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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: February 18, 2000
DESIGN AUTOMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Texas 09129 75-1657943
(State of Incorporation) (Commission File Number) (I.R.S. Employer Identification No.)
</TABLE>
3200 Wilcrest, Suite 370
Houston, TX 77042
(Address of Principal Executive Offices)
(713) 784-2374
(Registrant's telephone number, including area code)
Item 5. Other Events.
On February 18, 2000, the Company entered into a Stock Purchase Agreement
with Edgewater Private Equity Fund III, L.P. ("Edgewater"), Aspen Finance
Investors I, LLC, a Colorado limited liability company ("Aspen"), Fleck T.I.M.E.
Fund, L.P., a Connecticut limited partnership ("T.I.M.E."), Fleck Family
Partnership II, L.P., a Florida limited partnership ("Fleck Family"), LJH
Partners, LP, a Delaware limited partnership ("LJH"), Wain Investment, LLC, an
Ohio limited liability company ("Wain"), Gerald C. Allen ("Allen") and John Paul
DiJoria ("DiJoria," and together with Edgewater, Aspen, T.I.M.E., Fleck Family,
LJH, Wain, and Allen, the "Investors") (the "Stock Purchase Agreement").
Pursuant to the Stock Purchase Agreement, the Investors purchased from the
Company 2,260,000 shares of common stock of the Company, $.01 par value per
share ("Common Stock") at a price of $5.00 per share, for an aggregate purchase
price of $11,300,000, payable in cash at the closing.
In connection with the Stock Purchase Agreement, the Company executed a
Registration Agreement with the Investors, dated February 18, 2000, pursuant to
which the Company has agreed to register the Common Stock owned by the Investors
on or before August 18, 2000.
Item 7. (c) Exhibits. The following exhibits are filed herewith:
Exhibit No. Description
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4.1 Stock Purchase Agreement by, between and among the
Company, Edgewater Private Equity Fund, III, L.P., a
Delaware limited partnership ("Edgewater"), Aspen Finance
Investors I, LLC, a Colorado limited liability company
("Aspen"), Fleck T.I.M.E. Fund, L.P., a Connecticut
limited partnership ("T.I.M.E."), Fleck Family Partnership
II, L.P., a Florida limited partnership ("Fleck Family"),
LJH Partners, L.P., a Delaware limited partnership
("LJH"), Wain Investment, LLC, an Ohio limited liability
company ("Wain"), Gerald C. Allen ("Allen") and John Paul
DiJoria ("DiJoria," and together with Edgewater, Aspen,
T.I.M.E., Fleck Family, LJH, Wain, and Allen, the
"Investors").
4.2 Registration Agreement dated February 18, 2000, by and
among the Company and the Investors.
4.3 Shareholders' Agreement dated February 18, 2000 by and
among the Company, Carl Rose, Charles Leaver, Jeffrey
Sexton, Kelly Knake, and the Investors.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DESIGN AUTOMATION SYSTEMS, INC.
By: /s/ Charles H. Leaver, Jr.
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Charles H. Leaver, Jr., President
Date: February 28, 2000
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Exhibit 4.1
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DESIGN AUTOMATION SYSTEMS, INC. (d/b/a EpicEdge)
STOCK PURCHASE AGREEMENT
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THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of February 18,
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2000, among Design Automation Systems, Inc., a Texas corporation d/b/a EpicEdge
("Com"), Edgewater Private Equity Fund III, L.P., a Delaware limited partnership
---
("Edgewater"), Aspen Finance Investors I, LLC a Colorado limited liability
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company ("Aspen"), Fleck T.I.M.E. Fund, LP, a Connecticut limited partnership
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("TIME"), Fleck Family Partnership II, LP, a Florida limited partnership
----
("Fleck Family"), LJH Partners LP, a Delaware limited partnership ("LJH"), Wain
------------ ----
Investment, LLC, an Ohio limited liability company ("Wain"), Gerald C. Allen, an
individual ("Allen"), and John Paul DiJoria, an individual ("DiJori") together
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with Edgewater, Aspen, TIME, Fleck Family, LJH, Wain and Allen are sometimes
collectively referred to herein as the "Investors" and individually as an
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"Investor").
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The parties hereto agree as follows:
Section 1. Definitions.
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1.1 Certain Definitions. In addition to other terms defined
-------------------
elsewhere in this Agreement, the following terms shall have the meanings set
forth below:
"Affiliate" means as to any Person (a) any Person which
---------
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with such Person; (b) any Person who
is a director or officer (i) of such Person, or (ii) of any Person described in
clause (a) above; or (c) any Person who is related to a Person described in
clauses (a) or (b) above by blood or marriage. For purposes of this definition,
"control" shall include the ownership of 20% or more of the voting securities of
such Person.
"AMEX" means the American Stock Exchange.
----
"Articles" means the Articles of Incorporation of the
--------
Company, as may be amended or restated from time to time.
"Capitalized Lease" means a lease under which the
-----------------
obligations of the lessee would, in accordance with GAAP consistently applied,
be included in determining total liabilities as shown on the liability side of a
balance sheet of the lessee.
"Code" shall mean the Internal Revenue Code of 1986, as
----
amended, and the rules and regulations of any governmental agency or authority,
as from time to time in effect, promulgated thereunder.
"Common Stock" means the Company's common stock, $.01 par
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value per share, which is the publicly-traded class of capital stock on AMEX.
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"Contingent Obligations," as applied to any Person, shall
----------------------
mean, without duplication, any direct or indirect liability, contingent or
otherwise, of that Person (a) with respect to any Indebtedness, lease, dividend
or other obligation of another if the primary purpose or intent thereof by the
Person incurring the Contingent Obligation is to provide assurance to the
obligee of such obligation of another that such obligation of another will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such obligation will be protected (in whole or in
part) against loss in respect thereof, (b) with respect to the Indebtedness of
any partnership or joint venture of which such Person is a partner or joint
venturer or (c) with respect to any letter of credit issued for the account of
that Person or as to which that Person is otherwise liable for reimbursement of
drawings. Contingent Obligations shall include (i) the direct or indirect
guaranty, endorsement (other than for collection or deposit in the ordinary
course of business), co-making, discounting with recourse, or sale with recourse
by such Person of the obligation of another and (ii) any liability of such
Person for the obligations of another through any agreement (contingent or
otherwise) (x) to purchase, repurchase or otherwise acquire such obligation or
any security therefor, or to provide funds for the payment or discharge of such
obligation (whether in the form of loans, advances, stock purchases, capital
contributions or otherwise), (y) to maintain the solvency or any balance sheet
item, level of income or financial condition of another or (z) to make take-or-
pay or similar payments if required regardless of non-performance by any other
party or parties to an agreement. The amount of any Contingent Obligation shall
be equal to the amount of the obligation to the extent so guaranteed or
otherwise supported.
"Disclosure Schedule" shall mean the Disclosure Schedule
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attached as Exhibit A hereto and made a part hereof
"Employee Benefit Plan" shall mean any employee benefit plan
---------------------
as defined in Section 3(3) of ERISA, whether or not terminated, to which the
------------
Company or any of its Affiliates (other than individual Affiliates) contributes,
has an obligation to contribute or with respect to which any such Person has any
actual or potential liability.
"ERISA" shall mean the Employee Retirement Income Security
-----
Act of 1974, as the same may be amended from time to time, and the rules and
regulations of any governmental agency or authority, as from time to time in
effect, promulgated thereunder.
"ERISA Affiliate" as applied to any Person, shall mean any
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trade or business (whether or not incorporated) which is a member of a group of
which that Person is a member and which is under common control within the
meaning of Section 414 of the Code and the regulations promulgated and rulings
issued thereunder.
"Events of Default" shall have the meaning specified in
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Section 6.1 of this Agreement.
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"Financial Statements" shall have the meaning specified in
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Section 3.15 of this Agreement.
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"Fiscal Year" shall mean the twelve (12) month period ending
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on
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December 31 of each calendar year.
"GAAP" shall mean generally accepted accounting principles,
----
consistently applied.
"Including (or includes)" and words to the same or similar
-----------------------
effect shall be and construed to mean including without limitation (or includes
without limitation).
"Indebtedness" means at a particular time, without
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duplication, (i) any indebtedness for borrowed money or issued in substitution
for or exchange of indebtedness for borrowed money, (ii) any indebtedness
evidenced by any note, bond, debenture or other debt security, (iii) any
indebtedness for the deferred purchase price of property or services with
respect to which a Person is liable, contingently or otherwise, as obligor or
otherwise (other than trade payables and other current liabilities incurred in
the ordinary course of business that are not more than one hundred twenty (120)
days past due), (iv) any Contingent Obligations, (v) any obligations under
Capitalized Leases with respect to which a Person is liable, contingently or
otherwise, as obligor, guarantor or otherwise, or with respect to which
obligations a Person assures a creditor against loss, (vi) any indebtedness
secured by a Lien on a Person's assets and (vii) any unsatisfied obligation for
withdrawal liability" to a Multiemployer Plan as such terms are defined under
ERISA.
"IRS" means the United States Internal Revenue Service.
---
"Investor Common Stock" shall have the meaning as set forth
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in Section 2.1 of this Agreement.
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"Investor Representative" means (a) an individual designated
-----------------------
by the Majority Holders as the Investor Representative prior to the election of
a representative designated by the Majority Holders to the Board of Directors of
the Company pursuant to clause (b) below or at any time no such representative
is a member of the Board of Directors of the Company, or (b) the Board Member of
the Company designated by the Majority Holders as the Investor Representative
and elected to the Board of Directors of the Company pursuant to Section 1.2(a)
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of the Shareholders Agreement.
"Latest Balance Sheet" shall have the meaning specified in
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Section 3.15 of this Agreement.
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"Lien" shall mean any security interest, pledge, bailment
----
(in the nature of a pledge or for purposes of security), mortgage, deed of
trust, the grant of a power to confess judgment, conditional sales and title
retention agreement (including any lease in the nature thereof), charge,
encumbrance or other similar arrangement or interest in real or personal
property, other than licenses of Proprietary Rights.
"Majority Holders" shall mean the holders of a majority of
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the shares of Investor Common Stock.
"Material Adverse Effect" shall mean a material adverse
-----------------------
effect on the
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financial condition, business, operating results, operations, business prospects
or property of the Company.
"Multiemployer Plan" has the meaning set forth in Section
------------------
3(37) of ERISA.
"Person" shall mean any individual, corporation,
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partnership, company, limited liability company, joint venture, association,
bank, business trust or other entity, whether or not legal entities, or any
governmental entity or agency or political subdivision thereof.
"Principal Shareholders" means Carl Rose, Charles Leaver,
----------------------
Jeffrey Sexton and Kelly Knake.
"Proprietary Rights" shall mean all patents, patent
------------------
applications, patent disclosures, inventions (whether or not patentable and
whether or not reduced to practice), and any reissues, continuations,
continuations-in-part, divisions, extensions or reexaminations thereof,
trademarks, service marks, trade dress, logos, trade names, corporate names
(including the use of the current corporate name and trade names and all
translations, adaptations, derivations and combinations of the foregoing) and
the goodwill associated therewith; copyrights and copyright works; mask works;
all registrations, applications and renewals for any of the foregoing; all trade
secrets, confidential information, ideas, formulae, compositions, know-how,
manufacturing and production processes and techniques, research and development
information (including drawings, specifications, designs, plans, proposals,
technical data, financial, business and marketing plans, and customer and
supplier lists and related information); Software (including data, data bases
and documentation); all other proprietary rights; all copies and tangible
embodiments of the foregoing (in whatever form or medium); and all income,
royalties, damages and payments due or payable (including damages and payments
for past or future infringements or misappropriation thereof), the right to sue
and recover for past or future infringements or misappropriation thereof and any
and all corresponding rights that, now or hereafter, may be secured throughout
the world.
"Registration Agreement" shall mean the Registration
----------------------
Agreement of even date herewith among the Company and the Investors.
"Securities" shall mean any debt or equity securities of the
----------
Company or Subsidiary, whether now or hereafter authorized, and any instrument
convertible into or exchangeable for Securities or a Security. The term
"Security" shall mean any one of the Securities.
"Securities Act" shall mean the Securities Act of 1933, as
--------------
amended from time to time, and any rules or regulations promulgated thereunder.
"Shareholders' Agreement" shall mean the Shareholders'
-----------------------
Agreement of even date herewith among the Company, the Investors and the
Principal Shareholders.
"Software" shall mean all software products developed or
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owned by the Company as of the date of Closing as described in Schedule 3.22 of
the Disclosure Schedule,
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including all enhancements, versions, releases and updates of such products as
of Closing, and any other software products of the Company in development or in
which the Company has any interest as of the Closing, regardless of the
product's stage of development.
"Stock Purchase" shall mean any redemption, acquisition or
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other retirement of capital stock of the Company (including preferred stock, if
any) or of warrants, rights or other options to purchase such stock, other than
upon conversion thereof into or exchange thereof for other shares of the
Company's capital stock which is not preferred stock that is or will be
redeemable at the option of the holder thereof
"Subsidiary" of any Person shall mean any other Person of
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which the outstanding capital stock, membership interest or other equity
interest possessing a majority of the voting power in the election of directors
(otherwise than as the result of a default) is owned or controlled by such
corporation directly or indirectly through one or more Subsidiaries.
"Tax" or "Taxes" shall mean all federal, foreign, state,
--- -----
county, local or other taxes, charges, fees, levies or other assessments of any
nature whatsoever, including, without limitation, any federal income,
alternative minimum tax, gross receipts, excise, real or personal property,
sales, value-added, withholding, social security, payroll, employment,
severance, stamp, documentary, gains, environmental, retirement, unemployment,
occupation, use, ad valorem, service, net worth, franchise, transfer and
recording taxes, imposed by any federal, state, local or foreign taxing
authority, and shall include all interest, penalties and additions imposed with
respect to such amounts.
"Tax Returns" shall mean all returns, reports, information
-----------
statements or other documents (including, without limitation, elections,
declarations, disclosures, schedules, estimates, information, and amended
returns) provided to or filed or required to be provided to or filed with any
taxing authority relating to Taxes.
"Trade Secrets" shall mean all licenses, processes,
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algorithms, formulae, designs, methods, trade secrets, inventories, proprietary
or technical information, and data covering or embodied in any Software or other
assets owned by the Company or used in the conduct of its business.
"Transaction Documents" shall mean this Agreement, the
---------------------
Shareholders' Agreement, and the Registration Agreement.
Section 2. Purchase of Investor Common Stock, Closing.
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2.1 Purchase and Sale of the Investor Common Stock at the
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Closing. At the Closing (as defined below), the Company shall sell to Investors
- -------
and, subject to the terms and conditions set forth herein, and relying upon the
representations, warranties and covenants of the Company set forth herein,
Investors shall purchase from the Company Two Million Two Hundred Sixty Thousand
(2,260,000) shares (as adjusted for stock splits, recapitalizations and the
like) of Common Stock at $5.00 per share (the "Investor Common Stock"), for an
aggregate purchase price of Eleven Million Three Hundred Thousand Dollars
($11,300,000) (the "Purchase Price").
2.2 Use of Purchase Price. The Purchase Price shall be used by
---------------------
the Company solely for working capital requirements and acquisitions, and not to
reduce the principal portion of any Indebtedness or to make any payments to any
shareholders or Affiliates of the Company.
2.3 The Closing. The closing of the purchase and sale of the
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Investor Common Stock shall take place on the date of execution of this
Agreement (the "Closing"). At the Closing, the Company shall deliver to each
Investor stock certificate(s) and other applicable instruments evidencing the
Investor Common Stock to be purchased by each Investor, issued in the name of
each applicable Investor, upon payment of the Purchase Price therefor by a
cashier's or certified check, or by wire transfer of immediately available funds
to the Company's account in the aggregate amount of Eleven Million Three Hundred
Thousand Dollars ($11,300,000). The stock certificates shall bear a legend as
provided in the Shareholders' Agreement. The Investor Common Stock to be
purchased hereunder shall be allocated among the Investors as follows: (a) One
Million Two Hundred Thousand (1,200,000) shares to Edgewater for Six Million
Dollars ($6,000,000); (b) One Hundred Forty Thousand (140,000) shares to Aspen
for Seven Hundred Thousand Dollars ($700,000); (c) Four Hundred Thousand
(400,000) shares to TIME for Two Million Dollars ($2,000,000); (d) One Hundred
Thousand (100,000) shares to Fleck Family for Five Hundred Thousand Dollars
($500,000); (e) One Hundred Thousand (100,000) shares to Allen for Five Hundred
Thousand Dollars ($500,000); (f) One Hundred Thousand (100,000) shares to
DiJoria for Five Hundred Thousand Dollars ($500,000); (g) Two Hundred Thousand
(200,000) shares to LJH for One Millions Dollars ($1,000,000); and (h) Twenty
Thousand (20,000) shares to Wain for One Hundred Thousand Dollars ($100,000).
