set forth on Schedule 4.14, there are no
-------------
actions, suits, claims, governmental investigations or arbitration proceedings
pending or, to the knowledge of the Company and the Shareholders, threatened
against or affecting the Company, the Shares or any of the assets or liabilities
of the Company, or which question the validity or enforceability of this
Agreement or any action contemplated hereby, and to the knowledge of the Company
and the Shareholders, there is no basis for any of the foregoing. Except as set
forth on Schedule 4.14, there are no outstanding orders, decrees or stipulations
-------------
issued by any federal, state, local or foreign judicial or administrative
authority in any proceeding to which the Company is or was a party or which
affect the Shares or any of the assets or liabilities of the Company.
4.15 Records. The Company's records are accurate and complete in all
material respects and there are no material matters as to which appropriate
entries have not been made in such records. A record of all action taken by the
shareholders and the board of directors of the Company and all minutes of its
meetings are contained in the minute books of the Company and are accurate and
complete in all material respects. The stock ledger of the Company contains an
accurate and complete record of all issuances, transfers and cancellations of
shares of capital stock of the Company.
4.16 No Material Adverse Change. Since the date of the Last Balance
Sheet, there has not been (i) any change in the business or properties of the
Company, or in the financial condition of the Company, other than changes
occurring in the ordinary course of business which have not had a material
adverse effect on the business, properties, financial condition, business
prospects or operating results of the Company; or (ii) to the best knowledge of
the Company and the Shareholders, any threatened or prospective event or
condition of any character whatsoever which could materially and adversely
affect the assets, business, financial condition or results of operations of the
Company (a "Material Adverse Change").
4.17 Absence of Certain Acts or Events. Except as disclosed in
Schedule 4.17, since the date of the Last Balance Sheet, the Company has not (i)
- -------------
authorized or issued any of its shares of capital stock (including any held in
its treasury) or any other securities; (ii) declared or paid any dividend or
made any other distribution of or with respect to its shares of capital stock or
other securities or purchased or redeemed any of its shares of capital stock or
other securities; (iii) paid any bonus or increased the rate of compensation of
any of its employees except as may be contractually required or consistent with
the Company's past employment practices; (iv) sold or transferred any of its
assets other than in the ordinary course of business (including, without
limitation, sales of inventory made in the ordinary course); (v) made or
obligated itself to make capital expenditures aggregating more than $20,000;
(vi) incurred any material obligations or liabilities (including any
indebtedness) or entered into any material transaction, except for this
Agreement and the transactions contemplated hereby; (vii) suffered any theft,
damage, destruction or casualty loss in excess of $5,000; (viii) suffered any
extraordinary losses; or (ix) waived any right of material value.
-17-
<PAGE>
4.18 Compliance with Laws.
4.18.1 The Company is in substantial compliance with all laws,
regulations and orders applicable to it or its assets or business. Except
as set forth on Schedule 4.18, the Company has not been cited, fined or
-------------
otherwise notified in writing of any asserted past or present failure to
comply with any laws and, to the best knowledge of the Company and the
Shareholders, no proceeding with respect to any such violation is
contemplated.
4.18.2 Neither the Company nor any employee of the Company has made
any payment of funds in connection with the business of the Company
prohibited by law, and no funds have been set aside to be used in
connection with the business of the Company for any payment prohibited by
law.
4.18.3 Except as set forth on Schedule 4.18, the Company is and at
-------------
all times has been in full compliance with the terms and provisions of the
Immigration Reform and Control Act of 1986 (the "Immigration Act"). With
respect to each Employee (as defined in 8 C.F.R. 274a.1(f)) of the Company
for whom compliance with the Immigration Act by the Company as employer is
required, the Company and the Shareholders have supplied to the Purchaser
an accurate and complete copy of (i) each Employee's Form I-9 (Employment
Eligibility Verification Form) and (ii) all other records, documents or
other papers prepared, procured and/or retained by the Company pursuant to
the Immigration Act. The Company has not been cited, fined, served with a
Notice of Intent to Fine or with a Cease and Desist Order, nor has any
action or administrative proceeding been initiated or, to the best
knowledge of the Company and the Shareholders threatened, against the
Company by reason of any actual or alleged failure to comply with the
Immigration Act.
4.19 Environmental Matters.
4.19.1 The Company has not transported, stored, handled, treated or
disposed of, nor has it allowed or arranged for any third parties to
transport, store, handle, treat or dispose of, Hazardous Substances or
other waste to or at any location other than a site lawfully permitted to
receive such Hazardous Substances or other waste for such purposes, nor has
it performed, arranged for or allowed by any method or procedure such
transportation, storage, treatment or disposal in violation of any laws or
regulations. The Company has not stored, handled, treated or disposed of,
or allowed or arranged for any third parties to store, handle, treat or
dispose of, Hazardous Substances or other waste upon property owned or
leased by it, except as permitted by law. For purposes of this Section
4.19, the term "Hazardous Substances" shall mean and include: (i) any
"Hazardous Substance," "Pollutant" or "Contaminant" as defined in the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. Section 9601, et seq., or the regulations promulgated
-- ---
thereunder ("CERCLA"); (ii) any hazardous waste as that
-18-
<PAGE>
term is defined in applicable state or local law; (iii) any substance
containing petroleum, as that term is defined in Section 9001(8) of the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section
6991(8) or in 40 C.F.R. Section 280.1; or (iv) any other substance for
which any governmental entity with jurisdiction over the Leasehold Premises
requires special handling in its generation, handling, use, collection,
storage, treatment or disposal.
4.19.2 To the knowledge of the Company and the Shareholders, there
has not occurred, nor is there presently occurring, a Release (as
hereinafter defined) of any Hazardous Substance on, into or beneath the
surface of any parcel of the Leasehold Premises. For purposes of this
Section 4.19, the term "Release" shall have the meaning given it in CERCLA.
4.19.3 To the knowledge of the Company and the Shareholders, the
Company has not shipped, transported or disposed of, nor has it allowed or
arranged, by contract, agreement or otherwise, for any third parties to
ship, transport or dispose of, any Hazardous Substance or other waste to or
at a site which, pursuant to CERCLA or any similar state law, (i) has been
placed on the National Priorities List or its state equivalent; or (ii) the
Environmental Protection Agency or the relevant state agency has proposed
or is proposing to place on the National Priorities List or its state
equivalent. The Company has not received written notice, nor does it have
knowledge of any facts which could give rise to any notice, that the
Company is a potentially responsible party for a federal or state
environmental cleanup site or for corrective action under CERCLA or any
other applicable law or regulation. The Company has not submitted nor was
required to submit any notice pursuant to Section 103(c) of CERCLA with
respect to the Leasehold Premises. The Company has not received any
written or oral request for information in connection with any federal or
state environmental cleanup site. The Company has not been required to and
has not undertaken any response or remedial actions or clean-up actions of
any kind at the request of any federal, state or local governmental entity,
or at the request of any other person or entity.
4.19.4 The Company does not use, and has not used, any Underground
Storage Tanks (as hereinafter defined), and to the knowledge of the Company
and the Shareholders there are not now nor have there ever been any
Underground Storage Tanks on the Leasehold Premises. For purposes of this
Section 4.19, the term "Underground Storage Tanks" shall have the meaning
given it in the Resource Conservation and Recovery Act (42 U.S.C. Sections
6901 et seq.).
-- ---
4.19.5 There are no laws, regulations, ordinances, licenses, permits
or orders relating to environmental or worker safety matters requiring any
work, repairs, construction or capital expenditures with respect to the
assets or properties of the Company. There are no violations of
environmental law relating to (i) the Leasehold
-19-
<PAGE>
Premises or to the knowledge of the Company and the Shareholders any
property or parcel adjacent thereto or (ii) the Company's use of the
Leasehold Premises.
4.19.6 Schedule 4.19 identifies (i) all environmental audits,
-------------
assessments or occupational health studies undertaken by the Company or its
agents or, to the knowledge of the Company and the Shareholders, undertaken
by governmental agencies relating to or affecting the Company or any of the
Leasehold Premises; (ii) the results of any ground, water, soil, air or
asbestos monitoring undertaken by the Company or its agents or, to the
knowledge of the Company and the Shareholders, undertaken by governmental
agencies relating to or affecting the Company or any of the Leasehold
Premises; (iii) all written communications between the Company and
environmental agencies; and (iv) all citations issued under the
Occupational Safety and Health Act (29 U.S.C. Sections 651 et seq.)
-- ---
relating to or affecting the Company or any of the Leasehold Premises.
4.20 Labor Relations. The Company is not a party to or bound by any
collective bargaining agreement or any other agreement with a labor union, and
to the knowledge of the Company and the Shareholders there has been no effort by
any labor union during the 24 months prior to the date hereof to organize any
employees of the Company into one or more collective bargaining units. There is
not pending or, to the knowledge of the Company and the Shareholders threatened,
any labor dispute, strike or work stoppage which affects or which would
reasonably be expected to affect the business of the Company or which would
reasonably be expected to interfere with its continued operation. Except as set
forth on Schedule 4.20, neither the Company nor any agent, representative or
-------------
employee of the Company has within the last 24 months committed any unfair labor
practice as defined in the National Labor Relations Act, as amended, and there
is not now pending or, to the knowledge of the Company and the Shareholders,
threatened, any charge or complaint against the Company by or with the National
Labor Relations Board or any representative thereof. There has been no strike,
walkout or work stoppage involving any of the employees of the Company during
the 24 months prior to the date hereof. The Company is not aware that any
executive or key employee or group of employees has any plans to terminate his,
her or their employment with the Company.
4.21 Employee Benefits.
4.21.1 Except as set forth on Schedule 4.21, the employees of Company
-------------
do not participate (and have not participated in the preceding five
calendar years) in any "employee benefit plan", as defined in section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), nor in any other retirement, profit-sharing, deferred
compensation, bonus, stock option, stock purchase or similar plan, program
or arrangement of Company (any of the foregoing being hereinafter referred
to as a "Plan"). Each Plan which is intended by the Company to be a
qualified plan under section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code") has been determined by the Internal Revenue Service
("IRS") to be
-20-
<PAGE>
qualified under section 401(a) of the Code, each trust related to any such
Plan has been determined to be exempt from federal income tax under section
501(a) of the Code and to the knowledge of the Company and the
Shareholders, no event has occurred or condition exists which is likely to
adversely affect such determinations. With respect to all Plans (whether
or not subject to ERISA and whether or not qualified under section 401(a)
of the Code), all employer contributions (including any contributions by
the Company to any trust account or payments due from the Company under any
life insurance policy) previously declared or otherwise required by law or
contract to have been made have been paid by the Company and all employer
contributions (including any contributions by the Company to any trust
account or payments due from the Company under any life insurance policy)
accrued have been paid as required by law or contract. No Prohibited
Transaction has occurred with respect to any Plan. For purposes of this
Agreement, the term "Prohibited Transaction" means any transaction
described in section 406 of ERISA which is not exempt by reason of section
408 of ERISA or the transitional rules set forth in section 414(c) of
ERISA, and any transaction described in section 4975(c) of the Code which
is not exempt by reason of section 4975(c)(2) or section 4975(d) of the
Code or the transactional rules of section 2003(c) of ERISA.
4.21.2 Company has not terminated and will not terminate before the
Closing Date, any Plan subject to Title IV of ERISA. Company has not
incurred any termination or withdrawal liability under Title IV of ERISA.
4.21.3 Except as set forth on Schedule 4.21, Company has never
-------------
contributed to any "multiemployer plan" as defined in section 414(f) of the
Code or section 3(37) of ERISA. No Plan has incurred any accumulated
funding deficiency as defined in section 412 of the Code and section 302 of
ERISA.
4.21.4 Company has never (i) failed to make a required installment
under section 302(e) of ERISA or (ii) been required to provide security to
any employee benefit plan or the Pension Benefit Guaranty Corporation under
section 306 or 307 of ERISA.
4.21.5 There are no actions, suits or claims pending (other than
routine claims for benefits) or to the knowledge of the Company and the
Shareholders, overtly threatened against a Plan or the assets of any Plan.
4.21.6 No Plan which is an "employee welfare benefit plan," as
defined in section 3(1) of ERISA, provides employer-paid benefits to
retirees or former employees, except for continuation coverage under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
4.21.7 Except as set forth on Schedule 4.21 (which obligations are
-------------
Retained Liabilities), to the knowledge of the Company and the
Shareholders, the Company is
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<PAGE>
not obligated, as of the date of this Agreement, to pay any severance
benefits to any employee whose employment may be terminated on or after the
date of this Agreement.
4.22 Computer Programs and Software. All computer programs and
software currently being used in the business of Company (the "Software") are
owned by Company or held under valid license agreements. Company has not
licensed anyone to use any of the Software nor does Company have knowledge of
any infringing use of the Software or claim of infringing use. The Software is
sufficient for the conduct of the business of Company as now operated.
4.23 Brokers. Neither any Shareholder nor Company has paid or become
obligated to pay any fee or commission of any broker, finder or intermediary,
other than Thatcher/Penn Group and Richard W. Thatcher, Jr. for or on account of
the transactions provided for in this Agreement. The Shareholders shall be
solely responsible (and neither the Company nor Purchaser shall have any
liability) for the fees and/or commissions of Thatcher/Penn Group or Richard W.
Thatcher, Jr.
4.24 Business Locations. As of the date hereof, Company does not
have any office or place of business other than as identified on Schedule 4.7.
------------
Company's principal place of business and its chief executive offices are
indicated on Schedule 4.24, and all locations where Company's equipment,
-------------
inventory, chattel paper and books and records are located as of the date hereof
are fully identified on Schedule 4.7.
------------
4.25 Accuracy of Information Furnished. No representation, statement
or information made or furnished by the Company or the Shareholders to the
Purchaser, including those contained in this Agreement and the other information
and statements referred to herein and previously furnished by the Company or the
Shareholders to the Purchaser pursuant hereto, contains or shall contain any
untrue statement of a material fact or omits or shall omit any material fact
necessary to make the information contained herein or therein not misleading.
ARTICLE V
Representations and Warranties of the Purchaser
To induce the Company and the Shareholders to enter into this
Agreement and to consummate the transactions contemplated hereby, the Purchaser
makes the following representations and warranties, which representations and
warranties shall survive the Closing for a period of twenty-four (24) months
after the Closing Date:
5.1 Organization, Power and Authority. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and has all requisite corporate power and authority to
enter into this Agreement
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and all other agreements contemplated hereby and to perform its obligations
hereunder and thereunder.
5.2 Due Authorization; Binding Obligation; No Conflicts. The
execution, delivery and performance of this Agreement and all other agreements
contemplated hereby and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action of the Purchaser.
This Agreement has been duly executed and delivered by the Purchaser and is a
valid and binding obligation of the Purchaser, enforceable against the Purchaser
in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium or other similar laws of general application now or hereafter in
effect relating to the enforcement of creditors' rights generally, and except
that remedies of specific performance, injunction and other forms of equitable
relief are subject to certain tests of equity jurisdiction, equitable defenses
and the discretion of the court before which any proceeding therefor may be
brought. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will: (i) violate or
conflict with any provision of the Certificate of Incorporation or by-laws of
the Purchaser; (ii) violate or conflict with any federal, state or local law,
statute, ordinance, rule, regulation or any decree, writ, injunction, judgment
or order of any court or administrative or other governmental body or of any
arbitration award which is either applicable to, binding upon or enforceable
against the Purchaser or any of the shares of the Purchaser Common Stock; (iii)
except as set forth on Schedule 5.2, conflict with, result in any breach of or
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constitute a default (or an event which would, with the passage of time or the
giving of notice or both, constitute a default) under any material mortgage,
contract, agreement, lease, license, indenture, trust or other instrument which
is either binding upon or enforceable against the Purchaser or any of the shares
of the Purchaser Common Stock; (iv) except as set forth on Schedule 5.2, violate
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any legally protected right arising in the operation of Purchaser's business of
any person or entity or give to any person or entity (including in each case any
shareholder) a right or claim against Purchaser, any Shareholder or any of the
shares of the Purchaser Common Stock; (v) result in or require the creation or
imposition of any Lien upon or with respect to any of the shares of the
Purchaser Common Stock; or (vi) except as set forth on Schedule 5.2, require the
------------
consent, approval or authorization of, or the registration, recording, filing or
qualification with or notice to or the taking of any other action in respect of,
any governmental authority or any other person or entity (all of which consents,
except for the shareholder approval referred to in Section 2.1.1 (iii), shall
have been obtained as of the Closing Date).
5.3 Purchaser Capital Structure. The authorized capital stock of
Purchaser consists of 20,000,000 shares of common stock, $0.01 par value per
share, of which 5,182,267 shares are issued and outstanding, and 100,000 shares
of preferred stock, $0.01 par value per share, of which 40,000 shares have been
designated Series A Convertible Redeemable Preferred Stock, of which 25,000
shares are issued and outstanding, and 5,000 shares of which will be designated
as Series B Redeemable Preferred Stock, of which 2,750 shares will be issued and
outstanding on the Closing Date. Except as set forth on Schedule
--------
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5.3, there are no (i) existing preemptive rights, options, warrants, calls or
- ---
other rights or other agreements or commitments obligating Purchaser to issue,
transfer or sell any shares of capital stock of Purchaser or (ii) voting trusts
or other agreements or understandings to which Purchaser or, to the knowledge of
Purchaser, any shareholder of Purchaser is a party with respect to the voting of
capital stock of Purchaser. Except for the issuance of the Series B Redeemable
Preferred Stock, and as disclosed in Schedule 5.3, since December 31, 1997
------------
Purchaser has not (i) authorized or issued any shares of its capital stock
(including any held in its treasury); or (ii) declared or paid any dividend
payable in shares of its capital stock or purchased or redeemed any of its
shares of capital stock, and no stock split or recapitalization has occurred.
All of the issued and outstanding shares of Purchaser's capital stock are, and
as of the Closing Date will be, and upon issuance to certain of the Shareholders
as provided herein, all of the shares of Purchaser Common Stock to be issued to
such Shareholders pursuant to this Agreement will be, duly and validly
authorized and issued, and fully paid and nonassessable. All of the shares of
Purchaser Common Stock to be issued to certain of the Shareholders pursuant to
this Agreement will be issued to such Shareholders free and clear of all Liens.
5.4 Litigation. Except as set forth on Schedule 5.4, there are no
------------
actions, suits, claims, governmental investigations or arbitration proceedings
pending or, to the knowledge of Purchaser, threatened against or affecting
Purchaser, the shares of Purchaser's capital stock, any shares of the Purchaser
Common Stock to be issued to certain of the Shareholders pursuant to this
Agreement or any of the assets or liabilities of Purchaser, or which question
the validity or enforceability of this Agreement or any action contemplated
hereby, and to the knowledge of Purchaser there is no basis for any of the
foregoing. Except as set forth on Schedule 5.4, there are no outstanding
------------
orders, decrees or stipulations issued by any federal, state, local or foreign
judicial or administrative authority in any proceeding to which Purchaser is or
was a party or which affects any shares of Purchaser's capital stock, any shares
of the Purchaser Common Stock to be issued pursuant to this Agreement or any of
the assets or liabilities of Purchaser.
5.5 Records. Purchaser's records are accurate and complete in all
material respects and there are no material matters as to which appropriate
entries have not been made in such records. A record of all material action
taken by the shareholders and the board of directors of Purchaser and all
minutes of its meetings are contained in the minute books of Purchaser and are
accurate and complete in all material respects. The stock ledger of Purchaser
contains in all material respects, an accurate and complete record of all
issuances, transfers and cancellations of shares of capital stock of Purchaser.
5.6 Financial Statements. Purchaser previously has furnished to the
Shareholders the following financial statements of Purchaser, including the
notes pertaining thereto (collectively, "Purchaser's Financial Statements"):
(a) audited balance sheets at December 31, 1997 and December 31, 1996;
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(b) balance sheet at June 30, 1998;
(c) audited statements of income for the years ended December 31,
1997 and December 31, 1996; and
(d) statement of income for the 6-month period ended June 30, 1998.
The Purchaser's Financial Statements present fairly and in all material
respects are true, correct and complete statements of the financial
position of Purchaser, at each of the said balance sheet dates and the
results of operations for each of the said periods covered, and they have
been prepared in accordance with GAAP consistently applied. The books and
records of Purchaser properly and accurately reflect in all material
respects all transactions, properties, assets and known liabilities of
Purchaser.
5.7 No Material Adverse Change. Since December 31, 1997 there has
not been any Material Adverse Change with respect to Purchaser or any of its
shares of capital stock.
5.8 Compliance with Laws. Purchaser is in substantial compliance
with all laws, rules, regulations and orders, and all listing agreements and
similar arrangements and requirements, applicable to it, its assets, businesses
or shares of capital stock.
5.9 Brokers. Except as set forth on Schedule 5.9 (which is the sole
------------
responsibility of Purchaser), Purchaser has not paid or become obligated to pay
any fee or commission to any broker, finder or intermediary for or on account of
the transactions provided for in this Agreement. Purchaser shall be solely
responsible (and neither the Company nor the Shareholders shall have any
liability) for the fees and/or commissions of any entity identified on Schedule
5.9.
5.10 Accuracy of Information Furnished. No representation, statement
or information made or furnished by Purchaser to the Company or the
Shareholders, including those contained in this Agreement and the other
information and statements referred to herein and previously furnished by
Purchaser to the Company or the Shareholders pursuant hereto, contains or shall
contain any untrue statement of a material fact or omits or shall omit any
material fact necessary to make the information contained herein or therein not
misleading.
5.11 Purchaser's Pre-Closing Investigation. On the basis of its due
diligence investigation of the Company and its assets, liabilities, businesses
and operations, and the Shares, Purchaser has not affirmatively determined and
concluded that, as of the date of this Agreement, Purchaser has any claim
against the Shareholders which would give rise to indemnification rights under
Section 12.1 of this Agreement. Nothing contained in the preceding sentence
shall in any way limit, restrict or otherwise modify the rights of Purchaser to
indemnification under Section 12.1, but a breach hereof shall permit the
Shareholders to exercise rights under Section 12.2 hereof.
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ARTICLE VI
Additional Covenants of the Company
6.1 Commercially Reasonable Efforts. The Company will use its
commercially reasonable efforts to cause to be satisfied as soon as practicable
and on or before August 14, 1998, all of the conditions set forth in Article IX
to the obligation of the Purchaser to purchase the Shares hereunder.