Section 3. Representations and Warranties.
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The Company hereby makes the following representations and warranties which
shall survive the execution and delivery of this Agreement and the issuance of
the Investor Common Stock hereunder and shall expire as provided in Section 7.9
-----------
hereof.
3.1 Organization and Qualification. The Company is a corporation
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Texas. The Company has all licenses, pen-nits and authorizations
necessary to own its properties and to carry on its businesses as now being
conducted and as presently proposed to be conducted and is duly qualified to do
business as a foreign corporation in each state or country, if any, in which
failure to qualify would have a material adverse effect on the business,
operations, properties, financial condition, operating results or business
prospects of the Company. The Company has provided the Investors with true and
correct copies of the Articles and Bylaws. The Company
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does business as "EpicEdge," and such fictitious name is registered in the State
of Texas and all other states where the Company transacts business.
3.2 Corporate Power. The Company has the requisite corporate
---------------
power and authority to execute, deliver and carry out the Transaction Documents
and all other instruments, documents and agreements contemplated or required by
the provisions of any of the Transaction Documents to be executed, delivered or
carried out by the Company hereunder. The Company has all requisite corporate
power and authority under the laws of its Jurisdiction of incorporation to own
and operate its properties and to carry on its businesses as now conducted and
as presently proposed to be conducted.
3.3 Subsidiaries and Investments. Except as set forth on
----------------------------
Schedule 3.3 of the Disclosure Schedule, the Company does not own or hold any
rights to acquire any shares of stock, membership interest or any security or
interest in any other Person, and the Company has never had a Subsidiary.
3.4 Authorization, Governmental Approvals. The execution and
-------------------------------------
delivery of this Agreement, the issuance of the Investor Common Stock, the
execution and delivery of the other Transaction Documents and all other
instruments, documents and agreements contemplated or required by the provisions
hereof or thereof to be executed and delivered by the Company and the
consummation by the Company of the transactions herein and therein contemplated
to be consummated by the Company have each been duly authorized by all necessary
corporate action on the part of the Company. Except for filings necessary for
the sale of the Investor Common Stock to qualify for certain exemptions from the
registration requirements under state blue sky laws and federal securities laws,
no authorization, consent, approval, license or exemption of, and no
registration, qualification, designation, declaration or filing with, any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, and no vote, authorization, consent or
approval of shareholders of the Company, is or was necessary for (a) the valid
execution and delivery of this Agreement by the Company, (b) the execution,
issuance and delivery of the Investor Common Stock, (c) the execution and
delivery by the Company of the other Transaction Documents and all other
instruments, documents and agreements contemplated or required by the provisions
hereof or thereof and to be executed and delivered by the Company, or (d) the
consummation by the Company of the transactions herein and therein contemplated
to be consummated by the Company.
3.5 Capital Stock. The Investor Common Stock that is being
-------------
purchased by Investors hereunder, when issued, sold, and delivered in accordance
with the terms of this Agreement for the consideration expressed herein, will be
duly and validly issued, fully paid, and nonassessable, and will be free of
restrictions on transfer other than restrictions on transfer under the
applicable state and federal securities laws and pursuant to the Shareholders'
Agreement.
3.6 Conflict with Other Instruments. Except as set forth on
-------------------------------
Schedule 3.6 of the Disclosure Schedule, neither the execution and delivery by
the Company of the Transaction Documents or the other instruments, documents and
agreements contemplated or required hereby or thereby, nor the consummation of
the transactions herein or therein contemplated to be consummated by the
Company, nor compliance by the Company with the terms, conditions and provisions
hereof or thereof, shall conflict with or result in a breach of any of the
terms,
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<PAGE>
conditions or provisions of the Articles or the Bylaws of the Company, or any
law or any regulation, order, writ, injunction or decree of any court or
governmental instrumentality or any agreement or instrument to which the Company
is a party or by which it or any of its respective properties is bound or
constitute a default thereunder or result in the creation or imposition of any
Lien.
3.7 Validity and Binding Effect. The Transaction Documents which
---------------------------
the Company is required to execute and all other instruments and agreements
contemplated hereby or thereby to which the Company is a party have been duly
and validly executed and delivered by the Company and constitute legal, valid
and binding obligations of the Company, and all such obligations of the Company
are enforceable in accordance with their respective terms.
3.8 Capitalization.
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(a) The authorized capital stock of the Company consists of
50,000,000 shares of Common Stock, of which at Closing, 23,081,486 shares were
issued and outstanding. The issued and outstanding capital stock of the Company
at the Closing Date owned by the Principal Shareholders is set forth on Schedule
3.8 of the Disclosure Schedule. All of the outstanding shares of capital stock
of the Company are validly issued, fully paid and nonassessable and are owned of
record or beneficially by the Company's shareholders. Except as set forth on
Schedule 3.8, there are not outstanding any shares of stock, securities, rights
or options convertible or exchangeable into or exercisable for any shares of the
Company's capital stock, stock appreciation rights or phantom stock, nor is the
Company under any obligation (contingent or otherwise) to redeem or otherwise
acquire any shares of its capital stock or any securities, rights or options to
acquire such capital stock, stock appreciation rights or phantom stock.
(b) There are no statutory or contractual shareholders
preemptive rights with respect to any shares of capital stock of the Company.
The Company has not violated and will not violate any applicable federal or
state securities laws in connection with the offer, sale or issuance of the
Investor Common Stock and such issuances, offers, or sales do not require
registration of the Investor Common Stock of the Company under the Securities
Act or any applicable state securities laws. Except for the Shareholders'
Agreement and the Registration Agreement, to the Company's knowledge, there are
no agreements between the Company's shareholders (or any one or more of them)
with respect to the voting or transfer of the Company's capital stock or with
respect to any other aspect of the Company's affairs.
3.9 Compliance with Instruments. The Company is not in violation
---------------------------
of any term of (a) the Articles or the Bylaws or (b) any agreement, instrument,
contract or commitment to which it is a party or by which it may be bound,
except for such violations of agreements, instruments, contracts or commitments
which individually and in the aggregate do not result in a Material Adverse
Effect.
3.10 Brokerage. There are no claims for brokerage commissions,
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finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement binding
upon the Company, except for a transaction fee in the amount of three and one-
half percent (3.5%) of the Purchase Price plus warrants to
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purchase twenty-two thousand (22,000) shares of Common Stock, at an exercise
price of fifteen dollars ($15.00) per share, due and payable by the Company to
Aspen Finance Group at the Closing, a portion of which may be paid by the
Company to one or more Persons. The Company shall pay, and hold Investors
harmless against, any liability, loss or expense (including reasonable
attorneys' fees and out-of-pocket expenses) arising in connection with any claim
by Aspen Finance Group or any other Person.
3.11 Litigation. Except as set forth on Schedule 3.11 of the
----------
Disclosure Schedules, there are no actions, suits or proceedings pending or, to
the Company's knowledge, threatened against or affecting the Company or its
business or assets, before any court or governmental department, agency or
instrumentality, domestic or foreign. The foregoing includes, without
limitation, any action, suit, proceeding, or investigation pending or currently
threatened involving the prior employment of any of the Company's employees,
their use in connection with the Company's business of any information or
techniques allegedly proprietary to any of their former employers, their
obligations under any agreements with prior employers, or negotiations by the
Company with potential backers of, or investors in, the Company or its proposed
business. The Company is not a party to or, to the best of its knowledge, named
in or subject to any order, writ, injunction, or decree of any court,
governmental agency, or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or that the Company currently
intends to initiate, except as set forth on Schedule 3.11 of the Disclosure
Schedules.
3.12 Employee Benefit Plans. Schedule 3.12 of the Disclosure
----------------------
Schedule contains a list of all Employee Benefit Plans maintained by Company
and/or any ERISA Affiliate or to which the Company or any ERISA Affiliate
contributes or is or was obligated to contribute. Each Employee Benefit Plan
that is intended to be a qualified plan under Section 401 (a) of the Code is a
standardized prototype plan that meets the requirements for qualification under
Section 401 (a) of the Code, except to the extent that such requirements may be
satisfied by adopting any necessary amendments issued by the prototype plan
sponsor prior to the current expiration of the remedial amendment period under
Section 401(b) of the Code.
(a) As applicable with respect to each Employee Benefit
Plan, the Company has delivered to the Investors or made available, true and
complete copies of (A) each Employee Benefit Plan, including all amendments
thereto, (B) all trust documents, investment management contracts, custodial
agreements and insurance contracts relating thereto, (C) the current summary
plan description and each summary of material modifications thereto, (D) the
most recent annual report (Form 5500 and all schedules thereto) filed with the
Internal Revenue Service ("IRS"), the most recent IRS determination letter and
each currently pending application to the IRS for a determination letter, and
(F) all records, notices and filings concerning IRS or Department of Labor
audits or investigations.
(b) Except as set forth in Schedule 3.12 the Disclosure
Schedule:
(1) all accrued contributions and other payments to be
made by the Company or any ERISA Affiliate to any Employee Benefit Plan through
the date of the latest balance sheet have been made or reserves adequate
therefor have been set aside and reflected on the latest balance sheet;
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(2) neither the Company nor any ERISA Affiliate has
any liability on account of any failure to make contributions to any Employee
Benefit Plan. The Employee Benefit Plans have in all material respects been
maintained and administered in accordance with the documents governing them and
the laws and regulations applicable to them (including, without limitation,
rules and regulations of the Department of Labor and the IRS under ERISA and the
Code);
(3) there are no outstanding liabilities of any
Employee Benefit Plan other than liabilities for benefits to be paid to
participants and beneficiaries in the ordinary course of business;
(4) there is no pending litigation or, to the best
knowledge of the Company, any overtly threatened litigation or pending claim,
that involves any of the Employee Benefit Plans. No prohibited transaction has
occurred with respect to any Employee Benefit Plan;
(5) none of the Employee Benefit Plans is or ever has
been subject to Title IV of ERISA or Section 412 of the Code. Neither the
Company nor any ERISA Affiliate is or ever has been required to contribute to an
Employee Benefit Plan that is a Multiemployer Plan;
(6) except to the extent required by ERISA, none of
the Employee Benefit Plans provides for (or has ever provided for) medical or
health care or other welfare benefits for any former employee, officer, member,
manager or director of the Company or any ERISA Affiliate (or any of their
beneficiaries); and
(7) the transactions contemplated by this Agreement
will not entitle any employee to any severance benefit under the terms of any
Employee Benefit Plan or any personnel or employment policy of the Company or
any ERISA Affiliate. None of the Employee Benefit Plans contains any change in
control or other provisions which would cause an increase or acceleration of
benefits or benefit entitlements to participants or their beneficiaries, or an
increase in liability of the Company as a result of the transactions
contemplated by this Agreement or any related action thereafter.
3.13 Reserved.
--------
3.14 Compliance with Laws, Certain Operations. The Company and
----------------------------------------
its officers, directors, agents and employees have substantially complied with
all applicable laws and regulations of foreign, federal, state and local
governments and all agencies thereof which affect the business, operations,
properties, financial condition, operating results or business prospects of the
Company in any material respect, and no claims have been filed against the
Company alleging a violation of, or liability or responsibility under, any such
law or regulation which have not been heretofore settled.
3.15 Financial Statements. The Company has delivered to Investors
--------------------
(a) the audited balance sheet and related statements of income and cash flows
for the year ended
-10-
<PAGE>
December 31, 1998, and (b) the unaudited balance sheet (the "Latest Balance
Sheet") and related statements of income and cash flow for the year ended
December 31, 1999, and a draft of all adjustments to such Latest Balance Sheet
proposed by the Company's auditors as of the date hereof. Each of the foregoing
Financial Statements (including in all cases the notes thereto, if any) is
accurate and complete in all material respects, is consistent with the books and
records of the Company (which, in turn, are accurate and complete in all
material respects), fairly presents the financial condition of the Company as at
their respective dates and the results of operations and cash flow for the
periods covered thereby, and has been prepared in accordance with GAAP, subject
to the lack of footnote disclosure and year end adjustments.
3.16 Absence of Undisclosed Liabilities. The Company does not
----------------------------------
have any liability (whether accrued, known to the Company, whether due or to
become due and regardless of when asserted) arising out of transactions entered
into on or prior to the date hereof, or any action or inaction on or prior to
the date hereof, or any state of facts existing on or prior to the date hereof
other than (a) liabilities set forth on the Latest Balance Sheet (including any
notes thereto) or (b) liabilities which have arisen after the date of the Latest
Balance Sheet in the ordinary course of business (none of which is a liability
resulting from breach of contract, breach of warranty, tort, infringement, claim
or lawsuit).
3.17 Assets. The Company has good and indefeasible title to, or
------
has a valid leasehold interest in, or has a valid license to use, the tangible
properties and assets used by it, located on its premises or shown on the Latest
Balance Sheet or acquired thereafter (except for properties and assets disposed
of in the ordinary course of business since the date of the Latest Balance
Sheet), free and clear of all Liens, except for Liens disclosed on the Latest
Balance Sheet (including any notes thereto) and Liens for current property Taxes
not yet due and payable. The Company's tangible assets are in good operating
condition, ordinary wear and tear excepted, and are fit for use in the ordinary
course of business. The Company owns, or has a valid leasehold interest in, or
has a valid license to use, all tangible assets necessary for the conduct of its
business as presently conducted and as presently proposed to be conducted.
3.18 Tax Matters. The Company has filed all Tax Returns required
-----------
to be filed by it and all such Tax Returns are true and accurate in all material
respects. The Company has paid all sales, use, income, payroll, excise and other
Taxes owed by it and withheld and paid over all Taxes which it is obligated to
withhold from amounts owing to any employee, creditor, customer or third party;
to the best knowledge of the Company, the Company has not waived any statute of
limitations with respect to Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency; and there are no pending federal or
state Tax audits being conducted with respect to the Company. To the best
knowledge of the Company, the Company has never had any Tax deficiency proposed
or assessed against it and has not executed any waiver of any statute of
limitations on the assessment or collection of any Tax or governmental charge.
Except as set forth on Schedule 3.18, to the best knowledge of the Company, none
of the Company's Tax Returns and none of its state income or franchise Tax
Returns or sales or use Tax Returns has ever been audited by governmental
authorities. Since the date of the Financial Statements, the Company has made
adequate provisions on its books of account for all Taxes, assessments, and
governmental charges with respect to its business, properties, and operations
for such period. The Company has withheld or collected from each payment to each
of its employees, the amount of all Taxes, including, but not limited to,
federal income Taxes, Federal
-11-
<PAGE>
Insurance Contribution Act Taxes and Federal Unemployment Tax Act Taxes required
to be withheld or collected therefrom, and has paid the same to the proper Tax
receiving officers or authorized depositaries.
3.19 Absence of Material Adverse Change. Since the date of the
----------------------------------
Latest Balance Sheet, there has been no material adverse change in the business,
operations, properties, financial condition, operating results or business
prospects of the Company.
3.20 Absence of Certain Developments. Except as set forth on
-------------------------------
Schedule 3.20 of the Disclosure Schedule, since the date of the Latest Balance
Sheet, the Company has not
(a) become subject to any Indebtedness, except current
liabilities incurred in the ordinary course of business and liabilities under
contracts entered into in the ordinary course of business;
(b) discharged or satisfied any Lien or paid any
Indebtedness, other than current liabilities paid in the ordinary course of
business;
(c) declared or made any payment or distribution of cash or
other property to its shareholders with respect to its capital stock, or
purchased or redeemed any shares of its capital stock;
(d) mortgaged, pledged or subjected to any Lien any of its
material assets, except Liens for current property Taxes not yet due and
payable;
(e) sold, assigned or transferred any of its assets, except
in the ordinary course of business, or canceled without fair consideration any
debts or claims owing to or held by it;
(f) sold, assigned, transferred, abandoned or permitted to
lapse any licenses or permits or any portion thereof, or any Proprietary Rights
or other intangible assets, or (except as necessary to conduct its ongoing
operations) disclosed any proprietary confidential information to any Person;
(g) made or granted any bonus or any wage or salary
increase to any employee (except in the ordinary course of business consistent
with past practice), former employee or retiree or group of employees, former
employees or retirees or made or granted any increase in any employee benefit
plan or arrangement, or amended or terminated any existing employee benefit plan
or arrangement or adopted any new employee benefit plan or arrangement;
(h) made any capital expenditures or commitments therefor
that aggregate in excess of $1,000,000;
(i) made any loans or advances to any Persons (other than
de minimis employee loans or advances not exceeding $5,000 in the aggregate to
any employee);
-12-
<PAGE>
(j) suffered any material extraordinary losses or waived
any rights of material value, whether or not in the ordinary course of business
or consistent with past practice;
(k) entered into any other material transaction including
any employment agreement;
(l) received notice that there has been a loss of, or
material order cancellation by, any customer of the Company;
(m) agreed to any change to a material contract arrangement
by which the Company or its assets is bound or subject;
(n) suffered any damage, destruction or loss, whether or
not covered by insurance materially affecting the business, properties,
prospects or financial condition of the Company;
(o) suffered any other event or condition of any character
that has materially and adversely affected or, to the best knowledge of the
Company, might materially and adversely affect the business, properties,
prospects or financial condition of the Company; or
(p) changed its accounting principles or practices or the
method of recording transactions involving accounts receivable and inventory.
3.21 Contracts. (a) The Company has in all material respects
---------
performed all the obligations required to be performed by it to the date of this
Agreement and is not in receipt of any written claim of default under any
material lease, contract, commitment or other agreement to which it is a party;
(b) no event has occurred which with the passage of time or the giving of notice
or both would result in a breach or default under any material lease, contract,
instrument or other agreement to which the Company is a party; (c) to the best
knowledge of the Company, no contract or commitment material to the Company has
been breached in any material respect or canceled by the other party since the
date of the Latest Balance Sheet; (d) the Company is not a party to any contract
which is materially adverse to the operations, financial condition, operating
results or business prospects of the Company; (e) to the best knowledge of the
Company, since the date of the Latest Balance Sheet, no material customer or
supplier has notified the Company that it will stop or decrease in any material
respect the rate of business done with the Company; and (f) all material
contracts of the Company have been provided to the Investors.
3.22 Proprietary Rights.
------------------
(a) Schedule 3.22 of the Disclosure Schedule hereto
contains a complete and accurate list as of the date hereof of all patented and
registered Proprietary Rights owned by the Company (including, but not limited
to, Software, and all pending patent applications and applications for the
registration of other Proprietary Rights owned or filed by the Company).
Schedule 3.22 of the Disclosure Schedule also contains a complete and accurate
list of all licenses and other rights granted by the Company to any third party
with respect to the Proprietary Rights and material licenses and other rights
granted by any third party to the
-13-
<PAGE>
Company. Except as set forth on Schedule 3.22 of the Disclosure Schedule, (i)
the Company owns and possesses all right, title and interest in and to, or has a
valid and enforceable license to use, all of the Proprietary Rights necessary
for the operation of the business of the Company as currently conducted or as
currently proposed to be conducted; (11) no claim by any third party contesting
the validity, enforceability, use or ownership of any Proprietary Rights has
been made, is currently outstanding or, to the best of the Company's knowledge,
is threatened, and to the best of the Company's knowledge, there are no grounds
for any such claim; (111) the loss or expiration of any Proprietary Right or
related group of Proprietary Rights is not threatened, pending or reasonably
foreseeable; (1v) the Company has not received any notices of, nor is it aware
of any facts which indicate a likelihood of, any infringement or
misappropriation by, or conflict with, any third party with respect to the
Proprietary Rights, nor has the Company received any claims of infringement or
misappropriation of or other conflict with any intellectual property rights of
any third party; (v) to its knowledge after diligent inquiry, the Company has
not infringed, misappropriated or otherwise conflicted with any intellectual
property rights of any third parties, nor is it aware of any infringement,
misappropriation or conflict which will occur as a result of the continued
operation of the business of the Company as currently conducted or as currently
proposed to be conducted; and (vi) the Company has made all necessary filings
and recordation's and has paid all required fees and Taxes to record and
maintain its ownership of the patented or registered Proprietary Rights in the
United States Patent and Trademark Office and the United States Copyright
Office.
(b) (i) The Company has good, sole and marketable title to
all copyrights in and to the Software free and clear of any Liens, and such
copyrights are not being challenged in any way; and (ii) no person or entity has
any right of renewal, reversion, or termination with respect to any copyrights
owned by the Company or any rights under any such copyrights.
(c) All of the Trade Secrets are embodied in the Software
or other assets owned by the Company (other than general business knowledge not
typically reduced to a written form), and there is no other tangible expression
of the Trade Secrets by the Company. The Company has taken all reasonable
security measures to protect the secrecy, confidentiality, and the value of the
Trade Secrets, and any other persons who have knowledge of or access to
information relating to the Trade Secrets have been put on notice and, if
appropriate, have entered into agreements that the Trade Secrets are proprietary
to the Company and are not to be divulged or misused. All of the Trade Secrets
are presently valid and protectable, are not part of the public domain, and, to
the knowledge of the Company, have not been used, divulged, or appropriated for
the benefit of any Persons other than the Company or to the detriment of the
Company.
(d) All authors of the Software or any other Person or
entity who participated in the development of the Software or any portion
thereof or performed any work related to the Software are collectively referred
to as the "Software Authors". Each Software Author (with the exception of
independent contractors) made his contribution to the Software within the scope
of employment with the Company, as a "work made for hire," and was directed or
engaged by the Company (as the case may be) to work on the Software. The
Software Authors who are independent contractors have assigned all of their
respective right, title and interest in and to the Software to the Company.
Except as set forth on Schedule 3.22 of the Disclosure
-14-
<PAGE>
Schedule, the Software and every portion thereof are an original creation of the
Software Authors and do not contain any source code or portions of source code
(including any "canned program") created by any parties other than the Software
Authors. To the knowledge of the Company, the Company has not, by any of its
acts or omissions, or by acts or omissions of its affiliates, directors,
officers, employees, agents, or representatives caused any of its Proprietary
Rights, including Software, copyrights, trademarks, and Trade Secrets to be
transferred, materially distributed, or adversely affected to any material
extent.
(e) The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants, or commitments of
any nature) or other agreement, or subject to any judgment, decree, or order of
any court or administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Company or that would
conflict with the Company's business as proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as proposed, will conflict with or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, any contract,
covenant, or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to use any inventions of any
of its employees (or persons it currently intends to hire) made prior to their
employment by the Company.
3.23 Insurance. The Company believes that the insurance coverage
---------
of the Company is customary for corporations of similar size engaged in similar
lines of business and is proper to cover the Company's properties, assets and
business. Each insurance policy maintained by the Company with respect to its
properties, assets and businesses is in full force and effect as of the date
hereof and shall remain in full force and effect following the date hereof The
Company is not in default with respect to its obligations under any insurance
policy maintained by it.
3.24 Year 2000 Compliance. To the best knowledge of the Company,
--------------------
the Software, computer firmware, computer hardware (whether general or specific
purpose), and other similar or related items of automated, computerized, and/or
software system(s) that are used or relied on by the Company in the conduct of
its business (collectively, "Information Technology") are designed to be used
prior to, during, and after the calendar year 2000 A.D., and the Information
Technology used during each such period will accurately receive, provide and
process time/date data (including, but not limited to, calculating, comparing
and sequencing) from, into and between the twentieth and twenty-first centuries,
including the years 1999 and 2000, and leap year calculations and will not
malfunction, cease to function, or provide invalid or incorrect results as a
result of date/time data, to the extent that other Information Technology, used
in combination with the Information Technology of the Company, properly
exchanges date/time data with it.
-15-
<PAGE>
3.25 Disclosure Schedule. Any references to "Schedule" herein or
-------------------
a Disclosure Schedule shall be deemed to refer to a part of the Disclosure
Schedule which (a) has been certified as true and correct by the Company, (b)
has been delivered to Investors in connection with the execution of this
Agreement and (c) describes in reasonable detail all exceptions to the
representations and warranties of the Company.
3.26 Extent of Offering. Neither the Company nor any agent acting
------------------
on its behalf has sold or offered to sell any or all of the Investor Common
Stock or any similar securities so as to bring the issuance or sale of the
Investor Common Stock pursuant to this Agreement and the Transaction Documents
within the provisions of Section 5 of the Securities Act, and neither the
Company nor any agent acting on its behalf will offer or sell the Investor
Common Stock or any similar securities so as to bring the issuance or sale of
the Investor Common Stock pursuant to this Agreement and the Transaction
Documents within such provisions.
3.27 Reserved.
--------
3.28 Registration Rights. Except for rights existing pursuant to
-------------------
the Registration Agreement contemplated hereby and except as set forth on
Schedule 3.28 of the Disclosure Schedule, as of the Closing, no holder of any
Security will have any right to require the registration thereof (or of
Securities receivable upon the exercise or conversion thereof) under the
Securities Act or the right to include such Security (or any Security receivable
upon the exercise or conversion thereof) in a registration statement filed by
the Company under the Securities Act.
3.29 Illegal Payments. The Company has never made any illegal
----------------
payment of any kind, directly or indirectly, *including, without limitation,
payments, gifts or gratuities, to the United States or any foreign national,
state or local government officials, employees or agents.
3.30 Related Party Transactions. Except as set for on Schedule
--------------------------
3.30 of the Disclosure Schedule,
(a) No employee, officer or director of the Company, no
Affiliate of any employee, officer or director of the Company, and no member of
the immediate family of any employee, officer or director of the Company is
indebted to the Company.
(b) The Company is not indebted, and is not committed to
make loans or extend or guarantee credit, to any employee, officer or director
of the Company, or any Affiliate of any employee, officer or director of the
Company, or, any member of the immediate family of any employee, officer or
director of the Company.
(c) No Affiliate of the Company, officer or director and no
member of the immediate family of any Affiliate of the Company, officer or
director is interested, directly or indirectly, in any agreement, contract,
commitment or transaction with the Company, except for any employment agreement
entered into in the ordinary course of business. To the best of the Company's
knowledge, no employee and no member of the immediate family of any employee
-16-
<PAGE>
is interested, directly or indirectly, in any material contract with the
Company, except for any employment agreement entered into in the ordinary course
of business.
3.31 Disclosure. Neither this Agreement, nor the Disclosure
----------
Schedule, nor any of the other Transaction Documents furnished to the Investors
by the Company at the time of the execution and delivery of this Agreement and
the Closing contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein not misleading. There is no fact known to the Company (other than
general conditions which are a matter of public knowledge) which materially
adversely affects the business, operations, properties, financial condition,
operating results or business prospects of the Company which has not been set
forth in this Agreement or in the other agreements, documents, certificates and
statements furnished in writing to the Investor prior to or on the date hereof
in connection with the transactions contemplated hereby.
Section 4. Conditions Precedent.
--------------------
4.1 Conditions Precedent. The obligation of the Investors to
--------------------
purchase the Investor Common Stock is subject to the conditions set forth below:
(a) The representations and warranties contained in this
Agreement shall be true and correct as of the Closing, and the Company shall
have performed all obligations to be performed hereunder and under the
Transaction Documents on or before the Closing.
(b) The Company shall have reserved no more than fifteen
percent (15%) of the issued and outstanding Common Stock on a fully diluted
basis for issuances of Common Stock pursuant to the Stock Option Plan referred
to in Section 1.3 of the Shareholders' Agreement.
-----------
(c) There shall be no breaches of or defaults under the
Shareholders' Agreement or the Registration Agreement.
(d) The shares of Investor Common Stock issuable to the
Investors pursuant to this Agreement shall be approved for listing on the AMEX.
(e) There shall be delivered to Investors at the Closing:
(i) A legal opinion of Fox, Rothschild, O'Brien &
Frankel, L.L.P., counsel to the Company, in form and substance satisfactory to
the Investors and their counsel;
(ii) Duly completed copies of the Transaction
Documents executed by the Company and the Principal Shareholders.
(iii) Certified copies of all documents and resolutions
evidencing corporate action taken by the Company with respect to the Transaction
Documents and the issuance of Investor Common Stock, in form and substance
satisfactory to the Investors and their counsel;
-17-
<PAGE>
(iv) Certified correct and complete copies of (A) the
Articles from the Secretary of State of Texas and (B) Bylaws, from the Secretary
of the Company in each case and to the extent applicable, as validly amended to
reflect the adoption of any amendments required to effectuate the terms of this
Agreement or the Shareholder's Agreement;
(v) Good standing certificates for the Jurisdiction
of incorporation of the Company and for each Jurisdiction in which the Company
is qualified to do business;
(vi) Stock certificates in the name of each Investor
evidencing the shares of Investor Common Stock purchased hereunder (it being
understood that to the extent such stock certificates are not delivered at the
Closing, such stock certificates shall be delivered by the Company to each
Investor within three (3) business days of the Closing); and
(vii) Such other instruments, documents and
certificates as the Investors may reasonably require.
Section 5. Covenants.
---------
5.1 Affirmative Covenants. The Company covenants that as long as
---------------------
the Investors or their Affiliates own of record or beneficially at least 500,000
shares of Investor Common Stock in the aggregate, the Company shall:
(a) Preservation of Corporate Existence, etc. Preserve and
----------------------------------------
maintain its corporate existence, rights, franchises and privileges in the
jurisdiction of its incorporation, and qualify and remain qualified as a foreign
corporation in each Jurisdiction in which failure to qualify would have a
material adverse effect on the business, operations, properties, financial
condition, operating results and business prospects of the Company.
(b) Payment of Taxes. Pay and discharge all Taxes,
----------------
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and all lawful claims which, if unpaid, would
become a Lien upon any properties of the Company; provided that the Company
shall not be required to pay any such Tax, assessment, charge, levy or claim
which it is contesting in good faith and by proper proceedings and for which
such reserves or other provisions as may be required by GAAP shall have been
made and recorded.
(c) Maintenance of Insurance. Maintain insurance on its
------------------------
properties and businesses with reputable insurance companies in such amounts, of
such types and covering such casualties, risks and contingencies as is
ordinarily carried by companies engaged in similar businesses and owning similar
properties in the same general areas in which the Company operates.
(d) Maintenance of Properties and Assets. Maintain and
------------------------------------
preserve all of its properties which are necessary for the proper conduct of its
business in good working order
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<PAGE>
and condition, ordinary wear and tear excepted, and all of its other assets
(including Proprietary Rights) in accordance with past custom and practice.
(e) Keeping of Records and Books of Account. Keep adequate
---------------------------------------
records and books of account, in which complete entries shall be made in
accordance with GAAP, reflecting all financial transactions of the Company.
(f) Visitation Rights. At any time and from time to time
-----------------
during normal business hours (but so long as no Event of Default occurs, not
more frequently than quarterly) and with prior notice (except as set forth
below), permit one or more representatives designated by the Majority Holders to
examine and make copies of and abstracts from the records and books of account
of, and to visit the properties of the Company and to discuss the affairs,
finances and accounts of the Company with any of the Company's officers or
directors and the Company's independent accountants (and the delivery of an
executed copy of this Agreement to such accountants shall constitute the
Company's consent to such discussions); provided, however, that if an Event of
Default occurs, no designated representative is required to give notice and the
Investors may exercise their rights under this Section 5.1(f) at any time.
--------------
(g) Compliance with Laws. Substantially comply with the
--------------------
applicable requirements of all laws, rules, regulations and orders of any
governmental authority (including, without limitation, ERISA and the Code and
the rules, regulations and orders promulgated thereunder), the violation of
which would have a Material Adverse Effect.