6.2 Conduct of Business Pending the Closing. From and after the
execution and delivery of this Agreement and until the Closing Date, except as
otherwise provided by the prior written consent of the Purchaser, which consent
shall not be unreasonably withheld, delayed or conditioned:
6.2.1 The Company will in all material respects conduct its business
and operations in the manner in which the same have heretofore been
conducted, including without limitation, ordinary course (a) collection of
accounts receivable, (b) maintenance of inventory levels, (c) payment of
accounts payable, and (d) payment of other indebtedness, including bank
indebtedness. The Company will use all commercially reasonable efforts to
(i) preserve its business organization intact; (ii) keep available to the
Purchaser the services of its officers, employees, agents and distributors;
(iii) preserve its relationships with customers, suppliers and others
having dealings with the Company; and (iv) maintain in all material
respects the quantity, quality and condition of the Company's assets and
the quality of the Company's services to customers in accordance with past
practices; and
6.2.2 The Company will maintain all of its properties in customary
repair, order and condition, reasonable wear and use and damage by
unavoidable casualty excepted, and will maintain insurance of such types
and in such amounts upon all of its properties and with respect to the
conduct of its business as are in effect on the date of this Agreement; and
6.2.3 The Company will not (i) authorize or issue any shares of its
capital stock (including any held in its treasury) or any other securities;
(ii) declare or pay any dividend or make any other distribution of or with
respect to its shares of capital stock or other securities or purchase or
redeem any shares of its capital stock or other securities; (iii) pay any
bonus or increase the rate of compensation of, any of its employees except
as may be contractually required or consistent with the Company's past
employment practices, or other than as may be required in connection with
the conduct of the Company's business, enter into any new employment
agreement which is not terminable upon 30 days notice without penalty to
the Company or amend any existing employment agreement to increase any
bonus or rate of compensation payable by the Company thereunder; (iv) incur
or pay in excess of an average of $30,500 per month for salary, wage taxes,
benefits and other expenses associated with the
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<PAGE>
employment of James S. Kelly, Jr.; (v) sell or transfer any of its assets
or acquire assets, other than in the ordinary course of business (including
without limitation, sales of inventory made in the ordinary course); (vi)
make or obligate itself to make capital expenditures aggregating more than
$20,000; (vii) incur any material obligations or liabilities or enter into
any material transaction in excess of $20,000; (viii) incur any
indebtedness to Shareholders or any third party other than (a) trade
accounts payable in the ordinary course of business, (b) bonuses,
reimbursements and compensation payable to those Shareholders who are
employees of the Company, in accordance with employment arrangements
currently in effect with such Shareholders; and (c) bank indebtedness not
to exceed $675,000; (ix) amend its charter or by-laws; or (ix) waive any
right of material value.
6.3 Access to Properties and Records. From and after the execution
and delivery of this Agreement, the Company will afford to representatives of
the Purchaser access, during normal business hours and upon reasonable notice,
to the Company's premises sufficient to enable the Purchaser to inspect the
assets, and the Company will furnish to such representatives during such period
all such information relating to the foregoing investigation as the Purchaser
may reasonably request; provided, however, that any furnishing of such
information to the Purchaser and any investigation by the Purchaser shall not
affect the right of the Purchaser to rely on the representations and warranties
made by the Company and the Shareholders in or pursuant to this Agreement. All
such inspections will be conducted by Purchaser in a manner that minimizes
interference with the Company's ongoing conduct of business.
6.4 No Disclosure. Without the prior written consent of the
Purchaser, neither the Company nor any representative of the Company will, prior
to the Closing Date, disclose the existence of or any term or condition of this
Agreement to any person or entity, except that such disclosure may be made if
required by applicable law, rule, regulation or court order, or to any lender to
or other person or entity in a business relationship with the Company to whom
such disclosure is necessary in order to satisfy any of the conditions to the
consummation of the purchase and sale of the Shares which are set forth in this
Agreement, or if prior to the date of disclosure the information disclosed has
become available to the public through no fault of the Company.
6.5 No Other Discussions. Neither the Company nor any representative
of the Company will, prior to August 15, 1998, or the earlier termination of
this Agreement pursuant to Section 14.3, enter into discussions or negotiate
with or entertain or accept the unsolicited offer of any other party concerning
the potential sale of all or any part of the assets or shares of the Company to,
or the merger or consolidation or other business combination of the Company
with, any person or entity other than the Purchaser.
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<PAGE>
ARTICLE VII
Additional Covenants of the Shareholders
7.1 No Disclosure. Without the prior written consent of the
Purchaser, neither the Shareholders nor any representative of any Shareholder,
will, prior to the Closing Date, disclose the existence of or any term or
condition of this Agreement to any person or entity, except that such disclosure
may be made if required by applicable law, rule, regulation or court order, or
to any lender to or other person or entity in a business relation ship with the
Company to whom such disclosure is necessary in order to satisfy any of the
conditions to the consummation of the purchase and sale of the Shares which are
set forth in this Agreement, or if prior to the date of disclosure the
information disclosed has become available to the public through no fault of any
Shareholder.
7.2 No Other Discussions. Neither the Shareholders nor any
representative of any Shareholder will, prior to August 15, 1998, or the earlier
termination of this Agreement pursuant to Section 14.3, enter into discussions
or negotiate with or entertain or accept the unsolicited offer of any other
party concerning the potential sale of all or any part of the assets or shares
of the Company to, or the merger or consolidation or other business combination
of the Company with, any person or entity other than the Purchaser.
7.3 Retention of Shares. The Shareholders will not, prior to the
Closing Date, sell, assign, transfer, pledge, encumber or otherwise dispose any
of the shares of capital stock of the Company which they own or any of their
voting rights with respect thereto.
7.4 Commercially Reasonable Efforts. The Shareholders will use their
commercially reasonable efforts (i) to cause to be satisfied as soon as
practicable and on or before August 14, 1998, all of the conditions set forth in
Article IX to the obligation of the Purchaser to purchase the Shares hereunder
and (ii) to cause the Company to satisfy all of its obligations hereunder.
ARTICLE VIII
Additional Covenants of the Purchaser
8.1 Commercially Reasonable Efforts. The Purchaser will use its
commercially reasonable efforts to cause to be satisfied as soon as practicable
and on or before August 14, 1998, all of the conditions set forth in Article X
to the obligation of the Shareholders to sell the Shares hereunder.
8.2 Capitalization of Purchaser Pending the Closing. From and after
the execution and delivery of this Agreement and until the Closing Date, except
as otherwise provided by the prior written consent of the Shareholders'
Representative, which consent
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<PAGE>
shall not be unreasonably withheld, delayed or conditioned, Purchaser will not
(a) except in connection with the financing of the cash portion of the Closing
Payment, authorize or issue any shares of its capital stock (including any held
in its treasury); (b) declare or pay any dividend payable in shares of its
capital stock or undergo any stock split or recapitalization, or purchase or
redeem any shares of its capital stock; (c) merge or consolidate with any other
entity, or enter into any other business combination with any other entity, in
which Purchaser is not the entity surviving such merger, consolidation or
business combination; or (d) enter into any division.
8.3 No Disclosure. Without the prior written consent of the
Shareholders' Representative, neither Purchaser nor any representative of
Purchaser will, prior to the Closing Date, disclose the existence of or any term
or condition of this Agreement to any person or entity, except that such
disclosure may be made if required by applicable law, rule, regulation or court
order, or to any lender to, underwriter for or other person or entity in a
business relationship with Purchaser to whom such disclosure is necessary in
order to satisfy any of the conditions to the consummation of the purchase and
sale of the Shares which are set forth in this Agreement, or if prior to the
date of disclosure the information disclosed has become available to the public
through no fault of Purchaser.
ARTICLE IX
Conditions to Obligations of the Purchaser
The obligation of the Purchaser to purchase the Shares shall be
subject to the fulfillment at or prior to the Closing Date of each of the
following conditions (it being understood that if the Closing occurs despite the
failure to occur of any such condition, that condition shall be deemed to be
waived by the Purchaser):
9.1 Accuracy of Representations and Warranties and Compliance with
Obligations. The representations and warranties of the Company and the
Shareholders contained in this Agreement shall have been true and correct in all
material respects at and as of the date hereof, and they shall be true and
correct in all material respects at and as of the Closing Date with the same
force and effect as though made at and as of that time. The Company and the
Shareholders shall have performed and complied with all of their obligations
required by this Agreement to be performed or complied with at or prior to the
Closing Date. The Company and the Shareholders shall have delivered to the
Purchaser a certificate, dated as of the Closing Date and signed by an executive
officer of the Company and by the Shareholders, certifying that such
representations and warranties were true and correct in all material respects at
and as of the date hereof, and are true and correct in all material respects at
and as of the Closing Date with the same force and effect as though made at and
as of that time, and that all such obligations have been thus performed and
complied with.
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9.2 Receipt of Necessary Consents. All necessary consents or
approvals of third parties to any of the transactions contemplated hereby, the
absence of which would materially affect the Purchaser's rights hereunder
(including the consents identified on Schedules 4.2 and 5.2), shall have been
---------------------
obtained and shown by written evidence satisfactory to the Purchaser. The form
and substance of such consents shall be reasonably satisfactory to the
Purchaser.
9.3 No Adverse Litigation. There shall not be pending any action or
proceeding by or before any court or other governmental body which shall seek to
restrain, prohibit or invalidate the sale of the Shares to the Purchaser or any
other transaction contemplated hereby, or which if adversely determined would
reasonably be expected to affect the right of the Purchaser to own, operate in
their entirety or control the Shares and the property and assets of the Company,
and which, in the reasonable judgment of the Purchaser, makes it inadvisable to
proceed with the transactions contemplated hereby.
9.4 [Intentionally omitted]
9.5 Indebtedness/Liens. The Company shall have no indebtedness other
than (a) bank indebtedness not to exceed $675,000, (b) accounts payable in the
ordinary course of business, (c) capital lease obligations existing as of June
18, 1998 and listed on Schedule 4.5, and (d) the Tax Liability. There shall be
no Liens on the assets and properties of the Company other than Permitted Liens
on the Leasehold Premises and the Liens described on Schedule 4.8, which liens
------------
arise from the bank indebtedness described in clause (a).
9.6 No Material Adverse Changes or Destruction of Property. Between
the date hereof and the Closing Date, (i) there shall have been no Material
Adverse Change with respect to the Company, (ii) there shall have been no
adverse federal, state or local legislative or regulatory change affecting in
any material respect the services, products or business of the Company, and
(iii) none of the properties and assets of the Company shall have been damaged
by fire, flood, casualty, act of God or public enemy or other cause, regardless
of insurance coverage for such damage, and there shall have been delivered to
Purchaser a certificate to that effect, dated the Closing Date and signed by the
Shareholders and the President of the Company.
9.7 Corporate Certificates. Company and the Shareholders shall have
delivered to Purchaser (a) true, correct and complete copies of the charter and
bylaws of the Company, (b) a certificate of subsistence issued by the Secretary
of State of the Commonwealth of Pennsylvania and each state in which Company is
qualified to do business, in each case dated as of a reasonably recent date, and
(c) a certificate of the Secretary of the Company and the Shareholders
certifying the foregoing and the incumbency and signatures of the officers of
the Company executing this Agreement and the other certificates and agreements
contemplated hereby.
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9.8 Opinion of Counsel. Purchaser shall have received a written
opinion of Klett Lieber Rooney & Schorling, P.C., counsel for James S. Kelly,
Jr. and the Company, dated the Closing Date and in form and substance reasonably
satisfactory to Purchaser and its counsel, as to the matters set forth on
Exhibit 9.8, and any other matters related to the transactions contemplated by
this Agreement as the Purchaser shall reasonably request.
9.9 Share Certificates. The Shareholders shall have delivered to the
Purchaser stock certificates evidencing the Shares, accompanied by appropriate
stock powers duly endorsed.
9.10 Corporate Action. The Company shall have taken all corporate
action necessary to authorize its execution, delivery and performance of this
Agreement and the transactions contemplated hereby, and shall have furnished
Purchaser with certified copies of resolutions duly adopted by its directors in
form and substance satisfactory to counsel for the Purchaser in connection with
the foregoing.
9.11 Closing Balance Sheet. Purchaser shall have received the Closing
Balance Sheet and the Shareholders' Balance Sheet Certificate.
ARTICLE X
Conditions to Obligations of the Shareholders
The obligations of the Shareholders to sell the Shares shall be
subject to the fulfillment at or prior to the Closing Date of each of the
following conditions (it being understood that if the Closing occurs despite the
failure to occur of any such condition, that condition shall be deemed to be
waived by the Shareholders):
10.1 Accuracy of Representations and Warranties and Compliance with
Obligations. The representations and warranties of the Purchaser contained in
this Agreement shall have been true and correct in all material respects at and
as of the date hereof, and they shall be true and correct in all material
respects at and as of the Closing Date with the same force and effect as though
made at and as of that time. The Purchaser shall have performed and complied
with all of its obligations required by this Agreement to be performed or
complied with at or prior to the Closing Date. The Purchaser shall have
delivered to the Shareholders a certificate, dated as of the Closing Date and
signed by an executive officer of the Purchaser, certifying that such
representations and warranties were true and correct in all material respects at
and as of the date hereof, and are true and correct in all material respects at
and as of the Closing Date with the same force and effect as though made at and
as of that time, and that all such obligations have been thus performed and
complied with.
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<PAGE>
10.2 Receipt of Necessary Consents. All necessary consents or
approvals of third parties to any of the transactions contemplated hereby, the
absence of which would materially affect the rights of the Shareholders
hereunder (and including the consents identified on Schedules 4.2 and 5.2),
---------------------
shall have been obtained and shown by written evidence satisfactory to the
Shareholders' Representative. The form and substance of such consents shall be
reasonably satisfactory to the Shareholders' Representative.
10.3 No Adverse Litigation. There shall not be pending any action or
proceeding by or before any court or other governmental body which shall seek to
restrain, prohibit or invalidate the sale of the Shares to Purchaser or any
other transaction contemplated hereby, or which if adversely determined would
reasonably be expected to affect the right or ability of the Shareholders to
sell the Shares, and which, in the reasonable judgment of the Shareholders'
Representative, makes it inadvisable to proceed with the transactions
contemplated hereby.
10.4 Kelly to Serve as Director of Purchaser. James S. Kelly, Jr.
shall have been invited to join the Board of Directors of Purchaser to serve
until the re-election of the full Board of Directors at Purchaser's next annual
meeting of shareholders, scheduled for May, 1999.
10.5 No Material Adverse Changes or Destruction of Property. Between
the date hereof and the Closing Date, (i) there shall have been no Material
Adverse Change with respect to the Purchaser, (ii) there shall have been no
adverse federal, state or local legislative or regulatory change affecting in
any material respect the services, products or business of Purchaser, and (iii)
none of the properties and assets of Purchaser shall have been damaged by fire,
flood, casualty, act of God or public enemy or other cause, regardless of
insurance coverage for such damage, and there shall have been delivered to the
Shareholders a certificate to that effect, dated the Closing Date and signed by
the President of Purchaser.
10.6 Corporate Certificates. Purchaser shall have delivered to the
Shareholders (a) true, correct and complete copies of the charter and bylaws of
the Purchaser, (b) a certificate of good standing from the Secretary of State of
the State of Delaware dated as of a reasonably recent date, (c) a certificate of
subsistence issued by the Secretary of State of the Commonwealth of
Pennsylvania, and a certificate of good standing issued by each state in which
Purchaser is qualified to do business, in each case dated as of a reasonably
recent date, and (d) a certificate of the Secretary of Purchaser certifying the
foregoing and the incumbency and signatures of the officers of Purchaser
executing this Agreement and the other certificates and agreements contemplated
hereby.
10.7 Corporate Action. The directors and (if necessary) the
shareholders of Purchaser shall have taken all corporate action necessary to
authorize Purchaser's execution, delivery and performance of this Agreement and
the transactions contemplated hereby, and Purchaser shall have furnished
Shareholders with certified copies of resolutions duly adopted
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by its directors (and if necessary, its shareholders) in form and substance
satisfactory to counsel for the Shareholders, in connection with the foregoing.
10.8 Opinion of Counsel. Shareholders shall have received a written
opinion of Eckert Seamans Cherin & Mellott, LLC, counsel for the Purchaser,
dated the Closing Date and in form and substance reasonably satisfactory to
Shareholders and their counsel, as to the matters set forth on Exhibit 10.8, and
any other matters related to the transactions contemplated by this Agreement as
the Shareholders shall reasonably request.
10.9 Payment of Purchase Price. Purchaser shall have delivered to
Shareholders the Closing Payment, consisting of a cash payment of $2,443,061.28,
$3,547,687 of Purchaser Common Stock, (to be evidenced by an appropriate
instruction letter to the Purchaser's Transfer Agent), the Notes, the Security
Agreement and such UCC-1 financing statements as are reasonably required by
Shareholders.
10.10 Release of Certain Obligations. The Company's obligations to
PNC Bank, National Association in the amount of $675,000 or less shall have been
satisfied by Purchaser.
10.11 Delivery of the Guaranty. Each of the parties thereto shall
have executed and delivered to James S. Kelly, Jr. the Guaranty.
10.12 Termination of Trustee Status. Purchaser and the Company shall
have accepted the resignation of James S. Kelly, Jr. as trustee of the Company's
401(k) plan and the Company shall have appointed a substitute trustee.
10.13 Certification of Average Bid and Asked Price. James S. Kelly,
Jr. and Ronald J. Pearce shall have received a certificate signed by an
executive officer of Purchaser certifying the Average Bid and Asked Price.
ARTICLE XI
Certain Actions After the Closing
11.1 Execution of Further Documents. From and after the Closing, upon
the reasonable request of the Purchaser or the Shareholders, as the case may be,
each party shall execute, acknowledge and deliver to any requesting party all
such further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be required to convey and transfer to and vest in
the Purchaser and protect its right, title and interest in all of the Shares, to
convey and transfer to and vest in James S. Kelly, Jr. and Ronald J. Pearce, and
protect their respective rights, title and interest in all of the Purchaser
Common Stock to be issued to such Shareholders pursuant to this Agreement, and
as may be
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required or otherwise appropriate to carry out the transactions contemplated by
this Agreement.
11.2 Employment Matters.
11.2.1 The Shareholders shall use their reasonable efforts to aid the
Purchaser and the Company in retaining such of the Company's employees as
are employed on the Closing Date whom the Purchaser and the Company desire
to retain after the Closing Date. Except with the written consent of the
Purchaser, neither the Shareholders nor any Affiliate (as hereinafter
defined) of the Shareholders shall solicit or cause, directly or
indirectly, to be solicited, nor attempt to induce, for a period of five
years after the Closing Date, any person employed by the Company at or at
any time within 180 days prior to the Closing Date, unless such person was
either not retained by the Purchaser or the Company or was terminated by
the Purchaser or the Company, (i) to refuse to continue his or her
employment with the Company or the Purchaser, (ii) if such employment is
continued after the Closing, to terminate his or her employment with the
Company or the Purchaser, or (iii) to work, directly or indirectly, with or
for any Shareholder or any of their Affiliates. As used in this Agreement,
the term "Affiliate" means, with respect to a specified person or entity,
any other person or entity which directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common
control with, the person or entity specified and, with respect to any
natural person, shall include such person's spouse, children,
grandchildren, and any spouses and children of the foregoing.
11.2.2 The Purchaser shall have no obligation to cause the Company to
continue to employ any of the persons currently employed by the Company or
to continue, or institute any replacement or substitution for, any
vacation, severance, incentive, bonus, profit sharing, pension or other
employee benefit plan or program of the Company other than as may be
required by applicable law, rule, regulation or court order with respect to
any such plan or program of the Company, or as contractually required.
11.3 Restrictive Covenants.
11.3.1 To assure that Purchaser will realize the value and goodwill
inherent in Company:
11.3.1.1 Neither James S. Kelly, Jr. nor Ronald J. Pearce
shall, directly or indirectly, for a period of five years following the
Closing Date (the "Restricted Period"), engage in or have any interest in
any business, firm, person, partnership, corporation, limited liability
company, or other entity (as an owner, shareholder, partner, manager,
member, employee, agent, security holder, creditor, consultant or
otherwise) that engages in any activity that is the same or similar to, or
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competitive with, any activity engaged in by Company or any of its
Affiliates of which such Shareholder is consciously aware on the Closing
Date, or by the Company or any Affiliate of the Company of which such
Shareholder is consciously aware during the Restricted Period; (a) provided
that the prohibition contained in this Section 11.3.1.1 shall not apply to
any activity in which the Company for a period of more than 180 consecutive
days ceases to be engaged, (b) provided that the ownership, beneficially or
of record, of less than five percent (5%) of the outstanding shares of any
class of stock of any issuer listed on a national securities exchange shall
not be a breach of this Agreement and (c) provided that neither the
ownership of shares of Purchaser Common Stock to be issued to James S.
Kelly, Jr. and Ronald J. Pearce pursuant to this Agreement, nor any
activities of James S. Kelly, Jr. conducted by him on behalf of Purchaser
(whether as a member of Purchaser's Board of Directors or otherwise) or the
Company from and after the Closing shall be a breach of this Agreement.
11.3.1.2 Unless required by law or unless the use thereof is
necessary or appropriate in connection with any claim made for
indemnification under this Agreement, no Shareholder shall, directly or
indirectly, at any time following the Closing Date, divulge, communicate,
use to the detriment of Company or any Affiliates of Company, or for the
benefit of any other business, firm, person, partnership, limited liability
company or corporation, the confidential information, data, intellectual
property or trade secrets of Company, including but not limited to those
items identified on Schedule 4.11, and the business records, financial
information and the customer, supplier and personnel information of
Company.
11.3.1.3 No Shareholder shall, directly or indirectly, for a
period of five years following the Closing Date: (i) induce any customer of
Company at the Closing Date to patronize any business (other than the
Company) similar to any of those described in Section 11.3.1.1; (ii)
canvass, solicit or accept from any customer of Company at the Closing Date
any business similar to any of those described in Section 11.3.1.1 other
than on behalf of the Company; or (iii) request or advise any individual or
entity which is a customer of Company at the Closing Date to withdraw,
curtail or cancel any such customer's business with the Company.
11.3.1.4 No Shareholder shall, directly or indirectly, for a
period of five years following the Closing Date, solicit (or employ or
cause to be employed other than by the Company) employees of Company or any
Affiliate or subsidiary of Company of which such Shareholder is consciously
aware, directly or indirectly, for the purpose of enticing them to leave
their employment with Company, or any such Affiliate or subsidiary of
Company.
11.3.1.5 No Shareholder shall, directly or indirectly, for a
period of five years following the Closing Date, request or advise any
individual or entity
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which is a supplier or vendor of Company at the Closing Date to withdraw,
curtail or cancel any such supplier's or vendor's business with Company.
11.3.2 The Shareholders agree and acknowledge that the restrictions
contained in Section 11.3.1 have been specifically negotiated by
sophisticated parties and agree that all such provisions are reasonable and
necessary in territorial scope and in duration to adequately protect
Purchaser and the Company after the Closing. If, however, any provision of
Section 11.3.1, as applied to any party or to any circumstances, is
adjudged by a court of competent jurisdiction to be invalid or
unenforceable, the same will in no way affect any other provision of
Section 11.3 or any other part of this Agreement, the application of such
provision in any other circumstances or the validity or enforceability of
this Agreement. If any such provision, or any part thereof, is held to be
unenforceable because of the duration of such provision or the area covered
thereby, the parties agree that the court making such determination will
have the power to modify the duration and/or area of such provision, and/or
to delete specific words or phrases, and in its modified form such
provision will then be enforceable and will be enforced. It is further
agreed that a breach or violation of any provision of Section 11.3.1 will
result in immediate and irreparable injury to Purchaser and the Company and
that money damages will be an inadequate remedy. Accordingly, in addition
to such damages as Purchaser and the Company can demonstrate they have
sustained by reason of such breach or violation, and in addition to any
other remedy that Purchaser or the Company may have, Purchaser and the
Company shall each be entitled to both temporary and permanent injunctive
relief to enforce the specific performance of this Section 11.3.