(h) Related Documents. Keep, observe and comply with all of
-----------------
its covenants and obligations which are set forth in the Transaction Documents
or other agreement or instrument delivered in connection therewith so long as
such covenants and obligations are in force and effect.
(i) Board of Directors. Take all necessary and desirable
------------------
actions within its control in order to cause and to continue to cause compliance
with the provisions of Section 1.2(a) of the Shareholders' Agreement with
--------------
respect to the Board of Directors of the Company.
(j) Payment of Indebtedness, Etc. The Company shall and
----------------------------
shall cause each Subsidiary to faithfully observe, perform and discharge in all
material respects all the material covenants, conditions and obligations
including, without limitation, payment obligations which are imposed on it by
any and all material indentures, agreements, or other instruments securing or
evidencing Indebtedness or pursuant to which Indebtedness is issued or shall
cure any non-performance or default prior to the date the creditor accelerates
the payment of the Indebtedness or commences proceedings to collect the
Indebtedness, and not permit the occurrence or continuance of any act or
omission which is or under the provisions thereof may be declared to be a
material default thereunder (after the expiration of all applicable cure
periods), unless such default (other than a default in payment of principal or
interest) or the right to declare a default on account of such act or omission
is waived pursuant to the provisions thereof, provided, however, that neither
-------- -------
the Company nor any Subsidiary shall be required to make any payment or to take
any other action by reason of this Section 5.1(j) at any time while it shall be
--------------
currently contesting in good faith by appropriate proceedings its obligations to
make such payment or to take such action, if the Company shall have set aside on
its books reserves
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<PAGE>
(segregated or classified to the extent required by GAAP) deemed by it adequate
with respect thereto.
(k) Blue Sky. The Company shall make any and all filings
--------
necessary (whether before or after the Closing) in connection with the offer,
issuance and sale and/or transfer of the Investor Common Stock to be purchased
pursuant to this Agreement under the securities or blue sky laws of any
jurisdiction in which such filing is required by law.
5.2 Reporting Requirements. The Company covenants that so long
----------------------
as the Investors or their Affiliates own of record or beneficially 500,000
shares of Investor Common Stock in the aggregate, and if the Company is no
longer subject to the reporting requirements of the Federal securities laws, or
if the applicable report is not publicly disclosed, it shall furnish to
Investors:
(a) Annual Budget. Prior to the end of each Fiscal Year, an
-------------
annual budget, prepared on a quarterly and annual basis for the Company for each
succeeding Fiscal Year (displaying anticipated statements of income and cash
flows and balance sheets); and within thirty (30) days after any quarterly
period in which there is a material adverse deviation from the annual budget, a
certificate from the Company's President explaining the deviation and what
actions the Company has taken and proposes to take with respect thereto.
(b) Financial Statements. Financial statements and
--------------------
information to Investors on behalf of itself and any Subsidiaries as follows:
(i) Monthly Statements. Within thirty (30) days after
------------------
the end of each month during each fiscal year of the Company, a copy of the
unaudited financial statements of the Company, consisting of a balance sheet as
of the close of such month and related statements of income and cash flows for
such month and from the beginning of such fiscal year to the end of such month,
prepared in accordance with GAAP on a consistent basis, subject to the lack of
footnote disclosure and year end adjustments.
(ii) Quarterly Statements. Within forty-five (45) days
--------------------
after the end of each quarter during each fiscal year of the Company, a copy of
the unaudited financial statements of the Company, consisting of a balance sheet
as of the close of such quarter and related statements of income and cash flows
for such quarter and from the beginning of such fiscal year to the end of such
quarter, prepared in accordance with GAAP on a consistent basis, subject to the
lack of footnote disclosure and year end adjustments.
(iii) Annual Statement. As soon as available and in any
----------------
event within one hundred twenty (120) days after the end of each fiscal year of
the Company, a copy of its annual report, audited by nationally recognized
independent certified public accountants and acceptable to the Investors,
including balance sheet and related statements of income, cash flows and
shareholders equity of the Company for such fiscal year, with comparative
figures for the preceding fiscal year, prepared in accordance with GAAP on a
consistent basis.
(c) Notices of Litigation. Promptly after the commencement
---------------------
thereof (but in no event later than ten (10) days), notice of all actions, suits
and proceedings with an
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<PAGE>
amount in controversy of $250,000 or more before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign.
(d) Notices of Adverse Judgments. Promptly after the institution
----------------------------
thereof (but in no event later than ten (10) days), notice of all adverse
Judgments of $100,000 or more entered by any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
against the Company, such notice to include the exact dollar amount of any such
adverse judgment as well as any other estimated adverse economic impact on the
Company.
(e) Material Adverse Change. Promptly after the occurrence thereof
-----------------------
(but in no event later than ten (10) days), notice of all events, conditions,
acts, facts and omissions (except general conditions which are a matter of
public knowledge) which may reasonably be expected to have any Material Adverse
Effect.
(f) Federal Securities Laws. Any such information (and consents)
-----------------------
regarding the Company in order to fulfill their respective obligations under the
federal securities laws.
(g) Other Information. Such other information respecting the
-----------------
business, properties, condition or operations of the Company as the Investor may
from time to time reasonably request.
5.3 Negative Covenants. The Company covenants that so long as the
------------------
Investors or their Affiliates own of record or beneficially 500,000 shares of
Investor Common Stock in the aggregate, neither it nor any Subsidiary shall,
without the prior written consent of the Investor Representative:
(a) Amendments or Changes in Bylaws or Articles of Incorporation.
-------------------------------------------------------------
Amend, modify, repeal or supplement any provision of the Company's Bylaws (if
adverse to the rights of the Investors under this Agreement, the Shareholders'
Agreement or the Registration Agreement) or the Articles including, without
limitation, any amendments that (i) authorize shares of any class of stock of
the Company having any preference or priority as to dividends or assets superior
to or in parity with the Investor Common Stock; (ii) increase the number of
authorized shares of any class of stock of the Company; provided, however, that
the Company any increase the authorized Common Stock to 100,000,000 shares in
the aggregate; or (iii) authorize or reserve additional shares of Common Stock
with respect to the Stock Option Plan referred to in Section 1.3 of the
-----------
Shareholders' Agreement, or any other plan arrangements for issuing equity
securities to employees of the Company.
(b) Issuance of Capital Stock. (i) Issue shares of any class of
-------------------------
stock; and (ii) issue additional shares of Common Stock with respect to the
Stock Option Plan (other than as permitted under in Section 1.3 of the
Shareholders' Agreement), or any other plan or arrangement for issuing equity
securities to employees of the Company.
-21-
<PAGE>
(c) Dividends. Directly or indirectly make, declare or pay any
---------
dividends or other distributions on its capital stock in cash or in property to
any class of stock of the Company.
(d) Acquisitions, Sale of Assets, Merger, Consolidation,
----------------------------------------------------
Reorganization, Liquidation, Etc. Acquire any interest in any business (whether
- --------------------------------
by a purchase of assets, purchase of stock, merger, or otherwise); enter into an
agreement providing for a plan of exchange, merger or consolidation with or into
any other entity; enter into any joint venture, partnership or plan of
reorganization (except for strategic alliances entered into in the ordinary
course of business which do not involve (i) capital contributions, exchanges or
contributions of equity or assets, or (ii) transactions violating any other
provision of Section 5.3 hereof); sell, assign, lease, transfer or otherwise
-----------
dispose of any substantial portion of its capital assets; recapitalize; become a
member in a limited liability company or otherwise acquire an equity interest in
another Person; or liquidate.
(e) Change of Control. Authorize the sale of voting capital stock
-----------------
(whether by the Company or any shareholder thereof) permitting the holder
thereof to control fifty-one percent (51%) of the voting rights of the Company
or any Subsidiary.
(f) Redemption of Stock. Make or incur any liability to make any
-------------------
Stock Purchase (other than pursuant to equity incentive agreements with
employees and service providers giving the Company the right to repurchase
shares of the Company's capital stock upon termination of employment or services
and as provided in the Shareholders' Agreement), or other acquisition of shares
of the Company's capital stock or any payments with respect to stock
appreciation rights or similar rights.
(g) Change of Business. Enter into the ownership, active management
------------------
of operation of any business other than the ownership and operation of the
business of the Company conducted as of the date hereof, or make any material
change in the Company's current business.
(h) Directors. Increase the number of directors of the Company,
---------
except as permitted by Section 1.2 of the Shareholders' Agreement.
(i) Liabilities. Become liable for, or make any payments with
-----------
respect to, any Indebtedness, except for Indebtedness not in excess of Six
Million Dollars ($6,000,000) outstanding at any time in the aggregate.
(j) Capital Expenditures. Make any capital expenditures that in the
--------------------
aggregate exceed (i) Four Million Five Hundred Thousand Dollars ($4,500,000) in
the 2000 Fiscal Year, or (ii) Two Million Dollars ($2,000,000) in any other
Fiscal Year.
(k) Transactions with Affiliates. Enter into any transaction with
----------------------------
any of its Affiliates, except on arms-length terms and approved by the
disinterested members of the Board of Directors of the Company or as otherwise
provided in this Agreement.
It is understood and agreed that if the Investor Representative does
not
-22-
<PAGE>
provide his consent to any of the actions prohibited by this Section 5.3, the
-----------
Company shall have an option to redeem all (but not less than all) of the
Investor Common Stock pursuant to the terms and conditions set forth in Section
-------
6.4(b) below.
- ------
5.4 Reserved.
--------
5.5 December 31, 1999 Financial Statements Covenant. The Company
-----------------------------------------------
agrees that the audited balance sheet and related statements of income and cash
flow for the year ended December 31, 1999 will not differ materially and
adversely from the Latest Balance Sheet and related statements of income and
cash flow for the year ended December 31, 1999 delivered to the Investors
pursuant to Section 3.15 of this Agreement.
5.6 Investor Covenants. The Investors shall use commercially
------------------
reasonable efforts to (a) assist the Company in attracting and retaining a Chief
Financial Officer, (b) leverage the experience of the Investors in consulting on
general business matters to the Company, its officers and its Board of
Directors, (c) arrange for analysts to follow and cover the Company's public
class of stock, (d) assist the Company in obtaining an underwriter of nationally
recognized standing to underwrite a proposed offering of Common Stock, and (e)
review and advise the Company on all potential acquisitions. The Investors shall
designate a Person to serve on the Board of Directors of the Company as and to
the extent set forth in the Shareholders' Agreement.
Section 6. Events of Default.
-----------------
6.1 Events of Default. If any of the following events (each is
-----------------
herein referred to as an "Event of Default") occur:
(a) (i) default or breach shall occur in the performance of or
compliance with any covenant contained in Section 5.3, or (ii) default or breach
-----------
shall occur in the performance of or compliance with any covenant contained
herein (other than as set forth in clause (1) above) which shall continue
uncured for more than thirty (30) days after written notice of such default
shall have been provided by Investors, unless such cure cannot be effected
within thirty (30) days, in which case the cure period shall continue for up to
ninety (90) days if the default or breach is curable and the Company is
diligently attempting to effect such cure;
(b) the failure of the Company to elect a designee of the
Investors to the Company's Board of Directors pursuant to Section 5.1(i) of this
--------------
Agreement and Section 1.2(a) of the Shareholder's Agreement or the failure to
--------------
properly register the Investor Common Stock as provided in the Registration
Agreement;
(c) a breach of any of the Company's representations,
warranties, covenants and agreements under the Registration Agreement or the
Shareholders' Agreement (which continues beyond the expiration of any applicable
cure period), other than those referred to in clause (b) above;
(d) if any representation or warranty to the Investors made in
writing by the Company in this Agreement or in any agreement, certificate,
report, financial statement
-23-
<PAGE>
or instrument to be delivered to any Investor pursuant to the Transaction
Documents and which was prepared by a director, officer, employee, agent or
representative of the Company (which non-officer employee, agent or
representative was authorized by the Company) and delivered to the Investors,
shall prove to have been false or inaccurate in any material respect on the date
as of which it was made;
(e) a receiver, conservator, custodian, liquidator or trustee of
the Company or any of its Subsidiaries or of all or any of the property of any
of them, is appointed by court order and such order remains `in effect for more
than sixty (60) days; or an order for relief is entered under the federal
bankruptcy laws with respect to the Company or any of its Subsidiaries; or any
of the material property of any of them is sequestered by court order and such
order remains in effect for more than sixty (60) days; or a petition is filed
against the Company or any of its Subsidiaries under the bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter `in effect, and is
not dismissed within sixty (60) days after such filing;
(f) The Company or any of its Subsidiaries files a petition in
voluntary bankruptcy or seeking relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any Jurisdiction, whether now or hereafter in effect, or
consents to the filing of any petition against it under any such law;
(g) The Company or any of its Subsidiaries makes an assignment
for the benefit of its creditors, or admits in writing its inability to pay its
debts generally as they become due, or consents to the appointment of a
receiver, conservator, custodian, liquidator or trustee of the Company or any of
its subsidiaries, or of all or any part of the property of any of them;
(h) final judgment for the payment of money which, individually
or in the aggregate exceeds Two Hundred Fifty Thousand Dollars ($250,000) shall
be rendered by a court of record against the Company or any of its Subsidiaries,
and the Company or such Subsidiary shall not (i) discharge the same (by
insurance or otherwise) or provide for its discharge in accordance with its
terms or (ii) procure a stay of execution thereof within sixty (60) days from
the date of entry thereof and within said period of sixty (60) days, or such
longer period during which execution of such judgment shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during such
appeal; or
(i) The Company fails to maintain the listing of its Common
Stock on AMEX or any other nationally recognized securities exchange reasonably
acceptable to the Investors;
then, when any Event of Default has occurred and shall be continuing, and unless
consent of the Majority Holders, at the time has been obtained waiving such
Event of Default in writing, Investors shall have all available rights in law or
in equity or as may be available pursuant to this Agreement.
-24-
<PAGE>
6.2 Remedies on Default.
-------------------
(a) If an Event of Default shall have occurred pursuant to
Section 6.1, Investors shall be entitled to the rights specified in Section 6
(subject to the terms and conditions of Section 6.3 or 6.4, respectively) and,
in addition, may proceed to protect and enforce any or all other rights, powers
and remedies of such holders by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any covenant
contained herein or in the Shareholders' Agreement or Registration Agreement
and, or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any right, power or remedy granted hereby
or thereby or available at law, in equity, by statute or otherwise.
(b) No right, power or remedy conferred hereby or by ownership
of the Investor Common Stock or under any of the other Transaction Documents, or
now or hereafter available at law, in equity, by statute or otherwise shall be
exclusive of any other right, power or remedy referred to herein or therein or
now or hereafter available at law, in equity, by statute or otherwise, but all
rights, powers and remedies of Investors shall be cumulative and not
alternative.
6.3 Right to Elect Additional Directors. In addition to the remedies
-----------------------------------
set forth herein, if an Event of Default arising under Section 6.1 occurs, the
-----------
Investors shall have the right to designate one (1) additional new member to the
Board of Directors of the Company (the "New Director"), which shall be in
addition to the Investor Representative. The Investors shall provide the Company
with ten (10) days prior written notice of their intention to take action under
this Section 6.3 and identify the Event of Default which has occurred.
-----------
The Company agrees to immediately take, or use commercially reasonably
efforts to cause the Principal Shareholders to take, whatever action is
necessary so as to cause the number of directors constituting the Board of
Directors of the Company to be increased by the number of the New Director
(e.g., if the Board of Directors of the Company has seven (7) members, to
----
eight (8) members), and to elect to such newly-created directorship such
individual as the Majority Holders shall in their sole and absolute discretion
have designated in a written notice or notices delivered to the Company (the
"Notice") and the Company shall inform the Principal Shareholders of the Company
of such designation and of their obligations with respect thereto pursuant to
the Shareholders' Agreement.
Any New Director who shall have been designated by the Investors
pursuant to this Section 6.3 may be removed at any time, either with or without
-----------
cause, but only as the Majority Holders may determine and any vacancy created by
such removal shall also be filled in the manner described in this Section 6.3.
-----------
Any vacancy caused by the death or resignation of a director who shall have been
selected by the Majority Holders pursuant to this paragraph shall be filled by a
person selected by the Majority Holders in the same manner as described in this
Section 6.1.
- -----------
6.4 Put and Call Rights.
-------------------
(a) Put. Upon the occurrence of an Event of Default arising
---
under Section 6.1(a), Section 6.1(b), or Section 6.1(i), the Investors (by
-------------- -------------- --------------
vote of the Majority Holders)
-25-
<PAGE>
may exercise their option to sell to the Company all of the Investor Common
Stock (the "Put"), and the Company shall, upon exercise of the Put by the
Investors, purchase from the Investors all of the Investor Common Stock.
(i) Upon the exercise of the Put, the Company shall pay the
Investors (pro-rata in accordance with the number of shares of Investor
Common Stock each Investor owns) for all of the Investor Common Stock, in a
lump sum for cash an amount equal to the greater of (A) the Purchase Price,
plus a premium equal to a fifty percent (50%) compounded annual rate of
return on the Purchase Price, and (B) the fair market value of the Common
Stock (i.e., the closing price of the Common Stock on the AMEX (or if such
shares are no longer listed on the AMEX, any other applicable exchange or
public listing)), if applicable, averaged for the twenty (20) trading days
ending on the day prior to the day of the occurrence of the Event of
Default triggering the Put) (the "Put Purchase Price").
(ii) The Company shall pay the Put Purchase Price to the
Investors within sixty (60) days after such Event of Default, except that
the Company shall pay the Put Purchase Price to the Investors within one
hundred (100) days thereof if the applicable Put was triggered by an Event
of Default pursuant to Section 6.1(i).
--------------
(b) Call. In the event that the Investor Representative does
----
not provide his consent to any of the actions set forth in Section 5.3 and the
-----------
Board of Directors of the Company authorizes, approves or ratifies any such
action, the Company may exercise its option to purchase from the Investors all
of the Investor Common Stock (the "Call"), and the Investors shall, upon
exercise of the Call by the Company, sell to the Company all of the Investor
Common Stock.
(i) Upon the exercise of the Call, the Company shall pay
the Investors (pro-rata in accordance with the number of shares of Investor
Common Stock each Investor owns) for all of the Investor Common Stock, in a
lump sum for cash an amount equal to the greater of (a) the Purchase Price,
plus a premium equal to a fifty percent (50%) compounded annual rate of
----
return on the Purchase Price, and (b) the fair market value of the Common
Stock (i.e., the closing price of the Common Stock on the AMEX (or if such
----
shares are no longer listed on the AMEX, any other applicable exchange or
public listing)), if applicable, averaged for the twenty (20) trading days
ending on the day prior to the day of the meeting of the Board of Directors
of the Company whereby the Board of Directors of the Company authorized,
approved or ratified the action in question triggering the Call (the "Call
Purchase Price").
(ii) The Company shall pay the Call Purchase Price to the
Investors within sixty (60) days after the meeting of the Board of
Directors of the Company whereby such Investor Representative did not
approve such action.
(c) Notice of Put/Call. Any Put or Call granted under this
------------------
Section 6.4 may be exercised from time to time by notice in writing, which
- -----------
notice must be given within forty five (45) days with respect to a Call and five
(5) days with respect to a Put, of the occurrence of any event triggering such
Put or Call, to the Company in the case of a Put, or to the Investors in
-26-
<PAGE>
the case of a Call (the "Notice"). The Notice shall state that such Put or Call,
as the case may be, is exercised. In each case, the Company shall provide to
each Investor a written statement of the dollar amount and the supporting
calculations of the Put Purchase Price or the Call Purchase Price, as the case
may be, at least ten (10) days prior to the date upon which the Put Purchase
Price or the Call Purchase Price, as the case may be, shall be payable and due,
which shall state the date and time of the closing thereof (which date shall be
in accordance with Section 6.4(a)(ii) or Section 6.4(b)(ii), as applicable) at
------------------ ------------------
the principal office of the Company.
(d) Exercise Procedure. In the event that any Put or Call under this
------------------
Section 6.4 is exercised, delivery of the certificate or certificates evidencing
- -----------
the shares involved, properly endorsed for transfer, shall be made by the
Investors against full payment therefor in the manner and at the time or times
specified in Section 6.4(a)(ii) or Section 6.4(b)(ii) hereof, as applicable.
------------------ ------------------
(e) Compounded Annual Rate of Return. It is understood and agreed
--------------------------------
that in calculating the premium on the Purchase Price based on a 50% "compounded
annual rate of return" for purposes of this Section 6.4, such 50% return shall
be added to and calculated based on the Purchase Price for each anniversary date
hereof (or a pro rata portion for a partial year) plus the amount of any
previous 50% return calculated for each prior one (1) year period after the date
of this Agreement. For instance, the 50% "compounded annual rate of return" (not
including the Purchase Price amount) on the day after the second anniversary of
this Agreement would be equal to $14,125,000 and is calculated as follows: (i)
$11,300,000 (the Purchase Price) x 50% = $5,650,000 ("First Year Return"); plus
(ii) $16,950,000 (Purchase Price plus First Year Return) x 50% $8,475,000).
Section 7. Miscellaneous.
-------------
7.1 Investor's Investment Representations. Each Investor hereby
-------------------------------------
represents and warrants that:
(a) Investor is acquiring shares of Investor Common Stock
purchased hereunder or acquired pursuant hereto for his or its own account with
the present intention of holding such securities for purposes of investment, and
that he or it has no intention of selling such securities in a public
distribution in violation of the federal securities laws or any applicable state
securities laws; provide that nothing contained herein shall prevent Investors
and subsequent holders of such shares of Investor Common Stock from transferring
such securities in compliance with the provisions of the Shareholders'
Agreement. Each certificate or instrument representing Investor Common Stock
shall be imprinted with the legend prescribed in the Shareholders' Agreement;
(b) Such Investor has been furnished any and all material
relating to the Company and the shares of Investor Common Stock which he or it
has requested and has been afforded the opportunity to obtain any additional
information necessary to evaluate such Investor's participation in the
transactions contemplated by this Agreement;
(c) Such Investor, either alone or with his or its financial
advisor(s), has the necessary knowledge and experience in financial and business
matters as to be able to
-27-
<PAGE>
evaluate the merits and risks of such Investor's participation in the
transactions contemplated by this Agreement; and
(d) Such Investor qualifies as an "accredited investor" as
defined in Rule 501 of Regulation D promulgated under the Securities Act of
1933, as amended.
7.2 Benefit of Agreement, Assignment. This Agreement shall be
--------------------------------
binding upon and inure to the benefit of the Company and Investors and their
respective successors and assigns, heirs, executors and personal representative,
as applicable, except that the Company shall not have the right to assign any of
its rights under this Agreement without the prior written consent of Investors.
Notwithstanding the foregoing, the rights of the Investors set forth herein
shall inure only to the benefit of the Investors and their "Permitted
Transferees" (as such term is defined in the Registration Agreement).
7.3 Right to Conduct Activities. The Company and each Investor hereby
---------------------------
acknowledge that some or all of any of the Investors' investments in numerous
companies, may be competitive with the Company's business. No Investor shall be
liable for any claim arising out of, or based upon, (i) the investment by any
Investor in any Person competitive to the Company, or (ii) actions taken by any
partner, officer or other representative of any Investor to assist any such
competitive company, whether or not such action was taken as a board member of
such competitive company, or otherwise, and whether or not such action has a
detrimental effect on the Company.
7.4 Notices. Any and all notices or other communications required or
-------
permitted to be delivered hereunder shall be deemed properly delivered if (a)
delivered personally, (b) mailed by first class, registered or certified mail,
return receipt requested, postage prepaid, (c) sent by next-day or overnight
mail or delivery or (d) sent by telecopy or telegram, to the parties as set
forth below:
-28-
<PAGE>
<TABLE>
<S> <C>
If to Edgewater: If to TIME:
Edgewater Private Equity Fund III, L.P. Fleck T.I.M.E. Fund, LP
900 North Michigan Avenue 289 Greenwich Avenue
14th Floor Greenwich, CT 06830
Chicago, Illinois 60611 Attn: Kathryn Fleck
Attn: Brian Thompson, Partner Telecopy: (203) 422-2170
Telecopy: (312) 649-8649
If to Fleck Family:
With a copy to:
Fleck Family Partnership 11, LP
Michael A. Nemeroff, Esq. 1800 Second Avenue, Suite 799
Vedder, Price, Kaufman & Kammholz Sarasota, FL 34230
222 North LaSalle Street, Suite 2600 Attn: Kathryn Fleck
Chicago, Illinois 60601-1003 Telecopy: (203) 422-2170
Telecopy: (312) 609-5005
If to Allen:
If to Aspen:
Gerald C. Allen
Aspen Finance Investors 1, LLC P.O. Box 3454 D
100 Elk Run Drive, Suite 228 Las Vegas, Nevada 89133
Basalt, CO 8 1621 Telecopy: (713) 785-8530
Attn: Howard Cohen
Telecopy: 970-927-4362
</TABLE>
-29-
<PAGE>
<TABLE>
<S> <C>
If to DiJoria: If to the Company:
John Paul DiJoria Design Automation Systems, Inc.
P.O. Box 3454 D 3200 Wilcrest Drive
Las Vegas, Nevada 89133 Suite 370
Telecopy: (310) 248-2831 Houston, Texas 77042-6018
Attn: Charles Leaver, President
If to LJH: Telecopy: (713) 784-2486
LJH Partners LP With a copy to:
405 Lexington Avenue, 48th Floor
New York, NY 10 174 Philip M. Shiekman, Esq.
Attn: Doug Luke Fox, Rothschild, O'Brien & Frankel, L.L.P.
Telecopy: (212) 983-3174 2000 Market Street, Tenth Floor
Philadelphia, Pennsylvania 19103-3291
If to Wain: Telecopy: (215) 299-2150
Wain Investment, LLC
Tower East, Suite 600
206000 Chagrin Blvd.
Shaker Heights, OH 44122
Attn: Norman Wain, c/o Sue Powers
Telecopy: (216) 491-3995
</TABLE>
Either party may change the name and address of the designee to whom notice
shall be sent by giving written notice of such change to the other party.
7.5 Choice of Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of Illinois, applicable to agreements made and to be
performed entirely within such State.
7.6 Entire Agreement. This Agreement and the Transaction Documents embody
----------------
the entire agreement and understanding between the Company and Investors and the
final expression thereof and supersede any and all prior agreements and
understandings, written or oral, formal or informal, between the Company and
Investors relating to the subject matter hereof and thereof. No extensions,
changes, modifications or amendments whatsoever shall be made or claimed by
either party hereto, and no notices of any extension, change, modification or
amendment made or claimed by a party hereto shall have any force and effect
whatsoever unless the same shall be endorsed in writing and fully signed by both
parties hereto.
7.7 No Implied Waivers, Cumulative Remedies, Writing Required. No delay or
---------------------------------------------------------
failure of the Investors in exercising any right, power or remedy hereunder
shall affect or operate as a waiver thereof, nor shall any single or partial
exercise thereof or any abandonment or discontinuance of steps to enforce such a
night, power or remedy preclude any further exercise thereof or of any other
right, power or remedy. The rights and remedies hereunder of the
-30-
<PAGE>
Investors are cumulative and not exclusive of any rights or remedies which it
would otherwise have. Any waiver, permit, consent or approval of any kind or
character on the part of the Investors of any breach or default under this
Agreement or any such waiver of any provision or condition of this Agreement
must be in writing and shall be effective only to the extent in such writing
specifically set forth.
7.8 Reimbursement of Expenses. The Company shall, at Closing or upon
-------------------------
demand, pay all of the Investors' reasonable costs and expenses including,
without limitation, due diligence expenses, travel expenses, legal fees for the
Investors' counsel (provided reimbursement for such legal fees shall not exceed
$50,000 in the aggregate) and related costs and expenses incurred by Investors'
legal counsel in the preparation, negotiation and closing of this Agreement, the
Transaction Documents and the transactions and consequences contemplated hereby,
and any and all filings or notices required at any time under Federal or state
securities laws. Such payments shall be due immediately upon demand; provided,
however, the amounts thereof shall be limited to $25,000 if the transactions
contemplated by this Agreement are not consummated for any reason. Furthermore,
the Company shall also pay all brokers' or finders' fees and expenses (none of
which shall be the responsibility of the Investors).
7.9 Survival. All representations, warranties, covenants and
--------
agreements of the Company contained herein or made in writing in connection
herewith shall survive the execution and delivery of this Agreement and the
issuance of the Investor Common Stock; provided, however, such representations
and warranties of the Company set forth in Section 3 of this Agreement shall
---------
survive only until thirty (30) days after audited financial statements of the
Company in the Company's Form 10-K Annual Report are publicly released for the
fiscal year ending December 31, 2000.
7.10 Waivers of the Company/Personal Jurisdiction.
--------------------------------------------
(a) EXCLUSIVE JURISDICTION. THE INVESTORS AND THE COMPANY AGREE
----------------------
THAT ALL ACTIONS TO ENFORCE THIS AGREEMENT AND ALL DISPUTES AMONG OR BETWEEN
THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG OR BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT
AND THE TRANSACTION DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR
OTHERWISE, SHALL BE RESOLVED ONLY BY A COURT LOCATED IN COOK COUNTY, ILLINOIS,
AND THE COMPANY HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF SUCH COURT.
(b) WAIVERS OF THE COMPANY. THE COMPANY HEREBY WAIVES PERSONAL
----------------------
SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF
PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE COMPANY AT ITS ADDRESS SET
FORTH IN SECTION 7.4 OF THIS AGREEMENT, AND SERVICE SO MADE SHALL BE DEEMED TO
BE COMPLETED UPON ACTUAL RECEIPT THEREOF. THE COMPANY HEREBY WAIVES ITS RIGHTS
TO A JURY TRIAL, ANY OBJECTION BASED ON FORUM NON CONVENIENS AND ANY OBJECTION
TO VENUE IN COOK COUNTY, ILLINOIS IN CONNECTION WITH ANY CLAIM OR CAUSE OF
ACTION TO
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<PAGE>
ENFORCE THIS AGREEMENT OR BASED UPON OR ARISING OUT OF ANY OF THIS AGREEMENT OR
THE TRANSACTION DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR
THEREIN, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF
DUTY CLAIMS AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. THE COMPANY AGREES
THAT COOK COUNTY, ILLINOIS IS A REASONABLY CONVENIENT FORUM TO RESOLVE ANY
DISPUTE BETWEEN THE COMPANY AND INVESTORS. THE COMPANY REPRESENTS THAT IT HAS
REVIEWED THIS WAIVER AND KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
NOTHING IN THIS SECTION 7.10 SHALL AFFECT THE RIGHT OF THE INVESTORS TO SERVE
LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
(c) OTHER JURISDICTIONS. THE COMPANY AGREES THAT THE INVESTORS
-------------------
SHALL HAVE THE RIGHT TO PROCEED AGAINST THE COMPANY IN A COURT IN ANY LOCATION
TO ENABLE THE INVESTORS TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN
FAVOR OF THE INVESTORS. THE COMPANY WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE
LOCATION OF THE COURT IN WHICH THE INVESTOR HAS COMMENCED A PROCEEDING DESCRIBED
IN THIS SECTION 7.10.
7.11 Herein, etc. Words such as "herein," "hereunder," "hereof' and
-----------
the like shall be deemed to refer to this Agreement as a whole and not to any
particular document or Article, Section or other portion of a document.
7.12 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law in any jurisdiction, such provision shall be
effective only to the extent of such prohibition or invalidity, without
invalidating any other provision of this Agreement.
7.13 Headings. Section and subsection headings in this Agreement are
--------
included for convenience of reference only and shall not constitute a part of
this Agreement for any other purpose.
7.14 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by either party hereto on separate counterparts, each of which,
when so executed and delivered, shall be an original, but all such counterparts
shall together constitute one and the same instrument. One or more counterparts
of this Agreement may be delivered by facsimile, with the intention that
delivery by such means shall have the same effect as delivery of an original
counterpart thereof.
[Signature Page Follows]
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<PAGE>
Stock Purchase Agreement Signature Page
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement on the date first written above.