11.3.3 The period of time during which a Shareholder is prohibited
from engaging in certain activities pursuant to the terms of this Section
11.3 shall be extended by the length of time during which such Shareholder
is in breach of the terms of this Section 11.3.
11.3.4 Notwithstanding the foregoing, neither Joseph J. Kelly nor
Bradley C. Friedel shall be bound by the terms of Section 11.3.1.3 hereof
at any time after the employment of such Shareholder by the Company is
terminated by the Company or Purchaser after the Closing.
11.4 Conduct of Business During Earn-Out Period. At all times
during the Earn-Out Period, except as otherwise provided by the prior written
consent of the Shareholders' Representative, which consent shall not be
unreasonably withheld, delayed or conditioned, Purchaser agrees on behalf of
itself and the Company that:
11.4.1 The Company will in all material respects, as a separate
corporation and with no consolidation of its business or operations (or the
results thereof) with those of Purchaser or any other entity, and with no
charge to the Company for any corporate overhead or other operating
expenses of Purchaser or any other entity other
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than such charges as are solely attributable to the Company and its
business and operations (or if any such charge to the Company is made in
respect of expenses of Purchaser or any other entity, all such charges are
to be completely disregarded for purposes of the calculation of the Earn-
Out Payment), conduct its business and operations in the manner in which
the same have heretofore been conducted, including without limitation,
ordinary course (a) collection of accounts receivable, (b) maintenance of
inventory levels, (c) payment of accounts payable, and (d) payment of other
indebtedness, including bank indebtedness. The Company will use all
commercially reasonable efforts to (i) preserve its business organization
intact; (ii) keep available to the Company the services of its officers,
employees, agents and distributors; (iii) preserve its relationships with
customers, suppliers and others having dealings with the Company; and (iv)
maintain in all material respects the quantity, quality and condition of
the Company's assets and the quality of the Company's services to customers
in accordance with past practices; and
11.4.2 The Company will maintain all of its properties in customary
repair, order and condition, reasonable wear and use and damage by
unavoidable casualty excepted, and will maintain insurance of such types
and in such amounts upon all of its properties and with respect to the
conduct of its business as are in effect on the Closing Date; and
11.4.3 The Company will not (i) authorize or issue any shares of its
capital stock (including any held in its treasury) or any other securities,
or take any other action which would dilute the percentages of Purchaser
Common Stock to be respectively held by James S. Kelly, Jr. and Ronald J.
Pearce pursuant to this Agreement; (ii) declare or pay any dividend or make
any other distribution of or with respect to its shares of capital stock or
other securities or purchase or redeem any shares of its capital stock or
other securities; (iii) pay any bonus or increase the rate of compensation
of, any of its employees except as may be contractually required or
consistent with the Company's past employment practices as of the Closing
Date, or other than as may be required in connection with the conduct of
the Company's business, enter into any new employment agreement or amend
any existing employment agreement to increase any bonus or rate of
compensation payable by the Company thereunder; (iv) employ or otherwise
retain any person to serve as the Chief Executive Officer, President,
Administrative Office Manager or Administrative Support Person of the
Company, or any position analogous thereto; (v) sell or transfer any of its
assets or acquire assets, other than in the ordinary course of business
(including, without limitation, sales of inventory made in the ordinary
course); (vi) make or obligate itself to make capital expenditures
aggregating more than $50,000; (vii) incur any material obligations or
liabilities or enter into any material transaction in excess of $100,000;
or (viii) waive any rights of material value.
11.5 Other Matters During Earn-Out Period. At all times during the
Earn-Out Period, except as otherwise provided by the prior written consent of
the
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Shareholders' Representative, which consent shall not be unreasonably withheld,
delayed or conditioned, Purchaser will not (a) except in connection with the
financing of the cash portion of the Closing Payment, authorize or issue any
shares of its capital stock (including any held in its treasury), (b) declare or
pay any dividend payable in shares of its capital stock or undergo any stock
split or recapitalization, or purchase or redeem any shares of its capital
stock, (c) merge or consolidate with any other entity, or enter into any other
business combination with any other entity, in which Purchaser is not the entity
surviving such merger, consolidation or business combination; or (d) or enter
into any division.
11.6 Access to Records. For a period of seven years following the
Closing, and for so long thereafter as any one or more of the Shareholders is
contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand in connection with any
indemnification claim made against such Shareholders as set forth in Section
12.1 hereof, neither Purchaser nor the Company, nor any successor to Purchaser
or the Company, shall discard, destroy or otherwise dispose of any records,
documents or data relating to the Company without first making such records,
documents and data available to each Shareholder for inspection and copying.
ARTICLE XII
Indemnification
12.1 Agreement by the Shareholders to Indemnify. The Shareholders
shall jointly and severally indemnify and hold the Company and the Purchaser
harmless in respect of, the aggregate of all Indemnifiable Damages (as herein
defined) of the Company and Purchaser, up to a maximum aggregate payment equal
to (a) $14,190,748 plus the Earn-out Payment, minus (b) amounts past due under
the 6.2m Note and any past due cash payments with respect to the Earn-out
Payment (the "Cap").
12.1.1 "Indemnifiable Damages" means, without duplication, the
aggregate of all expenses, losses, costs, deficiencies, liabilities and
damages of Purchaser or the Company (including reasonable related counsel
and paralegal fees and expenses) incurred or suffered by the Company or
Purchaser (i) resulting from any breach of a representation or warranty of
the Shareholders in or pursuant to this Agreement, (ii) resulting from any
breach of the covenants or agreements of the Company or the Shareholders in
this Agreement, (iii) relating to a Retained Liability, (iv) relating to
the payment or non-payment of taxes payable by Company for the period prior
to the Closing Date, (v) relating to a Plan (or the administration thereof)
for the period prior to the Closing Date, (vi) relating to any failure of
Company to comply with applicable laws prior to the Closing Date, (vii)
relating to a failure by the Company to qualify as a foreign corporation in
any state where Company was required, prior to the Closing Date, to be so
qualified, and (viii) resulting from any claim, action or proceedings
brought against the Company by a third party (including any governmental
authority) relating to the conduct of the business of the Company prior to
the Closing Date.
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12.1.2 The Company and the Purchaser each agree to give prompt
written notice to the Shareholders of any claim against the Company or the
Purchaser which might give rise to a claim by the Company or the Purchaser
against the Shareholders based on the indemnity agreement set forth in
Section 12.1 hereof, stating the nature and basis of the first-mentioned
claim and the amount thereof. Subject to the last sentence of this Section
12.1.2, the Shareholders shall have full responsibility and authority with
respect to the payment, settlement, compromise or other disposition of any
third party dispute, action, suit or proceeding subject to indemnification
by the Shareholders hereunder, including, without limitation, the right to
conduct and control all negotiations with respect to the settlement,
compromise or other disposition thereof, and the Company and the Purchaser
each agree to cooperate with the Shareholders in any reasonable manner
requested by the Shareholders in connection with any such negotiations. The
Company and the Purchaser, as the case may be, shall have the right,
without prejudice to the Shareholders' rights under this Agreement, at the
Company's and the Purchaser's sole expense, to be represented by counsel of
its or their own choosing and with whom counsel for the Shareholders shall
confer in connection with the defense of any such dispute, action, suit or
proceeding. The parties agree to render to each other such assistance as
may reasonably be requested in order to insure the proper and adequate
defense of any such dispute, action, suit or proceeding. Notwithstanding
the foregoing, the Shareholders may compromise and settle any claim, action
or suit for which they must indemnify the Company and/or the Purchaser
hereunder, provided that they give the Company and/or the Purchaser, as the
case may be, advance notice of any proposed compromise or settlement and
shall obtain the consent of the Company and/or the Purchaser, as the case
may be, to such proposed compromise or settlement, which consent shall not
be unreasonably withheld, delayed or conditioned.
12.2 Agreement by Purchaser to Indemnify. Purchaser shall
indemnify and hold harmless the Shareholders in respect of, the aggregate of all
Losses (as defined below) of the Shareholders, up to a maximum aggregate payment
equal to the Cap.
12.2.1 "Losses" means, without duplication, the aggregate of all
expenses, losses, costs, deficiencies, liabilities and damages (including
reasonable related counsel and paralegal fees and expenses) incurred or
suffered by the Shareholders (i) resulting from any breach of a
representation or warranty of the Purchaser in or pursuant to this
Agreement, or (ii) resulting from any breach of the covenants or agreements
of the Purchaser in this Agreement.
12.2.2 The Shareholders each agree to give prompt written notice to
the Company and the Purchaser of any claim against the Shareholders, or any
of the Shareholders, which might give rise to a claim by the Shareholders
against the Company and the Purchaser based on the indemnity agreement set
forth in Section 12.2 hereof, stating the nature and basis of the first-
mentioned claim and the amount thereof. Subject to the last sentence of
this Section 12.1.2, the Company and
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the Purchaser shall have full responsibility and authority with respect to
the payment, settlement, compromise or other disposition of any third party
dispute, action, suit or proceeding subject to indemnification by the
Company and the Purchaser hereunder, including, without limitation, the
right to conduct and control all negotiations with respect to the
settlement, compromise or other disposition thereof, and the Shareholders
each agree to cooperate with the Company and the Purchaser in any
reasonable manner requested by the Company and the Purchaser in connection
with any such negotiations. The Shareholders shall have the right, without
prejudice to the rights of the Company and Purchaser under this Agreement,
at the Shareholders' sole expense, to be represented by counsel of their
own choosing and with whom counsel for the Company and the Purchaser shall
confer in connection with the defense of any such dispute, action, suit or
proceeding. The parties agree to render to each other such assistance as
may reasonably be requested in order to insure the proper and adequate
defense of any such dispute, action, suit or proceeding. Notwithstanding
the foregoing, the Company and the Purchaser may compromise and settle any
claim, action or suit for which they must indemnify the Shareholders
hereunder, provided that they give the Shareholders advance notice of any
proposed compromise or settlement and shall obtain the consent of the
Shareholders to such proposed compromise or settlement, which consent shall
not be unreasonably withheld, delayed or conditioned.
12.3 Right of Set Off. Without limiting all other remedies available
to Purchaser, Purchaser shall have the right to set off Indemnifiable Damages
actually sustained by Purchaser or the Company against the Earn-out Payment (but
in no event against amounts due under the Notes).
12.4 Limitations on Indemnification Obligations. Any claim for
indemnification made under this Article XII, whether such claim is made by the
Company and/or Purchaser in respect of Indemnifiable Damages, or by the
Shareholders in respect of Losses, must be brought within a period of twenty-
four (24) months after the Closing Date. In addition, neither the Shareholders
nor the Company and/or Purchaser shall be liable for any Indemnifiable Damages
or Losses, as applicable, until the aggregate amount thereof exceeds $100,000,
but the indemnifying party shall be liable for the entire excess up to the
amount of the Cap.
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ARTICLE XIII
SECURITIES LAW MATTERS
The Shareholders, the Company and Purchaser agree as follows with
respect to the sale or other disposition after the Closing of the Purchaser
Common Stock by James S. Kelly, Jr. and Ronald J. Pearce and in the case of
James S. Kelly, Jr. only, of the Notes:
13.1 Representations and Warranties. Each of James S. Kelly, Jr. and
Ronald J. Pearce represents and warrants that:
(a) he is an "Accredited Investor" as that term is defined in
Regulation D under the Securities Act of 1933, as amended (the
"Securities Act");
(b) the Purchaser Common Stock, and in the case of James S. Kelly,
Jr. only, the Notes, are being acquired and will be acquired for his
own account and will not be sold or otherwise disposed of except
pursuant to (i) an exemption or exclusion from the registration
requirements under the Securities Act, which does not require the
filing by Purchaser with the Securities and Exchange Commission
("Commission") of any registration statement, offering circular or
other document, in which case such Shareholder shall first supply to
Purchaser an opinion of counsel (which opinion of counsel shall be
satisfactory to Purchaser) that such exemption or exclusion is
available or (ii) a registration statement filed by Purchaser with the
Commission under the Securities Act;
(c) such Shareholder has been furnished, and he or his authorized
representative has carefully read, the Purchaser's Confidential Private
Placement Memorandum with respect to the Purchaser Common Stock and the
Notes dated August 10, 1998 as supplemented August 11, 1998 and as
further supplemented August 12, 1998 (the "Purchaser Memorandum").
Such Shareholder further acknowledges that he is aware that there are
substantial risks incident to investing in the Purchaser Common Stock
including, but not limited to, those risks summarized under the caption
"Certain Risk Factors" in the Purchaser Memorandum;
(d) in the case of James S. Kelly, Jr. only, James S. Kelly, Jr.
represents and warrants that he has been furnished, and he or his
authorized representative has carefully read, the Purchaser Memorandum
with respect to the Notes. James S. Kelly, Jr. further acknowledges
that he is aware that there are substantial risks incident to investing
in the Notes, including, but not limited to, those risks summarized
under the caption "Certain Risk Factors" in the Purchaser Memorandum;
and
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(e) such Shareholder has been advised by the Purchaser to consult
such Shareholder's own legal, financial and tax advisors concerning an
investment in the Parent Common Stock and in the case of James S.
Kelly, Jr. only, the Notes. Such Shareholder has reviewed the risks
and merits of an investment in the Parent Common Stock, and in the case
of James S. Kelly, Jr. only, the Notes, with tax, legal and investment
advisors to the extent deemed advisable by such Shareholder.
13.2 Legend. The certificates for the Purchaser Common Stock received
and the Notes shall bear the following legend:
[The shares represented by this certificate have] [This Note has] not
been registered under the Securities Act of 1933, as amended, and may
not be sold, transferred or otherwise disposed of by the holder without
an effective registration statement being filed under and pursuant to
said Act or receipt of an opinion of counsel in form and substance
satisfactory to the [issuer] [maker] that an exemption from
registration is available.
and Purchaser may, unless (a) an exemption or exclusion from the registration
requirements of the Securities Act is available and Purchaser has received a
satisfactory opinion of counsel with respect thereto, or (b) a registration
statement covering such shares is in effect, place stop transfer orders with its
transfer agents with respect to such certificates.
13.3 Registration Rights for Purchaser Common Stock.
13.3.1 Demand Registration Rights.
13.3.1.1 Purchaser Common Stock Issued at Closing. At any
time following the Closing Date and prior to the Earn-out Payment Date,
and on one occasion only, Purchaser shall, as soon as practicable but
in any event within ninety (90) days following a written request from
the Shareholders' Representative to register the shares of Purchaser
Common Stock held by James S. Kelly, Jr. and Ronald J. Pearce, file a
registration statement with the Commission with respect to the shares
of Purchaser Common Stock issued pursuant to Section 2.1.1.
13.3.1.2 Earn-out Common Stock. At any time following the
Earn-out Payment Date, and on one occasion only, Purchaser shall as
soon as practicable but in any event within ninety (90) days following
a written request from the Shareholders' Representative to register the
shares of Purchaser Common Stock held by James S. Kelly, Jr. and Ronald
J. Pearce (whether received at the Closing or on the Earn-out Payment
Date), file a registration statement with the Commission with respect
to the shares of Purchaser Common Stock held by such Shareholders.
Notwithstanding anything in this Agreement to the contrary, if such
Shareholders have not exercised the demand registration right provided
in Section 13.3.1.1 as of the Earn-out Payment Date, such demand
registration right shall
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terminate on the Earn-out Payment Date and Shareholders shall have only
the demand registration right described in this Section 13.3.1.2 and
the piggyback registration rights described in Section 13.3.2.
13.3.2 Piggyback Registration Rights. At any time following the
Closing Date, whenever Purchaser proposes to register any Purchaser Common
Stock for its own or others' account under the Securities Act, other than
registrations relating to Plans, Purchaser shall give the Shareholders'
Representative prompt written notice of its intent to do so. Upon the
written request of James S. Kelly, Jr. and Ronald J. Pearce given by the
Shareholders' Representative within 30 days after receipt of such notice,
Purchaser shall cause to be included in such registration all of the
Purchaser Common Stock issued to such Shareholders pursuant to this
Agreement which any such Shareholder requests, provided that, if Purchaser
is advised in writing in good faith by any managing underwriter of an
underwritten offering of the securities being offered pursuant to any
registration statement under this Section 13.3.2 that the number of shares
to be sold by persons other than Purchaser is greater than the number of
such shares which can be offered without adversely affecting the offering,
Purchaser may reduce pro rata the number of shares offered for the accounts
of such persons (other than Purchaser) (based upon the number of shares
proposed to be sold by each such person) to a number deemed satisfactory by
such managing underwriter.
13.3.3 Registration Procedures. All expenses incurred in connection
with a registration of Purchaser Common Stock held by James S. Kelly, Jr.
and Ronald J. Pearce under Section 13.3.1 (including all registration,
filing, qualification, legal, printer and accounting fees, and underwriting
commissions and discounts with respect to any Purchaser Common Stock sold on
behalf of such Shareholders ("Expenses")), shall be borne by James S. Kelly,
Jr. and Ronald J. Pearce, provided, however, that such Shareholders shall
not be responsible for Expenses in excess of $30,000, and all Expenses in
excess of such amount shall be borne by Purchaser. All Expenses incurred in
connection with a registration statement under Section 13.3.2 shall be borne
pro rata by James S. Kelly, Jr. and Ronald J. Pearce in the proportion that
the number of shares of Purchaser Common Stock being registered on behalf of
such Shareholders bears to the total number of shares of Purchaser Common
Stock included in such registration statement. Furthermore, in the event
that the Purchaser Common Stock held by such Shareholders is registered
together with shares of Purchaser Common Stock held by third parties
(whether in a piggyback registration or a demand registration), the terms
under which such Shareholders and such other holders of Purchaser Common
Stock reimburse Purchaser for the Expenses associated with such registration
shall be consistent. In connection with registrations under Section 13.3,
Purchaser shall (i) use its best efforts to cause each such registration
statement, after filing, to promptly become and remain effective for a
period of at least 120 days (or such shorter period during which James S.
Kelly, Jr. and Ronald J. Pearce shall have sold all Purchaser Common Stock
which they requested to be registered); (ii) use its best efforts to
register and qualify the Purchaser Common Stock covered by such registration
statement under applicable state
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securities laws as such Shareholders shall reasonably request for the
distribution of the Purchaser Common Stock; (iii) take all actions necessary
to have the Purchaser Common Stock covered by such registration listed or
quoted on the exchange or automated quotation system on which the Purchaser
Common Stock trades at the time of registration; and (iv) take such other
actions as are reasonable and necessary to comply with the requirements of
the Securities Act and the regulations thereunder.
13.3.4 Underwriting Agreement. In connection with each registration
pursuant to Section 13.3 covering an underwritten registered public
offering, Purchaser and James S. Kelly, Jr. and Ronald J. Pearce agree to
enter into a written agreement with the managing underwriters in such form
and containing such provisions as are reasonably acceptable to James S.
Kelly, Jr. and Ronald J. Pearce and customary in the securities business for
such an arrangement between such managing underwriters and companies of
Company's size and investment stature, provided that the indemnification
provisions thereof shall be limited to provide that James S. Kelly, Jr. and
Ronald J. Pearce shall not indemnify such managing underwriters for any
liability resulting from, or arising out of, or in connection with, any
misrepresentation by the Purchaser to the underwriters or in any
registration statement or prospectus.
13.3.5 Availability of Rule 144. Purchaser shall not be obligated to
register shares of Purchaser Common Stock held by James S. Kelly, Jr. or
Ronald J. Pearce at any time when the resale provisions of Rule 144(k) (or
any successor provision) promulgated under the Securities Act are available
to James S. Kelly, Jr. or Ronald J. Pearce for such shares.
13.3.6 Market Standoff. In consideration of the granting to James S.
Kelly, Jr. and Ronald J. Pearce of the registration rights under this
Section 13.3, such Shareholders agree that they will not sell, transfer or
otherwise dispose of, including without limitation through put or short sale
arrangements, shares of Purchaser Common Stock in the 10 days prior to the
effectiveness of any registration of Purchaser Common Stock for sale to the
public and for up to 180 days following the effectiveness of such
registration; provided, however, that during the 180-day period following
the effectiveness of such registration the Shareholders shall be entitled to
sell, transfer or otherwise dispose of any or all of their shares of
Purchaser Common Stock that are registered pursuant to such registration.
ARTICLE XIV
Miscellaneous
14.1 Transaction Expenses; Brokers' Fees. Each party shall bear its
own expenses including without limitation legal, accounting and other
transaction expenses incurred in connection with the transactions contemplated
hereby, except that the Shareholders shall bear the expenses of the Company
incurred after June 14, 1998 in connection herewith, and the Company shall bear
the expenses of the Shareholders incurred on or prior to June 14, 1998 in
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connection with the transactions contemplated hereby. The parties hereto
expressly acknowledge and agree that the Company, and not the Shareholders,
shall bear the fees and expenses of the Company's accountants Grossman Yanak &
Ford, LLP in respect of such accountants' review of the preparation of the
Company's financial statements for the period ended June 30, 1998. The
Purchaser will indemnify and hold harmless the Shareholders from the commission,
fee or claim of any person or entity employed or retained or claiming to be
employed or retained by the Purchaser to bring about, or to represent it in, the
transactions contemplated hereby. The Shareholders will indemnify and hold
harmless the Purchaser from the commission, fee or claim of any person or entity
employed or retained or claiming to be employed or retained by the Company or
the Shareholders to bring about, or to represent any of them in, the
transactions contemplated hereby, including without limitation, any claims of
Penn/Thatcher Group or Richard W. Thatcher, Jr.
14.2 Amendment and Modification. The parties hereto may amend, modify
and supplement this Agreement in such manner as may be agreed upon by them in
writing.
14.3 Termination.
14.3.1 Anything to the contrary herein notwithstanding, this Agreement
may be terminated and the transactions contemplated hereby may be abandoned:
(a) by the mutual written consent of all of the parties hereto
at any time prior to the Closing Date;
(b) by the Purchaser at any time prior to the Closing Date if
there shall be a pending action or proceeding by or before any court or
other governmental body which shall seek to restrain, prohibit or
invalidate the sale of the Shares to the Purchaser or any other
transaction contemplated hereby, or which if adversely determined would
reasonably be expected to affect the right of the Purchaser to own,
operate in their entirety or control the Shares and the properties and
assets of the Company and which, in the reasonable judgment of the
Purchaser, makes it inadvisable to proceed with the transactions
contemplated by this Agreement;
(c) by Purchaser in the event of the material breach by Company
or any Shareholder of any provision of this Agreement, which breach is
not remedied by the breaching party within 30 days after receipt of
written notice of such breach from the Purchaser;
(d) by the Shareholders' Representative (on behalf of himself,
the other Shareholders and the Company) in the event of a material
breach by Purchaser of any provision of this Agreement, which breach is
not remedied by Purchaser within thirty (30) days after receipt of
written notice of such breach from the Shareholders' Representative;
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<PAGE>
(e) by the Shareholders' Representative (on behalf of himself,
the other Shareholders and Company) at any time prior to the Closing
Date if there shall be a pending action or proceeding by or before any
court or other governmental body which shall seek to restrain, prohibit
or invalidate the sale of the Shares to the Purchaser or any other
transaction contemplated hereby, or which if adversely determined would
reasonably be expected to affect the right or ability of the
Shareholders to sell the Shares and which, in the reasonable judgment
of the Shareholders' Representative, makes it inadvisable to proceed
with the transactions contemplated by this Agreement; or
(f) by the Purchaser or the Shareholders' Representative (on
behalf of himself, the other Shareholders and the Company), if for any
reason or no reason the transactions contemplated by this Agreement
have not been consummated on or before August 14, 1998.
If this Agreement is terminated pursuant to clause (a), (b), (e) or (f) of
this paragraph 14.3.1, no party shall have any liability for any costs or
expenses, or any further obligation for breach of warranty or otherwise to
any other party to this Agreement. Any termination of this Agreement
pursuant to clause (c) or (d) of this paragraph 14.3.1 shall be without
prejudice to any other rights or remedies of the respective parties. Within
ten days after any termination of this Agreement, Purchaser shall return to
the Company and the Shareholders all documents and other written information
(and all copies thereof, regardless of medium) received by Purchaser, its
legal counsel, accountants or other representatives in respect of the
Company, whether received from the Company, any Shareholder or the Company's
legal counsel, accountants or other representative, and Purchaser shall not
use or disclose any such information for any purpose at any time after such
termination.
14.3.2 The risk of any loss to the properties or assets of the Company
and all liability with respect to injury and damage occurring in connection
therewith shall be the sole responsibility of the Company and the
Shareholders until the completion of the Closing. If any material part of
said properties and assets shall be damaged by fire or other casualty prior
to the completion of the Closing hereunder, the Company and the Shareholders
shall so notify the Purchaser and the Purchaser shall have the right and
option:
(a) to terminate this Agreement, without liability to any party
hereto; or
(b) to proceed with the Closing hereunder, in which event such
casualty shall not constitute a breach by the Company or the
Shareholders of any representation, warranty or covenant in this
Agreement, and the Purchaser shall be entitled to receive and retain
the insurance proceeds arising from such casualty.
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<PAGE>
14.4 Entire Agreement. This Agreement, including the exhibits and
schedules, contains the entire agreement of the parties hereto with respect to
the purchase of the Shares and the other transactions contemplated hereby, and
supersedes all prior understandings and agreements (oral or written) of the
parties with respect to the subject matter hereof. The parties expressly
represent and warrant that in entering into this Agreement they are not relying
on any prior representations made by any other party concerning the terms,
conditions or effects of this Agreement which terms, conditions or effects are
not expressly set forth herein. Any reference herein to this Agreement shall be
deemed to include the schedules and exhibits. Any item which is disclosed to
Purchaser in any schedule in response to the provisions of any section of this
Agreement that also responds to the provisions of any other section of this
Agreement shall apply to such other section, regardless of whether such other
section is specifically identified.
14.5 Interpretation. When a reference is made in this Agreement to an
article, section, paragraph, clause, schedule or exhibit, such reference shall
be to an article, section, paragraph, clause, schedule or exhibit of this
Agreement unless otherwise indicated. The headings contained herein and on the
schedules are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement or the schedules. References to
pronouns shall be deemed to include the masculine, feminine and neuter versions
thereof. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." This Agreement shall not be construed more strictly against
Purchaser by reason of Purchaser having drafted this Agreement.
14.6 Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
14.7 Notices. Any notice, consent, approval, request, acknowledgment,
other communication or information to be given or made hereunder to any of the
parties by any other party shall be in writing and (a) delivered personally, (b)
sent by certified mail, postage prepaid, or (c) sent by facsimile as follows:
If to the Company or the Shareholders, addressed to:
KCS Computer Services, Inc.
777 Penn Center Boulevard, Suite 600
Pittsburgh, PA 15235
Attn: James S. Kelly, Jr., Shareholders' Representative
Fax: (412) 823-8821
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<PAGE>
with a copy to:
Klett Lieber Rooney & Schorling, P.C.
One Oxford Centre, 40th Floor
Pittsburgh, PA 15219
Attn: Mary Jo Dively, Esq.
Fax: (412) 392-2128
If to the Purchaser, addressed to:
Allin Communications Corporation
400 Greentree Commons
381 Mansfield Avenue
Pittsburgh, PA 15220
Attn: Richard W. Talarico, Chairman and Chief Executive Officer
Fax: (412) 928-0225
with a copy to:
Eckert Seamans Cherin & Mellott, LLC
600 Grant St., 42nd Floor
Pittsburgh, PA 15219
Attn: Bryan D. Rosenberger, Esq.
Fax: (412) 566-6099
Any party may change the address to which notices hereunder are to be sent to
such party by giving written notice of such change of address in the manner
herein provided for giving notice. Any notice delivered personally shall be
deemed to have been given on the date it is so delivered, any notice delivered
by registered or certified mail shall be deemed to have been given on the date
it is received, and any notice sent by facsimile shall be deemed to have been
given on the date it was sent (so long as the sender receives confirmation of
transmission and a hard copy of such notice is sent by U.S. mail).
14.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania applicable to
contracts made and to be performed therein.
14.9 Confidentiality; Publicity. Except as may be required by law or
as otherwise permitted or expressly contemplated hereby, no party hereto or
their respective affiliates, employees, agents or representatives shall disclose
to any third party prior to the Closing Date, the subject matter or terms of
this Agreement without the prior consent of the Purchaser in the case of
Shareholders or the Company, and the Shareholders' Representative in the case of
the Purchaser. No press release or other public announcement related to this
Agreement or the transactions contemplated hereby will be issued by any party
hereto without
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<PAGE>
the prior approval of the Purchaser and the Shareholders' Representative, except
that any party hereto may make such public disclosure which he or it believes in
good faith to be required by law or by the terms of any listing agreement with a
securities exchange. In addition, Purchaser is specifically authorized to
disclose and discuss this Agreement and the transactions contemplated hereby in
filings with the United States Securities and Exchange Commission.
14.10 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the greatest extent possible.
14.11 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior consent of the other parties hereto; provided, however,
that the Purchaser may assign its rights hereunder to any Affiliate of or
successor-in-interest to the Purchaser without the consent of the other parties
hereto.
14.12 Binding Effect; No Third Party Beneficiaries. This Agreement
shall inure to the benefit of, be binding upon and be enforceable by and against
the Company, the Shareholders and the Purchaser and their respective heirs,
representatives, successors and permitted assigns, and nothing herein expressed
or implied shall be construed to give any other person or entity any legal or
equitable rights hereunder.
14.13 Additional Representations. Each party hereto expressly
represents and warrants to all other parties hereto that (a) before executing
this Agreement, said party has fully informed itself or himself of the terms,
contents, conditions and effects of this Agreement; (b) said party has relied
solely and completely upon its or his own judgment in executing this Agreement;
(c) said party has had the opportunity to seek and has obtained the advice of
counsel before executing this Agreement; (d) said party has acted voluntarily
and of its or his own free will in executing this Agreement; (e) said party is
not acting under duress, whether economic or physical, in executing this
Agreement; and (f) this Agreement is the result of arm's-length negotiations
conducted by and among the parties and their counsel.
14.14 Appointment as Shareholders' Representative and Attorney-in-
Fact. Each of the Shareholders hereby irrevocably appoints James S. Kelly, Jr.
as the Shareholders' Representative and as such Shareholder's attorney-in-fact
for purposes of sending and receiving notices, resolving disputes hereunder, and
taking all other actions, both prior and subsequent to the Closing Date, which
are necessary or advisable to carry out the purposes of this Agreement. The
Purchaser shall be entitled to rely upon, and each of the Shareholders shall be
bound by,
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<PAGE>
any and all actions, notices or communications taken or made by James S. Kelly,
Jr., as the Shareholders' Representative, pursuant to the power of attorney
granted herein, which is coupled with an interest and therefore irrevocable.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the day and year first above written.
Company:
KCS COMPUTER SERVICES, INC.
By: /s/ James S. Kelly, Jr.
----------------------------
Name Printed: James S. Kelly, Jr.
---------------------
Title:
---------------------------
Shareholders:
/s/ James S. Kelly, Jr.
-----------------------
James S. Kelly, Jr.
/s/ Ronald J. Pearce
------------------------
Ronald J. Pearce
/s/ Joseph J. Kelly
-------------------
Joseph J. Kelly
/s/ Bradley C. Friedel
----------------------
Bradley C. Friedel
Purchaser:
ALLIN COMMUNICATIONS
CORPORATION
By: /s/ Richard W. Talarico
-------------------------
Name Printed: Richard W. Talarico
Title: Chairman/CEO
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<PAGE>
INDEX OF SCHEDULES AND EXHIBITS
TO
STOCK PURCHASE AGREEMENT
------------------------
Schedules
- ---------
Company and Shareholders
- ------------------------
Schedule 4.1 Organization; Subsidiaries; Exceptions to Foreign
Qualifications
Schedule 4.2 Consents
Schedule 4.3 Capitalization; Shareholder Information
Schedule 4.4 Exceptions to GAAP
Schedule 4.5 Capital Lease Obligations and Bank Indebtedness
Schedule 4.6 Tax Matters
Schedule 4.7 Real Estate
Schedule 4.8 Liens
Schedule 4.8.3 Inventory Locations
Schedule 4.9 Receivables
Schedule 4.10 Licenses and Permits
Schedule 4.11 Intellectual Property
Schedule 4.12 Restrictions on Doing Business
Schedule 4.13 Documents and Information
Schedule 4.14 Litigation
Schedule 4.17 Acts or Events since Date of Last Balance Sheet
Schedule 4.18 Compliance with Laws
Schedule 4.19 Environmental Audits, Tests, Communications and Citations
Schedule 4.20 Labor Relations
Schedule 4.21 Employee Benefit Plans
Schedule 4.24 Principal Place of Business and Chief Executive Offices
Purchaser
- ---------
Schedule 5.2 Consents
Schedule 5.3 Capital Structure
Schedule 5.4 Litigation
Schedule 5.9 Brokers
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<PAGE>
Exhibits
- --------
Exhibit 2.1(a) Form of 6.2m Note
Exhibit 2.1(b) Form of Security Agreement
Exhibit 2.1(c) Form of Guaranty and Suretyship Agreement
Exhibit 2.1(d) Form of 2m Note
Exhibit 9.8 Form of Opinion of Counsel to Company and James S. Kelly, Jr.
Exhibit 10.8 Form of Opinion of Counsel to Purchaser
[Pursuant to Regulation S-K, Item 602(b)(2), Registrant agrees to furnish
supplementally a copy of the foregoing schedules and exhibits to the Securities
and Exchange Commission upon request.]
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<PAGE>
Exhibit 3(i)(a)
CERTIFICATE OF VOTING POWERS,
DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL
OR OTHER RIGHTS, AND THE
QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS THEREOF, OF THE
SERIES B REDEEMABLE PREFERRED STOCK
OF
ALLIN COMMUNICATIONS CORPORATION
_____________________________________________
Allin Communications Corporation, a corporation organized and existing by
virtue of the laws of the State of Delaware (the "Corporation"), does hereby
certify that the following resolutions were duly adopted by the Board of
Directors of the Corporation on August 6, 1998.
RESOLVED THAT, pursuant to the authority expressly granted to and vested in
the Board of Directors of the Corporation by the provisions of the Certificate
of Incorporation of the Corporation (the "Certificate of Incorporation"), the
Board of Directors hereby creates, from the shares of Preferred Stock (the
"Preferred Stock") of the Corporation authorized to be issued pursuant to the
Certificate of Incorporation, a series of the Preferred Stock designated Series
B Redeemable Preferred Stock, and hereby fixes the voting powers, designations,
preferences and relative participating, optional or other rights, and the
qualifications, limitations or restrictions thereof, of the shares of such
Series as follows:
1. Designation. Five thousand (5,000) shares of the Preferred Stock are
-----------
hereby designated Series B Redeemable Preferred Stock with a par value of $.01
per share (the "Series B Preferred Stock").
2. Rank. The Series B Preferred Stock shall rank senior to the Common
----
Stock and the Series A Convertible Redeemable Preferred Stock.
3. Dividends.
---------
(a) The holders of shares of Series B Preferred Stock shall be
entitled to receive, when and as declared out of funds legally available for the
payment of dividends by the Board of Directors, cash dividends on each share of
the Series B Preferred Stock (referred to as a "Share") at a rate per annum of
6% of the Liquidation Value thereof, from
<PAGE>
and including the date of issuance of such Share to and including the date on
which the Redemption Price of such Share is paid.
Such dividends, to the extent declared by the Board of Directors, will
be payable quarterly in arrears on each October 31, January 31, April 30 and
July 31 (hereinafter referred to as "Dividend Payment Dates"). To the extent
that dividends are not paid on a particular Dividend Payment Date, all such
dividends will accrue and compound on a quarterly basis and will be paid on or
before the Redemption Date.
(b) So long as any shares of the Series B Preferred Stock are
outstanding, the Corporation will not declare or pay or set apart for payment
any dividends (other than a dividend in common stock or in any other class of
stock ranking junior to the Series B Preferred Stock as to dividends and upon
liquidation) or make any other distribution on any class of stock of the
Corporation ranking junior to the Series B Preferred Stock either as to
dividends or upon liquidation (collectively, "Junior Securities") and will not
redeem, purchase or otherwise acquire for value, or set apart money for any
sinking or other analogous fund for the redemption or purchase of any shares of
any Junior Securities (in any such case, a "Junior Payment"), unless all
dividends on the Series B Preferred Stock for the Dividend Payment Date
immediately prior to or concurrent with the payment with respect to any such
dividend, distribution, redemption, purchase or acquisition as to such Junior
Securities shall have been paid, or declared and a sum sufficient for the
payment thereof set aside by the Corporation separate and apart from its other
funds.
4. Liquidation.
-----------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, before any payment or distribution
of the assets of the Corporation (whether capital, surplus or earnings) or
proceeds therefrom shall be made to or set apart for the holders of shares of
any Junior Securities, the holders of shares of Series B Preferred Stock shall
be entitled to receive payment of $1,000 per share (the "Liquidation Value")
held by them, plus an amount equal to all dividends accrued and compounded and
unpaid on such shares to the date of such payment.
(b) If upon any liquidation, dissolution or winding up of the
Corporation, the Corporation's assets to be distributed among the holders of the
Series B Preferred Stock are insufficient to permit payment to such holders of
the aggregate amount which they are entitled to be paid, then the entire assets
to be distributed will be distributed ratably among such holders based upon the
aggregate Liquidation Value of the Series B Preferred Stock held by each such
holder. The Corporation will mail written notice of such liquidation,
dissolution or winding up, not less than sixty (60) days prior to the payment
date stated therein, to each record holder of Series B Preferred Stock. Neither
the consolidation nor merger of the Corporation into or with any other
corporation or corporations, nor the sale or transfer by the Corporation of all
or any part of its assets, nor the reduction of the capital
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<PAGE>
stock of the Corporation, will be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of this paragraph.
5. Redemption.
----------
(a) Mandatory Redemption at December 31, 1998. In the event that the
-----------------------------------------
holders of the Corporation's common stock have not approved the issuance of
common stock pursuant to the conversion rights set forth in paragraph 7 hereof
on or before December 31, 1998, the Corporation shall redeem all outstanding
shares of Series B Preferred Stock (subject to the legal availability of funds
therefor) on or before December 31, 1998.
(b) Mandatory Redemption after Five Years. In the event that the
-------------------------------------
holders of the Corporation's common stock have approved the issuance of common
stock pursuant to the conversion rights set forth in paragraph 7 hereof on or
before December 31, 1998, the Corporation shall redeem all outstanding shares of
Series B Preferred Stock (subject to the legal availability of funds therefor)
on or before the fifth anniversary of the date of original issuance of the
Series B Preferred Stock (the "Maturity Redemption Date").
(c) Mandatory Redemption upon Sale of Assets. In the event that the
----------------------------------------
Corporation consummates an Asset Sale prior to the Maturity Redemption Date, at
the option of the holders of the Series B Preferred Stock, the Corporation shall
redeem all outstanding shares of Series B Preferred Stock (subject to the legal
availability of funds therefor) on or before the date which is five (5) business
days following consummation of the Asset Sale. For purposes of this paragraph
"Asset Sale" shall mean any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "Transfer") by the Corporation
or its subsidiaries, directly or indirectly, in one or a series of related
transactions, to any person other than the Corporation or any of its
subsidiaries, which Transfer results in net proceeds to the Corporation and its
subsidiaries in an aggregate amount sufficient to repay all then outstanding
debt of the Corporation and its subsidiaries and to pay the Redemption Price.
(d) Redemption Price. The redemption price for shares of Series B
----------------
Preferred Stock shall be One Thousand Dollars ($1,000) per Share, plus an amount
equal to all accrued and compounded and unpaid dividends to the date of
redemption (the "Redemption Price").
(e) Redemption Procedure. Unless default is made in the payment of
--------------------
the Redemption Price, all rights of the holders of such Shares as stockholders
of the Corporation by reason of the ownership of the respective Shares shall
cease at the close of business on the Redemption Date ("Redemption Date"),
except the right to receive payment in full of the Redemption Price of such
Shares on presentation and surrender of the certificate or certificates for such
Shares, and after the Redemption Date such Shares shall not be deemed to be
outstanding. In case less than all the Shares represented by any such
certificate are
-3-
<PAGE>
redeemed, a new certificate shall be issued representing the unredeemed Shares
without cost to the holder thereof.
At its option, the Corporation may, on or prior to the Redemption
Date, deposit an amount equal to the aggregate Redemption Price of the Shares of
the Series B Preferred Stock to be redeemed with a bank or trust company (the
"Depositary"), having its principal office in the City of Pittsburgh,
Commonwealth of Pennsylvania, and designated by the Board of Directors, to be
held in trust by the Depositary, for the sole benefit of the holders of the
Series B Preferred Stock, for payment to the holders of such Shares then to be
redeemed. If such deposit is made and the funds so deposited are made
immediately available to the holders of the Shares of the Series B Preferred
Stock to be redeemed, the Corporation shall thereupon be released and discharged
(subject to the provisions of the next paragraph of this Section) from its
obligation to make payment of the Redemption Price of the Shares of Series B
Preferred Stock to be redeemed, and the holders of such Shares shall look only
to the Depositary for such payment.
Any funds deposited with the Depositary as aforesaid with respect to
payment of the Redemption Price of Shares of the Series B Preferred Stock
remaining unclaimed at the end of five (5) years from and after the Redemption
Date in respect of which such funds were deposited, shall be returned to the
Corporation forthwith; and thereafter the holders of Shares of the Series B
Preferred Stock redeemed on such Redemption Date shall look only to the
Corporation for the payment of the Redemption Price thereof. Any interest
accrued on any funds deposited with the Depositary shall belong to the
Corporation and shall be paid to it by the Depositary from time to time on
demand.
On or after the Redemption Date, the holders of Shares of Series B
Preferred Stock which have been redeemed shall surrender their certificates
representing such Shares to the Corporation at its principal place of business
or as otherwise notified, and thereupon the Redemption Price of such Shares
shall be paid to the order of the holder of record of the Shares represented by
such certificate or certificates and each surrendered certificate shall be
cancelled, and such Shares shall be retired and shall not be reissued.
6. Voting. Except as otherwise provided by the Delaware General
------
Corporation Law and in this Section, the holders of Series B Preferred Stock
shall have no voting rights whatsoever. Without the consent of the holders of
at least a majority of the number of shares of Series B Preferred Stock at the
time outstanding and eligible to vote, given in person or by proxy, either in
writing or at a meeting called for the purpose at which the holders of Series B
Preferred Stock shall vote as a class, neither the Certificate of Incorporation
nor the Certificate of Designation relating to the Series B Preferred Stock
shall be changed, nor shall the Board of Directors take any action, so as to
affect adversely the rights and preferences of the Series B Preferred Stock as
set forth herein.
-4-
<PAGE>
7. Conversion.
----------
(a) Conversion Rights. Upon approval by the holders of the
-----------------
Corporation's common stock of the issuance of shares of common stock in
accordance with this paragraph 7, each holder of the Series B Preferred Stock
will have the right to convert all or a portion of its Shares of Series B
Preferred Stock into common stock of the Corporation in accordance with this
paragraph 7 at any time prior to the Redemption Date. Until and including the
first anniversary of the original issuance of shares of Series B Preferred
Stock, each share of Series B Preferred Stock held by each holder may be
converted into the number of common shares, rounded to the ninth decimal place,
determined by (i) dividing 1,000 by 85% of the closing price of the common stock
as reported by The Nasdaq Stock Market on the trading date immediately preceding
the date of original issuance of shares of Series B Preferred Stock, or (ii) if
it results in a greater number of shares of common stock, dividing 1,000 by the
greater of (A) 85% of the closing price of the common stock as reported by The
Nasdaq Stock Market on the trading date prior to the date of the conversion or
(B) $2.00. After the first anniversary of the original issuance of shares of
Series B Preferred Stock, each share of Series B Preferred Stock held by each
holder may be converted into the number of common shares, rounded to the ninth
decimal place, determined by (i) dividing 1,000 by 85% of the closing price of
the common stock as reported by The Nasdaq Stock Market on the trading date
immediately preceding the date of original issuance of shares of Series B
Preferred Stock, or (ii) if it results in a greater number of shares of common
stock, dividing 1,000 by the closing price of the common stock as reported by
The Nasdaq Stock Market on the first trading date following the first
anniversary of the original issuance of shares of Series B Preferred Stock.
Holders of the Series B Preferred Stock who exercise the foregoing conversion
right shall have the right to receive any accrued, but unpaid dividends. No
fractional shares of common stock shall be issued; instead a cash payment will
be made in lieu of the issuance of any fractional shares of common stock. Any
shares of Series B Preferred Stock which are not converted to common stock will
remain outstanding until so converted or until redeemed by the Corporation. In
the event that the number of shares of outstanding common stock is changed by
any stock dividend, stock split or combination of shares at any time shares of
Series B Preferred Stock are outstanding, the number of shares of common stock
that may be acquired upon conversion of such outstanding Series B Preferred
Stock in accordance with the foregoing shall be proportionately adjusted.