DESIGN AUTOMATION SYSTEMS, INC., FLECK FAMILY PARTNERSHIP II, LP, a
a Texas corporation d/b/a EpicEdge Florida limited partnership
By: /s/ Charles H. Leaver, Jr. By: /s/ Barry Fleck
------------------------------ ------------------------------
Its: President Its: Managing Partner
EDGEWATER PRIVATE EQUITY LJH PARTNERS LP, a Delaware limited
FUND III, L.P. partnership
By: Edgewater III Management, L.P. By: /s/ Douglas S. Luke
------------------------------
Its: General Partner Its: Managing Member
By: Gordon Management, Inc.
Its: General Partner WAIN INVESTMENT, LLC, an Ohio limited
liability company
By: /s/ James Gordon
------------------------------
Its: President By: /s/ Norman Wain
------------------------------
Its: Managing Partner
ASPEN FINANCE INVESTORS I, LLC, a
Colorado limited liability company
By: /s/ Howard S. Cohen /s/ Gerald C. Allen
------------------------------ ---------------------------------
Its: Manager Gerald C. Allen
FLECK T.I.M.E. FUND, LP, a Connecticut /s/ John Paul DiJoria
---------------------------------
limited partnership John Paul DiJoria
By: /s/ Kathryn Fleck
----------------------------
Its: Managing Partner
-33-
<PAGE>
Exhibit 4.2
-----------
REGISTRATION AGREEMENT
THIS REGISTRATION AGREEMENT (this "Agreement") is made as of February 18,
2000 by and among Design Automation Systems, Inc., a Texas corporation d/b/a
EpicEdge (the "Company"), Edgewater Private Equity Fund III, L.P., a Delaware
limited partnership ("Edgewater"), Aspen Finance Investors I, LLC, a Colorado
limited liability company ("Aspen"), Fleck T.I.M.E. Fund, LP, a Connecticut
limited partnership ("TIME"), Fleck Family Partnership II, LP, a Florida limited
partnership ("Fleck Family"), LJH Partners LP, a Delaware limited partnership
("LJH"), Wain Investment, LLC, an Ohio limited liability company "Wain"), Gerald
C. Allen, an individual ("Allen"), and John Paul DiJoria, an individual
("DiJoria"; together with Edgewater, Aspen, TIME, Fleck Family, LJH, Wain and
Allen are sometimes collectively referred to herein as the "Investors" and
individually as an "Investor").
Pursuant to a Stock Purchase Agreement of even date herewith (the "Purchase
Agreement") by and among the Company and the Investors, the Investors will
purchase shares of the Company's Common Stock, $.01 par value per share (the
"Common Stock"). In order to induce the Investors to enter into the Purchase
Agreement, the Company has agreed to provide the registration rights set forth
in this Agreement. The execution and delivery of this Agreement is a condition
to the Closing under the Purchase Agreement. Unless otherwise provided in this
Agreement, capitalized terms used herein shall have the meanings set forth in
paragraph 9 hereof.
The parties hereto agree as follows:
1. Demand Registrations.
--------------------
(a) Requests for Registration. Upon written request by any of the
Investors, which request may not be made until the end of the fifth month after
the date of the Closing under the Purchase Agreement (the "Notice"), the Company
shall (i) file as soon as practicable after receipt of such Notice, but in no
event later than thirty (30) days after the request therefor, a Registration
Statement on Form S-3 (or any successor form) or any other appropriate form
under the Securities Act (the "Demand Registration") covering all of the
Registrable Securities and relating to resale of the Investors' Common Stock,
and (ii) take all necessary actions to cause such registration statement to
become effective within thirty (30) days of filing or as soon thereafter as is
permissible by the Securities Exchange Commission. Each request for a Demand
Registration shall specify that all of the Registrable Securities are requested
to be registered and the anticipated per share price range for such offering.
Within ten (10) days after receipt of any request for a Demand Registration, the
Company will give written notice of such requested registration to all other
holders of Registrable Securities and, subject to paragraph 1(b) below, will
include in such registration all Registrable Securities. The holders of
Registrable Securities shall be entitled to request an unlimited number of
Demand Registrations in which the Company will pay all Registration Expenses.
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(b) Priority on Demand Registrations. The Company will not include in
any Demand Registration any securities which are not Registrable Securities
without the prior written consent of the holders of a majority of the
Registrable Securities included in such registration. If a Demand Registration
is an underwritten offering and the managing underwriters advise the Company in
writing (with a copy to each party hereto requesting registration of Registrable
Securities) that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if any, which
can be sold therein without adversely affecting the marketability of the
offering, the Company will include in such registration, prior to the inclusion
of any securities which are not Registrable Securities, the number of
Registrable Securities requested to be included which in the opinion of such
underwriters can be sold without adversely affecting the marketability of the
offering; pro rata among the respective holders thereof on the basis of the
number of shares of Registrable Securities that each holder has requested to be
Registrable Securities included in such registration.
(c) Selection of Underwriters. The Investors and the Company shall
jointly select the investment banker(s) and managing underwriter(s) to
administer an offering initiated as a Demand Registration. It is understood and
agreed that the Company may delay the registration of Registrable Securities
hereunder if such delay is requested in writing by such managing underwriter(s)
or by any managing underwriter(s) jointly selected by the Investors and the
Company with respect to any offering of equity securities by the Company.
(d) Other Registration Rights. The Company will not grant to any
Persons the right to request the Company to register any equity securities of
the Company, or any securities convertible or exchangeable into or exercisable
for such securities, which would be superior to or otherwise interferes with the
Investors' registration rights hereunder; provided, however, the granting by the
Company of registration rights to any other Person which would in any way limit
the Investors' registration rights hereunder shall be subject to the approval of
the Investor Representative (as defined in the Purchase Agreement). The Company
represents and warrants to the Investors that no Person (as defined in the
Purchase Agreement) has the right to register any equity securities of the
Company which are superior to or would otherwise interfere with the Investors'
registration rights hereunder except for the Persons and corresponding number of
shares of Common Stock identified on Schedule A attached hereto and made a part
hereof, whose registration rights are pari passu (but not superior) to those of
the Investors (the registrable equity securities held by such Persons are
referred to herein as the "Equal Securities").
2. Piggyback Registrations.
-----------------------
(a) Right to Piggyback. Whenever the Company proposes to register any
of its securities under the Securities Act (other than pursuant to a Demand
Registration or a registration on Form S-4 or Form S-8 or any successor or
similar forms ) and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), whether or
not for sale for its own account, the Company will give prompt
2
<PAGE>
written notice to all holders of Registrable Securities of its intention to
effect such a registration and will include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within fifteen (15) days after the receipt of the Company's
notice.
(b) Piggyback Expenses. The Registration Expenses of the holders of
Registrable Securities will be paid by the Company in all Piggyback
Registrations, whether or not consummated.
(c) Priority on Primary Registrations. If a Piggyback Registration is
an underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing (with a copy to each party hereto
requesting registration of Registrable Securities) that in their opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in such offering without adversely affecting the
marketability of such offering, the Company will include in such registration
(i) first, the securities the Company proposes to sell, and (ii) second, the
Registrable Securities requested to be included in such registration and the
Equal Securities requested to be included in such registration, pro rata among
the holders of such Registrable Securities and such Equal Securities on the
basis of the number of shares that each holder has requested to be included in
such registration. If, after giving effect to the inclusion in the applicable
registration of the equity securities referred to in clauses (i) and (ii) above,
there are additional equity securities of the Company available to be included
in such registration, the Company shall be entitled to designate the Persons, if
any, it would submit to the managing underwriter(s) for participation in such
registration.
(d) Priority on Secondary Registrations. If a Piggyback Registration
is an underwritten secondary registration on behalf of the Company or on behalf
of holders of the Company's securities other than holders of Registrable
Securities (subject to Section 1(d) above), and the managing underwriters advise
the Company in writing (with a copy to each party hereto requesting registration
of Registrable Securities) that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering without adversely affecting the marketability of the
offering, subject to paragraph 2(e) below, the Company will include in such
registration (i) first, the securities requested to be included therein by the
holders requesting such registration, the Registrable Securities requested to be
included in such registration and the Equal Securities requested to be included
in such registration, pro rata among the holders on the basis of the number of
shares that each holder has requested to be included in such registration, and
(ii) second, other securities requested to be included in such registration, pro
rata among the holders of such securities.
(e) General Priority Rule. Notwithstanding anything contained in this
Agreement to the contrary, no holder of shares of any class of capital stock of
the Company (other than holders of Equal Securities) shall be entitled to have
their shares included in any Piggyback Registration if such inclusion shall
reduce the number of shares includable by holders of Registrable Securities in
such registration.
3
<PAGE>
(f) Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
paragraph 1 or pursuant to this paragraph 2, and if such previous registration
has not been withdrawn or abandoned, the Company will not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-4 or Form S-8 or any successor form),
whether on its own behalf or at the request of any holder or holders of such
securities, until a period of at least three (3) months has elapsed from the
effective date of such previous registration.
(g) Company Election. Nothing contained herein shall restrict the
Company from filing and causing a registration statement to become effective
with respect to the Registrable Securities at any time.
3. Holdback Agreements.
-------------------
(a) Each holder of Registrable Securities agrees not to effect any
public sale or distribution (including sales pursuant to Rule 144 adopted by the
Securities and Exchange Commission under the Securities Act (as such rule may be
amended from time to time) ("Rule 144")) of equity securities of the Company, or
any securities, options or rights convertible into or exchangeable or
exercisable for such securities, during the seven (7) days prior to and the 90-
day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of any
such underwritten registration), unless the underwriters managing the registered
public offering otherwise agree or require.
(b) Notwithstanding the provisions of Section 3(a) above, it is
understood and agreed that any holder of Registrable Securities may from time to
time transfer or recertificate all or a part of such holder's Registrable
Securities (i) to a nominee identified in writing to the Company as being the
nominee of or for such holder, and any nominee of or for a beneficial owner of
Registrable Securities identified in writing to the Company as being the nominee
of or for such beneficial owner may from time to time transfer or recertificate
all or a part of the Registrable Securities registered in the name of such
nominee but held as nominee on behalf of such beneficial owner, to such
beneficial owner, (ii) to an Affiliate (as such term is defined in the Purchase
Agreement) of such holder, or (iii) if such holder of Registrable Securities is
a partnership or the nominee of a partnership, to a partner, retired partner, or
estate of a partner or retired partner, of such partnership, so long as such
transfer or recertification is in accordance with the transferee's interest in
such partnership and is without consideration. The transfers or recertifications
described in this Section 3(b) are sometimes referred to herein collectively as
"Permitted Transfers" and the recipient of Registrable Securities in a Permitted
Transfer is sometimes referred to herein as a "Permitted Transferee".
(c) Except as specifically set forth in this Agreement, the Company
agrees (i) not to effect any public sale or distribution of its equity
securities, or any securities convertible into or exchangeable or exercisable
for such securities, during the seven (7) days prior to and during the 120-day
period beginning on the effective date of any underwritten Demand Registration
or any underwritten Piggyback Registration (except as part of such underwritten
4
<PAGE>
registration or pursuant to registrations on Form S-4 or Form S-8 or any
successor form), unless the underwriters managing the registered public offering
otherwise agree, and (ii) to cause each holder of its Common Stock, or any
securities convertible into or exchangeable or exercisable for Common Stock,
purchased from the Company at any time after the date of this Agreement (other
than in a registered public offering) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144) of any such securities
during such period (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree.
4. Registration Procedures. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company will as
expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission a
registration statement with respect to such Registrable Securities and
thereafter use its best efforts and take all necessary action to cause such
registration statement to become effective within thirty (30) days of filing or
as soon thereafter (provided that before filing a registration statement or
prospectus or any amendments or supplements thereto, the Company will furnish to
the counsel selected by the holders of a majority of the Registrable Securities
covered by such registration statement copies of all such documents proposed to
be filed, which documents will be subject to the review and approval of such
counsel) and the Company will not file any registration statement or amendment
thereto or any prospectus or any supplement thereto, including documents
incorporated by reference, to which the holders of a majority of Registrable
Securities covered by such registration statement shall reasonably object;
(b) prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective until such time as each holder of Registrable Shares can
freely trade such Registrable Shares without restriction under the Federal
securities laws including, but not limited to, the Securities Act; (c) furnish
to each seller of Registrable Securities such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary prospectus)
and such other documents as such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such seller;
(c) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller of Registrable
Securities to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller (provided, that the Company will not
be required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subparagraph, (ii)
subject itself to taxation in any such jurisdiction or (iii)
5
<PAGE>
consent to general service of process in any such jurisdiction);
(d) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the discovery of the happening of
any event as a result of which, the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and, at the request of any such
seller, the Company will prepare and furnish to such seller a reasonable number
of copies of a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus will
not contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made;
(e) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed;
(f) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(g) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including, without limitation, effecting a stock split
or a combination of shares);
(h) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement, any attorney, accountant or other agent retained by any
such seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement;
(i) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve (12) months beginning
with the first day of the Company's first full calendar quarter after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;
(j) permit any holder of Registrable Securities which holder, in its
sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Company, to participate in the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the
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<PAGE>
reasonable judgment of such holder and its counsel should be included;
(k) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Common Stock included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order;
(l) obtain a comfort letter, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement), signed by the Company's independent public accountants in customary
form and covering such matters of the type customarily covered by comfort
letters as the holders of a majority of the Registrable Securities being sold
reasonably request; and
(m) provide a legal opinion of the Company's outside counsel
addressed to each holder of Registrable Securities included in such
registration, dated the effective date of such registration statement (and, if
such registration includes an underwritten public offering, dated the date of
the closing under the underwriting agreement), with respect to the registration
statement, each amendment and supplement thereto, the prospectus included
therein (including the preliminary prospectus) and such other documents relating
thereto in customary form and covering such matters of the type customarily
covered by legal opinions of such nature.
5. Registration Expenses. All expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation,
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
and fees and disbursements of counsel for the Company and all independent
certified public accountants, underwriters (excluding underwriting discounts and
commissions) and other Persons retained by the Company (all such expenses being
herein called "Registration Expenses"), will be borne by the Company, exclusive
of underwriting discounts and commissions or fees of counsel of the sellers of
Registrable Securities.
6. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless, to the extent
permitted by law, each holder of Registrable Securities, its officers and
directors and each Person who controls such holder (within the meaning of the
Securities Act) against any losses, claims, damages, liabilities, joint or
several, to which such holder or any such director or officer or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon (i)
any untrue or alleged untrue statement of material fact contained (A) in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or (B) in any application or other document or communication (in this
paragraph 6 collectively called an "application") executed by or on behalf of
the Company or based upon written information furnished by or on behalf of the
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Company or based upon written information furnished by or on behalf of the
Company filed in any jurisdiction in order to qualify any securities covered by
such registration statement under the "blue sky" or securities laws thereof, or
(ii) any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, and the
Company will reimburse such holder and each such director, officer and
controlling person for any legal or any other expenses incurred by them in
connection with investigating or defending any such loss, claim, liability,
action or proceeding; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is based
upon an untrue statement or alleged untrue statement, or omission or alleged
omission, made in such registration statement, any such prospectus or
preliminary prospectus or any amendment or supplement thereto, or in any
application, in reliance upon, and in conformity with, written information
prepared and furnished to the Company by such holder expressly for use therein
or by such holder's failure to deliver a copy of the prospectus or any
amendments or supplements thereto after the Company has furnished such holder
with a sufficient number of copies of the same. In connection with an
underwritten offering, the Company will indemnify such underwriters, their
officers and directors and each Person who controls such underwriters (within
the meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of the holders of Registrable Securities.