(b) Conversion Procedures. Any holder of Series B Preferred Stock
---------------------
wishing to exercise the foregoing conversion right shall give written notice
thereof to the Corporation (the "Conversion Notice"). Upon receipt of the
Conversion Notice, the Corporation shall set a date for the conversion of the
Series B Preferred Stock, which date shall be not more than thirty (30) days
from the date of the Conversion Notice (the "Conversion Date"). All rights of a
holder of the Series B Preferred Stock as a preferred stockholder of the
Corporation by reason of the ownership of Series B Preferred Shares being
converted shall cease at the close of business on the Conversion Date, except
the right to receive, on presentation and surrender of the certificate or
certificates for the Series B Preferred Stock being converted, the shares of
common stock into which the Series B
-5-
<PAGE>
Preferred Stock is converted and cash payments, if any, in lieu of fractional
shares, as provided for in the preceding paragraph of this Section, and after
the Conversion Date such Shares shall not be deemed to be outstanding. From and
after the Conversion Date, the holders of the converted Series B Preferred Stock
shall have the rights of common stockholders, including the right to one vote
for each share of common stock held by such holder or that such holder is
entitled to receive upon presentation and surrender of certificates for shares
of Series B Preferred Stock as provided for in the preceding sentence, but such
holders shall have no rights as preferred stockholders with respect to shares of
Series B Preferred Stock converted, including without limitation, the redemption
rights described in paragraph 5 hereof.
ATTEST: ALLIN COMMUNICATIONS CORPORATION
/s/ Dean C. Praskach By: /s/ Richard W. Talarico
---------------------- ----------------------------------------
Name Printed: Richard W. Talarico
------------------------------
Title: Chairman and Chief Executive Officer
--------------------------------------
-6-
<PAGE>
Exhibit 3(i)(b)
CERTIFICATE OF CORRECTION
OF
ALLIN COMMUNICATIONS CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is
Allin Communications Corporation.
2. The Certificate of Designations of the Series B Redeemable Preferred
Stock of the Corporation, which was filed with the Secretary of State of
Delaware on August 12, 1998, is hereby corrected.
3. The defect to be corrected in said instrument is as follows:
The description of the conversion formula to be used after the first
anniversary of the original issuance of shares of Series B Preferred
Stock omits the words "85% of" in the clause reading "or (ii) if it
results in a greater number of shares of common stock, dividing 1,000
by the closing price of the common stock as reported by The Nasdaq
Stock Market on the first trading date following the first anniversary
of the original issuance of shares of Series B Preferred Stock."
The foregoing phrase should read as follows: "or (ii) if it results in
a greater number of shares of common stock, dividing 1,000 by 85% of
the closing price of the common stock as reported by The Nasdaq Stock
Market on the first trading date following the first anniversary of
the original issuance of shares of Series B Preferred Stock."
4. Section 7(a) of the Certificate of Designations of the Series B
Redeemable Preferred Stock of the Corporation is as follows:
(a) Conversion Rights. Upon approval by the holders of the
-----------------
Corporation's common stock of the issuance of shares of common stock
in accordance with this paragraph 7, each holder of the Series B
Preferred Stock will have the right to convert all or a portion of its
Shares of Series B Preferred Stock into common stock of the
Corporation in accordance with this paragraph 7 at any time prior to
the Redemption Date. Until and including the first anniversary of the
original issuance of shares of Series B Preferred Stock, each share of
Series B Preferred Stock held by each holder may be converted into the
number of common shares, rounded to the ninth decimal place,
determined by (i) dividing 1,000 by 85% of the closing price of
<PAGE>
the common stock as reported by The Nasdaq Stock Market on the trading
date immediately preceding the date of original issuance of shares of
Series B Preferred Stock, or (ii) if it results in a greater number of
shares of common stock, dividing 1,000 by the greater of (A) 85% of
the closing price of the common stock as reported by The Nasdaq Stock
Market on the trading date prior to the date of the conversion or (B)
$2.00. After the first anniversary of the original issuance of shares
of Series B Preferred Stock, each share of Series B Preferred Stock
held by each holder may be converted into the number of common shares,
rounded to the ninth decimal place, determined by (i) dividing 1,000
by 85% of the closing price of the common stock as reported by The
Nasdaq Stock Market on the trading date immediately preceding the date
of original issuance of shares of Series B Preferred Stock, or (ii) if
it results in a greater number of shares of common stock, dividing
1,000 by 85% of the closing price of the common stock as reported by
The Nasdaq Stock Market on the first trading date following the first
anniversary of the original issuance of shares of Series B Preferred
Stock. Holders of the Series B Preferred Stock who exercise the
foregoing conversion right shall have the right to receive any
accrued, but unpaid dividends. No fractional shares of common stock
shall be issued; instead a cash payment will be made in lieu of the
issuance of any fractional shares of common stock. Any shares of
Series B Preferred Stock which are not converted to common stock will
remain outstanding until so converted or until redeemed by the
Corporation. In the event that the number of shares of outstanding
common stock is changed by any stock dividend, stock split or
combination of shares at any time shares of Series B Preferred Stock
are outstanding, the number of shares of common stock that may be
acquired upon conversion of such outstanding Series B Preferred Stock
in accordance with the foregoing shall be proportionately adjusted.
Signed on August 13, 1998.
ALLIN COMMUNICATIONS CORPORATION
ATTEST:
/s/ Dean C. Praskach By: /s/ Richard W. Talarico
- --------------------- ------------------------
Name Printed: Richard W. Talarico
---------------------
Title: Chairman and Chief Executive Officer
--------------------------------------
-2-
<PAGE>
Exhibit 4.1
PREEMPTIVE RIGHTS AGREEMENT
This PREEMPTIVE RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of this 13th day of August, 1998, by and among ALLIN
COMMUNICATIONS CORPORATION, a Delaware corporation (the "Company") and those
persons whose names appear on the signature page hereof (each a "Subscriber,"
and collectively, the "Subscribers").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, concurrently with the execution of this Agreement and
pursuant to the terms of certain Subscription Agreements (the "Subscription
Agreements), Subscribers have agreed to purchase from the Company, and the
Company has agreed to sell and issue to Subscribers, shares of Series B
Redeemable Preferred Stock, par value $.01 per share, of the Company (the
"Series B Preferred Stock") and warrants (the "Warrants") to purchase shares of
common stock, par value $.01 per share, of the Company (the "Common Stock"); and
WHEREAS, the parties believe it to be to their mutual benefit to
provide for a plan for certain terms of future equity financings by the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
independent covenants contained herein, the parties hereto, intending to be
legally bound hereby, agree as follows:
ARTICLE I
INTERPRETATION OF THIS AGREEMENT
1.1 Certain Defined Terms. As used in this Agreement:
"Approved Stock Plan" means (i) the Company's 1996 Stock Plan and (ii)
-------------------
the Company's 1997 Stock Plan.
"Board" means the board of directors of the Company.
-----
"Capital Stock" means the capital stock of the Company.
-------------
"Capital Stock Equivalents" means options or rights to acquire any
-------------------------
shares of Capital Stock or any securities convertible into or exchangeable for
Capital Stock.
"Person" means an individual, corporation, partnership, joint venture,
------
trust or unincorporated organization or association, joint stock company or
other similar organization,
<PAGE>
government or any political subdivision thereof, court, or any other entity,
whether acting in an individual, fiduciary or other capacity.
"Underlying Shares" means shares of Capital Stock issuable upon
-----------------
exercise, exchange or conversion of Capital Stock Equivalents.
1.2 Headings. The article and section titles herein are for
convenience only and do not define, limit or construe the contents of such
articles and sections.
ARTICLE II
PREEMPTIVE RIGHTS
2.1 Grant of Rights. If at any time following the date hereof the
Company proposes to sell any shares of Capital Stock or Capital Stock
Equivalents, the Company will first offer to each Subscriber the right to
purchase up to the number of shares of Capital Stock (or in the case of a sale
of Capital Stock Equivalents, such Capital Stock Equivalents whose Underlying
Shares are) equal to the product of (a) the number of shares of Capital Stock
(or Underlying Shares with respect to the Capital Stock Equivalents) proposed to
be sold by the Company multiplied by (b) a fraction, the numerator of which is
the number of shares of Series B Preferred Stock purchased by the Subscriber on
the date hereof and the denominator of which is the total number of shares of
Series B Preferred Stock issued as of the date hereof, for the same price and on
the same economic terms as the securities are being offered in such transaction.
If noncash consideration is proposed to be received for the securities, the
price for purposes of the preceding sentence shall be the sum of any cash to be
received plus the fair market value of the noncash property to be received, as
determined in good faith by the Board.
2.2 Notice to Subscribers. The Company will cause to be given to
each Subscriber a written notice directed to each Subscriber setting forth a
description of the securities being offered, the price and other economic terms
at which the Subscriber may purchase such securities and the calculation made as
to the number of securities that the Subscriber has the right to purchase,
whereupon the Subscriber shall have a period of two (2) business days from the
date such notice is given to give written notice to the Company that he or it
desires to exercise his or its right to purchase the securities. Capital Stock
or any Capital Stock Equivalents which have been offered in accordance with this
Article II to each Subscriber and with respect to which, within the applicable
period specified above, a Subscriber has not given notice to the Company that he
or it desires to exercise its right to purchase, may thereafter, for a period
not exceeding three months following the expiration of such period, be issued,
sold or subjected to rights or options to any other Person at a price not less
than that at which they were offered to the declining Subscriber. Any such
securities not so issued, sold or subjected to rights or options to others
during such three-month period will thereafter again be subject to the first
refusal rights provided for in this Article II.
-2-
<PAGE>
2.3 Exceptions. Anything in this Agreement to the contrary
notwithstanding, the provisions of this Article II shall not be applicable to
(i) the granting of options or the issuance of Capital Stock pursuant to an
Approved Stock Plan, (ii) the issuance of the Series B Preferred Stock and the
Warrants pursuant the Subscription Agreements, (iii) the issuance of Capital
Stock pursuant to the declaration or payment of any dividend on the Capital
Stock payable in shares of Capital Stock, (iv) the issuance of Capital Stock to
a seller as consideration for the purchase of equity interests or assets of an
entity unaffiliated with the Company whether pursuant to a merger or otherwise,
(v) the issuance of Underlying Shares or (vi) securities offered to all holders
of a particular class of outstanding Capital Stock on a pro rata basis whether
pursuant to an exchange offer or otherwise.
2.4 Termination of Preemptive Rights. Anything in this Agreement to
the contrary notwithstanding, the provisions of this Article II shall terminate
and be of no force or effect on the earliest of (i) the first anniversary of the
date hereof or (ii) with respect to any particular Subscriber, such time as such
Subscriber shall have declined to exercise his or its preemptive rights in
connection with two separate and distinct proposed sales, with respect to which
(a) the Subscriber received notices in accordance with Section 2.2 and (b) the
Company actually sold securities to other Persons in accordance with the terms
set forth in such notices and in accordance with this Article II.
ARTICLE III
MISCELLANEOUS
3.1 Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of the
Subscribers holding a majority of the outstanding shares of Series B Preferred
Stock and outstanding shares of Common Stock into which shares of Series B
Preferred Stock have been converted; provided, however, that no amendment,
-------- -------
modification or supplement or waiver or consent to the departure with respect to
the provisions of Article II hereof shall be effective as against any Subscriber
unless consented to in writing by such Subscriber.
3.2 Successors, Assigns and Transferees. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective representatives, administrators, heirs, successors and permitted
assigns, as applicable; provided, however, that no Subscriber may assign, by
-------- -------
operation of law or otherwise, to any Person his or its rights hereunder without
the prior written consent of the Company.
3.3 Notices. All notices and other communications provided for
hereunder shall be in writing and shall be sent by first class mail, telex,
telecopier or hand delivery:
-3-
<PAGE>
if to the Company, to:
Allin Communications Corporation
400 Greentree Commons
381 Mansfield Avenue
Pittsburgh, PA 15220
Attention: Richard W. Talarico
FAX: (412) 928-0225
if to a Subscriber, to:
the most recent address of such Subscriber on the books of the
Company
All such notices and communications shall be deemed to have been given or
made (i) when delivered by hand, (ii) two business days after being
deposited in the mail, postage prepaid, (iii) when telexed, answer-back
received or (iv) when telecopied, receipt acknowledged.
3.4 Severability. In the event that any one or more of the
provisions, paragraphs, words, clauses, phrases or sentences contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of such provision, paragraph, word, clause, phrase or sentence in
every other respect and of the remaining provisions, paragraphs, words, clauses,
phrases or sentences hereof shall not be in any way impaired, it being intended
that all rights, powers and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
3.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.
3.6 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware, without
regard to the conflicts of laws rules thereof.
-4-
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement or caused this Agreement to be executed on its behalf as of the date
first written above.
ALLIN COMMUNICATIONS CORPORATION
By: /s/ Richard W. Talarico
---------------------------------------
Title: Chairman and Chief Executive Officer
--------------------------------------
SUBSCRIBERS
/s/ Henry Posner, Jr.
-------------------------------------------
/s/ Thomas D. Wright
-------------------------------------------
/s/ Richard W. Talarico
-------------------------------------------
/s/ William C. Kavan
-------------------------------------------
/s/ James C. Roddey
-------------------------------------------
-5-
<PAGE>
Exhibit 4.2
FORM OF WARRANT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
SECURITIES LAWS OF ANY STATE, HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO APPLICABLE PROVISIONS OF
FEDERAL AND STATE SECURITIES LAWS OR EXEMPT FROM THE REGISTRATION REQUIREMENTS
THEREOF.
No. WARRANT
- ---------------- -------
VOID AFTER 5:00 p.m., Pittsburgh, Pennsylvania Time, on the earlier of December
31, 1998 if all outstanding shares of Series B Preferred Stock of Allin
Communications Corporation are required to be redeemed as of such date or August
13, 2003.
Warrant to Purchase __________
Shares of Common Stock
WARRANT TO PURCHASE COMMON STOCK
OF
ALLIN COMMUNICATIONS CORPORATION
This is to certify that, for valuable consideration, receipt of which
is hereby acknowledged, ________________________________________________ (the
"Holder"), is entitled to purchase, subject to the provisions of this Warrant,
from ALLIN COMMUNICATIONS CORPORATION, a Delaware corporation (the "Company"),
__________ fully paid and nonassessable shares of the Common Stock, $.01 par
value per share, of the Company (the "Stock"), subject to adjustment as
hereinafter set forth, at such price, during such period and subject to such
terms as hereinafter set forth. Unless the context otherwise requires, the term
"Warrant" or "Warrants" as used herein includes this Warrant and any other
Warrant or Warrants which may be issued pursuant to the provisions of this
Warrant, whether upon transfer, assignment, partial exercise, divisions,
combinations, exchange or otherwise, and the term "Holder" includes any
transferee or transferees or assignee or assignees of the Holder named above,
all of whom shall be subject to the provisions of this Warrant, and, when used
with reference to shares of Stock, means the holder or holders of such shares of
Stock. This Warrant is issued pursuant to the terms of
<PAGE>
that certain Subscription Agreement dated as of August __, 1998 between the
original Holder and the Company.
Section 1. Exercise Price. Subject to the provisions with respect to
adjustment in Section 7, the purchase price for each share of Stock purchasable
pursuant hereto shall be $4.25 per share (hereinafter, as adjusted from time to
time as herein required, the "Exercise Price").
Section 2. Exercise of Warrant.
(a) This Warrant may only be exercised pursuant to this Section 2 from
and after the date on which the holders of the outstanding Stock approve the
issuance of Stock upon exercise pursuant to this Section 2.
(b) This Warrant may be exercised, in whole or in part at any time or
from time to time, on or prior to 5:00 p.m., Pittsburgh, Pennsylvania time, on
the earlier to occur of (i) December 31, 1998 if all outstanding shares of
Series B Preferred Stock of the Company are required to be redeemed by the
Company as of such date or (ii) August 13, 2003, or if such date is a day on
which federal or state chartered banking institutions located in the
Commonwealth of Pennsylvania are authorized by law to close, then on the next
succeeding day which shall not be such a day, by presentation and surrender to
the Company at its principal office in Pennsylvania of this Warrant and the
purchase form annexed hereto duly executed and accompanied by payment, in cash,
certified or cashier's check payable to the order of the Company or shares of
Series A Convertible Redeemable Preferred Stock of the Company ("Series A
Preferred Stock"), of the Exercise Price for the number of shares of Stock to be
purchased upon exercise of the Warrant. If payment is made by delivery of
shares of Series A Preferred Stock, the number of shares of Series A Preferred
Stock so delivered must have an aggregate liquidation value plus accrued and
unpaid dividends, if any, equal to the exercise price for the number of shares
of Stock to be purchased upon exercise of the Warrant. If this Warrant is
exercised in part only, the Company shall, promptly after presentation of this
Warrant upon such exercise, execute and deliver a new Warrant evidencing the
rights of the Holder hereof to purchase the unexercised balance of this Warrant.
Upon and as of such receipt of this Warrant and the purchase form by the Company
at its principal office in Pennsylvania, in proper form for exercise and
accompanied by payment as herein provided, the Holder shall be deemed to be the
holder of record of the shares of Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Stock shall not then be
actually delivered to the Holder.
Section 3. Covenants of Company. The Company represents, warrants,
covenants and agrees as follows:
(a) All Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance in accordance with the
provisions of this
-2-
<PAGE>
Warrant, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issuance thereof (other than
taxes in respect of any transfer occurring contemporaneously with such
issuance).
(b) The Company will at all times until expiration of this Warrant
reserve and keep available, free from preemptive rights, out of its authorized
but unissued capital stock (or capital stock held in treasury), a number of
shares of Stock equal to the total number of shares of Stock issuable upon
exercise of this Warrant.
(c) The Company acknowledges and agrees that, pursuant to a
Registration Rights Agreement dated the date hereof among the Company, the
Holder and other holders of warrants, the Holder has certain registration rights
with respect to the shares of Stock issuable upon exercise of this Warrant.
Section 4. Fractional Shares. No fractional shares of Stock or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional shares to which the Holder would otherwise
be entitled upon exercise hereof, the Company shall pay to the Holder an amount
in cash equal to such fraction multiplied by the Exercise Price.
Section 5. Transfer, Exchange, Assignment or Loss of Warrant.
5.1 This Warrant may not be assigned or transferred except as
provided in this Section 5 and in accordance with and subject to the provisions
of the Securities Act of 1933, as amended, and the Rules and Regulations
promulgated thereunder (said Act and such Rules and Regulations being
hereinafter collectively referred to as the "Act"). Any purported transfer or
assignment made other than in accordance with this Section 5 shall be null and
void and of no force and effect.
5.2 Prior to any transfer of this Warrant, other than in an offering
registered under the Act, the Holder shall notify the Company in writing of its
intention to effect such transfer, indicating the circumstances of the proposed
transfer and furnish the Company with an opinion of its counsel, which counsel
and opinion shall be reasonably satisfactory to the Company, to the effect that
the proposed transfer may be made without registration under the Act or
registration or qualification under any applicable state securities laws. The
Company will promptly notify the Holder if the opinion of counsel furnished to
the Company is reasonably satisfactory to the Company. Unless the Company
notifies the Holder within 10 business days after its receipt of such opinion
that such opinion is not reasonably satisfactory to counsel for the Company, the
Holder may proceed to effect the transfer.
5.3 Each certificate for shares of Stock or for any other security
issued or issuable upon exercise of this Warrant shall contain the following
legend (unless the
-3-
<PAGE>
Company shall have received an opinion of counsel reasonably satisfactory to it
that such legend is not required to assure compliance with the Act):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR SECURITIES LAWS OF ANY STATE, HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT
TO APPLICABLE PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS OR EXEMPT
FROM THE REGISTRATION REQUIREMENTS THEREOF.
The Holder, by accepting this Warrant, agrees and represents that,
unless the shares of Stock to be issued to such Holder upon exercise hereof
shall have been registered under the Act prior to the delivery thereof to such
Holder, it will acquire such shares for investment and not with a view to their
distribution.
5.4 Any assignment permitted hereunder shall be made by surrender of
this Warrant to the Company at its principal office in Pennsylvania with the
assignment form annexed hereto duly completed and executed. In such event the
Company shall, without charge for any issuance or transfer tax or other costs
incurred by the Company with respect to such transfer, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be cancelled. This Warrant may be divided or
combined with other Warrants which carry the same rights upon presentation
thereof at the principal office of the Company in Pennsylvania together with a
written notice signed by the Holder thereof, specifying the names and
denominations in which new Warrants are to be issued.
5.5 Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant (provided that an
affidavit of the Holder shall be satisfactory for such purpose), and of
indemnity satisfactory to it and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date and any such lost, stolen or destroyed Warrant shall
thereupon become void.
Section 6. Rights of Holder. Any Holder of this Warrant shall not, by
virtue hereof, be entitled to any rights of a stockholder in the Company, either
at law or in equity, and the rights of any such Holder are limited to those
expressed in this Warrant and are not enforceable against the Company except to
the extent set forth herein.
-4-
<PAGE>
Section 7. Adjustment in the Number of Warrant Shares Purchasable and
Exercise Price.
7.1 The number of shares of Stock or other securities or property for
which this Warrant may be exercised and the Exercise Price shall be subject to
adjustments as follows:
(a) If the Company, at any time or from time to time, effects a
subdivision or combination, by stock split, reverse stock split or otherwise, of
its outstanding shares of Stock into a larger or smaller number of shares of
Stock, the number of shares of Stock for which this Warrant may be exercised
immediately prior to such subdivision or combination shall be increased or
reduced in the same proportion as the increase or decrease in the outstanding
shares of Stock and the then applicable Exercise Price shall be adjusted by
multiplying such Exercise Price by a fraction, the numerator of which shall be
the number of shares of Stock purchasable upon exercise hereof immediately prior
to such subdivision or combination and the denominator of which shall be the
number of shares of Stock purchasable immediately following such subdivision or
combination. Any adjustment under this Paragraph (a) shall become effective at
the close of business on the date the subdivision or combination becomes
effective.
(b) If the Company, at any time or from time to time, declares a
dividend on Stock payable in Stock or securities convertible into Stock the
number of shares of Stock for which this Warrant may be exercised shall be
increased, as of the close of business on the record date for determining which
holders of Stock shall be entitled to receive such dividend, in proportion to
the increase in the number of outstanding shares of Stock as a result of such
dividend (treating for this purpose any securities convertible into Stock as so
converted) and the then applicable Exercise Price shall be adjusted by
multiplying such Exercise Price by a fraction, the numerator of which shall be
the number of shares of Stock purchasable upon exercise hereof immediately prior
to the record date for such dividend and the denominator of which shall be the
number of shares of Stock purchasable immediately following the record date for
such dividend (treating for this purpose any securities convertible into Stock
as so converted).
(c) If the Company at any time or from time to time makes, or fixes a
record date for the determination of holders of Stock entitled to receive, a
dividend or other distribution payable in securities of the Company other than
shares of Stock or securities convertible into Stock, then and in each such
event provision shall be made so that the Holder shall receive upon exercise
hereof, in addition to the number of shares of Stock receivable thereupon, the
amount of securities of the Company which it would have received had this
Warrant been exercised on the date of such event and had it thereafter, during
the period from the date of such event to and including the date of exercise,
retained such securities receivable by it as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 7 with respect to the right of the Holder.
-5-
<PAGE>
(d) If the Stock issuable upon the exercise of this Warrant is changed
into the same or a different number of shares of any class or classes of stock
of the Company or property, whether by recapitalization, reclassification or
other exchange (other than a subdivision or combination of shares, or a stock
dividend, or a reorganization, merger, consolidation or sale of assets provided
for elsewhere in this Section 7), then and any in such event the Holder shall
have the right thereafter to purchase the kind and amount of stock and other
securities and property receivable upon such recapitalization, reclassification
or other exchange by holders of the number of shares of Stock with respect to
which this Warrant might have been exercised immediately prior to such
recapitalization, reclassification or other exchange, all subject to further
adjustments as provided herein.