(b) In connection with any registration statement in which a holder
of Registrable Securities is participating, each such holder will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will indemnify and hold harmless
the Company, its directors and officers and each other Person who controls the
Company (within the meaning of the Securities Act) against any losses, claims,
damages or liabilities, to which such holder or any such director or officer or
controlling person may become subject under the Securities Act or otherwise, to
the extent that such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) result from
(i) any untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or in any application or (ii) any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is made in such registration statement, any such
prospectus or preliminary prospectus or any amendment or supplement thereto, or
in any application, in reliance upon and in conformity with written information
prepared and furnished to the Company by such holder expressly for use therein
and only to the extent such untrue statement or omission is made knowingly or
recklessly by such holder, and such holder will reimburse the Company and each
such director, officer and controlling Person for any legal or any other
expenses incurred by them in connection with investigating or defending any such
loss, claim, liability, action or proceeding; provided, however, that the
obligation to indemnify will be individual to each holder and will be limited to
the net amount of proceeds received by such holder from the sale of Registrable
Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i) give
prompt
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written 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 with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party; provided the indemnified party may participate in such
defense at such party's expense. If such defense is assumed, the indemnifying
party will not be subject to any liability for any settlement made by the
indemnified party without its consent (but such consent will not be unreasonably
withheld). An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and expenses
of more than one counsel for all parties indemnified by such indemnifying party
with respect to such claim, unless in the reasonable judgment of any indemnified
party a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
(d) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of securities. The Company
also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
7. Participation in Underwritten Registrations.
-------------------------------------------
(a) No Person may participate in any registration hereunder which is
underwritten unless such Person (i) agrees to sell such Person's securities on
the basis provided in any underwriting arrangements approved by the Person or
Persons entitled hereunder to approve such arrangements (including, without
limitation, pursuant to the terms of any over-allotment or "green shoe" option
requested by the managing underwriter(s)), except that no holder of Registrable
Securities will be required to sell more than the number of Registrable
Securities that such holder has requested the Company to include in any
registration, and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements; provided that no
holder of Registrable Securities included in any underwritten registration shall
be required to make any representations or warranties to the Company or the
underwriters other than representations and warranties regarding such holder and
such holder's intended method of distribution; and provided further that nothing
contained in paragraph 7(a) or 7(b) shall alter the rights of any holder of
Equal Securities pursuant to any registration or similar agreement with the
Company.
(b) Each Person that is participating in any registration hereunder
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in paragraph 4(e) above, such Person will forthwith
discontinue the disposition of its Registrable Securities pursuant to the
registration statement until such Person's receipt of the copies of a
supplemented or amended prospectus as contemplated by such paragraph 4(e). In
the event the Company shall give any such notice, the applicable time period
mentioned in
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paragraph 4(b) during which a Registration Statement is to remain effective
shall be extended by the number of days during the period from and including the
date of the giving of such notice pursuant to this paragraph 7(b) to and
including the date when each seller of a Registrable Security covered by such
registration statement shall have received the copies of the supplemented or
amended prospectus contemplated by paragraph 4(e).
8. Current Public Information. At all times after the Company has filed a
registration statement with the Securities and Exchange Commission pursuant to
the requirements of either the Securities Act or the Securities Exchange Act,
the Company will file all reports required to be filed by it under the
Securities Act and the Securities Exchange Act and the rules and regulations
adopted by the Securities and Exchange Commission thereunder, and will take such
further action as any holder or holders of Registrable Securities may reasonably
request, all to the extent required to enable such holders to sell Registrable
Securities pursuant to Rule 144 or any similar rule or regulation hereafter
adopted by the Securities and Exchange Commission.
9. Definitions.
-----------
"Registrable Securities" means (i) any Common Stock owned or held by the
Investors or their Permitted Transferees, and (ii) any Common Stock issued or
issuable directly or indirectly with respect to the securities referred to in
clause (i) by way of stock dividend, stock conversion or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular shares constituting Registrable
Securities, such shares will cease to be Registrable Securities when they have
been (x) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, or (y) sold to the
public through a broker, dealer or market maker pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act. For purpose of this
Agreement, a Person will be deemed to be the holder of Registrable Securities
whenever such person has the right to acquire directly or indirectly such
Registrable Securities (upon conversion or exercise in connection with a
transfer of securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such acquisition
has actually been effected.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
10. Miscellaneous.
-------------
(a) No Inconsistent Agreements. The Company will not hereafter enter into any
agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in
this Agreement.
(b) Adjustments Affecting Registrable Securities. The Company will
not take any action, or permit any change to occur, with respect to its
securities which would adversely
10
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affect the ability of the holders of Registrable Securities to include such
Registrable Securities in a registration undertaken pursuant to this Agreement
or which would adversely affect the marketability of such Registrable Securities
in any such registration (including, without limitation, effecting a stock split
or a combination of shares).
(c) Remedies. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party hereto shall have the right to injunctive relief,
in addition to all of its other rights and remedies at law or in equity, to
enforce the provisions of this Agreement.
(d) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and the holders of a majority of the Registrable
Securities.
(e) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns and Permitted Transferees. Notwithstanding the
foregoing, the rights of the holders of any Registrable Securities (or any
portion thereof) set forth herein shall inure only to the benefit of the holders
of any Registrable Securities (or any portion thereof) and their Permitted
Transferees (of all or any portion of the Registrable Securities), subject to
the provisions respecting the minimum numbers or percentages of shares of
Registrable Securities (or of such portion thereof) required in order to be
entitled to certain rights, or take certain actions, contained herein.
(f) Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
Agreement. One or more counterparts of this Agreement may be delivered by
facsimile, with the intention that delivery by such means shall have the same
effect as delivery of an original counterpart thereof.
(h) Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
(i) Governing Law. All issues concerning this Agreement shall be
governed by and construed in accordance with the laws of the State of Illinois,
without giving effect to any choice of law or conflict of law provision of rule
(whether of the State of Illinois or any other jurisdiction) that would cause
the application of the law of any jurisdiction other than the State of Illinois.
(j) Notices. Any and all notices or other communications required or
11
<PAGE>
permitted to be delivered hereunder shall be deemed properly delivered if (a)
delivered personally, (b) mailed by first class, registered or certified mail,
return receipt requested, postage prepaid, (c) sent by next-day or overnight
mail or delivery or (d) sent by telecopy or telegram, to the parties as set
forth below:
If to Edgewater: If to Fleck Family:
Edgewater Private Equity Fund III, L.P. Fleck Family Partnership II, LP
900 N. Michigan Avenue 1800 Second Avenue, Suite 799
14th Floor Sarasota, FL 34230
Chicago, IL 60611 Attn: Kathryn Fleck
Attn: Brian Thompson, Partner Telecopy: (203) 422-1270
Telecopy: 312-649-8649
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With a copy to: If to Allen:
Michael A. Nemeroff, Esq. Gerald C. Allen
Vedder, Price, Kaufman & Kammholz P.O. Box 3454 D
222 North LaSalle Street Las Vegas, Nevada 89133
Suite 2600 Telecopy: (713) 785-8530
Chicago, IL 60601-1003
Telecopy: (312) 609-5005 If to DiJorio:
John Paul DiJorio
If to Aspen: P.O. Box 3454D
Aspen Finance Investors I, LLC Las Vegas, Nevada 89133
100 Elk Run Drive, Suite 228 Telecopy: (310) 248-2831
Basalt, CO 81621
Attn: If to LJH:
Telecopy: LHJ Partners LP
405 Lexington Avenue, 48th Floor
If to TIME: Attn: Doug Luke
Fleck T.I.M.E. Fund, LP New York, NY 10174
289 Greenwich Avenue Telecopy: (212) 983-3174
Greenwich, CT 06830
Attn: Kathryn Fleck If to Wain:
Telecopy: (203) 422-2170 Wain Investment, LLC
Tower East, Suite 600
206000 Chagrin Blvd.
Shaker Heights, OH 44122
Attn: Norman Wain, c/o Sue Powers
Telecopy: (216) 491-3995
If to the Company:
Design Automation Systems, Inc.
3200 Wilcrest Drive
Suite 370
Houston, Texas 77042-6018
Attn: Charles Leaver, President
Telecopy: (713) 784-2486
With a copy to:
Philip Shiekman, Esq.
Fox, Rothschild, O'Brien & Frankel, LLP
2000 Market Street
Tenth Floor
Philadelphia, Pennsylvania 19103-3291
Telecopy: (215) 299-2150
Either party may change the name and address of the designee to whom notice
shall be sent by
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<PAGE>
giving written notice of such change to the other party.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Agreement
as of the date first written above.
Design Automation Systems, Inc. LJH PARTNERS LP, a Delaware limited
(d/b/a EpicEdge), a Texas corporation partnership
By: /s/ Charles H. Leaver, Jr. By: Lamont Partners, LLC
------------------------------------
Its: President Its: General Partner
Edgewater Private Equity Fund III, L.P. By: /s/ Douglas S. Luke
--------------------------------
Its: Managing Member
By: Edgewater III Management, L.P.
Its: General Partner WAIN INVESTMENT, LLC, an Ohio
limited liability company
By: Gordon Management, Inc. By: /s/ Norman Wain
--------------------------------
Its: General Partner Its: Managing Partner
-------------------------------
By: /s/ James Gordon /s/ Gerald C. Allen
------------------------------------ -------------------------------
Its: President Gerald C. Allen
ASPEN FINANCE INVESTORS I, LLC, a /s/ John Paul DiJoria
-------------------------------
Colorado limited liability company John Paul DiJoria
By: /s/ Howard S. Cohen
------------------------------------
Its: Manager
FLECK T.I.M.E. FUND, LP, a Connecticut
limited partnership
By: /s/ Kathryn Fleck
------------------------------------
Its: Managing Partner
FLECK FAMILY PARTNERSHIP II, LP, a
Florida limited partnership
By: /s/ Barry Fleck
------------------------------------
Its: Managing Partner
15
<PAGE>
Exhibit 4.3
-----------
DESIGN AUTOMATION SYSTEMS, INC.
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT (this "Agreement"), is entered into as of
February 18, 2000 by and among DESIGN AUTOMATION SYSTEMS, INC., d/b/a EpicEdge,
a Texas corporation (the "Company"); Carl Rose, Charles Leaver, Jeff Sexton and
Kelly Knake (together, the "Principal Shareholders"); Edgewater Private Equity
Fund III, L.P., a Delaware limited partnership ("Edgewater"), Aspen Finance
Investors I, LLC, a Colorado limited liability company ("Aspen"), Fleck T.I.M.E.
Fund, LP, a Connecticut limited partnership ("TIME"), Fleck Family Partnership
II, LP, a Florida limited partnership ("Fleck Family"), LJH Partners LP, a
Delaware limited partnership ("LJH"), Wain Investment, LLC, an Ohio limited
liability company ("Wain"), Gerald C. Allen, an individual ("Allen"), and John
Paul DiJoria, an individual ("DiJoria"; together with Edgewater, Aspen, TIME,
Fleck Family, LJH, Wain and Allen are sometimes collectively referred to herein
as the "Investors" and individually as an "Investor") (the Principal
Shareholders, the Investors and each person who assumes the obligations of a
Shareholder pursuant to Section 2.4 hereof are each individually referred to
herein as a "Shareholder" and are collectively referred to herein as the
"Shareholders").
W I T N E S S E T H:
WHEREAS, the Investors together own of record or beneficially 2,260,000 of
the issued and outstanding shares of common stock, $.01 par value, of the
Company (the "Common Stock"), and the Principal Shareholders in the aggregate
own of record or beneficially 11,835,660 shares of Common Stock as follows: Carl
Rose, 9,389,650 shares; Charles Leaver, 1,432,310 shares; Jeff Sexton, 300,000
shares; and Kelly Knake, 713,700 shares; and
WHEREAS, the parties hereto consider it to be in the best interests of the
Company, its business and of the Shareholders that the provisions of this
Agreement will determine various matters relating to the Common Stock owned by
the Shareholders.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
covenant and agree as follows:
ARTICLE I
VOTING, MANAGEMENT, ETC.
1.1 Voting. The Company's Articles of Incorporation provides that the
------
Common Stock shall entitle the holders thereof to one (1) vote per share on each
proposition submitted to
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shareholders of the Company for their vote thereon.
1.2 Control Agreements. It is agreed that the Principal Shareholders shall
------------------
(i) vote their shares of Common Stock and take all actions within their
authority necessary for the Company to comply with the provisions of Section
1.2(a)(i) hereof and Section 6.3 of that certain Stock Purchase Agreement of
even date herewith between the Company and the Investors (the "Purchase
Agreement") and take all necessary action to effectuate such provisions,
including without limitation, the increase in the size of and the election of
certain new members to the Board (as hereinafter defined) as required by Section
1.2(a)(i) hereof and Section 6.3 of the Purchase Agreement; and (ii)
collectively and severally vote the respective shares held by each for the
election of the Investor Representative or the Investor Representatives (as such
terms are defined herein), as Board members of the Company and shall undertake
or cause to be undertaken any and all of the actions within their authority
necessary in whatever capacity, including, without limitation, an amendment to
the Articles of Incorporation and By-Laws of the Company, if such action is
required, whether as a director, shareholder, officer or employee, so as to
provide for all the events described in Section 1.2(a)(i) hereof and Section 6.3
of the Purchase Agreement and for the following provisions:
(a) Directors.
(i) Designation of Directors. As soon as practicable but in no
event later than April 15, 2000, the Board of Directors of the Company (the
"Board") shall consist of seven (7) directors, and one (1) of whom shall be
designated by the Majority Holders (as such term is defined in the Purchase
Agreement) (the "Investors Representative"); provided, however, that in the
event the Investors own of record or beneficially less than 500,000 shares in
the aggregate of Investor Common Stock, such director slot shall no longer be
designated by the Investors. Upon the occurrence of an Event of Default (as
defined in the Purchase Agreement), the number of directors shall be increased
to eight (8) and two (2) directors shall be designated by the Majority Holders
(the "Investors Representatives"). The Investor Representative or Investors
Representatives, as the case may be, shall be a person reasonably satisfactory
to the Company. The Company hereby acknowledges and agrees that Aaron Fleck,
James Gordon, Bob Allison and/or Brian Thompson are acceptable Investors
Representatives.
(ii) Expenses. Each director will be reimbursed at each meeting of
the Board for his reasonable out-of-pocket expenses in attending such meeting
including a reasonable mileage allowance.
(iii) Meetings. The Board shall meet no less frequently than
quarterly.
(iv) Indemnification. The Company shall at all times maintain
directors and officers insurance coverage covering the Investors
Representative(s) and provide for indemnification of all of the directors and
officers under its Bylaws and by agreement satisfactory to the Investors.
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<PAGE>
(b) Compensation Committee. The Board shall have a compensation committee
authorized and elected pursuant to applicable Bylaws and resolutions. Such
committee shall vote on, and approve by majority vote, the compensation of all
officers and key employees, except that the Chief Executive Officer shall not
vote on his compensation.
1.3 Stock Option Plan. It is understood and agreed among the parties
-----------------
hereto that (i) the Board will continue to maintain a Stock Option Plan (the
"Stock Option Plan") pursuant to which the Board may from time to time grant
stock options to purchase Common Stock to employees, directors and consultants
of the Company, (ii) such issuances under the Stock Option Plan may constitute
up to fifteen percent (15%) of the issued and outstanding shares of Common Stock
on a fully diluted basis (and such shares of Common Stock have been reserved for
issuance under the Stock Option Plan), and (iii) such issuances will have a
dilutive impact on all shareholders of the Company. Any issuance of options
under the Stock Option Plan to any employees, directors and consultants of the
Company shall require the approval of the aforesaid Board or compensation
committee thereof.
ARTICLE II
RESTRICTIONS ON STOCK TRANSFERS
2.1 Applicable Definitions. For purposes of the provisions of this
----------------------
Agreement, the following definitions shall be applicable:
(a) "Investor Common Stock" means the Common Stock owned by the Investors.
(b) "Permitted Transferee" means a Transferee of Principal Common Stock in
a Permitted Transfer.
(c) "Permitted Transfers" means (i) the sale of up to 125,000 shares
Principal Common Stock in the aggregate owned by Carl Rose; and (ii) the sale of
up to 50,000 shares of Principal Common Stock in the aggregate owned by each
Jeff Sexton, Charles Leaver and Kelly Knake.
(d) "Principal Common Stock" means the Common Stock owned by the Principal
Shareholders.
(e) "Shares" shall include and refer to all Common Stock owned by the
Shareholders, individually and collectively.
(f) "Transfer" shall include a sale, transfer, or any other act whereby a
Shareholder's rights of ownership are sold, transferred, disposed of pledged,
hypothecated, encumbered, or in any way impaired or affected.
(g) "Transferee" shall mean a person to whom a Shareholder proposes to
Transfer Shares or to whom Shares have been transferred.