(e) If at any time or from time to time there is a capital
reorganization of the Stock (other than a subdivision or combination of shares
or a stock dividend or recapitalization, reclassification or exchange of shares
provided for elsewhere in this Section 7) or a consolidation or merger of the
Company with or into another entity or the sale of all or substantially all of
the Company's assets to another person, then, as part of such capital
reorganization, consolidation, merger or sale, provision shall be made so that
the Holder shall thereafter be entitled to receive upon exercise of this Warrant
the same kind and number of shares of Stock and other securities, cash or other
property as would have been distributed to the Holder upon such reorganization,
reclassification, consolidation, merger or sale had the Holder exercised this
Warrant immediately prior to such reorganization, reclassification,
consolidation, merger or sale. The Holder shall pay upon such exercise the
Exercise Price that otherwise would have been payable pursuant to the terms of
this Warrant. Appropriate adjustment shall be made in the application of the
provisions of this Section 7 with respect to the rights of the Holder after the
reorganization, consolidation, merger or sale to the end that the provisions of
this Section 7 (including adjustment of the Exercise Price then in effect and
the number of shares or securities deliverable upon exercise of this Warrant)
shall be applicable after that event and shall be nearly equivalent to the
provisions hereof as may be practicable. If any such reorganization,
reclassification, consolidation, merger or sale results in a cash distribution
in excess of the Exercise Price provided by this Warrant, the Holder may, at the
Holder's option, exercise this Warrant without making payment of the Exercise
Price, and in such case the Company shall, upon distribution to the Holder,
consider the Exercise Price to have been paid in full, and in making settlement
to the Holder, shall deduct an amount equal to the Exercise Price from the
amount payable to the Holder.
7.2 If the Company shall, other than as provided in Paragraph (e) of
Section 7.1, dissolve, liquidate or wind up its affairs, the Holder shall
thereafter have the right to receive upon proper exercise of this Warrant, in
lieu of the shares of Stock of the Company that the Holder otherwise would have
been entitled to receive, the same kind and amount of securities or assets as
would have been issued, distributed or paid to the Holder upon any such
dissolution, liquidation or winding up with respect to such shares of Stock of
the Company had the Holder been the holder of record of such shares of Stock
receivable
-6-
<PAGE>
upon exercise of this Warrant on the date for determining those entitled to
receive any such distribution.
7.3 In each case of an adjustment or readjustment of the Exercise
Price or the number of shares of Stock or other securities issuable upon
exercise of this Warrant, the Company, at its expense, shall promptly cause
independent public accountants of recognized standing selected by the Company
(who may be the independent public accountants then auditing the books of the
Company) to compute such adjustment or readjustment in accordance with the
provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall promptly mail such certificate, by first class mail,
postage prepaid, to the Holder at the Holder's address as shown in the Company's
books. The certificate shall set forth such adjustment or readjustment, showing
in detail the facts upon which such adjustment or readjustment is based.
7.4 At the request of the Holder and upon surrender of this Warrant,
the Company shall reissue this Warrant in a form conforming to the adjustment or
change made pursuant to this Section 7.
Section 8. Notices to Warrant Holder. In the event of: (i) any taking
by the Company of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution or any right to subscribe for, purchase or
otherwise acquire any shares of Stock of any class or any other securities or
property, or to receive any other rights; (ii) any capital reorganization of the
Company, any reclassification or recapitalization of the Stock of the Company or
any transfer of all or substantially all of the assets of the Company to any
other person or any consolidation or merger involving the Company and any other
person; or (iii) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company; then the Company shall give to the Holder of this
Warrant a notice specifying the date or expected date of any such taking of a
record or other event and describing the same in reasonable detail. Such notice
shall be given at least 20 days prior to the date therein specified.
Section 9. Governing Law. This Warrant shall be construed in
accordance with the laws of the State of Delaware applicable to contracts
executed and to be performed wholly within such state.
Section 10. Notice. Notices and other communications to be given to
the Holder of this Warrant or to the Company shall be deemed to be sufficiently
given if delivered by hand or mailed, registered or certified mail, postage
prepaid, to the following address:
If to the Holder: ________________________
________________________
________________________
Attn: _________________
-7-
<PAGE>
If to the Company: Allin Communications Corporation
400 Greentree Commons
381 Mansfield Avenue
Pittsburgh, PA 15220
Attn: Richard W. Talarico
or such other address as the Holder or the Company shall have designated by
written notice to the other as herein provided. Notice by mail shall be deemed
given when deposited in the United States mail, postage prepaid, as herein
provided.
Section 11. Amendment. No amendment to this Warrant shall be valid
unless contained in a writing duly executed by the Holder and the Company.
IN WITNESS WHEREOF, the Company has executed this Warrant as of August
__, 1998.
ALLIN COMMUNICATIONS CORPORATION
By: __________________________________
Title: _______________________________
-8-
<PAGE>
PURCHASE FORM
-------------
Dated ____________, ____
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing __________ shares of Stock and hereby makes payment of
$__________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name __________________________________________________________________________
(Please typewrite or print in block letters)
Address _______________________________________________________________________
_______________________________________________________________________________
Signature: __________________________________
-9-
<PAGE>
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, ____________________ hereby sells, assigns and
transfers unto
Name
(Please typewrite or print in block letters)
Address
the right to purchase Stock represented by this Warrant to the extent of
__________ shares of Stock and does hereby irrevocably constitute and appoint
____________________, attorney, to transfer the same on the books of the Company
with full power of substitution in the premises.
Signature: _________________________________
Dated:____________, ____
-10-
<PAGE>
Exhibit 4.3
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, EXCHANGED, PLEDGED, HYPOTHECATED OR TRANSFERRED IN ANY
MANNER IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
PROMISSORY NOTE
---------------
$2,000,000.00 August 13, 1998
FOR VALUE RECEIVED, the undersigned, ALLIN COMMUNICATIONS CORPORATION,
a Delaware corporation, its successors and assigns ("Maker"), hereby promises to
pay to the order of James S. Kelly, Jr., his heirs and assigns ("Lender"), on
the Maturity Date (as such term is defined below), if not sooner paid, the
principal sum of Two Million and 00/100 Dollars ($2,000,000.00) owed to Lender
by the Maker pursuant to that certain Stock Purchase Agreement dated as of the
date of this Note by and among Lender, Maker, KCS Computer Services, Inc.,
Ronald J. Pearce, Joseph J. Kelly and Bradley C. Friedel (the "Agreement"),
together with interest thereon as provided hereinafter.
Capitalized terms used herein and not otherwise defined herein shall
have the meaning given to such terms in the Agreement. The unpaid principal
balance hereof shall bear interest for each day until due at the rate of six
percent (6%) per annum and shall accrue and compound quarterly commencing on the
date hereof. Subject to approval required by a Senior Lender (as hereunder
defined), Maker shall pay such accrued interest to Lender quarterly commencing
on October 1, 1998 and on the first day of each quarter thereafter until such
time as all unpaid principal, accrued interest and all other sums and costs have
been paid in full. If not sooner paid, all unpaid principal, accrued interest
and all other sums and costs incurred by the Lender (the "Unpaid Amount") shall
be due and payable on the second anniversary of the Closing Date (the "Maturity
Date") without notice, presentment or demand; provided, however, that in the
event that all approvals necessary to convert the Unpaid Amount to Purchaser
Common Stock (as more particularly described in Section 2.1.1(iii) of the
Agreement) have been received by the Maturity Date, the Unpaid Amount
automatically shall convert to Purchaser Common Stock on the Maturity Date on
the terms and conditions set forth in Section 2.1.1(iii) of the Agreement. In
such event, Maker shall cause the number of shares of Purchaser Common Stock as
required under Section 2.1.1(iii) of the Agreement to be issued to Lender on the
Maturity Date.
Notwithstanding anything contained herein to the contrary, the payment
of interest and principal hereunder shall be subordinated to, and subject to the
permission of any Lender (the "Senior Lender") which provides (or refinances)
senior financing all or part of which is used initially to pay off (by itself or
combined with funds of Maker) $3,200,000 of indebtedness to Lender evidenced by
that certain Promissory Note in the principal amount of $6,200,000 dated of even
date herewith from Maker to Lender. Maker shall request, but does not guarantee
that it will be able to obtain, a
<PAGE>
provision in the documents evidencing such senior financing (the "Senior Loan
Documents") that permits Maker to pay interest hereunder as long as Maker is not
in default under the Senior Loan Documents.
Principal and interest shall be made payable to Lender and forwarded
to Lender at 100 Trotwood Drive, Monroeville, Pennsylvania 15146, or such other
place as the holder hereof shall designate.
All payments to be made in respect of principal, interest or other
amounts due from Maker under this Note shall be payable on the day when due
without presentation, demand, protest or notice of any kind, all of which are
hereby expressly waived, and an action therefor shall immediately accrue.
In connection with this Note, Maker has delivered, or has caused to be
delivered, to Lender the Agreement, that certain Security Agreement of Maker in
favor of Lender dated as of the date of this Note (the "Security Agreement"),
that certain Promissory Note from Maker to Lender dated as of the date of this
Note in the principal sum of $6,200,000 (the "$6,200,000 Note") and that certain
Guaranty and Suretyship Agreement of each of the Guarantors (as defined in the
Security Agreement) in favor of Lender dated the date of this Note (the
"Guaranty", and together with this Note, the Security Agreement, the $6,200,000
Note and all other agreements, documents and instruments in connection
therewith, as each of the foregoing may be amended, modified or supplemented
from time to time, the "Loan Documents"). This Note is secured by, and is
entitled to the benefits of, the Loan Documents.
Maker shall be in default under this Note upon the occurrence of any
of the following (the "Events of Default"):
(a) Maker fails to pay any principal or interest due on this Note or
any other amount due and payable under this Note as and when due;
(b) Maker or Guarantor fails to perform or observe in any material
respect any other material covenant, agreement or duty contained or referred to
herein or in any Loan Document or in Section 2.1.1 (iii) of the Agreement and
such failure continues for a period of thirty (30) consecutive days;
(c) any material warranty, representation or statement made or
furnished to Lender by or on behalf of Maker in the Stock Purchase Agreement or
any Loan Document proves to have been false or misleading in any material
respect when made or furnished;
(d) there occurs an Event of Default under the $6,200,000 Note;
2.
<PAGE>
(e) there occurs dissolution, termination of existence, charter
revocation or forfeiture, insolvency, liquidation, reorganization, arrangement,
adjustment, compensation or other similar relief, business failure, assignment
for the benefit of creditors, or the commencement of proceedings under any law
relating to bankruptcy, insolvency, relief of debtors or protection of
creditors, termination of legal entities or any other similar law now or in the
future in effect, or a proceeding shall be instituted in respect of Maker
seeking appointment of a receiver, trustee, custodian, liquidator, assignee,
sequestrator or other similar official for the Maker or for all or any
substantial part of its property by or against Maker or any surety of any of the
obligations of Maker; or
(f) the Maker shall become insolvent, shall become generally unable to
pay its debts as they become due, shall voluntarily suspend transaction of its
business, shall make a general assignment for the benefit of creditors, shall
institute a proceeding described above or shall consent to any order for relief,
declaration, finding or relief described in (e) above, shall institute a
proceeding described in (e) above or shall consent to the appointment or to the
taking of possession by any such official of all or any substantial part of its
property whether or not any proceeding is instituted, dissolves, winds-up or
liquidates itself or any substantial part of its property, or shall take any
action in furtherance of any of the foregoing.
Upon the occurrence of any of the Events of Default described in
clauses (a) through (d) above, Lender may declare all liabilities and
obligations of Maker to Lender under the Loan Documents, including those
evidenced by the Note, immediately due and payable and the same shall thereupon
become immediately due and payable without any further action on part of Lender;
provided, however, that if such Event of Default occurs after the Approval Date,
then Lender's sole recourse hereunder shall be (1) to accelerate and immediately
convert the unpaid principal to Purchaser Common Stock, whereupon Maker shall
immediately cause to be issued to Lender such Purchaser Common Stock; (2) to
exercise one of the following options:
(i) to accelerate and immediately convert all accrued but unpaid
interest hereunder as of the conversion date to Purchaser Common
Stock; or
(ii) subject to any required consent of a Senior Lender, to receive
in cash the amount of the accrued but unpaid interest hereunder
as of the conversion date; or
(iii) only in the case of an Event of Default described in clause (a)
and subject to any required consent of a Senior Lender, to
receive an amount equal to the amount of interest which would
have been payable to Lender hereunder if no Event of Default had
occurred prior to the Maturity Date; such amount to be payable
quarterly in the same fashion as interest otherwise would have
been payable hereunder, less all interest actually paid through
the date of the Event of Default.
Lender shall notify Maker in writing as to which option Lender elects. Upon the
occurrence of any event of default described in clauses (e) and (f) hereof, all
liabilities and obligations of
3.
<PAGE>
Maker to Lender under the Loan Documents, including those evidenced by the Note,
shall immediately become due and payable without any action upon the part of
Lender; provided, however, that if such Event of Default occurs after the
Approval Date, Lender's sole recourse hereunder shall be to (3) accelerate and
immediately convert the unpaid principal to Purchaser Common Stock, whereupon
Maker shall immediately cause to be issued to Lender such Purchaser Common
Stock; and (4) to exercise one of the following options:
(i) to accelerate and immediately convert all accrued but unpaid
interest hereunder as of the conversion date to Purchaser Common
Stock; or
(ii) subject to any required consent of a Senior Lender, to receive
in cash the amount of the accrued but unpaid interest hereunder
as of the conversion date; or
(iii) only in case of an Event of Default described in clause (a) and
subject to any required consent of a Senior Lender, to receive
an amount equal to the amount of interest which would have been
payable to Lender hereunder if no Event of Default had occurred
prior to the Maturity Date; such amount to be payable quarterly
in the same fashion as interest otherwise would have been
payable hereunder, less all interest actually paid through the
date of the Event of Default.
Lender shall notify Maker in writing as to which option Lender elects.
Subject to any required consent of any Senior Lender, Maker hereby
consents and agrees that Lender may do any of the following, upon the occurrence
of an Event of Default prior to the Approval Date, as many times as Lender may
agree, desire or permit, without in any way impairing, reducing, limiting,
terminating, or releasing, in whole or in part, the unlimited and continuing
liability of Maker hereunder, without any notice to Maker (all of which notices
are hereby waived by Maker), without incurring any responsibility to Maker, and
without the endorsement or execution by Maker of any additional consent or
waiver.
(a) settle, compound, collect, liquidate, purchase, postpone,
compromise, accept partial payment on, or release any Collateral (as
defined in the Security Agreement) in any manner or subordinate the payment
of all or any part thereof to the payment of any liability (whether due or
not) of Maker to its creditors;
(b) exercise or refrain from exercising any rights, claims or
demands against, and release or discharge, any maker, endorser, surety,
guarantor or any other person or entity directly, indirectly, or otherwise
obligated, including any persons or entities against whom the undersigned
may have a right of recourse, regardless of whether rights are
specifically reserved against any person or entity not released or
discharged; and
4.
<PAGE>
(c) generally act and deal with Maker and the Collateral in any
manner that Lender may see fit, without notice to any of the undersigned.
Time is of the essence with respect to the payment of this Note.
After the principal amount of any part of the loan evidenced by this
Note (the "Loan") shall have become due (at maturity, by acceleration or
otherwise) and before and after judgment, or upon the occurrence of one or more
of the Events of Default, as compensation to the Lender for the increased cost
of administering the Loan, the Loan will bear interest for each day until paid
(before and after judgment) at a rate which will be equal to 10% per annum.
Interest on the unpaid principal amount hereof shall be computed on
the basis of a 360 day year and the actual number of days elapsed in the period
during which it accrues.
In the event the rates of interest provided for herein or any of them
are finally determined by any governmental authority to exceed the maximum rate
of interest permitted by applicable usury or similar laws, their or its
application will be suspended and there will be charged instead the maximum rate
of interest permitted by such laws.
Interest on the Loan will be due and payable on the first day of each
quarter in arrears. After maturity of any part of the Loan (at maturity, by
acceleration or otherwise), interest on such part of the Loan will be due and
payable on demand.
All payments to be made in respect of principal, interest, fees or
other amounts due under this Note are payable at 12:00 noon, Pittsburgh time, on
the day when due, without presentment, demand, protest or notice of any kind,
all of which are expressly waived, and an action for the payments will accrue
immediately. All such payments must be made to the Lender in U.S. dollars and
in funds immediately available, without setoff, counterclaim or other deduction
of any nature. All such payments shall be applied at the option of the Lender
to late charges, accrued and unpaid interest, outstanding principal and other
sums due under this Note in such order as the Lender, in its sole discretion,
shall elect.
Maker may prepay any amounts due under this Note, at any time without
premium or penalty. Payments made hereunder shall be credited first to late
charges, then to lawful charges then accrued and the remainder to principal.
If this Note is not paid when due and is placed with an attorney for
collection, and whether or not suit is entered hereon or judgment confessed
against the undersigned, the Maker further agrees to pay the holder hereof, in
addition to the principal and accrued interest, the costs of suit and reasonable
attorney's fees.
5.
<PAGE>
MAKER HEREBY AUTHORIZES AND EMPOWERS ANY ATTORNEY OF ANY COURT OF
RECORD WITHIN THE UNITED STATES OR ELSEWHERE AFTER THE OCCURRENCE OF
AN EVENT OF DEFAULT TO APPEAR FOR THE UNDERSIGNED AND, WITH OR INITIAL:
WITHOUT COMPLAINT FILED AND WITH OR WITHOUT JUDGMENT AGAINST IT IN /s/RWT
FAVOR OF LENDER OR ANY HOLDER HEREOF FOR THE ABOVE SUM IF NOT PAID ________
WHEN DUE, TOGETHER WITH COSTS OF SUIT AND ATTORNEY'S FEES OF TEN PERCENT (10%)
FOR COLLECTION HEREINAFTER PROVIDED FOR, WITH RELEASE OF ERRORS, WITHOUT ANY
STAY OF EXECUTION OR RIGHT OF APPEAL. NO SINGLE EXERCISE OF THE FOREGOING POWER
TO APPEAR FOR AND ENTER JUDGMENT AGAINST MAKER SHALL BE DEEMED TO EXHAUST THE
POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY THE COURT TO BE
INVALID, VOIDABLE OR VOID, BUT THE POWER SHALL CONTINUE UNDIMINISHED AND IT MAY
BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE HOLDER HEREOF SHALL ELECT, UNTIL
SUCH TIME AS THE HOLDER SHALL HAVE RECEIVED PAYMENT IN FULL OF ALL PRINCIPAL,
INTEREST THEREON, AND COSTS. IF A COPY OF THIS NOTE, VERIFIED BY AFFIDAVIT OF
LENDER OR ANY HOLDER HEREOF OR SOMEONE ON LENDER'S OR SUCH HOLDER'S BEHALF IS
FILED IN SUCH ACTION, IT WILL NOT BE NECESSARY TO FILE THE ORIGINAL NOTE AS A
WARRANT OF ATTORNEY.
MAKER WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY INITIAL:
IN CONNECTION WITH ANY PROCEEDING INVOLVING OR /s/RWT
UNDERTAKEN IN CONNECTION WITH THIS NOTE. ________
ACKNOWLEDGMENT
--------------
BY SIGNING THIS INSTRUMENT, MAKER HEREBY ACKNOWLEDGES, REPRESENTS AND
WARRANTS THAT (A) MAKER HAS BEEN REPRESENTED BY COUNSEL IN INITIAL:
CONNECTION WITH THE EXECUTION AND DELIVERY OF THIS NOTE, (B) MAKER /s/RWT
HAS READ, UNDERSTOOD AND AGREES TO THE PROVISIONS CONTAINED HEREIN, ________
INCLUDING THE CONFESSION OF JUDGMENT PROVISION WHICH MAY RESULT IN A COURT
JUDGMENT AGAINST MAKER WITHOUT NOTICE OR A HEARING, (C) MAKER'S COUNSEL HAS
SUFFICIENTLY EXPLAINED THE LEGAL AND ECONOMIC SIGNIFICANCE OF THE CONFESSION OF
JUDGMENT PROVISION OF THIS NOTE, AND (D) MAKER'S EXECUTION AND DELIVERY OF THIS
NOTE IS A VOLUNTARY ACT.
6.
<PAGE>
The successors and assigns of Maker shall be bound by the terms
hereof; Maker may not assign or delegate its rights or obligations hereunder
without the prior written consent of Lender.
So long as this Note is outstanding, Lender shall have the right to
examine and inspect, and make copies thereof, Maker's books and records,
including, without limitation, books of account.
Demand, presentment, protest and notice of dishonor and notice of
default are hereby waived.
This Note shall be governed by, and construed in accordance with, the
internal laws of the Commonwealth of Pennsylvania.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP CERTAIN CONSTITUTIONAL
------------------------------------------------------------------
RIGHTS TO NOTICE AND COURT TRIAL OR OTHER OPPORTUNITY TO BE HEARD INITIAL
- ----------------------------------------------------------------- -------
BEFORE A JUDGMENT CAN BE ENTERED AGAINST YOU. IF YOU ARE IN DEFAULT /s/RWT
- -------------------------------------------------------------------- -------
OF THE TERMS OF THIS NOTE, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT
- ----------------------------------------------------------------------------
YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU
- ------------------------------------------------------------------------------
AND YOUR ASSETS REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE HOLDER OF THIS
- --------------------------------------------------------------------------------
NOTE FOR FAILURE ON HIS OR ITS PART TO COMPLY WITH THE NOTE, OR ANY OTHER CAUSE.
- --------------------------------------------------------------------------------
WITNESS the due execution and sealing hereof, with the intent to be
legally bound hereby.
ATTEST: ALLIN COMMUNICATIONS CORPORATION
By: /s/ Dean C. Praskach By: /s/ Richard W. Talarico
---------------------- -----------------------------
Name: Title:
-------------------- --------------------------
Title:
-------------------
7.
<PAGE>
Exhibit 10.1
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of this 13th day of August, 1998, by and among ALLIN
COMMUNICATIONS CORPORATION, a Delaware corporation (the "Company") and those
persons whose names appear on the signature page hereof (collectively, the
"Subscribers").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, concurrently with the execution of this Agreement, Subscribers
have agreed to purchase from the Company, and the Company has agreed to sell and
issue to Subscribers, shares of Series B Redeemable Preferred Stock, par value
$.01 per share, of the Company (the "Series B Preferred Stock") and warrants
(the "Warrants") to purchase shares of common stock, par value $.01 per share,
of the Company (the "Common Stock"); and
WHEREAS, the Series B Preferred Stock and the Warrants will be issued to
the Subscribers without registration under the Securities Act of 1933, as
amended, and applicable state securities laws, and the Company and the
Subscribers desire to provide hereunder for compliance therewith and for the
possible registration of the shares of Common Stock issuable upon conversion of
the Series B Preferred Stock and/or upon exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual
independent covenants contained herein, the parties hereto, intending to be
legally bound hereby, agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following capitalized
-----------
terms have the meanings set forth below:
Applicable Period - In the case of a Shelf Registration Statement, the
-----------------
period referred to in Section 2.1(a)(ii), and in the case of any other
Registration Statement, nine months or such shorter period as is necessary
to complete the distribution of the Registrable Securities covered thereby.
Conversion Shares - The shares of Common Stock (i) issued to Qualified
-----------------
Holders upon conversion of shares of Series B Preferred Stock into shares
of Common Stock, (ii) issued to Qualified Holders upon exercise of the
Warrants and (iii) any shares of Common Stock issued as a stock dividend or
in a stock split or in connection with any
<PAGE>
other stock combination or division in respect of the Conversion Shares
issued upon such conversion and/or exercise.
Demand - As defined in Section 2.1(a)(i) hereof.
------
Exchange Act - The Securities Exchange Act of 1934, as amended, or
------------
similar federal statute then in effect, and a reference to a particular
section thereof or regulation thereunder shall be deemed to include a
reference to the comparable section, if any, of, or regulation, if any,
under, any such similar federal statute.
Majority Holders - Qualified Holders holding a majority of the
----------------
Registrable Securities included in a Shelf Registration Statement.
Notice of Demand - As defined in Section 2.1(a)(i) hereof.
----------------
Person - An individual, partnership, joint venture, corporation,
------
trust, unincorporated organization or government or any department or
agency thereof.
Piggy-back Registration - A registration of Conversion Shares pursuant
-----------------------
to Section 2.1(b) hereof.
Qualified Holder - Each Subscriber so long as it or he holds any of
----------------
the Conversion Shares and each Person to whom a Subscriber or a Qualified
Holder transfers such Conversion Shares.
Prospectus - The prospectus included in a Registration Statement,
----------
including any preliminary prospectus, and any such Prospectus as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities covered by a
Registration Statement, and by all other amendments and supplements to such
Prospectus, including post-effective amendments, and in each case including
all exhibits thereto and all material incorporated by reference therein.
Registrable Securities - Any Conversion Shares issued to, and held by,
----------------------
a Qualified Holder. As to any Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (i) a Registration
Statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement or, if earlier,
when the Applicable Period shall have expired with respect to such
securities; (ii) they shall have been distributed to the public pursuant to
Rule 144 (or any successor provision) under the Securities Act; (iii) new
certificates for them not bearing a legend restricting further transfer
shall have been delivered by the Company and subsequent disposition of them
shall not require registration or qualification of them under the
Securities Act or any similar state law then in force; or (iv) they shall
have ceased to be outstanding.
-2-
<PAGE>
Registration Statement - The Shelf Registration Statement, any
----------------------
registration statement registering shares held by Qualified Holders
pursuant to Section 2.1(b) hereof and all amendments and supplements to any
such Registration Statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and
all material incorporated by reference therein.
SEC - The Securities and Exchange Commission.
---
Securities Act - The Securities Act of 1933, as amended, or similar
--------------
federal statute then in effect, and a reference to a particular section
thereof or regulation thereunder shall be deemed to include a reference to
the comparable section, if any, of, or regulation, if any, under, such
similar federal statute.
Seller - As defined in Section 2.1(g) hereof.
------
Shelf Registration - A registration required to be effected pursuant
------------------
to Section 2.1(a).
Shelf Registration Statement - A "shelf" registration statement of the
----------------------------
Company pursuant to the provisions of Section 2.1(a) of this Agreement
which covers Registrable Securities and is filed on Form S-3 under Rule 415
under the Securities Act, or any similar rule that may be adopted by the
SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
Underwriter - A person who acts as an underwriter with respect to any
-----------
registration of securities pursuant to this Agreement.
Underwritten Offering - A sale of securities of the Company to an
---------------------
Underwriter or Underwriters for reoffering to the public.
ARTICLE II
REGISTRATION RIGHTS
2.1 Registration.
------------
(a) Shelf Registration.
------------------
(i) At any time from the date on which any Conversion Shares may
be issued until the fifth anniversary of the initial issuance of the
Series B Preferred Stock and the Warrants, one or more Qualified
Holders holding in the
-3-
<PAGE>
aggregate at least the number of Conversion Shares equal to ten
percent of the Conversion Shares that may or have been issued (as
adjusted for stock splits, stock dividends, reverse stock splits or
any other combination or division of the Conversion Shares) will be
entitled to deliver to the Company, on one occasion, a written notice
(a "Demand") requesting a Shelf Registration. Upon receipt of a
Demand, the Company will deliver to each Qualified Holder a written
notice (the "Notice of Demand") which shall include a copy of the
Demand together with a statement to the effect that the Company will
include all Registrable Securities in a Shelf Registration pursuant to
this Section 2.1(a) unless the Company receives, by a date specified
in the Notice of Demand (which shall be no less than 20 days following
the delivery of such Notice of Demand), a notice from a Qualified
Holder to exclude all or a portion of such Qualified Holder's
Registrable Securities from such Shelf Registration. Following
receipt of a Demand, the Company shall, as expeditiously as reasonably
possible, use its best efforts to effect a Shelf Registration of all
Registrable Securities except those which a Qualified Holder has on a
timely basis requested to be excluded from such Shelf Registration and
those of any Qualified Holder who does not provide information
reasonably requested by the Company in connection with the Shelf
Registration Statement. The Company may, at its option, include in
such Shelf Registration Statement shares held by any shareholder other
than the Qualified Holders having rights similar to those contained in
this Section 2.1(a).
(ii) The Company agrees to use its best efforts to keep the Shelf
Registration Statement continuously effective for a period of two
years following the date on which such Shelf Registration Statement is
initially declared effective or such shorter period which will
terminate when all of the Registrable Securities covered by the Shelf
Registration Statement have been sold pursuant to the Shelf
Registration Statement. The Company further agrees, if necessary, to
supplement or amend the Shelf Registration Statement, if required by
the rules, regulations or instructions applicable to the registration
form used by the Company for such Shelf Registration Statement or by
the Securities Act or by any other rules and regulations thereunder
for shelf registration.
(iii) On one occasion, the Majority Holders of the Registrable
Securities covered by a Shelf Registration Statement may elect to have
such Registrable Securities sold in an Underwritten Offering. In such
event, the Company shall be entitled to engage an investment banking
firm selected by the Company to serve as Underwriter.
-4-
<PAGE>
(b) Piggy-back Registration.
-----------------------
(i) If the Company at any time prior to the seventh anniversary
of the original issuance of the Series B Preferred Stock and the
Warrants proposes to register any of its securities for an
Underwritten Offering under the Securities Act (other than pursuant to
a Shelf Registration), whether or not for sale for its own account,
and if the registration form proposed to be used may be used for the
registration of Registrable Securities, the Company will each such
time give prompt written notice to all Qualified Holders of its
intention to do so. Upon the written request of any such Qualified
Holder made within 30 days after the receipt of any such notice (which
request shall specify the Registrable Securities intended to be
disposed of by such Qualified Holder), the Company will use its best
efforts to cause all such Registrable Securities as to which Qualified
Holders requested registration to be registered under the Securities
Act (with the securities which the Company at the time proposes to
register), so as to permit the sale or other disposition by such
Qualified Holders of such Registrable Securities.
(ii) No registration effected pursuant to this Section 2.1(b)
shall be deemed to have been effected pursuant to Section 2.1(a)
hereof.
(iii) Notwithstanding anything to the contrary in this Section
2.1(b), the Company shall have the right to discontinue any Piggy-back
Registration at any time prior to the effective date of such Piggy-
back Registration if the registration of other securities giving rise
to such Piggy-back Registration is discontinued; but no such
discontinuation shall preclude an immediate or subsequent request for
a Shelf Registration.
(c) Registration Procedures. If the Company is required by the
-----------------------
provisions of this Section 2.1 to use its best efforts to effect or cause
the registration of any Registrable Securities under the Securities Act as
provided in this Section, the Company will, as expeditiously as possible:
(i) prepare and file with the SEC a Registration Statement with
respect to such Registrable Securities and use its best efforts to
cause such registration statement to become and remain effective
during the Applicable Period; in the case of a Shelf Registration
Statement, such Registration Statement shall be (A) reasonably
acceptable to special counsel for the Qualified Holders and (B)
available for the sale of Registrable Securities in accordance with
the intended method or methods of distribution of the selling
Qualified Holders (subject to the limitation set forth in Section
2.1(a)(iii) hereof);
(ii) prepare and file with the SEC such amendments and
supplements to such Registration Statement as may be necessary to keep
such Registration Statement effective for the Applicable Period and to
comply with the provisions
-5-
<PAGE>
of the Securities Act with respect to the sale or other disposition of
all securities covered by such Registration Statement during the
Applicable Period in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such
Registration Statement;
(iii) furnish to each seller of such Registrable Securities and,
in the case of an Underwritten Offering, each Underwriter of the
securities being sold by such seller, such number of copies of such
Registration Statement, such number of copies of the Prospectus
included in such Registration Statement and such other documents as
such seller and Underwriter may reasonably request in order to
facilitate the public sale or other disposition of the Registrable
Securities owned by such seller (including any Prospectus amended or
supplemented as set forth in Section 2.1(c)(vi));
(iv) use its best efforts to register or qualify such Registrable
Securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions as any seller and
each Underwriter of the securities being sold by such seller shall
reasonably request, and do any and all other acts and things which may
be necessary or advisable to enable such seller and underwriter to
consummate the disposition in such jurisdictions of such Registrable
Securities owned by such seller; provided, the Company shall not for
any such purpose be required to (A) qualify generally to do business
as a foreign corporation in any jurisdiction wherein it would not but
for the requirements of this Section 2.1(c)(iv) be obligated to be
qualified, (B) subject itself to taxation in any such jurisdiction,
(C) to consent to general service of process in any such
jurisdictions, or (D) register or qualify such Registrable Securities
in more than ten states;
(v) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities;
(vi) notify each seller of any such Registrable Securities
covered by such Registration Statement (i) of the issuance by the SEC
or any state securities authority of any stop order suspending the
effectiveness of such Registration Statement or the initiation of any
proceedings for that purpose, (ii) of receipt of notification with
respect to the suspension of the qualification of the Registrable
Securities for offer or sale in any jurisdiction or the initiation of
any proceeding for such purpose, (iii) at any time when a Prospectus
relating thereto is required to be delivered under the Securities Act,
of the Company's becoming aware that the Prospectus included in such
Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in
-6-
<PAGE>
the light of the circumstances then existing (other than a fact
relating to such seller), and promptly use its best efforts to prepare
a Prospectus supplemented or amended so that, as thereafter delivered
to the purchasers of such Registrable Securities, such Prospectus
shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing;
(vii) otherwise use its best efforts to comply with federal and
state laws and all applicable rules and regulations of the SEC, and
make available to its security holders, as soon as reasonably
practicable, an earnings statement which shall satisfy the provisions
of Section 11(a) of the Securities Act;
(viii) use its best efforts (A) to cause all such Registrable
Securities covered by such Registration Statement to be listed on each
securities exchange on which similar securities issued by the Company
are then listed, if the listing of such Registrable Securities is then
permitted under the rules of such exchange or (B) to secure
designation of all such Registrable Securities covered by such
registration statement as a NASDAQ "national market system security"
within the meaning of Rule 11Aa2-1 under the Exchange Act or, failing
that, to secure NASDAQ authorization for such Registrable Securities
and, without limiting the generality of the foregoing, to arrange for
at least two market makers to register as such with respect to such
Registrable Securities with the National Association of Securities
Dealers;
(ix) provide a transfer agent and registrar for all such
Registrable Securities covered by such registration statement not
later than the effective date of such registration statement;
(x) in the case of an Underwritten Offering, enter into an
underwriting agreement in customary form and take such other actions
as Majority Holders shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;
(xi) in the case of an Underwritten Offering, use its best
efforts to obtain an opinion from the Company's counsel and a "cold
comfort" letter from the Company's independent public accountants in
customary form and covering such matters of the type customarily
covered by such opinions and "cold comfort" letters;
(xii) make available for inspection by any seller of such
Registrable Securities covered by such Registration Statement, by any
Underwriter participating in any disposition to be effected pursuant
to such Registration Statement and by any attorney, accountant or
other agent retained by any such
-7-
<PAGE>
seller or any such Underwriter, all pertinent financial and other
records, pertinent corporate documents and properties of the Company,
and cause all of the Company's officers, directors and employees to
supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such
registration statement; provided, however, that all such persons shall
agree to standard confidentiality provisions regarding all such
records, documents and information; and
(xiii) permit any holder of Registrable Securities which holder,
in the sole and exclusive judgment, exercised in good faith, of such
holder, might be deemed to be a controlling person of the Company, to
participate in the preparation of such registration or comparable
statement.
Each Qualified Holder shall be deemed to have agreed by including
Registrable Securities in a Registration Statement that upon receipt of any
notice from the Company of the happening of any event of the kind described
in Section 2.1(c)(vi) hereof, such Qualified Holder will forthwith
discontinue such Qualified Holder's disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Qualified Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 2.1(c)(vi) hereof and, if so
directed by the Company, will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such
Qualified Holder's possession of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the event the
Company shall give any such notice, the Applicable Period shall be extended
by the number of days during the period from and including the date of the
giving of such notice to and including the date when each seller of any
Registrable Securities covered by such registration statement shall have
received the copies of the supplemented or amended prospectus contemplated
by Section 2.1(c)(vi) hereof.
If any Registration Statement, Prospectus or comparable statement
refers to any holder by name or otherwise as the holder of any securities
of the Company, then (whether or not, in the sole and exclusive judgment,
exercised in good faith, of such holder, such holder is or might be deemed
to be a controlling person of the Company) such holder shall have the right
to require (i) the insertion therein of language, in form and substance
reasonably satisfactory to such holder and presented to the Company in
writing, to the effect that the holding of such holder of such securities
is not to be construed as a recommendation by such holder of the investment
quality of the Company's securities covered thereby and that such holding
does not imply that such holder will assist in meeting any future financial
requirements of the Company, or (ii) in the event that such reference to
such holder by name or otherwise is not required by the Securities Act or
any similar federal or state statute then in force, the deletion of the
reference to such holder. Each seller shall provide to the Company in
writing information concerning itself required by law to be included in any
Registration Statement registering shares held by such seller.
-8-
<PAGE>
(d) Registration Expenses. The Company shall, whether or not any Shelf
---------------------
Registration or Piggy-back Registration shall become effective, pay all
expenses incident to its performance of or compliance with this Section in
connection with a Shelf Registration or Piggy-back Registration, including
without limitation all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws (subject to the limitation set
forth in Section 2.1(c)(iv) hereof), printing expenses, messenger and
delivery expenses, fees and disbursements of counsel for the Company and
all independent public accountants (including the expenses of any audit
and/or "cold comfort" letter) and other persons retained by the Company and
reasonable fees and disbursements of one counsel or firm of counsel chosen
by the Majority Holders, and any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities (excluding
underwriting commissions and discounts). In all cases, any allocation of
Company personnel or other general overhead expenses of the Company or
other expenses for the preparation of financial statements or other data
normally prepared by the Company in the ordinary course of its business
shall be borne by the Company.
(e) Indemnification and Contribution. The Company hereby indemnifies,
--------------------------------
to the extent permitted by law, each Qualified Holder, its officers and
directors, if any, and each Person, if any, who controls such Qualified
Holder within the meaning of Section 15 of the Securities Act, against all
losses, claims, damages, liabilities (or proceedings in respect thereof)
and expenses (under the Securities Act or common law or otherwise), joint
or several, caused by any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or Prospectus (as
amended or supplemented if the Company shall have furnished any amendments
or supplements thereto) or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such losses,
claims, damages, liabilities (or proceedings in respect thereof) or
expenses are caused by any untrue statement or alleged untrue statement
contained in or by any omission or alleged omission from information
respecting such Qualified Holder furnished in writing to the Company by
such Qualified Holder expressly for use therein. If the offering pursuant
to any Registration Statement provided for under this Section is made
through Underwriters, the Company agrees to enter into an underwriting
agreement in customary form with such Underwriters and to indemnify such
Underwriters, their officers and directors, if any, and each Person, if
any, who controls such Underwriters within the meaning of Section 15 of the
Securities Act, against all losses, claims, damages, liabilities (or
proceedings in respect thereof) and expenses (under the Securities Act or
common law or otherwise), joint or several, caused by any untrue statement
or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages, liabilities
(or proceedings in respect thereof) or expenses are caused by any untrue
statement or alleged untrue statement contained in or by any omission or
alleged omission
-9-
<PAGE>
from information respecting such Underwriters or the participating
Qualified Holders furnished in writing to the Company by such Underwriters
or the participating Qualified Holders expressly for use therein. In
connection with any Registration Statement with respect to Registrable
Securities held by a Qualified Holder, each such Qualified Holder will
furnish to the Company in writing such information respecting such
Qualified Holder as shall be reasonably requested by the Company for use in
any such Registration Statement or Prospectus and will indemnify, to the
extent permitted by law, the Company, its officers and directors and each
Person, if any, who controls the Company within the meaning of Section 15
of the Securities Act, against any losses, claims, damages, liabilities (or
proceedings in respect thereof) and expenses resulting from any untrue
statement or alleged untrue statement of a material fact or any omission or
alleged omission of a material fact required to be stated in the
Registration Statement or Prospectus or necessary to make the statements
therein not misleading, but only to the extent that such untrue statement
is contained in or such omission is from information so furnished in
writing by such Qualified Holder expressly for use therein. If the
offering pursuant to any such Registration Statement is made through
Underwriters, each such Qualified Holder agrees to enter into an
underwriting agreement in customary form with such Underwriters, and to
indemnify such Underwriters, their officers and directors, if any, and each
Person, if any, who controls such Underwriters within the meaning of
Section 15 of the Securities Act to the same extent as hereinbefore
provided with respect to indemnification by such Qualified Holder of the
Company. Any Person entitled to indemnification under the provisions of
this Section 2.1(e) shall (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) unless
in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of
such claim, permit such indemnifying party to assume the defense of such
claim, with counsel reasonably satisfactory to the indemnified party; and
if such defense is so assumed, such indemnifying party shall not enter into
any settlement without the consent of the indemnified party if such
settlement attributes liability to the indemnified party and such
indemnifying party shall not be subject to any liability for any such
settlement made without its consent (which consent shall not be
unreasonably withheld); and any underwriting agreement entered into with
respect to any Registration Statement provided for under this Section shall
so provide. In the event an indemnifying party shall not be entitled, or
elects not, to assume the defense of a claim, such indemnifying party shall
not be obligated to pay the fees and expenses of more than one counsel or
firm of counsel for all parties indemnified by such indemnifying party in
respect of such claim, unless in the reasonable judgment of any such
indemnified party a conflict of interest may exist between such indemnified
party and any other of such indemnified parties in respect to such claim.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of a participating Qualified Holder, its
officers, directors or any Person, if any, who controls such Qualified
Holder as aforesaid, and shall survive the transfer of such securities by
such Qualified Holder.
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<PAGE>
If for any reason the foregoing indemnity is unavailable, or is
insufficient to hold harmless an indemnified party, then the indemnifying
party shall contribute to the amount paid or payable by the indemnified
party as a result of such losses, claims, damages, liabilities or expenses
(x) in such proportion as is appropriate to reflect the relative benefits
received by the indemnifying party on the one hand and the indemnified
party on the other or (y) if the allocation provided by clause (x) above is
not permitted by applicable law or provides a lesser sum to the indemnified
party than the amount hereinafter calculated, in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other
but also the relative fault of the indemnifying party and the indemnified
party as well as any other relevant equitable considerations.
Contributions required to be made by an Underwriter, if any, shall be
governed by the terms of the underwriting agreement. Notwithstanding the
foregoing, no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(f) Certain Limitations on Registration Rights.
------------------------------------------
(i) In the case of an Underwritten Offering under a Shelf
Registration, if the Majority Holders determine to enter into an
underwriting agreement in connection therewith, or, in the case of a
Piggy-back Registration, if the Company or holders of securities
initially requesting or demanding such registration have determined to
enter into an underwriting agreement in connection therewith, all
Registrable Securities to be included in such registration shall be
subject to such underwriting agreement, and no Person may participate
in such registration unless such Person agrees to sell such Person's
securities on the basis provided in the underwriting arrangements
approved by the Company or such holders and completes and/or executes
all questionnaires, powers of attorney, indemnities, underwriting
agreements and other reasonable documents which must be executed under
the terms of such underwriting arrangements.
(ii) Notwithstanding anything to the contrary in this Section
2.1, if the Company shall previously have received a request for
registration under this or any other registration rights agreement,
and if such previous registrations shall not have been withdrawn or
abandoned, the Company will not effect any registration of any of its
securities under the Securities Act (other than a registration on Form
S-4 or S-8 (or any similar form) or other publicly registered offering
pursuant to the Securities Act pertaining to the issuance of
securities under any benefit plan, employee compensation plan, or
employee or director stock purchase plan or in connection with an
offer of securities solely to existing security holders) whether or
not for sale for its own account, until a period of three months shall
have elapsed from the effective date of such previous
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<PAGE>
registration; and the Company shall so provide in any registration
rights agreements hereafter entered into with respect to any of its
securities.
(g) Allocation of Securities Included in Registration Statement. In
-----------------------------------------------------------
the case of an Underwritten Offering, if the Company's managing Underwriter
shall advise the Company and the Qualified Holders in writing that the
inclusion in any registration pursuant to this Section of some or all of
the Registrable Securities sought to be registered by the holders
requesting such registration creates a substantial risk that the proceeds
or price per unit the Sellers (as defined below) will derive from such
registration will be reduced or that the number of securities to be
registered (including those sought to be registered at the instance of the
Company and any other party entitled to participate in such registration as
well as those sought to be registered by the Qualified Holders) is too
large a number to be reasonably sold, then the number of Registrable
Securities sought to be registered by each Seller shall be reduced pro rata
in proportion to the number of securities sought to be registered by all
Sellers to the extent necessary to reduce the number of securities to be
registered to the number recommended by the managing underwriter.
For purposes of this Section 2.1(g) the term "Seller" shall mean and
include the Company and each holder of securities (including, but not
limited to, Registrable Securities) entitled to participate in the subject
registration.
(h) Limitations on Sale or Distribution of Other Securities. Each
-------------------------------------------------------
holder of Registrable Securities shall be deemed to have agreed by the
inclusion of Registrable Securities in a Registration Statement not to
effect any public sale or distribution, including (if requested by the
Underwriter) any sale pursuant to Rule 144 under the Securities Act, of any
Registrable Securities, and to use such holder's best efforts not to effect
any public sale or distribution of any other equity security of the Company
or of any security convertible into or exchangeable or exercisable for any
equity security of the Company (other than as part of such underwritten
public offering) within 7 days before or 90 days (or such other period to
which the Underwriters of such offering may consent) after the effective
date of any Registration Statement filed by the Company pursuant to this
Article II or other agreement providing for registration rights.