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<PAGE>
2.2 Restrictions on Sale of Shares by a Principal Shareholder. Except for
Permitted Transfers, no Principal Shareholder shall Transfer any Shares until
thirty (30) days after a registration statement with respect to the resale of
all of the Investor Common Stock, upon such terms and provisions as set forth in
that certain Registration Agreement of even date herewith between the Company
and the Investors (the "Registration Agreement"), becomes effective.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF SHAREHOLDERS
This Agreement is being entered into by the Company and each Shareholder in
reliance upon the following representations, covenants and warranties
respectively made by the Shareholders in favor of the Company and the
Shareholders.
3.1 Authorization. Each Shareholder represents and warrants that (a) this
-------------
Agreement, when executed and delivered by him, her or it, will constitute a
valid, legally binding and enforceable obligation of such Shareholder; and (b)
such Shareholder is not prevented by any legal requirement or agreement from
entering into this Agreement and performing such Shareholder's obligations
hereunder. The fulfillment of and compliance with the terms of this Agreement by
such Shareholder will not (i) conflict with or result in a breach of the terms,
conditions or provisions of, (ii) constitute a default under, or (iii) result in
a violation of, breach of or default under (a) any Shareholders' partnership
agreement (as applicable) or (b) any law, statute, rule or regulation to which
you are subject, or (c) any agreement, instrument, order, judgment or decree to
which such Shareholder is a party, bound or subject.
3.2 Sophistication, Financial Strength, Access, Etc. Each Shareholder
-----------------------------------------------
represents, warrants and acknowledges that, with respect to the Company, he, she
or it is an Accredited Investor (as that term is defined in Rule 501 promulgated
by the Securities and Exchange Commission under the Act), that he, she or it has
such knowledge and experience in business and financial matters as to be capable
of evaluating the merits and risks of the investment contemplated to be made
hereunder; that such investment bears a high degree of risk and could result in
a total loss of his, his or its investment; and that he, she or it have
sufficient financial strength to hold the same as an investment and to bear the
economic risks of such investment (including possible loss of such investment)
for an indefinite period of time.
3.3 No Broker or Finder. Each Shareholder represents and warrants that he,
-------------------
she or it has not engaged any broker or finder in connection with this Agreement
or the transactions contemplated hereby, except as set forth in the Purchase
Agreement.
3.4 Reiteration and Survival of Representations and Warranties. The
----------------------------------------------------------
representations and warranties of each Shareholder contained in this Article III
shall be true on and as of the date of this Agreement and shall survive the
completion of the transactions contemplated hereby.
ARTICLE IV
TRANSFER
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4.1 Legend on Share Certificates. All Share certificates issued to the
----------------------------
Principal Shareholders, shall have imprinted thereon a legend (in addition to
any applicable securities law legend to be contained on the Share certificates
issued to the Investors and the Principal Shareholders) substantially to the
following effect: "The sale, transfer or other disposition or pledge or other
encumbrance of shares represented by this Certificate is subject to a
Shareholders Agreement dated February 18, 2000 (the "Agreement"), among Design
Automation Systems, Inc. a Texas corporation d/b/a EpicEdge (the "Company"), the
Shareholder named on this Certificate and certain other parties named in the
Agreement, which Agreement includes certain restrictions on transfer and certain
options to purchase or sell the shares represented by this Certificate. A copy
of the Agreement is on file in the office of the Secretary of the Company and
may be reviewed by application thereto. Each holder hereof shall be bound by all
provisions of the Agreement." All Shares in the hands of persons or entities who
are parties to this Agreement and all Shares acquired by the Company or by
anyone else from parties to this Agreement or from the heirs, executors,
administrators, legal or personal representatives, successors or assigns of
parties to this Agreement by direct or indirect conveyance pursuant to the terms
hereof, shall be subject to all of the provisions contained in this Agreement
and to all of the restrictions on, and provisions relating to, voluntary or
involuntary sale, transfer or other dispositions of, and options to purchase or
sell, such Shares.
4.2 Private Offer; Transfer. Each Investor understands and agrees that:
-----------------------
(a) the Investor Common Stock may not be sold, transferred or otherwise
disposed of without registration under the Act or an exemption therefrom and
that in the absence of an effective registration statement covering the Investor
Common Stock or an available exemption from registration under the Act, the
Investor Common Stock must be held indefinitely. In particular, each Shareholder
is aware that the Investor Common Stock may not be sold pursuant to Rule 144
promulgated under the Act unless all of the conditions of that Rule 144 are met.
Each Investor represents that, in the absence of an effective registration
statement covering the Investor Common Stock, such Investor will sell, transfer
or otherwise dispose of the Investor Common Stock only (a) in accordance with
Section 2.3 hereof and (b) in a manner consistent with its representations and
warranties set forth herein and then only in accordance with the provisions of
Section 4.3 hereof; and (b) in no event will such Investor make a transfer or
disposition of any of the Investor Common Stock other than pursuant to an
effective registration statement under the Act, unless and until (i) the
Investor shall have notified the Company and shall have furnished the Company
with a statement of the circumstances surrounding the disposition, and (ii) if
applicable, the Investor shall have complied with the provisions of Article II
hereof.
4.3 Notice of Proposed Transfer. If, prior to any transfer or sale of any
---------------------------
Investor Common Stock, the Investor desiring to effect such transfer or sale
shall deliver a written notice to the Company describing briefly the manner of
such transfer or sale and a written opinion of counsel for such Shareholder
(provided that such counsel, and the form and substance of such opinion, are
reasonably satisfactory to the Company) to the effect that such transfer or sale
may be effected without the registration of such Investor Common Stock under the
Securities Act, the
5
<PAGE>
Company shall thereupon permit or cause its transfer agent (if any) to permit
such transfer or sale to be effected; provided, however, that if in such written
notice the transferring Investor represents and warrants to the Company that the
transfer or sale is to a purchaser or transferee whom the transferring
Shareholder knows or reasonably believes to be a "qualified institutional
buyer," as that term is defined in Rule 144A promulgated by the Securities and
Exchange Commission under the Act ("Rule 144A"), no opinion shall be required.
4.4 Termination of Restrictions.
---------------------------
(a) Notwithstanding the foregoing provisions of this Article IV, the
restrictions imposed by this Article IV upon the transferability of Investor
Common Stock shall terminate as to any particular share of Investor Common Stock
when (1) such Investor Common Stock shall have been effectively registered under
the Act and sold by the Investor thereof in accordance with such registration,
or (2) a written opinion to the effect that such restrictions are no longer
required or necessary under any federal or state securities law or regulation
have been received from counsel for the Investor thereof (provided that such
counsel, and the form and substance of such opinion, are reasonably satisfactory
to the Company) or counsel for the Company, or (3) such Investor Common Stock
shall have been sold without registration under the Act in compliance with Rule
144, or (4) the Company is reasonably satisfied that the Investor shall, in
accordance with the terms of Subsection (k) of Rule 144, be entitled to sell
such Investor Common Stock pursuant to such Subsection, or (5) a letter or an
order shall have been issued to the Investor thereof by the staff of the
Securities and Exchange Commission or such Commission stating that no
enforcement action shall be recommended by such staff or taken by such
Commission, as the case may be, if such Investor Common Stock is transferred
without registration under the Securities Act in accordance with the conditions
set forth in such letter or order and such letter or order specifies that no
subsequent restrictions on transfer are required.
(b) Whenever the restrictions imposed by this Article IV shall terminate,
as hereinabove provided, the Investor of any particular share of Investor Common
Stock then outstanding as to which such restrictions shall have terminated shall
be entitled to receive from the Company, without expense to such Investor, one
or more new certificates for such Investor Common Stock not bearing the
restrictive legend set forth in Section 4.1 hereof.
4.5 Compliance with Rule 144 and Rule 144A. At the written request of any
--------------------------------------
Investor who proposes to sell any of such Common Stock in compliance with Rule
144, the Company shall furnish to such Investor, within ten (10) days after
receipt of request, a written statement as to whether or not the Company is in
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule. For purposes of effecting compliance with
Rule 144A, in connection with any resales of any shares of Common Stock that
hereafter may be effected pursuant to the provisions of Rule 144A, any Investor
desiring to effect such resale and each prospective institutional purchaser of
such shares designated by such Investor shall have the right, at any time the
Company is not subject to Section 13 or 15(d) of the Securities and Exchange
Act, as amended, to obtain from the Company, upon the written request of such
holder and at the Company's expense the documents specified in Section (d)(4)(i)
of Rule 144A, as such rule may be amended from time to time.
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4.6 Non-Applicability of Restrictions on Transfer. Notwithstanding the
---------------------------------------------
provisions of Section 4.3 hereof, any record owner of Investor Common Stock may
from time to time transfer or recertificate all or a part of such record owner's
Investor Common Stock (i) to a nominee identified in writing to the Company as
being the nominee of or for such record owner, and any nominee of or for a
beneficial owner of Investor Common Stock identified in writing to the Company
as being the nominee of or for such beneficial owner may from time to time
transfer all or a part of the Investor Common Stock registered in the name of
such nominee but held as nominee on behalf of such beneficial owner, to such
beneficial owner, (ii) to an Affiliate of such record owner, or (iii) if such
record owner is a partnership or the nominee of a partnership, to a partner,
retired partner, or estate of a partner or retired partner, of such partnership,
so long as such transfer is in accordance with the transferee's interest in such
partnership and is without consideration; provided, however, that each such
transferee shall remain subject to all restrictions on the transfer of Investor
Common Stock herein contained.
ARTICLE V
MISCELLANEOUS
5.1 Amendments; Waiver. This Agreement may be amended only in a writing
which is executed by the Company, and all of the Shareholders.
5.2 Notices. Any and all notices or other communications required or
-------
permitted to be delivered hereunder shall be deemed properly delivered if (a)
delivered personally, (b) mailed by first class, registered or certified mail,
return receipt requested, postage prepaid, (c) sent by next-day or overnight
mail or delivery or (d) sent by telecopy or telegram, to the parties listed on
Annex 1, or to such other address or to the attention of such other Person as
the recipient party has specified by prior written notice to the sending party.
5.3 General.
-------
(a) Binding Effect. It is expressly agreed and understood that this
Agreement is not to be deemed strictly personal to the parties hereunder, but
this Agreement shall also inure to the benefit of and be binding not only upon
the said parties hereto but also upon their respective heirs, executors,
administrators, personal and legal representatives, successors and assigns, and
all parties hereto agree for themselves and for their said heirs, executors,
administrators, personal and legal representatives, successors and assigns to be
bound by all of the provisions hereof and to execute at any time any documents
or instruments which may be necessary or proper to carry out the purpose and
intent of this Agreement. Notwithstanding the foregoing, the rights of the
Investors set forth herein shall inure only to the benefit of the Investors and
their "Permitted Transferees" (as such term is defined in the Registration
Agreement).
(b) Governing Law. The internal law of the State of Illinois will govern
all questions concerning the construction, validity and interpretation of this
Agreement, notwithstanding the fact that one or more of the parties now is or
may become a resident of or domiciled in a different state.
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<PAGE>
(c) Superseding Agreement. This Agreement and all Exhibits hereto shall
supersede, revoke and nullify any and all agreements bearing prior date by or
between the Company and the Shareholders, or any of them, relating to or
restricting the transfer or disposition, whether voluntary or involuntary and
whether during their lives or at death, of any or all of the Shares. All such
agreements, and all promises, rights, duties and obligations established
pursuant thereto, are hereby rendered null and void. To the extent any notation
concerning this Agreement is deemed required in the By-Laws or Articles of
Incorporation of the Company, such notation shall be effected as promptly as
practicable hereafter.
(d) Counterparts and Gender References. This Agreement may be executed in
several counterparts (including by means of separate signature pages, which may
be attached hereto) by one or more of the parties, each of which shall be deemed
an original, and all of said counterparts (and signature pages) shall be deemed
to constitute or be part of one and the same instrument. One or more
counterparts of this Agreement may be delivered by facsimile, with the intention
that delivery by such means shall have the same effect as delivery of an
original counterpart thereof. All gender references shall be deemed modified to
fit the context.
(e) Severability. Should any particular provision of this Agreement be
adjudicated to be invalid or unenforceable such provision shall be deemed
deleted and the remainder of the Agreement, nevertheless, remain unaffected and
fully enforceable; further, to the extent any provision herewith is deemed
unenforceable by virtue of its scope but may be made enforceable by limitation
thereof, the parties hereto agree the same shall, nevertheless, be enforceable
to the fullest extent permissible under the laws and public policies applied in
the jurisdiction in which enforcement or interpretation is sought.
(f) Further Assurances. Upon request of the Company or any party hereto,
all parties hereto agree to promptly execute and deliver all such other
instruments and take all such other actions or any party hereto may reasonably
request from time to time in order to effectuate and carry out the purposes,
privileges, restrictions, rights and duties of the parties and other provisions
of this Agreement.
(g) No Waiver, Remedies Cumulative. No delay on the part of any party in
exercising any right, power or privilege under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude other or further exercise thereof, or the exercise
of any other right, power or privilege. Without limiting the generality of the
foregoing, nothing in this Agreement shall be deemed to preclude or be in lieu
of any right or remedy that any party may have at law or in equity or by statute
or otherwise against the Company or any other person based upon any fraud
(whether or not the matter to which the fraud related also constitutes a default
hereunder).
(h) Headings; Exhibits. The headings or other subdivisions in this
Agreement are intended solely for convenience or reference and shall be given no
effect in the construction or interpretation of this Agreement. All Exhibits
attached hereto are deemed incorporated herein by reference.
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(i) Specific Performance. The parties hereby declare that it is
impossible to measure in money the damages which will accrue to a party hereto
by reason of a failure to perform any of the obligations under this Agreement
and that a breach hereof shall cause irreparable injury and, in addition to any
other right or remedy available to the parties hereto at law or in equity, any
injured party hereunder shall be entitled to enforcement by court injunction or
specific performance of the obligations of the Shareholders hereunder, without
the necessity for posting a bond. Notwithstanding the foregoing sentence,
nothing herein shall be construed as prohibiting any injured party hereunder
from also pursuing any other rights or remedies for such breach or threatened
breach, including receiving damages and attorneys' fees. The election of any
remedy shall not be construed as a waiver on the part of any injured party
hereunder of any rights such party might otherwise have at law or in equity,
which rights and remedies shall be cumulative.
5.4 Termination. This Agreement shall terminate and be of no further
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force and effect upon the thirtieth (30th) day after a registration statement
with respect to the resale of all of the Investor Common Stock, upon such terms
and provisions as set forth in the Registration Agreement, becomes effective.
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Shareholders' Agreement Signature Page
IN WITNESS WHEREOF, the Company and each of the Shareholders have signed this
Agreement, all on the day and year first above written.
DESIGN AUTOMATION SYSTEMS, INC., LJH PARTNERS LP, a Delaware limited
a Texas corporation d/b/a EpicEdge partnership
By: Lamont Partners, LLC
By: /s/ Charles H. Leaver, Jr. Its: General Partner
---------------------------------
Its: President
By: /s/ Douglas S. Luke
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Its: Managing Member
EDGEWATER PRIVATE EQUITY FUND WAIN INVESTMENT, LLC, an Ohio
III, L.P. limited liability company
By: Edgewater III Management, L.P. By: /s/ Norman Wain
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Its: General Partner Its: Managing Partner
By: Gordon Management, Inc.
Its: General Partner /s/ Gerald C. Allen
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Gerald C. Allen
By: /s/ James Gordon
---------------------------------
Its: President
ASPEN FINANCE INVESTORS I, LLC, a /s/ John Paul DiJoria
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Colorado limited liability company John Paul DiJoria
By: /s/ Howard S. Cohen /s/ Carl Rose
--------------------------------- ------------------------------
Its: Manager Carl Rose
FLECK T.I.M.E. FUND, LP, a Connecticut
limited partnership /s/ Charles Leaver
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Charles Leaver
By: /s/ Kathryn Fleck
---------------------------------
Its: Managing Partner
/s/ Jeff Sexton
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FLECK FAMILY PARTNERSHIP II, LP, a Jeff Sexton
Florida limited partnership
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By: /s/ Barry Fleck /s/ Kelly Knake
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Its: Managing Partner Kelly Knake
11