2.2 Rule 144. The Company covenants that it will timely file the
--------
reports required to be filed by it under the Securities Act or the Exchange Act
(including but not limited to the reports under Sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c)(l) of Rule 144 adopted by the SEC
under the Securities Act) and the rules and regulations adopted by the SEC
thereunder (or, if the Company is not required to file such reports, will, upon
the request of any Qualified Holder, make publicly available such information),
and will take such further action as any Qualified Holder may reasonably
request, all to the extent required from time to time to enable such Qualified
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (i) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (ii) any
similar rule or
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<PAGE>
regulation hereafter adopted by the SEC. Upon the request of any Qualified
Holder, the Company will deliver to such Qualified Holder a written statement as
to whether it has complied with such requirements.
ARTICLE III
MISCELLANEOUS
3.1 Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of the
Majority Holders; provided, however, that no amendment, modification or
-------- -------
supplement or waiver or consent to the departure with respect to the provisions
of Sections 2.1(a) or 2.1(e) hereof shall be effective as against any Holder of
Registrable Securities unless consented to in writing by such Holder of
Registrable Securities.
3.2 Successors, Assigns and Transferees. This Agreement shall be
-----------------------------------
binding upon and shall inure to the benefit of the parties hereto and their
respective representatives, administrators, heirs, successors and assigns, as
applicable, including, without limitation and without the need for an express
assignment, subsequent Qualified Holders. If any successor, assignee or
transferee of any Qualified Holder shall acquire Registrable Securities, in any
manner, whether by operation of law or otherwise, such Registrable Securities
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Securities such Person shall be entitled to receive the
benefits hereof and shall be conclusively deemed to have agreed to be bound by
all of the terms and provisions hereof.
3.3 Notices. All notices and other communications provided for
-------
hereunder shall be in writing and shall be sent by first class mail, telex,
telecopier or hand delivery:
if to the Company, to:
Allin Communications Corporation
400 Greentree Commons
381 Mansfield Avenue
Pittsburgh, PA 15220
Attention: Richard W. Talarico
FAX: (412) 928-0225
if to a Qualified Holder, to:
the most recent address of such Qualified Holder on the books of
the Company
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<PAGE>
All such notices and communications shall be deemed to have been given or
made (i) when delivered by hand, (ii) two business days after being
deposited in the mail, postage prepaid, (iii) when telexed, answer-back
received or (iv) when telecopied, receipt acknowledged.
3.4 Descriptive Headings. The headings in this Agreement are for
--------------------
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein.
3.5 Severability. In the event that any one or more of the
------------
provisions, paragraphs, words, clauses, phrases or sentences contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of such provision, paragraph, word, clause, phrase or sentence in
every other respect and of the remaining provisions, paragraphs, words, clauses,
phrases or sentences hereof shall not be in any way impaired, it being intended
that all rights, powers and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
3.6 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.
3.7 Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of Delaware, without
regard to the conflicts of laws rules thereof.
[signatures appear on next page]
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<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement or caused this Agreement to be executed on its behalf as of the date
first written above.
ALLIN COMMUNICATIONS CORPORATION
By: /s/ Richard W. Talarico
-------------------------
Title: Chairman and Chief Executive Officer
--------------------------------------
SUBSCRIBERS
/s/ Henry Posner, Jr.
-------------------------------------------
/s/ Thomas D. Wright
-------------------------------------------
/s/ Richard W. Talarico
-------------------------------------------
/s/ William C. Kavan
-------------------------------------------
/s/ James C. Roddey
-------------------------------------------
-15-
<PAGE>
Exhibit 10.2
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, EXCHANGED, PLEDGED, HYPOTHECATED OR TRANSFERRED IN ANY
MANNER IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
PROMISSORY NOTE
---------------
$6,200,000.00 August 13, 1998
FOR VALUE RECEIVED, the undersigned, ALLIN COMMUNICATIONS CORPORATION,
a Delaware corporation, its successors and assigns ("Maker"), hereby promises to
pay to the order of James S. Kelly, Jr., his heirs and assigns ("Lender"), on
the Maturity Date (as such term is defined below), if not sooner paid, the
principal sum of Six Million Two Hundred Thousand and 00/100 Dollars
($6,200,000.00) owed to Lender by the Maker pursuant to that certain Stock
Purchase Agreement dated as of the date of this Note by and among Lender, Maker,
KCS Computer Services, Inc., Ronald J. Pearce, Joseph J. Kelly and Bradley C.
Friedel (the "Agreement"), together with interest thereon as provided
hereinafter.
Capitalized terms used herein and not otherwise defined herein shall
have the meaning given to such terms in the Agreement. The unpaid principal
balance hereof shall bear interest for each day until due at the rate of five
percent (5%) per annum and shall accrue and compound monthly commencing on the
date hereof. In the event that the Maker obtains additional financing from S&T
Bank, or any other third party, Maker shall prepay to Lender, on the date that
the first proceeds of such Loan are received by Maker, proceeds of such
additional financing thereof (up to $3,200,000) to Lender to be applied against
the accrued costs, interest and principal (in such order) then outstanding under
this Note. In addition, in the event that Maker sells a subsidiary or
substantially all of the operating assets of a subsidiary of Maker, Maker shall
prepay to Lender, on the date that the first proceeds of such sale are received
by Maker, the proceeds of such sale (a "Subsidiary Sale") to Lender to be
applied against the accrued costs, interest and principal (in such order) then
outstanding under this Note. If not sooner paid, all unpaid principal, accrued
interest and all other sums and costs incurred by the Lender shall be due and
payable on December 31, 1998 (the "Maturity Date") without notice, presentment
or demand.
Principal and interest shall be made payable to Lender and forwarded
to Lender at 100 Trotwood Drive, Monroeville, Pennsylvania 15146, or such other
place as the holder hereof shall designate.
<PAGE>
All payments to be made in respect of principal, interest or other
amounts due from Maker under this Note shall be payable on the day when due
without presentation, demand, protest or notice of any kind, all of which are
hereby expressly waived, and an action therefor shall immediately accrue.
In connection with this Note, Maker has delivered, or has caused to be
delivered, to Lender that certain Promissory Note of Maker in favor of Lender in
the original principal amount of $2,000,000 dated as of the date of this Note
(the "$2,000,000 Note"), that certain Guaranty and Suretyship Agreement of each
of the Guarantors (as defined in the Security Agreement) (the "Guaranty") that
certain Security Agreement of Maker in favor of Lender dated as of the date of
this Note (the "Security Agreement", and together with the Note, the Agreement,
the $2,000,000 Note, the Guaranty, and all other agreements, documents and
instruments in connection therewith, as each of the foregoing may be amended,
modified or supplemented from time to time, the "Loan Documents"). This Note is
secured by, and is entitled to the benefits of, the Loan Documents.
Maker shall be in default under this Note upon the occurrence of any
of the following (the "Events of Default"):
(a) Maker fails to pay any principal or interest due on this Note or
any other amount due and payable under this Note as and when due;
(b) Maker or any Guarantor fails to perform or observe in any material
respect any other material covenant, agreement or duty contained or referred to
herein or in any Loan Document or in Section 2.1.1(iii) of the Agreement and
such material failure continues for a period of thirty (30) consecutive days;
(c) any material warranty, representation or statement made or
furnished to Lender by or on behalf of Maker in the Stock Purchase Agreement or
any Loan Document proves to have been false or misleading in any material
respect when made or furnished;
(d) Maker sells, encumbers, assigns or otherwise disposes of (whether
in one transaction or in a series of transactions) any of its tangible or
intangible property having an aggregate value in excess of $50,000.00 except in
the ordinary course of Maker's business; provided, however, that the anticipated
sale of four (4) on-board interactive television systems to Celebrity Cruises, a
division of Royal Caribbean International, Inc. for an approximate purchase
price of $2,440,000 (the "Celebrity Sale") shall not constitute an Event of
Default hereunder;
(e) any property of Maker is attached in a legal proceeding which
is not discharged within 30 days;
2.
<PAGE>
(f) one or more judgments, decrees or orders for the payment of money
in excess of Fifty Thousand Dollars ($50,000) in the aggregate is rendered
against Maker and such judgment, decree or order is not paid or bonded within 30
days;
(g) there occurs an Event of Default under the $2,000,000 Note prior
to the Approval Date (as such term is defined in the $2,000,000 Note);
(h) there occurs dissolution, termination of existence, charter
revocation or forfeiture, insolvency, liquidation, reorganization, arrangement,
adjustment, compensation or other similar relief, business failure, assignment
for the benefit of creditors, or the commencement of proceedings under any law
relating to bankruptcy, insolvency, relief of debtors or protection of
creditors, termination of legal entities or any other similar law now or in the
future in effect, or a proceeding shall be instituted in respect of Maker
seeking appointment of a receiver, trustee, custodian, liquidator, assignee,
sequestrator or other similar official for the Maker or for all or any
substantial part of its property by or against Maker or any surety of any of the
obligations of Maker; or
(i) the Maker shall become insolvent, shall become generally unable to
pay its debts as they become due, shall voluntarily suspend transaction of its
business, shall make a general assignment for the benefit of creditors, shall
institute a proceeding described above or shall consent to any order for relief,
declaration, finding or relief described in (h) above, shall institute a
proceeding described in (h) above or shall consent to the appointment or to the
taking of possession by any such official of all or any substantial part of its
property whether or not any proceeding is instituted, dissolves, winds-up or
liquidates itself or any substantial part of its property, or shall take any
action in furtherance of any of the foregoing.
Upon the occurrence of any of the Events of Default described in
clauses (a) through (g) Lender may declare all liabilities and obligations of
Maker to Lender under the Loan Documents, including those evidenced by the Note,
immediately due and payable and the same shall thereupon become immediately due
and payable without any further action on part of Lender, and upon the
occurrence of any event of default described in clauses (h) and (i) hereof, all
liabilities and obligations of Maker to Lender under the Loan Documents,
including those evidenced by the Note, shall immediately become due and payable
without any action upon the part of Lender.
Maker hereby consents and agrees that Lender may do any of the
following, upon the occurrence of an Event of Default, as many times as Lender
may agree, desire or permit, without in any way impairing, reducing, limiting,
terminating, or releasing, in whole or in part, the unlimited and continuing
liability of Maker hereunder, without any notice to
3.
<PAGE>
Maker (all of which notices are hereby waived by Maker), without incurring any
responsibility to Maker, and without the endorsement or execution by Maker of
any additional consent or waiver:
(a) settle, compound, collect, liquidate, purchase, postpone,
compromise, accept partial payment on, or release any Collateral (as
defined in the Security Agreement) in any manner or subordinate the payment
of all or any part thereof to the payment of any liability (whether due or
not) of Maker to its creditors;
(b) exercise or refrain from exercising any rights, claims or
demands against, and release or discharge, any maker, endorser, surety,
guarantor or any other person or entity directly, indirectly, or otherwise
obligated, including any persons or entities against whom the undersigned
may have a right of recourse, regardless of whether rights are specifically
reserved against any person or entity not released or discharged; and
(c) generally act and deal with Maker and the Collateral in any
manner that Lender may see fit, without notice to any of the undersigned.
Time is of the essence with respect to the payment of this Note.
After the principal amount of any part of the loan evidenced by this
Note (the "Loan") shall have become due (at maturity, by acceleration or
otherwise) and before and after judgment, or upon the occurrence of one or more
of the Events of Default, as compensation to the Lender for the increased cost
of administering the Loan, the Loan will bear interest for each day until paid
(before and after judgment) at a rate which will be equal to 10% per annum.
Interest on the unpaid principal amount hereof shall be computed on
the basis of a 360 day year and the actual number of days elapsed in the period
during which it accrues.
In the event the rates of interest provided for herein or any of them
are finally determined by any governmental authority to exceed the maximum rate
of interest permitted by applicable usury or similar laws, their or its
application will be suspended and there will be charged instead the maximum rate
of interest permitted by such laws.
Interest on the Loan shall accrue until maturity. After maturity of
any part of the Loan (at maturity, by acceleration or otherwise), interest on
such part of the Loan will be due and payable on demand.
All payments to be made in respect of principal, interest, fees or
other amounts due under this Note are payable at 12:00 noon, Pittsburgh time, on
the day when due, without
4.
<PAGE>
presentment, demand, protest or notice of any kind, all of which are expressly
waived, and an action for the payments will accrue immediately. All such
payments must be made to the Lender in U.S. dollars and in funds immediately
available, without setoff, counterclaim or other deduction of any nature. All
such payments shall be applied at the option of the Lender to late charges,
accrued and unpaid interest, outstanding principal and other sums due under this
Note in such order as the Lender, in its sole discretion, shall elect.
Maker may prepay any amounts due under this Note, at any time without
premium or penalty. Payments made hereunder shall be credited first to late
charges, then to lawful charges then accrued and the remainder to principal.
If this Note is not paid when due and is placed with an attorney for
collection, and whether or not suit is entered hereon or judgment confessed
against the undersigned, the Maker further agrees to pay the holder hereof, in
addition to the principal and accrued interest, the costs of suit and reasonable
attorney's fees.
MAKER HEREBY AUTHORIZES AND EMPOWERS ANY ATTORNEY OF ANY COURT OF
RECORD WITHIN THE UNITED STATES OR ELSEWHERE AFTER THE OCCURRENCE OF AN EVENT
OF DEFAULT TO APPEAR FOR THE UNDERSIGNED AND, WITH OR WITHOUT INITIAL:
COMPLAINTFILED AND WITH OR WITHOUT DECLARATION, CONFESS JUDGMENT /s/RWT
AGAINST IT IN FAVOR OF LENDER OR ANY HOLDER HEREOF FOR THE ABOVE ________
SUM IF NOT PAID WHEN DUE, TOGETHER WITH COSTS OF SUIT AND ATTORNEY'S FEES OF TEN
PERCENT (10%) FOR COLLECTION HEREINAFTER PROVIDED FOR, WITH RELEASE OF ERRORS,
WITHOUT ANY STAY OF EXECUTION OR RIGHT OF APPEAL. NO SINGLE EXERCISE OF THE
FOREGOING POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST MAKER SHALL BE DEEMED
TO EXHAUST THE POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY THE
COURT TO BE INVALID, VOIDABLE OR VOID, BUT THE POWER SHALL CONTINUE UNDIMINISHED
AND IT MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE HOLDER HEREOF SHALL
ELECT, UNTIL SUCH TIME AS THE HOLDER SHALL HAVE RECEIVED PAYMENT IN FULL OF ALL
PRINCIPAL, INTEREST THEREON, AND COSTS. IF A COPY OF THIS NOTE, VERIFIED BY
AFFIDAVIT OF LENDER OR ANY HOLDER HEREOF OR SOMEONE ON LENDER'S OR SUCH HOLDER'S
BEHALF IS FILED IN SUCH ACTION, IT WILL NOT BE NECESSARY TO FILE THE ORIGINAL
NOTE AS A WARRANT OF ATTORNEY.
MAKER WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY INITIAL:
IN CONNECTION WITH ANY PROCEEDING INVOLVING OR /s/RWT
UNDERTAKEN IN CONNECTION WITH THIS NOTE. ________
5.
<PAGE>
ACKNOWLEDGMENT
--------------
BY SIGNING THIS INSTRUMENT, MAKER HEREBY ACKNOWLEDGES, REPRESENTS AND
WARRANTS THAT (A) MAKER HAS BEEN REPRESENTED BY COUNSEL IN CONNECTION INITIAL:
WITH THE EXECUTION AND DELIVERY OF THIS NOTE, (B) MAKER HAS READ, /s/RWT
UNDERSTOOD AND AGREES TO THE PROVISIONS CONTAINED HEREIN, INCLUDING ________
THE CONFESSION OF JUDGMENT PROVISION WHICH MAY RESULT IN A COURT JUDGMENT
AGAINST MAKER WITHOUT NOTICE OR A HEARING, (C) MAKER'S COUNSEL HAS SUFFICIENTLY
EXPLAINED THE LEGAL AND ECONOMIC SIGNIFICANCE OF THE CONFESSION OF JUDGMENT
PROVISION OF THIS NOTE, AND (D) MAKER'S EXECUTION AND DELIVERY OF THIS NOTE IS A
VOLUNTARY ACT.
The successors and assigns of Maker shall be bound by the terms
hereof; Maker may not assign or delegate its rights or obligations hereunder
without the prior written consent of Lender.
So long as this Note is outstanding, Lender shall have the right to
examine and inspect, and make copies thereof, Maker's books and records,
including, without limitation, books of account.
Demand, presentment, protest and notice of dishonor and notice of
default are hereby waived.
This Note shall be governed by, and construed in accordance with, the
internal laws of the Commonwealth of Pennsylvania.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP CERTAIN CONSTITUTIONAL
------------------------------------------------------------------
RIGHTS TO NOTICE AND COURT TRIAL OR OTHER OPPORTUNITY TO BE HEARD INITIAL
- ----------------------------------------------------------------- -------
BEFORE A JUDGMENT CAN BE ENTERED AGAINST YOU. IF YOU ARE IN DEFAULT /s/RWT
- -------------------------------------------------------------------- -------
OF THE TERMS OF THIS NOTE, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT
- ----------------------------------------------------------------------------
YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU
- ------------------------------------------------------------------------------
AND YOUR ASSETS REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE HOLDER OF THIS
- --------------------------------------------------------------------------------
NOTE FOR FAILURE ON HIS OR ITS PART TO COMPLY WITH THE NOTE, OR ANY OTHER CAUSE.
- --------------------------------------------------------------------------------
6.
<PAGE>
WITNESS the due execution and sealing hereof, with the intent to be
legally bound hereby.
ATTEST: ALLIN COMMUNICATIONS CORPORATION
By: /s/ Dean C. Praskach By: /s/ Richard W. Talarico
---------------------- -----------------------------
Name: Title:
-------------------- --------------------------
Title:
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7.
<PAGE>
News Release
Exhibit 99
Allin Communications Corporation Telephone:
400 Greentree Commons (412) 928-8800
381 Mansfield Avenue Telefax:
Pittsburgh, Pennsylvania 15220-2751 (412) 928-0887
Allin Communications Acquires KCS Computer Services
Allin Takes First Step Under Expansion Strategy to Acquire Regionally Dominant
Microsoft Solution Partners
Thursday, August 13, 1998
For Release at 4:30 pm EDT
Pittsburgh, PA: Allin Communications Corporation (NASDAQ: ALLN) announced
today that it has acquired KCS Computer Services, Inc. ("KCS"), a Microsoft
Solutions Provider Partner headquartered in Pittsburgh with offices in
Cleveland, Ohio and Erie, Pennsylvania. A privately held firm, KCS provides
technology services nationwide through 123 information technology professionals.
The acquisition represents an important step in Allin's previously announced
strategy to expand the geographic scope of the company's consulting services
business through acquisitions. Allin's acquisition strategy will continue to
focus on Microsoft Solution Provider Partners, or quality Microsoft Solution
Providers who can quickly be upgraded to Partner status.
Under the terms of the acquisition, valued at approximately $16 million,
Allin has acquired all of the outstanding stock of KCS. The acquisition combines
KCS with Allin's Kent Consulting Group, a Microsoft Solutions Partner based in
the San Francisco Bay Area. Both organizations will operate under the Allin
Consulting Services banner. Microsoft Solutions Provider Partners are an elite
group of organizations who provide support for Microsoft products and who have
met Microsoft's stringent requirements relating to training and marketing.
Microsoft and its Partners also jointly develop formal yearly business plans to
address their clients' needs. Additionally, Microsoft and its Partners conduct
joint marketing calls, strategy sessions and quarterly reviews of these business
plans.
KCS's chief operating officer, Ron Pearce, who is responsible for day-to-
day operations, will remain with KCS in the same capacity and will report to Les
Kent, Allin's president. Jim Kelly, KCS's president, will join Allin's board of
directors but, consistent with KCS's present structure, will not be involved in
the day-to-day operations of the company.
"KCS is a well run company with depth in the management ranks, a
concentration in Microsoft solutions, and a presence in one of the primary
markets we have targeted to expand our consulting services business," said Rich
Talarico, chairman and CEO of Allin. "Ron Pearce brings to Allin a strong
background in sales, recruiting and management in the IT services industry and
will strengthen our management team as we pursue our growth strategy. Les Kent
will be responsible for integrating the organizations and ensuring that Allin
Consulting's best practices are instituted across the organization as we meld
KCS and any other additional organizations into the Allin family."
<PAGE>
Les Kent commented, "The addition of KCS to Allin Consulting is a first
step in fulfilling our vision of a network of regionally dominant Microsoft
Solution Partners. We believe that it will become increasingly difficult for the
smaller independents to gain access to the capital necessary to grow their
business and still meet Microsoft's rising standards for qualifying as a
Solutions Provider Partner. At the same time, we expect Microsoft's Windows NT
operating system to continue its explosive growth through the year 2000 and
beyond, which should intensify demand for the high-end consulting services that
Microsoft Solution Provider Partners can provide. A major component of our
growth strategy is to acquire well run organizations who will benefit from our
experience in the market and our access to capital."
Jim Kelly explained, "My decision to consummate the sale with Allin was
driven by the desire that Rich, Les and I share, to create a national
information technology firm comprised of Microsoft Solution Provider Partners.
I am looking forward to participating in this acquisition strategy from the
board level and as an investor in the Company."
The company will hold a conference call for securities analysts and
investors to discuss the acquisition on Friday, August 14, 1998 at 8:30 am EDT.
To join the call, dial 800/611-1148 and inform the operator that you are calling
regarding the Allin Communications overview.
For additional information about Allin Communications and its subsidiary
companies, visit the Company's Internet site on the World Wide Web at
[http://www.allin.com].
Allin Communications Corporation is a technology development and services
company that specializes in Windows NT-based software development, engineering
and network integration services, operation and integration services focused on
interactive television and digital photography applications. The Allin
Consulting business unit provides Windows NT-based software design, engineering
and network solutions for corporate clients worldwide. The Allin Interactive
business unit is the leading supplier of interactive television systems to the
cruise-line industry and offers fully integrated interactive television
solutions for cruise lines, hospitals, hotels, and other markets.
Statements contained in this press release that utilize terms such as "first
step", "believe", "will", "should", "is to acquire" and "expect" are "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933, and are subject to the safe harbors created thereby. These statements are
based on a number of assumptions that could ultimately prove inaccurate and,
therefore, there can be no assurance that they will prove to be accurate.
Factors which could cause actual results to differ include the Company's limited
operating history, the effect of recent losses and accumulated deficit,
limitations on the Company's ability to implement its acquisition strategy,
dependence on key personnel, the need for management of growth and competitive
market conditions. These are representative of factors which could affect the
outcome of the forward looking statements. In addition, such statements could be
affected by general industry and market conditions and growth rates and general
domestic and international economic conditions. Allin undertakes no obligation
to update publicly any forward looking statements, whether as a result of new
information, future events or otherwise.
<PAGE>
CONTACT: Dean C. Praskach Phone: (412) 928-2022
Vice President - Finance Telefax: (412) 928-0225
Allin Communications Corporation E-mail: [email protected]
